Russia is trying to make ‘Investing in People’ more than just a slogan, with human capital at the heart of the revised 2009 budget.

Upgrading the housing stock and building affordable homes is not just a social goal. It can boost the whole construction industry. A brand-new housing complex in the Southern city of Astrakhan is one example of social funding. Sergey Agabekov, Deputy Construction Minister of the Astrakhan Region, is hoping that more such projects follow in its footsteps.

“The situation on the construction market here is of course difficult as in many other regions. The share of private capital is now much lower. This housing complex for people from shabby dwellings was built with state money which we received in previous years. We hope the state won’t stop funding.”

Russia’s regions are heavily dependant upon the centre. To carry out social projects they need injections from the budget. With housing a state priority, Prime Minister, Vladimir Putin, insists the money will come.

“Federal support of the regions has been increased by 36% in the new version of the budget. A total of 1.3 trillion Roubles will be issued to help the regions carry out social programmes.”

The Astrakhan project is state-financed, but others are earmarked for private capital. The trouble is, most developers face liquidity problems and are cutting back.

Low construction volumes, high prices and a lack of private money – this Gordian knot makes some experts think that Russia’s housing market is on the brink of collapse. Others say, just a few bricks are needed to lay a proper foundation. Developers need to cut prices by at least 10%, banks should slash mortgage rates and then people will start buying again.

State spending on house building could be a boost for local industry – and for new production techniques, according to Abubakar Arsamakov, President of the Moscow Industrial Bank.

“We use new technology which makes the construction cheaper and dwellings more affordable. We want to spread this technology across the whole Southern Russia with an estimated amount of investment of 200 million euros.”

In the past, international institutions have said Russia needs to invest more in people. In a global crisis, it is clear that raising living standards is a key to economic revival.