Tackling the Affordable Housing Challenge

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The World Bank Group estimates that by 2030, three billion people, or 40 percent of the world’s population will need new housing units. A recent study by McKinsey and Company delves into the options to consider to achieve affordable housing globally. This comes at a time when there is skyrocketing demand for affordable housing especially in developing countries.

The McKinsey report points out that access to land is among the most common constraints preventing housing development and one of the reasons building costs are so high. The study which considered the situation in various cities around the world, found out that in cities such as Auckland and Rio de Janeiro, the cost of land often exceeds 40 percent of total property prices while in some cases such as San Francisco, extreme scarcity of land makes it account for as much as 80 per cent of the home price.

Unlocking land at the right location and price is one of the most recommended solutions to the problem.

By global estimates, releasing the full potential of land for housing development can reduce the cost of owning a standard housing unit by at least 20 per cent. It is no doubt that underutilization of land is representative in most cities and the traditional low-rise spread out standard planning doesn’t help matters much.

One way to maximize the potential of existing space amidst the land constraint is to increase the density of housing in existing areas. The McKinsey study found out that promoting density around transit rather than encouraging sprawl and longer commutes is more compelling in congested cities.

A good example is Seoul which allows floor-area ratios that are up to 20 times higher in better-connected neighbourhoods than in more distant areas. In cities with such regulations in place, developers could be allowed to build on residential parcels that are not taking advantage of currently allowed density.

Riyadh, Saudi Arabia for instance has some 40 square kilometres that are zoned residential but are not being utilized, while about 40 percent of all zoned residential land within Nairobi is vacant.

Cities urgently need to step up home building efforts in order to match residents demand for more decent and affordable housing that will further inclusion and eliminate the economic gap usually occasioned by housing shortages.

In addition to finding the land, cities have to remove other barriers for instance the regulatory stock pile quite often derailing investor efforts. The construction industry too has to make changes and innovations that will enable it deal with the challenge effectively.

 

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