Minister: State support of building reconstruction needs analysis

Jaak Aab (Center). Source: Siim Lõvi/ERR

Currently there exists no analysis regarding the reconstruction of which buildings the state should support and in what cases the state support thereof is economically reasonable, Minister of Public Administration Jaak Aab (Center) said.

The Ministry of Economic Affairs and Communications is currently drawing up a long-term strategy for building reconstruction. Aab, however, believes that there is insufficient analysis regarding how much the state should even support such renovations, and what the economic and environmental impacts thereof would be.

"In order to plan the size and feasibility of state measures, it should first be analyzed what the development of the private sector's reconstruction activity would look like in Estonia if such support measures did not exist altogether," Aab wrote to Minister of Economic Affairs and Infrastructure Taavi Aas (Center).

Aab believes that once such an analysis is complete, it could be considered whether and to what extent the state should support the reconstruction of buildings as well as assess the economic impact and feasibility of this support. For example, it could be assessed whether intended energy efficiency savings compensate for renovation costs and how high the cost of achieved reductions in carbon dioxide emissions is for the state.

"In the case of smaller spaces, for example, reconstruction may not be economically viable and/or the carbon dioxide costs of carrying it out may not be comparable to the carbon dioxide savings," he noted. "The carbon dioxide costs of reconstruction requires an impact analysis."

According to the public administration minister, reading the current strategy leaves one with the impression that the reconstruction of all housing and buildings in Estonia is the responsibility of the state, despite the fact that 97 percent of dwellings and 70 percent of non-residential buildings are privately owned.

"Thus reconstruction work is also largely the responsibility of the private sector," he said. "There are no significant market failures in the financing of real estate reconstruction with the help of loan capital in the Estonian finance sector either."

The state, he believes, should only invest where the private sector cannot cope on its own.

Aab also noted that the assessment provided in the strategy that it is the state's responsibility to increase the volume of detached house reconstruction by nearly 13 times should be viewed with caution.

The population affairs minister believes that instead of financial support to market economy projects, preference should be given to the sharing of instructional materials as well as digital tools and guarantees. Direct support, he noted, should be last in a line of measures.

He likewise found that a precise analysis is needed of how much additional tax revenue the state measure would generate.


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Editor: Aili Vahtla

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