The affordable housing challenge: with a booming population and calls for social reforms in the wake of the Arab Spring, the MENA region needs to provide enough affordable housing options for its inhabitants--or face the consequences in the streets.
IN THE MIDDLE EAST AND NORTH AFRICA, POPULATION growth is around twice the world's average and the age profile is young. Given that housing demand is driven primarily by the two key factors of population growth and age structure, this means the demand for more homes, in particular at the lower segment of the market, is increasing rapidly in the region. However, there is a significant imbalance between demand and offer.
Shortage of 3.5 million affordable homes in MENA
"While there is currently an oversupply of upscale or luxury housing in many markets, there remains a shortage of more than 3.5 million affordable dwellings across the major markets within MENA," said international property agent Jones Lang LaSalle in a November 2011 study.
The UK-based real estate consultancy says the largest current shortfall is concentrated in four countries: Egypt (1.5 billion), Iraq (1 billion), Morocco (600,000), and Saudi Arabia (400,000), but adds that there is also a shortage in the UAE, Bahrain and Oman.
Jones Lang LaSalle argues that the shortage of affordable homes is one of the underlying causes of the social unrest and the resulting political turmoil that has spread across the MENA region during the Arab Spring of 2011.
"The connection between the so-called Arab Spring and the shortage of affordable housing in the region is difficult to prove but easy to understand. Access to adequate and affordable housing is a basic human right and need, since it is critical to proper human development. Consequently, the scale of the problem in the MENA region may have contributed to mounting frustration, especially among the region's youth, which pushed them to revolt," says Maysa Sabah Shocair, the MENA advisor to the Affordable Housing Institute, who has worked in various capacities on affordable housing projects in the region over the past 15 years.
High land prices and lack of political will
Amongst the reasons why the real estate industry has failed to deliver more affordable housing are the rising cost of land and construction materials, as well as the government's role as a direct builder, "a model which has never worked long-term anywhere in the world", Maysa Sabah says.
"It is really up to governments to stimulate the creation of sustainable affordable housing. Although it is very encouraging that some governments in the region are moving away from their traditional role as direct builders and are exploring ways to involve the private sector, the pace at which progress is being made is very slow relative to the severe shortage of affordable housing in the region for several reasons: lack of political will, bureaucracy, political instability, limited resources, corruption," she argues.
Dubai-based Brian Nolan was CEO of the Investment and Development Office of the Government of Ras Al Khaimah in the UAE between 2009 and 2010. This experienced strategic planner is also an advocate of partnership between governments and the private sector. "Large government-only programmes are often unwieldy, and they miss the target as they get bogged down in politics, bureaucracy and corruption," he says.
Uninterested property developers
Developers in the region are also partly to blame for the lack of cheap housing, because they tend to focus on the high end of the market due to the low returns in the middle and lower segments. But many of these developers have been battered by the 2008 credit crisis and the subsequent collapse of the regional property bubble, which, ironically, was precipitated by an oversupply of luxury housing. Some have started to see the lack of affordable housing as an opportunity.
Dubai-based Emaar, for instance, the builder of luxury projects such as the Burj Khalifa, the world's tallest tower, has announced in October 2011 the launch of a new division--Dawahi Developments--that will produce low-cost housing developments across the Arab world. "The public sector alone cannot bridge the gap for value housing across the wider region," said Mohammed Alabbar, Emaar's chairman.
In Saudi Arabia, local real estate developer Dar Al Arkan has also vowed to address demand for housing among the middle-income segment of the market, in particular through the development of its MasterPlanned Communities. The kingdom actually makes an interesting case study. The growth rate in Saudi Arabia, which stood at 2.4% in 2010, according to the World Bank, is one of the highest in the world. Some 70% of the population is under the age of 31, and the Saudi population is expected to double by 2050. More than 95% of the population is settled in the major cities, resulting in extremely dense areas that reach higher than 1,000 people per square kilometre, according to a November 2011 Deloitte report. Add to it a significant inflow of expatriate workers coming to the kingdom as it implements a $400 billion infrastructure spending plan, and this growing population entails higher demand for residential real estate, especially at the lower end of the market.
In March 2011, the Saudi government pledged to spend $66 billion to build 500,000 new homes. A step in the right direction, but so much more is needed. "We estimate private and public developers will need to build about 275,000 units a year through 2015 for a total of 1.65 million homes over six years," said Banque Saudi Fransi, only a week after the government's announcement.
At the moment, only around 40% of Saudi Arabians own their property. The immature mortgage market is another major barrier to home-ownership in the whole MENA region, as it limits low and middle income households' access to affordable finance. In advanced economies, the level of outstanding mortgage lending averages 60% of GDP. The UAE, Kuwait and Qatar have the most-developed regional markets, with mortgage loans totalling some 17%, 14% and 12% of GDP respectively. However, in Saudi Arabia, the region's most populous country, loans have been valued at a meagre 2% of GDP. The state-funded Real Estate Development Fund (REDF) was created for the purpose of offering interest-free loans to low-income Saudi buyers, but it is not sufficiently funded and the current waiting list for an REDF housing loan is estimated at a staggering 18 years. As for the planned national mortgage law, which has been debated for over a decade, it may not be sufficient if approved: lower-income Saudis may not be eligible for mortgages if they are unable to provide 20% deposits.
If Saudi Arabia, one of the richest and more stable countries in the MENA region, is having real problems solving its housing challenge by throwing money at it, what chance is there for North African countries, whose coffers have been left empty by decades of autocratic and corrupt regimes?
"Housing is not a simple method for popular appeasement," warns Maysa Sabah. "Affordable housing is 'easy to build'--just add enough money, and there can be homes--but housing is 'hard to make work' if developed poorly, or with unwise legal, financial, or operational structures: then it can quickly turn into the slums of tomorrow."
Brian Nolan has been reflecting on the concept of linking job creation and 'value' housing. "I think the primary contributory factor to the dissatisfaction that is underpinning the Arab Spring is clearly unemployment. Without a job and an income, it is not possible to afford any housing, regardless of whether or not it is affordable. Therefore, my contention has been that governments must grapple with both issues simultaneously".
Turkey as an encouraging example
Some Arab countries have made successful attempts at resolving the housing crisis. Jones Lang LaSalle praises the way Turkey in particular has tackled the issue. The Turkish government has used a form of public-private partnership (PPP) to deliver mass housing projects through TOKI (Housing Development Administration of Turkey). TOKI issue tenders for the disposal of government-owned land for mass housing projects. Private developers are then invited to submit plans indicating how many dwellings they propose to provide and what proportion of these they are willing to give back to TOKI for the government to rent or sell to those in need of private housing. TOKI has delivered more than 500,000 housing units in over 2,000 projects over Turkey in the past 25 years.
"This has proved to be a successful method of delivering mass market housing that could be adopted and applied in other markets across MENA, where the government has control of large areas of land," Jones Lang LaSalle argues.
It's a success story MENA governments might consider emulating if they want to quell social tension and stop their youth bulge from exploding.
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|Title Annotation:||Business/REGIONAL; Middle East and North Africa|
|Comment:||The affordable housing challenge: with a booming population and calls for social reforms in the wake of the Arab Spring, the MENA region needs to provide enough affordable housing options for its inhabitants--or face the consequences in the streets.(Business/REGIONAL)(Middle East and North Africa)|
|Publication:||The Middle East|
|Date:||Apr 1, 2012|
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