Filed under: Climate change Development Environment Poverty

Montenegro, a country with 650,000 citizens, has around 100,000 illegal buildings (according to estimates from the Ministry for Sustainable Development and Tourism). Since the average household size is 3.4 people, this could indicate that nearly half of the households have an irregular or illegal construction status (of course this would only be the case if irregular or illegal constructions were distributed equally among all households).

How did we find ourselves in this situation? A combination of factors, including: the lack of planning, lack of capacity in municipal construction inspections, the inflow of foreign direct investments between 2006 and 2009 (much of it directed to the construction business), inefficient local and central government control and the lack of awareness among citizens about the negative consequences, including:

  • Damage to the landscape and environment
  • No revenues to the local government from construction and communal fees
  • No tax revenues
  • Inadequate infrastructure networks
  • Insufficient and non adequate public and social facilities

To tackle this issue, I believe that the Government has to provide an innovative solution as incentive for formalization. The issue is simply too big to tackle (demolishing 100,000 illegal constructions is certainly not an option, nor is increasing taxation giving chronic issues with tax collection). Experiences from other countries that have legalized abusive constructions does not seem a sustainable solution either.

This is why we at UNDP shared an innovative idea with the responsible Ministry, which, we believe, can provide a positive multiplier effect. We proposed the introduction of energy efficiency measures as incentives for those owners who apply for the formalization process.  This way, they will have an opportunity to receive “soft” loans for the implementation of energy efficiency measures in their houses.

A simple example (see table below) can show how the proposed measure would help bring about the legalization of illegal settlements.

How could energy efficiency be linked to the legalization of illegal settlements?

Cost of energy efficient housing, Montenegro - table

Let’s assume that we have an illegal individual residential house of 100 square metres. According to the available data, this house spends approximately 100 euros for electricity on a monthly basis. If the owner did retrofitting in his building (changing windows, doors, roof, facade), there are some estimates that this has the potential for decreasing energy consumption by 40 percent.

This means the owner would now receive a monthly electricity bill in the amount of 60 euros. On the other side he or she would have a monthly cost for the retrofitting loan in the amount of 24 euros a month for the next 20 years. Additionally, since our main goal is legalization, we assumed that the cost for legalization of individual residences would be 50 euros per square metre, which could be paid over a 20 years period – 20.83 euros per month during the next 20 years. If we summarize all costs (electricity bill, retrofitting cost and legalization cost) we will have approximately 105.07 euros. This means that the house owner will have almost the same monthly cost as before the legalization – but for a legalized and retrofitted home, with decreased energy consumption.

Households will have obvious benefits from this process, such as higher market value of formalized homes, as well as lower energy consumption.

On the other side, the proposed measures will have a significant effect on central and local governments and the economy in general:

  • increase of revenues to local budgets (from fees for formalization);
  • increase of revenues of the central budget (from property taxes and VAT);
  • stimulation of employment (energy auditors, surveyors, architects, civil engineers, craft workers);
  • stimulation of private entrepreneurship and businesses; improvement of spatial planning system in the country;
  • decrease in CO2 emissions; and
  • decrease in the import of electricity.

As far as I could establish, this is an approach that has not been tried anywhere else. However, I would be very interested to know from others who work in this field: do you know if this approach has been attempted in the past? What were the results? Is there anything we might be missing?

  • Gabriela Fischerova

    This is a very interesting approach, however, as far as i can understand it deals only with the energy efficiency. are there any plans how to include some construction issues such as compliance with the standards in respect of plumbing, sewage system, electricity wires, static requirements, connections to gas , electricity, water grids, etc?

  • Dear Gabriela sorry for late respond. Thank you very much on your comment/question. The respond is YES. The approach of using EE is only one side of the medal. The EE will be used as an incentive for formalization, but formalization (legalization) process has to include all aspects you mentioned to the most possible extent. Moreover, the issues of seismic risk are planned to be a one segment of the whole process, too. However, all these standards request significant financial investments. Because of that, it is planned that the majority of the revenues that central and local government receive from formalization process, are obligated to invest in infrastructure. This obligation will be prescribed by the Law of formalization which is drafted at the moment.