Tackling the world's affordable housing challenge requires systematic changes.
The trends are inescapable. The global population continues to grow markedly, there are more mouths to feed, resources scarcer, and no obvious panacea. Basic human rights are paid lip service, but in the race to industrialize and grow, development is often haphazard and reactive, rather than long term and strategic. This is a challenge which particularly confronts the developing world, and no more so than in the area of housing. The right to shelter is something which should be considered a basic human right, but making sure it is widely available, confounds even countries with the greatest resources.
Consider the UK. The question of housing delivery has almost become like a discussion of weather. There is grim acknowledgement news won’t often be good, but resignation to inevitability. Ever since Harold MacMillan promised a quarter of a million new homes each year, there has been faltering delivery, distortion of statistics, and a growing gulf between the asset rich homeowner and those priced out. Attempts at a home-owning democracy, much beloved of Margaret Thatcher (and uttered by ambitious Tories since), has really meant subsidization for those able to get a deposit, and a fire sale of social housing.
The track record in the US is hardly better. The subprime mortgage crisis laid bare the vulnerability of so many Americans to the vagaries of complex financial products on Wall Street, and left homelessness a real possibility. Perhaps continental Europe has it slightly better with a tendency toward secure tenancies and purpose built housing for rent, but the banlieues of Paris or Cañada Real, shame developed nations. And yet in all instances, recent history has been one of low interest rates, where governments (to varying degrees), have been able to do something about it.
A useful model which has been applied, is either government, or sub governmental agencies, providing rental guarantees to investors. Where this mechanism has been used, it has enabled corporate treasury, pension and life funds to access quasi sovereign credit, backed by real assets to match their liabilities. And don’t assume this has been at high rates. Sixty year transactions have closed at sub three percent, providing a cost effective tool for policy makers. It has enabled the construction of affordable housing under its many guises, and provided for an electorate priced out of the market.
The fact it has not gained more traction, is complicated. Cynics point to how the lower end of the income spectrum is not always the surest constituency of votes, whilst the negative experience of private finance initiatives in some countries, has poisoned its reception. The truth is, the public and private sectors are not always the easiest bed fellows and there exists a general aversion to debt (even when cheap and long term). This issues are likely to continue to afflict the wealthiest nations on the planet, but what of those with less capacity?
The global affordable housing market is huge and each year a larger deficit grows. There are varying definitions of what ‘affordable’ means, in different countries, but the truth is, we simply aren’t building enough to satisfy extant or future demand. This is especially acute in the largest emerging markets of our times, such as Brazil, India and Indonesia. In these fast growing economies, with a large consumer class and rapid urbanization, city governments have often been limited, at best, to using planning policies to encourage and direct development. At worst, they have been vulnerable to the growth of temporary settlements, with poor sanitation and infrastructure, mushrooming from emergent economic centers.
Part of the problem is building alone will not always address the problem. Sclerotic or dysfunctional mortgage markets mean people are often unable to access units which are delivered. This is frequently an example of financial exclusion, where temporary workers or those in the informal economy lack credit records and are simply unable to borrow. By definition, many of those seeking affordable homes are at the lower end of the socioeconomic scale, and therefore may not be a part of formal, financial structures.
Another issue in countries where government guarantees have less relevance, is the private sector often lack an incentive to participate. After all, more often than not, it is a low margin game, where an easier win will be to migrate to higher end residential or commercial development. There are notable exceptions to this rule, but there is a fundamental mismatch in the capital markets which acts against both developer and the eventual resident.
There is no one, easy fix, which is cross applicable to multiple countries. But what is in common, is the role international organizations could play. Housing, is ultimately at the core of so many of our life outcomes. It defines the ability to be able to be productive economically, to raise a family, to contribute to development. As it happens, it is also one of the most reliable investments, since people place this above and beyond any other pressing financial obligations, since they too, realize its instrumentality to all other aspects of their lives.
Organizations- whether the CDC, IFC or World Bank- can be important catalysts for sustainable urbanization. They can help institutions in developed countries overcome some of the riskiness in the early stages of project facilitation, to deliver investment-worthy product in the future. It is reasonable impact funds (no matter how well intentioned) shy from greenfield opportunities, but do want long term exposure, with steady, modest returns. If governmental and quasi-governmental bodies, can take the lead in helping product to market, one may find, there is substantial appetite. What is certain, is affordable housing both in quantity and quality, will be one of the defining challenges of this century.