Old Houses

We live on a street of old houses. Our house has been renovated, and it's very nice. Most of the houses haven't, though, and a lot of them are falling apart from decades of deferred maintenance. We're not just talking peeling paint here. There's a house across the street whose top floor has been abandoned for years; pigeons fly in and out of the open windows. It's sad, especially since it's a gorgeous old building. But there are dozens like it in our neighborhood, and tens of thousands more across Romania. So why are these houses in such miserable condition?

1) Lack of money. Renovation isn't cheap, and few people have the large sums of money -- tens of thousands of dollars -- needed to do it right. The banking sector here is only mildly interested in housing loans, and most Romanians are in the credit history trap (viz., they can't get loans without a credit history, and they can't build a credit history without loans). In general, ordinary Romanians have a much, much harder time getting access to capital than Americans. So they can't do much except maybe save for years and years, while their houses continue to decay. 2) Lack of clear title. Who wants to sink money into fixing up a house that you don't have clear title to? (a) Lack of clear title because of bad title records, title challenges, and legal messes going back to the Communist days. This has improved a bit in recent years, but is still a problem. Resolving a title challenge in Romania's creaky, overloaded court system can take years. (b) Lack of clear title because the property was nationalized under Communism, and the former owners want it back. That's a problem all over Romania, but it's a particular problem in our neighborhood. In the 1920s and '30s, this area was discovered by Bucharest's upper middle class; it was at the edge of the city then, but still an easy tram or bus ride to downtown. The big houses, with their balconies and gables and gardens, were built by Bucharest's doctors and lawyers and businessmen. In other words, exactly the sorts of people that the Communists particularly liked to dispossess. About a third of the houses in our neighborhood still have the little metal plates -- "I.A.L" -- of the old Communist Housing Authority. These were simply taken away from the former owners and (usually) given to the use of deserving party members. Many more houses were not formally confiscated, but were turned to Party use anyhow... forced sales by the owners, eviction, you name it. Now, since 1996 the old owners (or their descendants) have had the legal right to sue for recovery of those properties. In theory. In practice, it's been very difficult for people to get their houses back; of about 200,000 claims, less than 15,000 have reached any sort of resolution. Part of the reason for this is that successive Romanian governments have not been committed to restitution. The vaguely center-right coalition government in power from 1996 to 2000 was lukewarm about it in theory, sluggish and confused in practice. Then, the Iliescu/Nastase Social Democrat government was deeply unenthusiastic about the whole thing. Former President Iliescu said on several occasions that he didn't see why "those people" should be entitled to anything. The Nastase government paid lip service to the idea, but in practice dragged its feet; petitioners were compelled to run a formidable gamut of appeals and retrials, decisions were regularly annulled and remanded, and the evidentiary and procedural requirements were periodically reshifted to start the process over again. All this in a court system that's one of Europe's weakest and (allegedly) corrupt to begin with. Still, a few people got favorable decisions. And a few more went outside of the box, and appealed to the European Court of Human Rights in Strasbourg. To the government's embarassment, the ECHR began delivering a steady stream of decisions in favor of petitioners, compelling the government not only to hand over the properties but to pay the petitioners' legal costs as well. Mind, this may still have been a good outcome from Iliescu/Nastase's point of view. Sure, they lost fifteen or twenty highly publicized cases at the ECHR. But they probably dissuaded or defeated hundreds, if not thousands, of potential claimants. So, from the narrow perspective of keeping the properties in the hands of the government -- or of the new owners, who are probably former Party members, and so likely to be Iliescu supporters -- the policy could be considered a success. But it's left dozens of houses around our neighborhood -- and tens of thousands more across the country -- with clouded titles, still subject to lawsuits that look good for years to come. And the new government, in office since December? Well, they do have a new idea on dealing with the problem, yes. More on this in a bit.

Comments

[Bernard Guerrero]

Now you're speaking my language. Anybody over there write title-insurance policies? I imagine that, even if available, the premiums would have to be pretty ugly. Might be a model for spreading the risk, though.

[Frank O'Connor]

A further problem is the issue of consolidation. There isn't much point in merely renovating a building if it also has to be consolidated. This is compounded by the fact that many houses are broken up into seperate apartments with different owners - so even getting an agreement on the issue can a lot of time and effort.

[Doug M.]

Hi Bernard,

Nope, no title insurance. Maybe in another couple of years. And yes, the lack of TI adds to capital costs, but not by nearly as much as you might thing. (Might be time for another post on the strange state of the banking system.)

Frank, good point -- I should have mentioned that. Many of the big old houses in our neighborhood have been broken up into multiple apartments. Our own house has three... the landlords live upstairs, the landlady's mother lives in the basement.

Doug M.