You are here

Center for Economic Policy Research: Rebuilding cities in Ukraine

July 8, 2023

Presuming that Ukraine successfully reclaims most or all of its lost territories from Russian occupation,
there will be a political drive to bring refugees back to their hometowns and to rebuild destroyed cities.
This column highlights the challenges this may pose, particularly for cities in the east of the country.
Strategically placing government institutions in these cities may attract residents there and spur long-
term growth, but they will also need to made more appealing places to live, for example through
improved housing stock and transportation.

The destruction of cities and major migration away from war-torn areas pose many challenges for the
post-war reconstruction of Ukraine (e.g. Constantinescu et al. 2022). Presuming that Ukraine
successfully reclaims most or all of its lost territories from Russian occupation, there will be a political
drive to bring all refugees back to their hometowns and rebuild destroyed cities. Yet, as we discuss in
our recent chapter in the CEPR eBook, Rebuilding Ukraine: Principles and Policies, the economic reality is
more complex, and simply going back to pre-war conditions may be neither possible nor desirable
(Green et al. 2022).

We are optimistic that Ukraine can rebuild its cities. After all, for the entirety of human history,
civilisations have rebuilt their cities – Rome after it was sacked by the Gauls; London and Chicago after
great fires in 1666 and 1871; San Francisco after its great earthquake and fire of 1906; Berlin and Tokyo
in the aftermath of WWII; Seoul after the Korean War; and Sarajevo in the aftermath of the Balkan
Wars. Cities that have been substantially destroyed have returned to their economic and cultural
dominance within a few decades – short periods within the context of modern history. Even cities
recovering from near total destruction, such as Hiroshima and Nagasaki in 1945, fairly quickly returned
to their growth trajectory (Davis and Weinstein 2022). So, history gives us some reason for optimism
about the prospects of rebuilding cities in Ukraine.

Yet Ukraine’s cities are different from many of the cities listed above. Ukrainian cities are poor by
modern standards, and especially modern European standards. Even before the Russian annexation of
Crimea and the invasion of eastern parts of Donbas in 2014, Ukraine had seen its per capita GDP fall to
the second lowest in Europe, and by 2021 it had fallen behind Moldova to have the lowest GDP in
Europe. Moreover, the cities in the Ukrainian east, the traditional industrial heartland, have been
shedding jobs for years due to structural transformation and weakening trade with Russia. Cities such as
Kharkiv and Mariupol have the problems that any rustbelt cities – let alone rustbelt cities based on
Soviet industry – have. Adding to Ukraine’s woes, its economy suffers from a shrinking population. The
population was declining even before the war due to low fertility and emigration, but the problem may
get worse as some of the millions of international refugees may not return after the war.

We also must deal with the geopolitical reality that even though Kyiv is clearly the most productive and
fastest-growing place in Ukraine, the nation’s future depends on having
healthy cities in the east of the country. For political and social reasons, Ukraine needs to rebuild cities
such as Donetsk, Mariupol, and Kharkiv. Yet, many of them will emerge smaller than they were before
the war. There are examples of industrial cities that shrunk successfully (Pittsburgh) and others that
have not (Detroit). Successful cities have transformed their economic bases and maintained high-quality
government services.

That said, in the short to medium term, the private sector will probably not provide sufficient
employment to make Kharkiv and Mariupol attractive places for refugees to return to, let alone become
places for new migrants. However, the Ukrainian government can locate its back-office functions nearly
everywhere. This is how the Canadian, British, and US governments provide economic assistance to
places that are not economically competitive and, in doing so, raise living standards in these places. We
also note that literature shows universities and medical centres are strong engines of economic
development (Liu 2015). Strategically placing such institutions in eastern cities may attract residents
there and spur long-term growth. The recent work-from-home revolution also offers some
solutions. High-amenity cities in the east and the south, such as Berdyansk, may reinvent themselves as
hubs for remote workers who can perform jobs for firms in Kyiv or Lviv, while enjoying the beach.
Jobs will not be enough to attract people to eastern and southern Ukrainian cities, they will also need to
be appealing places to live. On the one hand, these cities have good ‘bones’, with classic urban
forms. However, they will need restoration and replacement of the housing stock, much of which is
energy-inefficient, unattractive Soviet-era multifamily blocks. They also need improvements in
transportation infrastructure, much of which was inherited from Soviet times. On top of that, Ukraine’s
cities are highly polluted, and decarbonisation efforts will go a long way to making them more attractive
places to live.

Full replacement of old housing stock will take a long time, but Ukraine can start now by focusing on
providing housing for displaced populations. We propose that Ukraine provide vouchers to owners of
damaged or destroyed houses and flats. These vouchers would be based on the pre-war values of the
units. Such a programme would allow people to move where they wish into the type of housing unit
they want. While vouchers are an efficient and effective way to house people, in order for them to work
to fund new construction, Ukraine will need to develop a transparent and reliable homebuilding industry
and a functioning land market. In developed countries, the construction finance system imposes
discipline on real estate developers – they are not permitted to draw funds until they submit invoices
documenting purchases of materials and payment of labour. Yet Ukraine’s housing finance sector is also
underdeveloped. Urban land markets are controlled entirely by local governments, with land allocated
in a non-market fashion, often based on political and nepotism considerations. Reforming the land
market to have leaseholds sold in an open, competitive, and transparent fashion would move land use
to a much more efficient regime and encourage private development.

Transportation improvements would make cities more liveable. Soviet cities were not built for cars but
for pedestrians and transit users. Even in 1983, car ownership in the Soviet Union was just 32 per 1,000
people. In 2020, car ownership in Ukraine was nearly eight times as high but road infrastructure has
seen only limited improvements in the last few decades. As a result, traffic congestion is a major issue
in Ukraine’s large cities. One recent study found that the Kyiv metropolitan area is the 39th most
congested in the world, despite not being among the world’s top 100 largest metro areas (Akbar et al.
2022). While we strongly support improvements in public transit, we believe that if Ukraine’s cities are
to function as modern cities, they need to adapt to a world of greater automobile use.
Reconstruction presents an opportunity to construct some type of radial, and for larger cities,
circumferential (ring roads) major arteries that will help people and goods move through the city.
Ukraine should also build and improve parking facilities, which are severely lacking in its major
cities. Inter-city transportation also requires upgrades. Ukraine’s road and rail networks are dense but
not modern. The country needs a limited-access highway network comparable to the rest of Europe and
standard gauge railroads to link to the West.

Finally, Ukraine needs to track its reconstruction progress but has unusually poor-quality data, even
compared to many developing countries. Creating publicly available data on real-time indicators of
urban reconstruction and local quality of life will create accountability incentives and help cities
benchmark their relative progress.

The original article can be found here.