LFMI: higher competition could help to cheaper administer apartment buildings


In Lithuania, apartment buildings are being administered by local government and private companies – and the latter’s share of the market is increasing steadily. However, it is noticeable that if the practice of aiming for more stringent price regulations and for saving municipality-owned companies continues, consumers and competition may be harmed. This is supported by the research carried out by the Lithuanian Free Market Institute (LFMI).

“At the moment, both the local government and private companies may and do supervise the apartment buildings in Lithuania. However, it is unsettling that the local politicians often announce intentions of completely taking over this activity. Our case studies show that the residents pay about the same to either private or municipality apartment building administrators – there is no need to be afraid of the private service providers. On the contrary, the more providers there are competing for the clients, the better for the consumer”, states Žilvinas Šilėnas, the president of LFMI.

Examples in the major Lithuanian cities – Vilnius, Kaunas, Klaipėda – show that the residents in Klaipėda pay the least for their administration services. In Klaipėda, the average price for apartment building administration services is 0,092 Lt/m2 (it is 0,10 Lt/m2 in Vilnius and 0,122 Lt/m2 in Kaunas).

“In Klaipėda, services are provided by both private and local government administrators, but it is the private companies that are able to offer lower prices, while partially municipality-owned companies offer services at a slightly higher price. It is the healthy competition and not the fixed price system that allows Klaipėda to ensure prices lower than in other cities”, observes Dominykas Šumskis, a junior policy analyst at LFMI.

While the research shows that apartment building administration works well under market conditions, local governments have ample room for manipulations.

“According to the existing order, co-owners themselves decide who should supervise their apartment building. However, if the residents cannot decide, the local government appoints the administrator. It is not clear what criteria is used for the appointment – here lies the opportunity for a conflict of interests: it is possible for the municipality to appoint a municipality-owned company to administer the building”, states D. Šumskis.

“Local government representatives should understand that competition would exist were there no artificial and unnecessary obstacles in the market. It is the competition that drives the prices down and ensures the best quality”, added D. Šumskis.

The amount of local government and private companies administering apartment buildings in Lithuania in 2010 was similar – 54 and 52, respectively, and the number of private companies increased in 2012. However, geographically, municipal companies are more widespread: in 2012, private companies operated in 23 municipalities, whereas local government companies – in 46.

More in LFMI analysis “Apartment building administration market analysis”. Download the analysis (available in Lithuanian only) >>>   http://files.lrinka.lt/Faktai_ir_analize/FA_Daugiabuciai.pdf