Global strategies

This is a part of the Making housing affordable feature

By Dael Climo - 1 April 2020, Build 177

The lack of affordable housing in our cities isn’t just a New Zealand problem. Everywhere, urban dwellers find the cost of a roof over their head a burden, whether renting or owning their own home. A report highlights the problems and looks at solutions.

A WORLD ECONOMIC FORUM report, Making affordable housing a reality in cities, paints a picture of a global problem with about 90% of cities worldwide not providing affordable or adequate housing.

Basic needs not being met

The report finds the cost of housing, as well as location, is prohibiting people from meeting other basic living costs, threatening their employment and fundamental human rights.

It’s a situation that continues to worsen due to unprecedented rates of urbanisation and population growth.

In 2014, global management consultants McKinsey and Company estimated that around 330 million urban households were living in substandard housing or were financially stretched by housing costs.

Where the problems lie

The report stated reasons why people find housing costs unmanageable include:

housing costs are rising disproportionately to household incomes
the supply of affordable housing is not meeting demand
land for affordable housing is scarce
demographic changes such as increasing numbers of smaller-sized households, population growth and the ageing population
energy poverty, with energy bills eating into household incomes.

Innovative solutions being tried

As governments and local councils struggle to find ways to meet the housing needs of their population, various innovative solutions are being put into practice.

Effective strategies include addressing supply-side challenges with land acquisition and regulation, upgrading property tenures and new financing models.

On the demand side, the work is around determining eligibility for affordable housing, instituting various tenure models for different demographics and providing access to credit.

Governments take two approaches

Affordable housing initiatives by governments largely follow a targeted or universal approach.

In countries such as the US, Canada, Malaysia and India, vulnerable and low-income households are assisted with the provision of housing. In countries such as Singapore, the Netherlands, Sweden and Denmark, the whole population is eligible for affordable housing.

The Netherlands, for instance, has the highest share of social housing in the EU, representing about 32% of its total housing supply and 75% of its rental market. This helps to keep homes affordable.

Supply-side and demand-side solutions

Financial models, shared ownership of land and buildings and rent controls are all being employed in various cities globally.

Land trusts

Land trusts are private not-for-profit entities focusing on the long-term stewardship of land and buildings after redevelopment. Community land trusts oversee these on behalf of a place-based community.

The land remains with the trust in perpetuity, and buildings are sold privately with restrictions on use and resale to keep them affordable. For example, homeowners may have to keep buildings in good repair, and the community land trust may have the option to repurchase homes at a predetermined price.

Land banks

Land banks are quasi-governmental bodies focused on short-term ownership of vacant land, especially problem land that may be contaminated, have derelict buildings on it or have title defects.

Land is secured at a low price and readied for sale for redevelopment. Restrictions are not imposed on affordability, and there are no concerns with the upkeep of buildings or land.

In the US, subsidies invested in acquiring and remediating land are claimed by the land bank at the sale of the property. Several cities are experimenting with a partnership in which community land trusts become the favoured parties for lands released by municipal land banks, including the city of Albany, New York.

In Ireland, where national and local public bodies own enough land in Dublin to build 70,000 housing units, the Land Development Agency has been formed. This optimises the use of publicly owned land and speeds up the delivery of new homes. The agency has a database of land owned by all government departments and state bodies and is collaborating strategically with private landowners on development.

Build-to-rent

Build-to-rent (BTR) is an emerging affordable housing solution for middle-income households. BTR properties are purpose built to be rented out, rather than sold, and comprise blocks or clusters of housing units owned and operated by a single institution.

In the US, the BTR sector is the largest real estate class, bigger than commercial and retail property. In 2017, over 11,000 BTR homes were under construction in London, representing 17% of the private rental market in the city. The concept has also been picked up in many cities in Europe and Japan. It is not yet popular in developing economies or in Australia, where investors are put off by high land taxes and lack of government incentives.

New lending models

There is growing demand for lending products for the informal sector, but finance providers are unable to supply mid-sized, mid-length loans. To meet this demand, the US-based Affordable Housing Institute has developed home asset loan financing, which is being employed by funds in developing economies such as Peru, Mexico, South Africa and India.

The model addresses the supply gap between microfinance and mortgage lending products. It makes loans on informal settlements as a real estate asset, increasing in size and length and at a lower interest rate to reflect physical improvements to the structure.

Suitability depends on factors such as an applicant’s length of occupancy and the property’s viability for resale in the informal market and connections to municipal services.

Another financing initiative was developed in Melbourne, Australia, where the Apartment Project encouraged homeownership for low-income households. A privately funded apartment development supported by Melbourne City Mission, it saw 28 of the 34 units sold to social housing tenants and the remainder at market rate.

The project reduces homebuyers’ upfront costs by combining their deposit with a bank loan and second mortgage from the developer. A similar project in Toronto, Options for Homes, has delivered 6,000 homes in 20 years.

Affordable rental housing

In Australia, Sydney Communities Plus is an initiative of the New South Wales Government in partnership with the private, non-government and community housing sectors, focused on neighbourhood revitalisation and community development.

It is developing 23,000 new and replacement social housing units on sites that need renewing, integrated with 500 affordable and up to 40,000 private dwellings. Proceeds are reinvested in new social housing, community facilities and high-quality open space.

Assistance with housing is linked to participation in education, training and local employment opportunities.

In Germany, where a recent study of 77 cities revealed a shortage of 1.9 million affordable apartments, Grand City Properties acquires under-rented and undermanaged residential properties and converts them into affordable rental housing.

Recommendations for change

Ultimately, the World Economic Forum report finds that city governments have to define their long-term plans for increasing the supply of affordable housing. These must balance the need to minimise urban sprawl with the limits and viability of building denser and taller.

Political considerations that could hold back the development of new affordable housing must be addressed. Housing developments must also have adequate infrastructure, ways to improve the situations of those living in informal housing must be explored and a strong regulatory enabling environment for the private and non-profit sectors created.

Private-sector players need to keep abreast of emerging solutions in construction techniques and materials, work with governments to ensure an adequate flow of skilled labour and consider new solutions in financing and innovative tenure models.