Middle East forced to address affordable homes issue (page 1 of 2)

It has taken a string of revolutions to shake them from their reverie, but it appears Middle East governments have finally realised the value of putting roofs over their peoples' heads. In a report published last month, real estate consultancy Jones Lang LaSalle noted that governments across the Middle East and North Africa (MENA) region are devoting more money and attention to the supply of affordable homes; that is, social hosing for those unable to pay market rates, as well as low-cost dwellings for those with limited incomes.

"Governments have long been aware of the issues surrounding affordable housing, but it was not a priority," says Deepak Jain, Head of Strategic Consulting for Jones Lang LaSalle MENA. "Now some governments have refocused on providing affordable housing as a direct result of the Arab Spring, while others are looking at it in anticipation of avoiding problems in the future, as a pre-emptive measure."

"Affordable housing is part of a long-term solution to the problem of unsettled populations," agrees Mark McFarland, Emerging Markets Economist at Emirates NBD.

"Certainly we know that creating affordable housing for low-income people can benefit the population as a whole," he continues. "It means the security of a house, which means people can build a life and amass a pension. That kind of social policy is very necessary, and is more than a short-term salve."

Demand still outstripping supply in region

However, demand is still far outstripping supply, as the region experiences population growth of around double the global average. The JLL report estimated that there is a total combined shortage of more than 3.5 million affordable homes across the region, and that demand will continue to outstrip supply for at least the next five years.
"In the larger markets in the region, from a pure supply and demand perspective, I don't think supply will catch up with demand within the next five years," warns Jain. "Finding the physical capability to build so many houses is going to be extremely challenging."

The JLL report noted a number of key factors which have contributed to the failure of the real estate industry to provide sufficient affordable housing. These include high land values which have reduced access to affordable land, high capital costs for associated infrastructure development such as electricity and sewerage, low financial returns compared to other residential sectors, limited access to suitable finance for low-income families, and low acceptance of system building techniques among developers that would allow for greater economies of scale and therefore increase margins.

"Across the region the money has been there and the senior leadership has had the desire [to get homes built], but at an operational level there have been too many pieces missing with regards legal frameworks, construction costs, and infrastructure-related issues," says Jain.

"Governments cannot provide all this housing on their own," he continues. "They need the private sector, so the authorities need to incentivise developers to get involved, whether through tax-related benefits, freeing up more land, or reworking legal frameworks, and make affordable housing a more attractive prospect for developers."

Egypt suffering from highest shortfall

Egypt has the highest current shortfall of the seven core markets analysed in the JLL report, with a gap of around 1.5 million properties; the government has so far made a provisional commitment to construct 1 million new affordable residential units across 32 cities.