View of Pudong Financial District in Shanghai. Photo: Reuters / Carlos Barria
View of Pudong Financial District in Shanghai. Photo: Reuters / Carlos Barria

Already more than half of the world population lives in urban areas and the trend to move to cities is expected to continue, until by 2050, the United Nations expects that two-thirds of the people in the world world population will live in cities.

Urbanization will therefore be a major trend shaping societies and economies across the world for the decades to come, especially in Asia and Africa which are both latecomers in terms of urbanization. The key question is how we can achieve sustainable urban development.

The biggest intergovernmental conference on housing and urbanization, Habitat III, took place in Quito, Ecuador, in October last year where the New Urban Agenda or NUA was adopted. The NUA does not consider urbanization as an obstacle to development but rather a key development driver.

The main objective of the NUA is to propose solutions to manage the process of urbanization in a sustainable and inclusive way. Providing adequate and affordable housing is one key theme in the NUA. It stresses the need to promote not only homeownership but also other types of tenure, such as cohousing.

The NUA perceives cities as a key development actor. For example, it shows how well-planned urbanization can boost economic growth. Furthermore, it emphasizes the need to create safe, inclusive, accessible, and green cities. This holistic approach requires well-integrated planning instruments across sectors. Overall, NUA can be understood as describing the “right to the city,” whereas the previous urban agenda established the “right to adequate housing.”

The NUA reaffirms the right to adequate housing. It adds that housing policies should be based on the principles of “social inclusion, economic effectiveness and environmental protection.” Furthermore, the NUA places itself into the context of the United Nations Sustainable Development Goals.

The NUA commits countries to promote affordable and sustainable housing and housing finance. The NUA calls for mixed-income development in order to avoid segregation. Furthermore, the NUA also stresses the need to adapt housing policies to the local context. For example, it recognizes different forms of tenure in paragraph 107, such as cohousing and community land trusts. Finally, it explicitly encourages support for incremental housing and self-build schemes.

Public sector role

There is always a delicate balance to strike between public and private sector interventions in the housing market. However, governments in many low- and lower-middle-income countries nowadays rely excessively on the market. And, in contrast to other markets, the private sector depends crucially on supply side policies of the government for housing.

Unclear land titles or a shortage of developable land constrain the supply of additional housing and lead to a surge in housing prices. As a result, low-income groups are priced out of the market. The role of the government in providing adequate and affordable housing therefore starts by ensuring that supply constraints are eliminated.

We have witnessed in too many instances that governments subsidized housing demand without removing supply constraints. For example, the United Kingdom introduced a Help to Buy program in 2013 in order to facilitate access to homeownership. However, the government did not tackle the UK’s rigid planning system which basically makes the housing supply inelastic. As a consequence, Help to Buy pushed up housing prices and made homeownership even more elusive for many.

There are more successful experiences by governments in providing affordable and adequate housing.

For example, in Japan after the Second World War the government used a three-pillar approach by (i) establishing a government housing loan corporation to facilitate housing construction, (ii) constructing rental houses for low-income groups, and (iii) providing large-scale supply of residential land. The restoration of the housing stock was achieved in the 1960s.

Korea example

The Republic of Korea followed a similar strategy in the 1970s by expanding the land supply and increasing the provision of housing loans. However, the government interventions fell short of increased demand and prices increased sharply in the late 1980s.

In response, the government expanded its housing programs with the so-called Two Million Housing Drive and was eventually able to curb property prices. Since then, the Republic of Korea has been relatively successful in containing price surges and has avoided real estate bubbles.

The country’s housing policies are based on the idea to hold the public sector responsible for the supply of developable land and let the market develop housing solutions. Government regulations ensure that low-income groups can access adequate housing either through subsidies for their rent or housing finance.

The experiences of developed and emerging countries, such as the Republic of Korea, provide ample examples of the challenges and risks when designing housing policies to increase the affordability of housing. Asia’s rapid urbanization (every day 127,000 new residents are drawn into urban areas) makes housing policies a key concern for almost every local and central government.

Urbanization can only become an engine of economic growth and prosperity, as long as urban areas provide affordable and quality housing options for all urban citizens.

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