In recent weeks I’ve had cause to look at Moscow property prices.
There are basically three major socio-economic regions in Moscow:
- The center – Upper middle class, very high property prices (300-400,000R/sq m), cosmopolitan, tilted against Putin and towards liberal parties like Yabloko, full of cafes with Macbook toting hipsters, do not discriminate against immigrants when renting out their properties (presumably because its not like Central Asian Gastarbeiters can afford the prices there anyway).
- The south-west and west – Middle class, moderately high property prices (200,000R/sq m), tilted against Putin and towards liberals and Communists. This region traditionally hosted a large percentage of Moscow’s academic/R&D institutions and hi-tech factories, so the locals tend to be engineers and technicians and their well-educated children.
- The east, south and north – Lower class, low property prices (150,000R/sq m), tilted towards Putin and especially the nationalist LDPR, majority proles – though very few work in factories, with a significant contingent of lumpenproles (one woman in my flat died from a drug overdose a few weeks ago) with a growing immigrant presence.
Whereas you see many Central Asians in the center of Moscow, there they are almost inevitably doing street sweeping or construction work, whereas in the outskirts there many of them start appearing out of work uniform. Most of them actually live in the cheaper outskirts, and are increasingly buying up property there. This is accompanied by ethnic tensions. One such region, Biryulyovo – which has Moscow’s second lowest property prices – was the site of a small race war back in 2013 provoked by the murder of a Russian by an immigrant. That said, it’s (still) a long way from the yearly “fireworks” you have in Paris.
In the meantime, I also suspect that many of the more successful locals from the prole areas are making their way to more prestigious regions. In the USSR, you tended to live where you worked (your apartment was assigned to you). With a free market in real estate, the way is clear for the sort of “cognitive clustering” that you see throughout the US and Europe, where the brightest, richest, most successful (all inter-correlated) converge onto good neighborhoods close to the center, while the duller and less successful elements are left behind in the Biryulyovo banlieues.
(Incidentally, this cognitive stratification is a microcosm of Russia as a whole – the average IQ in Moscow is ~106, versus ~96 in the rest of the country).
Here is a graph that I think supports this interpretation (left: Rubles / sq m, right: USD / sq m).
Vykhino and Zhulebino (blue, orange) are classic prole regions – at 120,000R per sq m, they are marginally more upscale than Biryulyovo, but only just. Sokol (red) is a solidly middle-class region, and contains two universities and an industrial museum within its boundaries. Its average property price is 200,000R per sq m. Tverskaya (green) is a super-elite central region that hosts many of Moscow’s tourist landmarks, including the Bolshoi Theater; property prices there are a cool 400,000R per sq m.
But the trend is even more interesting – note the steady stratification of property values of Sokol and Tverskaya relative to prolecore Vykhino-Zhulebino. Even as early as 2013, Sokol was only about 40% as expensive, whereas today it is more than 60% as expensive. The differential between Vykhino-Zhulebino and Tverskaya has increased from being twice as expensive a decade ago, to almost four times as expensive today.
(This isn’t due to any particularities of the chosen regions – the trend for the prole South-East as a whole relative to the middle-class South-West and the elite Center matches the specific example above).
Nor do I think this is likely to change anytime soon. This differential in real estate prices is now approaching what you see in both Paris and London (see right), both of which are far more advanced on the diversity (and financialization/cognitive clustering) front than Moscow.
This isn’t great for me personally. For instance, while it was still possible to leverage my apartment, which is in one of the crappier regions, to jump into the center a decade ago and maybe 5 years ago, it’s no longer so realistic today. I suppose I should hurry up while regions like Sokol are still within reach.
I suspect these differentials will continue widening in the years ahead. Immigration will continue, and might intensify as the Russian economy emerges out of recession. Cognitive clustering has a momentum of its own and isn’t going to run out of steam anytime soon.
Finally, I suspect that the advent of driverless cars in one or two decades will produce another major uptick in housing prices in the central regions of the world’s metropolises. One of the few major downsides of life in big cities is that traffic congestion costs go up 34% with every doubling of the urban population. The much greater efficiency of driverless cars should largely nullify those costs, turbocharging property prices in big cities and especially the central, already very expensive cores of the big cities even further.
I am obviously not in the business of giving financial advice. That said, even all else equal, I suspect that in Russia as in most of the Western world, people who move to the big cities – especially the expensive, prestigious regions where high property prices form an effective wall against vibrant diversity – will do financially better than those who stay in the outskirts.