Affordable Housing & Housing Finance: Issues and Solutions

The global housing crisis is a pressing issue, particularly in regions experiencing rapid population growth and urbanisation. According to a recent study by the Islamic Development Bank (IDB), the housing needs of the Muslim World are estimated at 8 million units, with nearly all of these units required in the low-income segment. This paper aims to delve into the intricacies of this housing crisis, focusing on the role of housing finance in addressing the shortage. By examining the housing needs in different regions, the impact of urbanisation, and the role of housing finance, we can better understand the challenges and potential solutions to this global issue.

The IDB study highlights a significant housing deficit in the Muslim World, estimating a need for 8 million new housing units. This figure is further broken down into regional needs: 3.2 million units in the Middle East and North Africa (MENA), 2.7 million in Asia, and 2.3 million in Africa and other regions. The study underscores the urgency of addressing these needs, particularly in the low-income segment, where the demand for affordable housing is most acute.

Urbanisation is a major driver of the housing crisis, with the urban population in the Muslim World projected to rise from one-fourth to one-third of the total population. This rapid urbanisation places additional strain on the housing supply, exacerbating the existing shortage. The need for new housing due to population growth is based on an average household size of 5-5.5 people and a population growth rate of 2.5%. This demographic trend further increases the year-on-year housing needs in major metropolitan areas.

Housing finance plays a crucial role in addressing the housing deficit. Access to affordable and sustainable housing finance is essential for low-income households to meet their housing needs. However, the current supply of new housing units falls short of meeting the demand, with only 30-40% of new housing needs being met. This gap highlights the critical need for innovative housing finance solutions to bridge the shortfall.

The MENA region faces a significant housing deficit, with an estimated need for 3.2 million new housing units. Urbanisation in this region is rapid, and the demand for affordable housing is high. Governments in the region need to boost investment in key infrastructure and improve regulation to increase the provision of affordable serviced land with proper tenure security for low-income households. The IDB study suggests that governments should adopt housing policies that offer households greater flexibility to meet their housing needs, going beyond simply providing low-income families with outright housing grants or subsidies to buy houses.

In Asia, the housing needs are estimated at 2.7 million units. The region is experiencing rapid urbanization, which is driving up the demand for housing. The challenge in Asia is to balance the need for affordable housing with the economic pressures of urbanisation. In Asia, Housing finance solutions must focus on providing affordable mortgages and improving access to housing finance for low-income households.

The housing needs in Africa and other regions are estimated at 2.3 million units. The housing crisis in these regions is compounded by issues such as poor infrastructure and limited access to finance. The IDB study highlights the need for greater private sector participation in the provision of mortgage financing for low-income households. This would require changes in laws and improvements in public agencies to provide better protection of creditor rights, improved systems for evaluating borrower risk, and more comprehensive property registries.

To address the housing deficit, innovative housing finance solutions are essential. These solutions should focus on diversifying subsidy schemes and designing innovative financial products that facilitate access to housing for low-income households. For example, IFC, the leading international investor in housing finance in emerging markets, has committed more than $7 billion to the sector since 2000. IFC’s approach includes investing in financial institutions, mobilising capital, and providing advisory services to strengthen financial institutions’ capacity in housing finance.

The housing crisis in the Muslim World is a complex issue that requires a multifaceted approach. The IDB study provides valuable insights into the housing needs of different regions and underscores the importance of housing finance in addressing the deficit. By focusing on innovative housing finance solutions and improving access to affordable housing, we can make significant strides in meeting the housing needs of low-income households. The role of housing finance is crucial in this endeavour, and it is essential that governments, private sector entities, and international organisations work together to develop sustainable and inclusive housing finance systems.