SHANGHAI – Providing decent, affordable housing is a growing challenge in developing and developed economies alike. With demand far exceeding supply, the adverse effects – on mobility, productivity, and growth – are (or will be) increasingly apparent. Fortunately, there are ways to narrow the affordable-housing gap substantially, using mostly market-based approaches at the municipal level.
Worldwide, 330 million low- and moderate-income urban households either live in substandard housing or are so financially stretched by housing payments that they must forgo spending on essentials like health care and education. By 2025, that figure could reach 440 million households, or about 1.6 billion people (one-third of the world’s urban population) – and that does not even cover some of the world’s poorest people, who often live outside of cities, on urban streets, or as squatters, leaving them unaccounted for in census estimates.
Replacing today’s substandard housing and building the additional units needed by 2025 would require an investment of an estimated $16 trillion – a daunting figure, to say the least. But there are four key “levers” that can reduce the cost of housing delivery by 20-50%, thereby making housing affordable (amounting to no more than 30% of total income) for households earning 50-80% of the median income in most cities.
The first lever is more efficient land use. Acquisition of land for development in the right location at a reasonable price has the greatest potential for reducing housing costs.