MENA governments need to engage the private sector to help address the growing crisis of affordable housing
Dubai – December 2012: According to EY’s report ‘The growing crisis of affordable housing in MENA,’ regional governments need to engage the private sector to help address the growing crisis of affordable housing. Despite many MENA nations’ commendable efforts so far, the supply of affordable housing is falling far short of demand, and demand is rising.
The report, which will be unveiled at the upcoming Jeddah Economic Forum 2013, highlights that the widening gap of effective demand over affordable housing is proof that governments’ existing frameworks will need greater support in the years to come. The forum’s key theme ‘Housing the growing population’ will center on solutions to the housing issue and recommendations for government bodies to be able to address this.
Affordable housing delivery requires government contribution but government cannot tackle the challenge on their own. Both supply-side and demand-side strategies can mobilize the private sector and hence, make government resources go further. Housing affordability lies at the intersection of supply side (more homes) and demand side (more financing), and to tackle the growing crisis, MENA governments need to engage the private sector on both sides simultaneously.
Bassam Hage, MENA Markets Leader, EY, says: “Most public sector initiatives to date have been on the supply side – the direct creation of affordable homes – but increasingly, forward thinkers in MENA are looking for demand-side innovations, which can help citizens find ways to secure affordable housing and also reduce public sector administration and costs.”
Affordability a major challenge for policy makers
Analysis of housing affordability, as measured by “residual income” (household budget available after paying for housing) shows wide variation, with UAE and Qatar achieving higher levels of housing affordability for nationals, while citizens of Saudi Arabia and Yemen have very low residual incomes.
Ahmed Reda, Office Managing Partner, EY Jeddah, says: “There is an increasingly marked imbalance between rising wealth creation, on the one hand, and delivery of new homes and desirable living environment on the other. It is essential that MENA’s public and private sector leaders work together and align their strategies to arrive at sustainable solutions to a growing issue.”
The time for policy action in MENA is now, because the region’s countries are entering what the United Nations calls the “demographic window of opportunity,” representing an unprecedented period of new household formation. It is measured by the ratio of prime-earning adults (people between 16 and 64) to housing dependents (children under 16 and the elderly of 65 and over). When a nation has a “worker’s bulge,” it will rapidly form new households, and those households will want to consume more and better housing.
Ahmed adds: “The demographic window for a country in MENA will typically last for about 35 years; that is the moment of opportunity that MENA countries will have to move beyond emerging market status. To do this, they will require large numbers of quality, urban, affordable homes for people to own or rent.”
This is especially urgent in MENA now, because their populations are growing at two or three times global averages. By 2050, the populations of Bahrain, Egypt, Iraq, Jordan, Kuwait, Mauritania, Oman, Saudi Arabia, Syria and Yemen are projected to more than double — and all of this net growth will be in cities, because people in these countries are moving, rural-to-urban.
Tackling the issue
Although affordable housing requires some elements of subsidy or government assistance, there is also the need for some fundamental efforts to help lower the sale price of a home to something lower-income households can afford. Interestingly, these efforts are all within the ability and mandate of the government. There are five key ways of tackling the issue, which include: land allocation, land taxation and release, streamlining of approvals, modernizing planning and building regulations and managing expectations.
Due to the most basic principles of land use economics, cities will not create quality affordable housing if the task is left purely to the private market. It is vital that MENA governments which need more affordable housing take charge of land allocation and make sure that some urban land is reserved for that purpose.
Many private land owners in the region have vast holdings, which further reduce the supply of land available for affordable housing. Land banking of this sort can be strongly influenced by land taxation. For example, in February 2008, the Kuwaiti Parliament passed a law taxing large undeveloped land plots, to take effect at a specified future date.
Developers of affordable housing can often experience frustration if the different government organizations they deal with are demanding different things. The streamlining and coordinating of approvals requires an over-arching national urban strategy backed by policy or resource commitments from the highest levels of government.
“Governments need to manage expectations. Most of them, especially in the GCC, have adopted generous standards for their citizens’ affordable housing which result in very high per-home costs. Policy makers should consider how to recalibrate citizens’ concepts of what constitutes acceptable standards of government-subsidized housing. Everyone may dream of the villa, but the townhouse or the flat can be cheaper, greener and better for young families just starting out,” concludes Bassam.