Determining the optimum municipal infrastructure development contribution scheme

The main purpose of this survey is to determine and offer an optimal and transparent administration mechanism of construction licenses related to funding of development and renewal of city infrastructure, in accordance with laws of Ukraine and reflecting international best practice.

Now the Law of Ukraine “On regulation of urban development” entrusts builders with responsibility to pay costs linked to participation in infrastructure development in the construction or renovation of real estate. However, fulfilment of this obligation is complicated by administrative procedures based on often flawed estimations and with dysfunctional payment procedures for this charge. This leads to corruption as a way to bypass mandatory procedures, reduces Ukrainian cities’ investment attractiveness and, as a result, causes losses of city funds through inter alia poor business conditions in the construction and renovation of fixed assets, payment delinquency and additional municipal costs for administration and payment control.

Meanwhile, there is no such policy in most European Union countries and other developed nations. There, local authorities are trying to reduce administrative charges and time required for the administration of permits in order to boost business, enable competition in the construction market, reduce building costs and attract investments in real estate.

The average cost of administrative support of the building process in Organisation for Economic Co-operation and Development (OECD) member countries is 1.7% of the estimated total cost of construction. In Central and Eastern Europe, the average cost of construction licensing procedures is 0.225% of construction costs. At the same time, the cost of administration licensing procedures in Ukraine is 15.2% of the estimated cost of real estate, which is the eleventh highest figure anywhere in the world.

That is why, at this stage, the main task for local authorities in Ukraine is generation of a modern approach to the regulatory environment in construction, which will destroy abusive practices in this area, provide sustainable financing of city infrastructure and contribute to the growth of freedom in the construction market, thus stimulating renewal of real estate.