Urbanisation is a mega-trend redefining contemporary life in both developed and emerging markets across the world. According to the UN, in 1950, 751m people lived in urban areas; however, by 2018 this number had risen to 4.2bn, equivalent to roughly 55% of the world’s population. By 2050 the UN estimates that this figure will rise to 68%. This growth is likely to be disproportionately concentrated in the developing world, with high rates of population growth and urban expansion in sub-Saharan Africa, the Middle East and Asia. China, India and Nigeria alone are expected to account for 35% of urban population growth between 2018 and 2050. Against this backdrop, governments are under pressure to deliver a combination of safety, security, wealth and opportunity for their urban citizenry.
Access to housing is an important determinant of quality of life and human welfare. US consultancy 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. Therefore, 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 by 2025.
Investment in affordable housing currently remains far below the level of public demand. Without trillions of dollars in new capital allocation to revitalise existing housing stock and accelerate the construction of new units, developing countries will struggle to meet the needs of urban populations, potentially excluding millions from the benefits of growth and development.
Strategies & Solutions
Governments generally rely on a number of mechanisms for delivering affordable housing. Although public housing provision remains a common approach, states are increasingly looking to the private sector to address housing shortfalls. Through public-private partnerships (PPPs) and targeted interventions, governments are deploying financial incentives and regulatory inducements to mitigate risk while encouraging participation from private firms. On the supply side, land costs can hinder the development of affordable housing. Expanding access to unused land and creating incentives for redevelopment through updated land-use regulations can help to lower costs, as can cracking down on speculative practices and opening up government-owned land.
Improving efficiencies in construction processes offers another avenue to reduce the cost of housing development. The World Economic Forum estimates that revising outdated construction regulations would significantly cut down on both production costs and housing delivery times. Additionally, companies that embrace standardisation will be better positioned to deliver cost savings. In particular, by relying on prefabricated parts developed off-site, builders can decrease costs and improve product quality. Incorporating new forms of ICT can also help lower costs by improving modelling and design processes, and making logistics systems and procurement management more efficient.
Access to finance remains a major obstacle for developers, as well as the end-users struggling to find an affordable home. Lower-income urban populations in developing markets often work in the informal sector and remain excluded from formal mortgage financing channels. A combination of measures, including subsidies for developers for 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 the lending risks faced by financial institutions. Furthermore, legal reforms that clearly delineate ownership, secure property rights and provide land titles can work in tandem with effective mortgage lending to pave the way for improved access to secure home ownership.
Indonesia, the country with the largest population and GDP in South-east Asia, has seen surging demand for housing among its rapidly growing urban population. Roughly 20% of housing stock is considered to be in poor condition, and the World Bank has estimated that Indonesia requires over 1m new units per year to address the deficit.
In response to these challenges, the government rolled out the One Million Houses initiative in 2015. The World Bank is supporting the programme, pledging to provide $450m in investment between 2017 and 2021. The housing initiative has already seen promising results; in 2018 the country exceeded the target of constructing 1m new affordable homes in a year for the first time, with approximately 50% built through government assistance schemes and the remaining 50% funded by private developers.
In the Gulf, Saudi Arabia has committed to build 300,000 new housing units and increase the level of home ownership from 50% in 2018 to 70% by 2030. To achieve this aim, the kingdom has mobilised a range of government entities and undertaken action on both the supply and demand fronts. In 2018 the country unveiled a series of programmes to improve access to mortgage financing, allocating SR18bn ($4.8bn) for loan guarantees to banks and SR12.5bn ($3.3bn) to assist homeowners in making down payments.
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 as 17m. In recent years governments partnering with private firms have begun taking proactive steps to address the challenge.
In 2017 the Kenyan government unveiled a KSh2.6trn ($25.5bn) programme to develop roughly 1m new affordable housing units by 2023. In January 2018 the government also established a short-list of 35 private firms cleared to participate in the tendering process for a pilot project to build 8000 two- and three-bedroom homes in the town of Mavoko. “There are many opportunities for the private sector to work with the state to achieve their housing goals,” Mucai Kunyiha, chairman of the Kenya Property Developers Association, told OBG. “The public sector is in charge of the development of urban master plans, as well as incentives such as stamp duties and tax rebates. The government is also working to form a housing fund, a mortgage refinance company, and joint ventures and PPPs on public land.”
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. Large-scale government initiatives aimed at boosting housing supply have mobilised billions of dollars and seen the establishment of partnerships with private developers, the World Bank and global financial groups. Significant results have been achieved, with the overall housing stock increasing by 43% from 2000 to 2014. However, there is still more to be done; according to the World Bank, in 2017 roughly half the population still lacked access to formal, affordable housing.