Opinion: How to enable Ukraine's reconstruction

Since the Russian invasion of Ukraine in February last year, many thousands of lives have been lost. There has also been extensive damage to urban and rural property, and significant population displacement, though the scale of the damage is difficult to assess.

Many people have been forced out of their homes, and had to abandon their livelihoods as the invading forces inflicted widespread damage before occupying parts of eastern and south-eastern Ukraine. Some people migrated to other parts of the country, while others left altogether.

The physical damage to buildings and infrastructure throughout the country is estimated at more than US$135bn. The most affected areas are:

• housing, at 37% 
• transport, 26% 
• energy, 8% 
• commerce and industry, 8% 
• agriculture, 6%. 

The World Bank also recently noted 'dramatic setbacks' in the country's progress towards the UN Sustainable Development Goals because of the human impact of the war, putting more than 7m people into poverty – although the Ukrainian government's number is 3.9m – and setting the country back 15 years in terms of development.

The war will necessitate a reconstruction effort on a scale unprecedented since the Marshall Plan after the Second World War. Indeed, strategic planning and the effort to secure international financial resources for reconstruction have already started.

The stated aim of the conference was to mobilise 'international support for Ukraine's economic and social stabilisation and recovery from the effects of war, including through emergency assistance for immediate needs and financing private-sector participation in the reconstruction process'. But before multibillion-dollar contracts are signed, the terms under which such contracts are awarded must be understood.

The summit therefore aimed to connect Ukraine to international governments and advisers. Following the URC a few strategic documents have been published, but it is hard at the time of writing to judge how far plans have moved on since last year's Lugano papers. For international contractors, the focus will be procuring infrastructure and construction contracts to restore Ukraine's capacity to function normally.

But for many Ukrainians, the reconstruction effort is closely related to the nation's future economic and social performance. It is also linked to the EU integration process, which has a new impetus since candidate status has been granted to the country.

Reconstruction projects must consider how land has been and is currently owned and occupied under the Ukrainian legal system. What is the historical background to landownership? What documentary evidence of that ownership is there, and how many different types of right exist?

There is also the question of legacy issues that may remain from the Soviet period, which could be resolved as part of the reconstruction process. What opportunities might there be for a more equitable distribution of land than before the war?

Land relations underpin most physical aspects of the economy and society in the shape of legal frameworks, public understanding and informal traditions; these may have a particular influence on the way many aspects of reconstruction will be carried out. In cities and smaller settlements in Ukraine, such relations differ from those in Western Europe after the Second World War.

Until the USSR collapsed in 1991, all land in the country was state-owned – according to paragraph 11 of Soviet Ukraine's 1978 constitution, it was a 'shared property of the entire Soviet nation'. In the 1990s, land began being privatised across the country. This process mostly affected rural agricultural land and any land attached to privately owned detached houses. The latter had been bought and sold on the open market since the early 1990s.

Some agricultural land was also sold to former members of kolkhoz or sovkhoz – types of collective or state-owned farm – but this land could not be sold on or pledged until recently. The remaining agricultural land was government-owned.

While small farmers or large agricultural producers rented private and government land alike, these tenants had no interest in improving the land because no one invested in it. This constrained the development of the agricultural land market. The Ukrainian parliament therefore legislated to open the market in July 2021.

Prof. Andriy Martyn, senior project manager for land reform at the government's Reforms Delivery Office, estimates that most land in the country is now privately owned, and is primarily agricultural or belongs to families living in detached houses. About 30% of land – mostly urban – is state or municipal property. The official statistics for 2018 showed a split between 52% that was privately owned, and 48% owned by the state or municipality.

A limited amount of urban land is leased, bought and sold by individuals and businesses. The more substantial amount belongs to the state or local councils, and can only be sold through auctions or leased. However it is acquired, though, the local council controls its use, which is determined by zoning in planning documents and by granting planning permissions.

In practice, the process by which developers acquire private or leasehold property is perceived as opaque. It has created a situation where city councils are seen as being controlled by developers' interests.

Developers foster close relationships with elected local deputies in the expectation of acquiring land for property or long-term leases on beneficial terms. This means local development interests may exert more influence on the municipality than the community itself.

Such a relationship between councillors and developers is common across Ukraine. The bigger the city, the more obvious is the developers' intention to control land by influencing the development market and planning permissions. In the context of urgent post-war reconstruction these relationships are likely to intensify, building on expectations of rising land prices and land rents.

Agricultural production now represents 10% of GDP, and opening up the land market in early 2020 was a condition for a US$8bn loan from the IMF. As a result, agricultural land in Ukraine has continued to be bought and sold throughout the war.

The market is still closed to foreign buyers: current land law has left the question of whether this should be allowed to a future referendum. However, foreigners can rent land – with its fertile soil that produces 10% of the world's grain and 30% of the world's sunflower seeds – so long as the lease lasts less than 50 years.

One of the biggest difficulties for urban planners is privately owned land adjacent to cities, as there is no green belt designation in Ukraine. Owners are allowed to apply to change the use to commercial, industrial or even residential, which may lead to a development boom on the city fringes and significant sprawl.

But how could agricultural land on the fringes of cities be allocated for development in a planned way, to accommodate an expanding population and ensure essential food supply? And how might the increases in land value that inevitably occur in such situations be used to fund essential community infrastructure?

Extensive housing development on rural land around cities could spark conversations in cities about how policy can prevent such sprawl.

In practice, however, managing the agricultural land market will likely be more complex. When thinking about future reconstruction and working with foreign investors in cities or rural areas, the framework for both rural and urban land planning must be clear.

Moreover, a state company such as Ukrzaliznytsia, which has monopoly on Ukrainian railways, also owns land beneath the rails, as well as depots and stations that could be developed for high-speed rail or other forms of infrastructure.

Ukrainian law allows for compulsory purchase of land for such strategic development. The state or local council can make an offer to buy it and, if this is refused, can take landowners to court to enforce a sale.

In practice, however, weak legislation can delay reconstruction projects. One infamous example is the planned construction of the 7km Podilskyi road and rail bridge in Kyiv, which remains uncompleted today thanks to resistance from homeowners, who have taken legal action against it as well as staging protests and blocking construction vehicles.

A new philosophy is needed to replace this relatively ineffective system and enable a sustainable strategy for development, effective communication between stakeholders and, possibly, changing the behaviour of the public. But now may not be the best time to introduce new land and real-estate taxes. With economic growth after the war, taxes should rise – and not only be levied on businesses but also owners of private and collectively owned housing.

How could Ukraine finance reconstruction and maintenance domestically, if international aid decreases once the war is over? Revenue from land tax could be one answer to that question. However, predicting the potential tax base is not easy at present, as local councils do not know exactly who owns what or on what terms, and what the boundaries or status of particular plots are; the process of digitising information on local community-owned land is still ongoing. It is even harder to assess the tax base if the land tax is linked to market rates.

So far, the worst-case scenario for land and reconstruction could be significant sprawl into former agricultural land, with landowners taking no financial responsibility for developing any infrastructure around their plots.

Big developers could then, with international funding, continue to control councils – and through them use land to develop whatever and wherever they want. Private landowners in rural and urban areas could resist strategic national reconstruction projects, while those in cities could collect land rents in any way they wanted with minimal social obligations.

The best-case scenario is that examples of international good practice will be used to set up a legal framework for land rights, to create favourable conditions for reconstruction and beyond – and that all of this will be done in a way that is fair and equitable for everyone in Ukraine.

But what sort of scenario should we expect from the Ukraine reconstruction summits? The URC's 2022 Lugano document package didn't have a robust, connected strategy for interconnected urban land and property policy; neither has one come out of the recent URC conference.

I hope that Ukrainian land professionals based elsewhere in the world can use their influence to enable positive reconstruction, or create a clear and ambitious land-use framework for a peaceful Ukraine.