Complex Made Simple

Middle East forced to address affordable homes issue

Middle East governments have finally realised that providing their citizens with homes might help salve civic unrest, or even head it off altogether. But with a shortage of more than 3.5 million affordable homes across the region, will policymakers deliver on their promises?

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 , 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. In Iraq, decades of underinvestment and three major conflicts have left the country desperately short of affordable housing; the National Investment Commission has recently been handed the task of building 1 million new units, with as many as 430,000 of that total scheduled for delivery by the end of March next year. Morocco faces a shortfall of around 600,000 affordable homes, although JLL highlighted positive government initiatives including tax rebates for private developers, as being conducive to closing the gap between supply and demand.

Bahrain witnessed violence on its streets in the first half of this year as the country’s Shi’ite majority railed against the Sunni government; today the island’s embattled rulers face an estimated shortfall of 40,000 properties. In the UAE, the government has greenlighted the development of 20,000 new dwellings, mostly in the capital Abu Dhabi. And in Oman, which has a shortfall of around 15,000 dwellings, a government programme has been unveiled which will make the provision of affordable properties a key priority, after the completion of ongoing infrastructure projects.

Saudi facing biggest housing challenge

As the Gulf’s largest economy, Saudi Arabia faces perhaps the most significant challenge if it is to satisfy the needs of its rapidly expanding population, which has doubled in size since 1998.

The country’s total population is growing about 2.4 percent annually, and of the 18.5 million Saudi nationals around 47 percent are aged 18 or below – a huge contributor to the fact the kingdom faces an affordable homes shortfall of 400,000 units. As part of a wide-ranging series of state handouts in the wake of the Arab Spring uprisings, Saudi has this year pledged to spend $67bn on the problem, including building 500,000 low-income apartments, and raising the maximum loan for homes from $80,000 to $133,333. However, the bottom line is that Saudi needs an estimated 150,000 new housing units annually as demand is soaring as a result of rapid population growth and an inflow of expatriate workers.

“If you look at places like Saudi Arabia, then you have a big population base and immense wealth being created from oil revenues, but there is a sense that the government has not catered to the requirements of its people,” says Jain at JLL.

“A lot of the demand in Saudi Arabia is driven by the tier-two and tier-three cities such as Jubail and Ha’il, and there also need to be urban regeneration projects,” he continues. “The demand is focused on single-family houses rather than apartments, which means that the developments will have to be on the edge of the cities, where land is more easily available and less costly.”

However, it appears that policymakers in Riyadh have at least learned from the flawed approach of past years, when piecemeal projects were hammered together in remote and inaccessible locations. The country’s new Ministry of Housing says it is planning to implement a seven-point strategy, which it claims will solve the country’s housing problem and achieve the goal of making every citizen a homeowner.

“Saudi is lagging behind the others, but they are at least thinking their strategy through this time, instead of just going ahead and implementing changes,” says Jain. “In the past they have not thought their strategies through, but this time they seem to be acting more carefully.”