To placate a war-weary population, Russia has doled out billions of dollars of cheap loans for its citizens to buy new homes. That money is now creating an economic headache that few predicted: a fast-building housing bubble. A debt-fueled surge in housing prices, along with fast-rising inflation, has exposed stark divisions among Russia’s leaders even as the battle rages on in Ukraine.
On one side is the hidebound central bank, tasked with maintaining financial stability. On the other is the Kremlin, which is trying to shore up popular support ahead of the 2024 presidential election. President Vladimir Putin last week said he plans to extend a popular mortgage program, which offers discounted rates to families with children, through the end of next year.
Russian Central Bank Gov. Elvira Nabiullina meanwhile has called for winding down parts of the subsidized mortgage programs and warned they were undercutting the central bank’s efforts to cool demand and inflation. The central bank last week raised its key interest rate to 16%, more than double where it stood in June.
“If the government does not make [subsidized mortgage programs] limited and targeted…the effect of the key rate on the economy will notably weaken and, consequently, we might need to keep the rate higher for longer," she said. The central bank and the finance ministry didn’t respond to requests for comment. Russians have long been skeptical of mortgages, referred to colloquially as “debt bondage" in Russian, and prefer to own outright.
That began to change in 2020, when the government offered subsidized mortgages to buy newly-built homes as a pandemic support measure. Interest in the program has been turbocharged since Russia invaded Ukraine. After an
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