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Urbanization in Kazakhstan

Desirable cities, unaffordable housing, and the missing rental marke

Monday 23 July 2018, by Catherine BISSON-SERIAN

Kazakhstan’s cities are hubs of economic opportunity and prosperity. But despite the government’s ambitious targets, the pace of urbanization remains slow. This study focuses on two key constraints: (i) the very high cost of living in Kazakhstan’s cities, and (ii) the near absence of a rental housing market outside the capital, Astana.

Urbanization in Kazakhstan (PDF)
Seitz, William Hutchins. 2018. Urbanization in Kazakhstan : desirable cities, unaffordable housing, and the missing rental marke (English). Policy Research working paper; no. WPS 8530. Washington, D.C. : World Bank Group.
(Click to download)

The findings of William Seitz in its report to World Bank show that the two urban centres of Almaty and Astana are 190 and 240% more expensive to live in than the national average. According to him, housing is the primary driver of the disparity: after adjusting for inflation, housing costs tripled in Astana and quadrupled in Almaty between 2001 and 2015. As a result, housing costs for the local population in these areas are more unaffordable than famously exclusive cities such as San Francisco and Vancouver.

Hence, Seitz argues that demand elasticities from 2015 imply that in the current environment, rural and low-income households are especially unlikely to relocate to high-priced areas where employment prospects are better and average incomes are higher.

Regional convergence in wage rates remains slow, but appears to be proceeding most quickly in Astana, where rental housing is most prevalent. The findings suggest to the author that high rates of home ownership and the high cost of living in cities lead to exclusion of lower-income households and restrain economic growth.

Conclusions of the author

Constraints to internal migration are a crucial factor for Kazakhstan’s future economic growth. Cities are commonly the divers of economic growth and diversification in middle-income countries, and without a large and growing pool of workers located in cities, theory and global experience suggest that businesses will struggle with the trade-off between the benefits of agglomeration and high labour costs.

Providing basic services including water, electricity, education and health care is substantially more expensive in rural areas, and if a large share of the population in Kazakhstan is priced out of living in cities and remains in rural areas, they will remain costlier to serve.

Access to transportation is also a common concern for densely populated areas, as congestion can lead to larger premiums paid for transport-accessible housing in cities, or higher costs for personal modes of transportation. For the poor and middle class, this can mean accessing more remunerative jobs in cities requires long and costly commutes from outside urban areas.

Supporting the creation and expansion of a rental housing market is a core recommendation of the latest OECD assessment of the country’s urbanization strategy (OECD, 2017). Registration requirements such as the propiska system in many former Soviet countries have also contributed to underperformance in rental markets.

Urban growth commonly leads to poverty reduction and improved access to basic services, and urbanization in Kazakhstan would very likely contribute to improving standards of living. However, the acute divergence in the cost-of-living in urban areas relative to the countryside is a threat to Kazakhstan’s growth strategy and will inhibit the country from achieving key development objectives.

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