Challenges, Opportunities, Housing and Finance- ADFIAP

Housing is a fundamental human need, yet millions of people around the world, particularly in the Asia-Pacific region, continue to face significant challenges in accessing adequate and affordable housing. This article explores the current state of housing and housing finance in the Asia-Pacific region, highlighting the challenges faced by various countries and the opportunities for improvement. Drawing on insights from the presentation by Zaigham Mahmood Rizvi at the ADFIAP Annual Conference in 2010, this article examines population trends, urbanisation, the prevalence of slums, and the role of formal housing finance in addressing housing shortages.

The Asia-Pacific region is home to a significant portion of the world’s population, with rapid urbanization and population growth exacerbating the demand for housing. According to data from the World Development Indicators 2009, countries such as India, Pakistan, and Indonesia are experiencing substantial urban population growth. For instance, India’s urban population was projected to grow by 2.5% annually between 2000 and 2007, while Pakistan’s urban population growth rate was 3.3%. This rapid urbanization has led to a significant increase in the demand for housing, particularly in urban areas.

Despite the growing demand for housing, many countries in the region face severe housing shortages, with a significant portion of the urban population living in slums or informal settlements. In India, for example, the urban housing shortage is estimated to be over 25 million units, with nearly the entire urban shortage affecting economically weaker and poorer sections of society. Similar trends are observed in other countries such as Pakistan, Bangladesh, and Sri Lanka, where a large number of people live in slums or lack proper shelter.

Slums are characterised by inadequate living conditions, including lack of access to improved water and sanitation facilities, insufficient living area, poor structural quality and durability of dwellings, and insecure tenure. In some cases, the urban poor live in extreme conditions, such as on footpaths or in abandoned sewerage pipes. Addressing the issue of slums requires a two-pronged approach: slum improvement programs and rehabilitation programs to provide better living conditions for the urban poor.

Formal housing finance plays a crucial role in addressing housing shortages and improving living conditions. However, the Asia-Pacific region lags in terms of mortgage finance, with an average mortgage debt to GDP ratio of only 3.3%. This low level of mortgage finance indicates a significant gap in the availability of housing finance options for the majority of the population.

The importance of housing finance cannot be overstated. Housing contributes to overall economic growth, social uplift, and employment. It deepens, broadens, and stabilises the financial sector, and accounts for a significant portion of household wealth in emerging market countries. In South Asia, for example, 40-50 industries are directly linked with housing construction, and construction and related sectors constitute 9% of the labour force worldwide. Housing investment also accounts for a substantial portion of aggregate investment and household expenditure.

Despite the current challenges, the Asia-Pacific region presents considerable potential for growth in housing and housing finance. The world population is projected to reach 7.9-10.9 billion by 2050, with 60% of the world’s population residing in urban areas within the next two decades. Rapid economic growth, significant population increases, and growing urbanisation trends create a favourable environment for housing and housing finance growth.

Moreover, changing attitudes towards debt, particularly for homeownership, and the formation of a significant middle class composed of young people eager to own their homes, further contribute to the growth potential. Private sector lending for housing can free up scarce government resources for other social and economic needs, making it a win-win situation for both the private sector and the government.

To address the housing challenges in the region, various innovative approaches and regional cooperation initiatives have been proposed. For instance, housing microfinance programs have been implemented in several countries, including India, Mongolia, Sri Lanka, Thailand, Indonesia, Bangladesh, and Pakistan. These programs aim to provide affordable housing finance options to low-income households and promote women’s empowerment through housing.

Regional cooperation and knowledge sharing are also essential in addressing the housing crisis. The South Asia & Pacific Housing Forum (SAHF) provides a platform for physical and virtual knowledge sharing, intra-regional direct assistance programs, and capacity-building initiatives. The SAHF focuses on affordable housing for all and seeks technical and financial support from multilateral agencies to achieve its mission.

Several countries in the region have implemented successful housing finance programs that can serve as models for others. For example, Sri Lanka’s Women’s Bank is a cooperative society built, owned, and operated by and for poor women. The Women’s Bank provides loans for home improvement with a recovery rate of 99%. In India, a Housing Finance Corporation (HFC) offers concessional housing loans if the house is owned by a housewife or jointly. Pakistan’s Housing Board Finance Corporation (HBFC) has found that the default rate is much lower when the housewife is a co-borrower. These examples highlight the importance of gender-inclusive housing finance programs.

While it is difficult to make precise estimates of the growth potential of the housing and housing finance sectors in the region, some tentative projections have been made. For instance, Afghanistan requires a $2.5 billion investment ($276 million a year financing needs) in Kabul’s informal housing sector alone. Bangladesh needs 3.5 million new rural houses, and about 1.9-3 million dwellings require incremental construction and repair. India requires a US $108 billion investment by 2012. Pakistan needs a US$5.6 billion investment for 2009 alone (US$2 billion or 1.26% of GDP financing needed) for 470,000 housing units. Sri Lanka’s financing needs are projected to reach up to US$8.8 billion by 2020.

The housing and housing finance landscape in the Asia-Pacific region presents both significant challenges and opportunities. Rapid urbanisation, population growth, and the prevalence of slums highlight the urgent need for effective housing solutions. Formal housing finance, innovative approaches, and regional cooperation are crucial in addressing these challenges and unlocking the growth potential of the housing sector. By working together and leveraging available resources, countries in the region can make significant strides towards achieving the goal of affordable housing for all.