Russian Housing Construction Declines by 2.4% in First 11 Months of 2025 Amid Economic Headwinds

Overall Decline Reported by Rosstat

The Russian Federation experienced a 2.4 percent year-on-year decline in housing construction during the first 11 months of 2025, as reported by the Federal State Statistics Service (Rosstat). The total volume of housing constructed amounted to 91.5 million square meters. This downturn reflects broader economic challenges impacting the country's construction sector.

Despite the overall decrease, Rosstat data indicated a significant surge in November, with housing construction increasing by 27.1 percent year-on-year to 7.98 million square meters.

Key Factors Contributing to the Downturn

Several interconnected factors have been identified as drivers behind the contraction in Russia's housing construction sector:

• High Mortgage Rates and Reduced Subsidies: Decreased demand for housing is largely attributed to high mortgage rates, which averaged around 25 percent, and the cancellation of state-subsidized mortgage programs. The Central Bank's key interest rate has been as high as 21 percent, making borrowing more expensive for potential homebuyers.
• Rising Material Costs: The industry has faced increasing prices for construction materials, partly due to heightened demand from Russian companies for imported materials and an acceleration in inflation.
• Labor Shortages: A significant challenge has been a shortage of skilled labor, with reports indicating that 85 percent of construction companies experienced worker deficits in 2024.
• Impact of Sanctions: Western sanctions have led to the exit of foreign design and engineering firms from the Russian market and created problems with imported software, limiting access to Western technologies.

Broader Economic Context and Regional Impact

The deepening crisis in the construction industry is also linked to wider financial issues within the population, including declining real incomes and accelerating inflation. Public finances have increasingly been redirected towards military efforts, sidelining investment in non-military sectors and infrastructure development.

In the first quarter of 2025, new housing projects saw a substantial 24 percent drop compared to the same period in 2024. Notably, Moscow and the Moscow region experienced an even more severe decline, with a 51 percent decrease year-on-year.

Future Outlook and Challenges

Analysts warn that Russia could face a significant housing shortage by 2027, potentially reaching a shortfall of up to 30 million square meters of housing. The downturn is expected to persist through the end of 2025 if the Central Bank maintains its high key interest rate and sales remain low. Even if interest rates were to fall to 7.5-8.5 percent by 2027, the industry might not recover quickly enough to meet demand.

The challenges facing the Russian housing construction sector highlight the complex interplay of economic policies, geopolitical factors, and market dynamics that are shaping the country's development landscape.