Let’s make housing finance accessible to middle- and low-income households that are part of the informal economy.
Providing housing for all is one of the critical challenges affecting most developing economies across Asia-Pacific. Housing plays a key socioeconomic role, and poverty eradication is unlikely to be met without addressing basic housing needs.
The growing urgency to provide adequate, affordable housing to millions of households in a way that guarantees a sustainable future for cities, calls for a paradigm shift in housing policy and practice.
Sustainable Development Goal No. 11 points to the importance of housing to “make cities and human settlements inclusive, safe, resilient and sustainable,” and seeks to ensure access for all to adequate, safe and affordable housing and basic services and upgrade slums. To make this ambitious goal a reality, we need innovative, inclusive approaches to not just provide housing, but also making it affordable.
This has propelled the issue of affordable housing and housing finance to the forefront of the global development agenda.
Limited housing development in Asia Pacific is evidenced by the low ratio of housing compared to GDP. In Southeast Asia, Indonesia is at 2.85%, the Philippines 4.04%, and Thailand 18.8%. In South Asia, the housing-to-GDP ratio in Bangladesh stands at 3.2%, India 5.0%, and Bhutan 10.8%.
A low housing loan as a share of total credit ratio is another indicator that housing development throughout the region is constrained. In the Philippines it is 7.1%, while Thailand’s is 19.9%, and Indonesia’s ratio is 29.17%. In India the ratio is 12.46%, Bangladesh 9.10%, and Bhutan 22.7%.
The stark reality is that housing development reflects the characteristics of a “missing market.” If housing development is left to the market alone, we observe that it will cater almost exclusively to the middle-income brackets and above.
Why is this? Faced with a large unmet demand, the supply of good credit risk borrowers crowds out the lower end of the market.
It is equally important to understand that housing development is part of a wider ecosystem. Our analysis and practical experience reveal that housing development is about integrating the various components that make up the demand and supply factors underlying this ecosystem and their respective links.
From the supply side and taking into account rapid urbanization across the region, three key factors drive up housing cost. These are land (in particular, trunk land earmarked for development), finance (including availability of mortgage finance within a sustainable share of household income, usually in the range of 20-30%), and to a lesser extent construction (both materials and the building process).
On the demand side, it’s important that apex national housing development institutions, like the National Housing Development Corporation in Bhutan, support other elements in the ecosystem.
Governments throughout developing Asia are finally starting to recognize that home ownership is an important source of asset creation that supports expansion of household wealth. This operates directly through expected price appreciation of the dwelling over the long term, and indirectly by expanding access to finance for the owner through collateral for future borrowing.
Accordingly, more home ownership can potentially contribute to reducing inequality. More broadly for the economy in general, investing in housing has important multiplier effects on various subsectors, from construction to finishing, to furniture to insurance, and to real estate.
Governments are increasingly asking ADB for help to address their housing shortcomings. Our approach largely focuses on the affordable housing segment, covering the low- to middle-income brackets.
Over the course of our work in housing, it has become clear that finance—particularly long-term, sustainable blended finance operating through dedicated financial institutions—can enable and bring together the various components in the ecosystem, and help to improve a country’s housing stock.
In Bangladesh and Bhutan, for instance, we try to develop deep, resilient, and affordable housing finance markets accessible to middle- and low-income households that are still part of the informal economy. We want to create systems that address the needs of households at different income levels, yet also can be sustained, scaled up, and oriented to the private sector.
The future of housing delivery in Asia-Pacific will largely depend on how well and how soon access to adequate housing will be provided for all. Positioning housing at the center of national agendas will be key to achieving this goal.
What comes next should be the result of a collective commitment from all stakeholders to promoting the right to adequate housing, and building a future where cities are places of opportunity for every citizen.