Rapid urbanisation and young, growing populations put pressure on emerging markets to solve housing deficits


Urbanisation is a mega-trend redefining contemporary life in both developed and emerging markets across the globe. This mass rural-urban movement of people and expansion of cities to absorb formerly isolated villages is a relatively recent phenomenon: in 1950, only 751m people lived in urban areas. By 2018, however, the number of urban dwellers was estimated at 4.2bn, equivalent to roughly 55% of the world’s population. The UN estimates that by 2050, that figure will rise to 68%. This growth will not be evenly distributed: with high rates of population growth and urban expansion in parts of sub-Saharan Africa, the Middle East and Asia, future increases will be disproportionately concentrated in the developing world.

China, India and Nigeria alone are expected to account for 35% of the urban population increase over the next 30 years. Against this backdrop, local, state and national governments are under growing pressure to deliver a combination of safety, security, wealth and opportunity for their urban citizenry.

While urbanisation is closely tied to economic development, social mobility and poverty eradication, the massive influx of urban migrants poses severe challenges for governments, NGOs, citizens and corporate actors. One of the central issues confronting policymakers across developing economies concerns the lack of affordable, high-quality housing. For the UN, access to affordable and sustainable housing forms the centrepiece of its New Urban Agenda, unveiled in 2015. In the decade ahead, failure to adequately meet surging demand for affordable urban housing could constrain growth and development objectives, exacerbate income inequality, and further inflame existing social tensions across developing markets.

Growing Problem

Access to housing is an important determinant of quality of life and human welfare — one that is both crucial to family well-being and essential to the overall health and vitality of urban communities. While definitions of “adequate” and “affordable” are context-dependent, there is a broad consensus that housing outcomes must meet a broad range of parameters: family privacy and security; structural integrity and safety; credible property title; and access to adequate water supply, sanitation, heating and ventilation systems. Housing stocks should be located within reasonable proximity to the workplace and core social services like hospitals, schools and public transportation systems.

Affordable housing must not be financially punitive relative to individual and family income. US consultancy firm McKinsey estimates that 330m households worldwide suffer from a lack of access to affordable, quality housing — a number that could increase to 440m by 2025 if sufficient action is not taken. Without concerted policies to meet the growing need for housing that is both socially acceptable and financially sustainable, an estimated 1.6bn people will find themselves living under unaffordable, informal and inadequate conditions which fail to meet basic standards by the middle of the next decade.

Social Issues

The scale and scope of the housing challenge will be felt most acutely in cities, where urban slum populations have skyrocketed in recent decades. An estimated 880m people could be categorised as slum dwellers, according to a 2016 UN report. Unaffordable and substandard housing closely intersects with a range of social challenges, from petty crime and gang violence, to income inequality and environmental degradation. If not responsibly managed, rapid development and the accompanying influx of foreign capital can magnify disparities in housing access and affordability by quickly and drastically driving up urban real estate prices. Speculative investing in rapid-growth markets can price recent migrants and lower income residents out of the formal housing market and into illegal, poorly built accommodation. Investment in affordable housing construction currently remains far below the level of public demand. The stakes are high for the world’s promising emerging markets. Without trillions of dollars in new capital allocation towards revitalising existing housing stocks and accelerating the construction of new units, developing countries will struggle to meet the needs of their urban populations, potentially confining millions to lives of social marginalisation and exclusion from the benefits of growth and development.

Strategies & Solutions

At present, the lack of effective stakeholder coordination — between national and sub-national governments, local communities, businesses, banks, home builders and NGOs — continues to inhibit affordable housing construction and redevelopment. Barring state intervention, it is unlikely that the current housing deficit can be meaningfully addressed. Systemic, whole-of-government approaches towards housing provision — with a focus on localisation and municipal level initiatives — are seen as critical to ensuring sustainable urbanisation.

Governments generally rely on a number of mechanisms for delivering affordable housing. Although public housing provision remains a common approach, states are increasingly looking towards the private sector to address housing shortfalls. Through public-private partnerships (PPPs) and targeted interventions, governments are deploying both financial incentives and regulatory inducements to help mitigate risk while catalysing robust participation from private developers. On the supply side, land costs can be a primary impediment to the development of quality affordable housing in locations that provide access to employment opportunities and social services.

Expanding access to previously unused land and creating incentives for redevelopment through updated land use regulations present important avenues for lowering costs. By engaging in reclamation projects, cracking down on land speculation practices, and opening up government-owned land for affordable housing, particularly in strategically located urban areas, states can begin making headway in addressing affordable housing deficits. Improving efficiencies in construction processes offers up yet another avenue for driving down the cost of housing development. The World Economic Forum estimates that updating outdated construction practices would significantly cut down on both production cost and housing delivery time. Companies who embrace standardisation — from the design phase to the use of industrial materials in the construction process — will be better positioned to deliver cost-savings. In particular, by increasingly relying on prefabricated parts developed off-site, builders can drive down cost and improve product quality. Incorporating new forms of IT also helps lower building costs by improving modelling and design processes and delivering more efficient systems of logistics and procurement management.

Access to finance remains another major obstacle for families struggling to attain housing and developers looking to undertake affordable housing projects. Lower-income urban populations in developing markets often work in the informal sector and remain boxed out of formal mortgage financing channels. A combination of measures — from subsidies for developers to the establishment of better collective savings programmes, government-backed mortgage banks and improved systems of risk assessment — can help drive down loan costs and reduce risks in lending allocation. Legal reforms that clearly delineate ownership, secure property rights and provide land titles work closely in tandem with effective mortgage lending. Across emerging economies, national and sub-national governments are engaging in policy experimentation and taking proactive measures to ensure socio-economically vulnerable population segments can successfully access affordable housing.


Indonesia, the country with the largest population and GDP in the South-east Asia region, has seen surging demand for affordable housing that meets the needs of the country’s rapidly growing urban population. At present, the lack of cost-effective, high-quality housing options, coupled with strained infrastructure, income inequality, weak labour productivity growth and lack of access to basic services, limits the benefits of urbanisation for many recent migrants and lower-income earners. Roughly 20% of the country’s housing stock is currently considered in poor condition, and the UN estimates that Indonesia requires upwards of 1m new units per year to adequately address the deficit.

Towards that end, the Indonesian Ministry of Public Works and Housing under the administration of President Joko Widodo has rolled out the One Million Houses initiative focused on public housing construction. In hopes of drawing in robust private sector and NGO participation to help close the housing finance gap, Indonesia signed off on the World Bank’s National Affordable Housing Programme designed to provide $450m in financing to support the government’s efforts to expand access to affordable housing for low-income families between 2017 and 2021.

Other vehicles designed to channel financing towards affordable housing, like the Housing Finance Liquidity Facility, provide government subsidies for banks engaged in mortgage lending to lower income families at favourable rates. The government’s efforts are starting to reap rewards: in 2018 the country exceeded the target of constructing 1m new affordable homes in a year for the first time, with around 50% built through government assistance schemes and 50% funded by private developers. Finding innovative means of addressing the housing challenge is also a policy imperative in the Philippines, which is another rapidly growing South-east Asian economy that is struggling to find a sustainable framework to engender fast urban development.

The World Bank projects that by 2050, 80% of the country’s population will reside in urban areas, up from 50% in 2015. With substantial rural-urban migration accompanying economic development, urban areas have seen rising stress on infrastructure and social services, giving rise hundreds of thousands of informal settler families living in impoverished, substandard living conditions without any formalised land tenure.

To fill the deficit, the government is seeking to facilitate the construction of 2m new homes between 2017 and 2022. In February 2019 the President of the Phillipines, Rodrigo Duterte, signed a law creating a new Department of Housing and Urban Development, tasked with addressing the chronic shortage of affordable homes. Part of the department’s mandate is to monitor and maintain records on idle land, comprehensive land use plans of local governments, housing stocks and housing beneficiaries.

In metropolitan Manila construction processes are crucial to delivering affordable housing that ensures quality for residents and value for builders and investors. Prefabricated housing presents one method for cutting down on time and costs.

“The production costs are lower in the first place, as compared to traditional home building, so you have more breathing room,” Robbie Antonio, founder of Manila-headquartered Revolution Precrafted Properties, told OBG. “And because of streamlined processes, the production timetable is between two and three months, which allows investors to recover their investment faster. Prefabricated homes are ideal in urban centres in the Philippines that have huge backlogs in terms of affordable homes.”

Middle East

Governments across the region have rolled out an array of initiatives designed to placate public frustration over affordable housing deficits. Saudi Arabia — where the government has called for home ownership levels to reach upwards of 70% by 2030 from under 50% in 2018 — is committed to delivering 300,000 new housing units. To address the shortage, the country has mobilised a range of government entities into taking concerted action on both the supply and demand fronts.

In 2018 the government unveiled a series of programmes designed to improve access to mortgage financing: allocating SR18bn ($4.8bn) to provide loan guarantees and SR12.5bn ($3.3bn) to help homeowners make down payments. Saudi Arabia’s Public Investment Fund, working in conjunction with the Ministry of Housing, also provided financing to launch a new real estate refinancing company that will help provide additional liquidity for the country’s mortgage market.

In Bahrain the government mixes traditional state housing programmes with PPPs as a means of alleviating the demand for affordable housing. Residential construction, particularly in the affordable housing sector, will likely serve as a major catalyst for growth in the construction sector in the medium term.

Mohammed Khalil Alsayed, CEO of Ithmaar Development Company, sees PPPs as a viable and efficient model which should boost confidence in the investment climate. “The PPP model allows the government and the private sector to work together to provide affordable housing with greater efficiency than either party would be able to achieve on their own. Given current trends, I expect that this model will play an increasingly important role in the supply of housing across the region,” he told OBG.


States across Africa are confronting a litany of governance challenges as they struggle to manage rapid urbanisation. A combination of rural-urban migration and robust population growth has resulted in massive housing deficits that are still largely unmet. The largest economies in sub-Saharan Africa all face shortages in excess of 1m units. For example, Kenya faces a housing backlog of 2m units, while Nigeria’s shortage is as high at 17m units. According to estimates from the Centre for Affordable Housing Finance in Africa, an independent think tank, roughly 60% of the urban African population resides in informal slum-type housing without access to secure property rights. However, in more recent years, governments in partnership with private construction firms and developers have begun taking steps to more proactively meet the challenge. In Kenya, the administration of President Uhuru Kenyatta unveiled a KSh2.6trn ($25.5bn) affordable housing programme as part of its “Big Four” policy agenda, aiming to develop roughly 1m new affordable housing units by 2023. In January 2018 the government established a short-list of 35 private construction firms cleared to participate in the tendering process for a pilot project targeting the development of 8000 two- and three-bedroom homes in the town of Mavoko.

“There are various opportunities for the private sector to work with the government to achieve the agenda’s housing goals,” Mucai Kunyiha, chairman of the Kenya Property Developers Association, told OBG. “For one, the public sector is in charge of the development of the counties’ spatial and urban master plans, as well as different incentives like stamp duties and tax rebates. The state is also taking action on the formation of a housing fund, the implementation of a mortgage refinance company, and the establishment of joint ventures and PPPs on public land.”

In Nigeria — where an estimated 80% of the country’s urban population lives in overcrowded, substandard housing — the problems are even more acute. In order to meet demand for affordable, quality housing, the government’s National Housing Programme has developed a pilot housing project, which is running in 34 states, to respond to different buyer needs, financial capabilities and cultural attitudes to housing, as well as the different categories of land. “We are now at the infrastructure stage, and many of the houses are already finished. We are building roads within and between cities in every state in the country, increasing access and connectivity,” Babatunde Fashola, minister of power, works and housing told OBG. The pilot programme has drawn in over 600 contractors and intends to deliver 2736 units.

Latin America

Throughout Latin America, a surge of migration to major cities has been experienced across the region in periods of high commodities prices and pronounced economic growth. However, a combination of weak local governance, corruption, inequality and poverty hinders progress towards the provision of financially viable, quality housing for the significant portion of citizens lacking secure property rights, many of whom work in the vast informal sector. In Mexico, where approximately 46% of the population live at or below the poverty line, the deficit of affordable housing remains a major policy issue, despite significant increases in the overall supply over the past two decades. Major government initiatives aimed at boosting the country’s housing supply mobilised billions of dollars and partnered with private developers, the World Bank and global banks. These achieved significant results, increasing the overall housing stock by 43% from 2000 to 2014.

However, the approach attracted some criticism over perceived corruption, an incoherent strategy, ineffective resource targeting and poor overall execution. According to the World Bank, in 2017 approximately half the population still lacked access to formal, affordable housing.

Social Housing

Since taking office in 2018, Mexican President Andrés Manuel López Obrador has announced plans to reform the state-owned National Worker’s Housing Fund Initiative, which is the federal institute for worker’s housing and the largest mortgage lender in Latin America — by enhancing institutional transparency, improving bureaucratic efficiency and focusing on the development of affordable housing that is located in close proximity to basic services, transportation infrastructure and urban job centres.

Key to the housing sector overhaul is the Shared Responsibility programme, which is geared towards supporting lower-income workers in paying off their mortgage debts and attaining housing deeds. Through a combination of subsidies, government decentralisation and policy incentives for developers, Colombia — home to a burgeoning middle-class society, with over 75% of the population now residing in urban areas — has demonstrated substantial progress in delivering affordable housing tailored to the needs of lower-income citizens working in the informal sector and prospective home owners.

“Social housing programmes are working well. They have a double-sided impact: they create activity in the construction sector, but also allow people that have never had a home to receive additional contributions as a subsidy to makes home credit affordable,” Edwin Chirivi Bonilla, director for economic studies at the Colombian Chamber of Construction, told OBG.

Private developers will play an important role in alleviating Colombia’s affordable housing deficit: in 2018 the Overseas Private Investment Corporation committed $50m in funding for the Avenida Capital Colombia Real Estate Fund II. The initiative will help fill the current deficit in available housing and targets low- and middle-income housing development. Although the challenge of addressing the affordable housing deficit across the emerging world is considerable, governments that are working in conjunction with an array of private stakeholders and successfully deliver effective housing solutions should realise productivity gains, greater social mobility and higher incomes for their citizens, freeing up resources for capital investments and boosting consumer spending.


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The Report: Indonesia 2019

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