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Confronting the Global Housing Crisis

think-06-04-Confronting the Global Housing Crisis-Featured Image

The COVID-19 pandemic has forced billions of people to adjust to a new reality, and provoked previously unthinkable questions: How can those without a home shelter-in-place? How can people in overcrowded apartments self-quarantine? How will draconian measures impact public mental health or rent or mortgage payments? Finding a decent place to call home is not just a concern for millennials in the developed world. It has become a global problem, affecting everyone and becoming a major obstacle to growth. Cities around the world, from New York to Berlin and New Delhi, are struggling to meet the growing housing demand.

Quarry Bay, Hong Kong

The ‘Monster Building’ is a conglomeration of five incredibly dense and stacked residential complexes built in the 1960s.

Acute shortages are persisting despite billions of dollars invested and hundreds of thousands of units built. This prolonged shortage has been known as the ‘global housing crisis’ and has led to the so-called urbanisation without growth, a problem that has reoccurred in recent history.

The impacts of a pandemic like COVID-19 on the urban poor living in slums will be considerably higher... as maintaining social distancing and enforcement of selfisolation are extremely difficult in overcrowded areas.

WHAT IS THE GLOBAL HOUSING CRISIS?

Ten years on, the reverberations from the global financial crisis are still shaking up the world order. The COVID-19 pandemic has exposed the need to address another ongoing crisis: the global housing crisis. This crisis is not only being precipitated by misguided and investment-driven development but also by political instability, natural disasters and climate change.

 

In the US there is a shortage of 7.2 million affordable homes according to the National Low Income Housing Coalition (2020). In Germany, a recent study of 77 large cities revealed a shortage of 1.9 million affordable apartments (World Economic Forum, 2019). In Australia, academics at the Australian National University estimated that the market between 2001 and 2017 had an oversupply of 164,000 homes, with the surplus most pronounced in the phenomenally expensive cities of Brisbane, Melbourne and Sydney (Phillips and Joseph, 2017). In Malaysia, only a fifth of the houses available on the market are priced under the affordability threshold of USD60,000 (Bernama, 2019). As employees cannot afford accommodation with reasonable access to the local employment market, urban centres become less attractive and have lower growth prospects. Low affordability has become one of the biggest risks to property value in cities.

East London, UK

A poster protesting against rent and housing cost increases.

There are other dimensions of the shortage that make it tougher for public health authorities to manage a pandemic like COVID-19. As millions of affected people have been instructed to stay indoors, the housing crisis presents serious complications especially if a household member is showing symptoms of COVID-19. Millions are asked to self-isolate in a ‘sick room’ with a separate bathroom. This may not be an option. While pandemics present the most pressing public health risk, researchers are also concerned about the long-term physical and health effects of overcrowding if schools and workplaces remain closed for extended periods.

 

However, the worst housing crisis is not in cities of developed countries, but in the rapidly urbanising cities of the developing world: slums, illegal dwellings and indecent shelters are proliferating as city planners and managers are overwhelmed by the urbanisation trend. According to UN-Habitat, one-eighth of today’s world population, approximately one billion people, live in substandard conditions lacking amenities such as electricity, running water or basic sanitation. The impact of a pandemic like COVID-19 on the urban poor living in slums will be considerably higher compared to other areas as maintaining social distancing and enforcement of self-isolation are extremely difficult in overcrowded areas.

WHAT DRIVES THE CRISIS?

This supply-demand imbalance is greatly attributed to the large gap between the high housing cost and the low purchasing power of the urban population. The rapid increase of housing expenses relative to wages and income in cities across the world has turned urban housing unaffordable at a global scale, leading to rising levels of homelessness and residential instability for low-income owners and renters. Climate change, rapid economic growth, the financialisation of the housing sector, migration, and other challenges facing the planet are also closely linked to the housing crisis.

 

1. Rapid Urbanisation

Ongoing rapid urbanisation places huge pressure on infrastructure, housing, job creation and the environment. Currently, 55% of the world population lives in cities, yet disproportionally generating over 80% of global gross domestic product (GDP). According to a United Nations (UN) report, the urban population will exceed 68% by 2050 (UN DESA, 2018). And as cities become more economically powerful, the demand for urban properties is increasing residential property prices.

 

2. The Rise of Urban Cost of Living

For households the cost of housing reflects the purchase price, as well as the availability and cost of finance, and other expenses such as repairs, maintenance and rates. Housing markets are working in dysfunctional and geographically imbalanced ways, causing the displacement of low- or middle-income households from higher-value areas, and creating obstacles in housing construction that limit supply. Global Real Home Prices on average have grown 15% over five years (Figure 2), while average income rose by only 8% in the same time period.

 

3. Financialisation and Securitisation of Housing

Mounting prices are being fuelled by increasing demand from investors buying second homes, foreign property investments made easy by online agencies, and the globalised financial system. In numerous hard-hit cities, developers have built hundreds of thousands of units but most of them target upmarket buyers and renters, not the middle-income and working-class people who are being priced out of the market. Thus, residential development as an investment vehicle has led to an oversupply of luxury property while there is an undersupply of units affordable to low-income households.

 

In contrast, the global financial crisis has left many governments unable to subsidise new supply, while budgets are being strained by the ageing population with growing pension and healthcare needs. The local private sector has also been hard hit.

 

The UN Human Rights Council (2017) accused multinational private equity firms of fuelling the global housing crisis: according to the report, corporate landlords bought hundreds of thousands of ordinary family houses that were left empty after their owners defaulted on mortgage payments during the financial crisis in 2008. The need for these landlords to maximise profits to repay investors typically led to a ‘constant escalation’ of housing costs for tenants, primarily through rent increases.

Millennium Bridge, London, UK

A homeless man with his dog among the tide of people. The top 10% of households in the UK owned 45% of total national wealth in 2018, while the bottom 10% owned just 2%.

4. Ineffective Government Policies

Restrictive planning and zoning rules over the past decades have led to a prolonged lack of housing supply in places where people want to live. Also, a study conducted by the World Resources Institute (WRI) found that public housing policies with emphasis on home ownership and problematic land-use strategies have worsened the housing crisis (King et al., 2017). Besides, planning policies implemented from the 1950s to the 1980s had led to the construction of numerous social housing in high-rise buildings. That often had the perverse effect of concentrating poverty at the margins of cities, and the creation of rich and poor ghettos.

 

5. The Rise of Short-term Renting

The rise of short-stay rental services like Airbnb has impacted housing markets and affordable housing supply in various ways. According to a research paper by the Economic Policy Institute, the rise of short-stay units has reduced the supply of residential units (Bivens, 2019). This causes long-term rental to increase. And since housing demand is relatively “inelastic” – in that people’s demand for somewhere to live does not decline when house prices increase – even small changes in housing supply, like those caused by converting residential properties to tourism-oriented short-stay units, can cause significant rental increases. Also, short-stay services have introduced a new potential revenue flow into housing markets which is geographically uneven, creating a new form of rent gap between neighbourhoods which are culturally desirable and internationally recognisable, and those which are not.

Kos, Greece

More than 4,100 migrants and asylum seekers reside on Kos according to UNHCR. Many sleep rough by the port.

6. Inadequate Housing Supply

The success of affordable housing programmes depends not only on the mere provision of housing units, but also on other factors related to meeting the needs of prospective residents. Many affordable housing projects fail to attract tenants despite the existence of a big demand for affordable housing. Such failures may, in turn, be attributed to the failures in fulfilling individuals’ housing needs such as substandard construction quality and long commutes to jobs and amenities.

 

7. Conflict and Poverty

The humanitarian crisis triggered by war and poverty contributes significantly to the housing crisis. In 2019, the number of the crisis-displaced population reached a record 70.8 million worldwide, according to the UN High Commissioner for Refugees (UNHCR) (2018). These mass migrations of people into already crowded cities aggravate existing housing demand along with pressure on existing urban infrastructure.

Selangor, Malaysia

Roof garden at Selangor State Development Corporation Headquarters, the LEED Platinum and ASEAN Energy Award 2018 winner. (Architect: VERITAS, Green Building Consultant: NEAPOLI)

8. Environmental Degradation

It is becoming obvious that climate change is contributing to various so-called slow onset events such as desertification, rising sea levels, ocean acidification, air pollution, rain pattern shifts and losses in biodiversity (UNFCCC, 2012). Climate change has also increased the frequency and strength of extreme weather events such as hurricanes and floods, causing housing destruction and affecting vulnerable communities. Low-income communities are disproportionately affected and have the fewest resources to recover from disasters (Podesta, 2019). The deterioration of the environment will exacerbate many humanitarian crises and may lead to more people being on the move, adding much pressure to the supply of affordable housing.

 

COMBATING THE CRISIS

The need to address the housing crisis, public health and climate change is clear in recent reports of the international scientific community. Sustainable affordable housing can effectively link public health, environmental and housing policies. It is possible and there is no reason why we must not solve three of our most pressing crises at the same time.

 

Unlock Land Supply

Since land acquisition is typically the largest housing development expense, providing land at suitable locations is an effective way to reduce construction costs. Even in the densest megacities, many parcels of land remain degraded from previous use, vacant or underutilised. Such parcels – some of which belong to the government – should be released and prioritised for housing development before creating new land at the fringes of urban areas.

 

Sustainable Urban Planning

Cities need long-term planning strategies that link public infrastructure investment to the growth of new homes and provide sufficient certainty to both private developers and residents. Sustainable urban planning principles such as Smart Growth and New Urbanism promote dense infill mixed-use and mixed-income urban development. They can form an important first step toward instituting policy changes that would shift the way new development responds to a housing shortage that is now both acute and chronic. By prioritising density around transit through dense urban infill planning, as opposed to car-oriented suburb development, we can rededicate land in existing urban land for new usage. It is the most logical solution to increasing housing units near jobs. Since infill locations already have much of the needed infrastructure, infrastructure costs are substantially lower for infill development relative to a similar project in an undeveloped area. An analysis of potential cost savings from infill development estimated that reduced infrastructure in infill housing construction could help new building occupants save close to USD200 billion over 25 years if the projected 25 million new housing units built during this time followed sustainable planning principles.

Sustainable affordable housing can effectively link public health, environmental and housing policies.

Smart growth and other sustainable planning principles can target many of the housing crisis causes

Sustainable and Cost-Effective Construction

Green and resource-efficient construction can reduce both the capital and operational costs of housing, unlocking the long-term affordability (Ji and Plainiotis, 2006). Traditionally, the green building movement had largely focused on middle- to high-income developments: developers would invest in upgrading properties to meet green standards and expect to differentiate them to command market premiums. Buyers would offset their investments by lower operational costs over the building’s lifetime. Over the past decade, the exponential growth of the green building market has eliminated the additional expenditure through economies of scale. During the US Green Building Council (USGBC) GreenBuild Asia conference in 2019, engineering group NEAPOLI presented examples of affordable green housing design that lower construction costs while significantly reducing utility bills and maintenance costs. It is, therefore, the right time for the green building industry to shift the focus from premium to affordable properties. In summary, green construction can address the housing crisis through:

• Maximising operational affordability for homeowners or tenants by reducing utility and maintenance bills;

 

• Lowering the construction time and cost of housing by implementing integrated design process. Green homes are designed with better communication among all design disciplines (engineers, architects, energy consultants, quantity surveyors) and more planning, thus minimising costly design mistakes;

 

• Improving construction quality with better commissioning and maintenance;

 

• Revitalising local employment and economy by prioritising regional materials;

 

• Reducing labour and material cost by focusing on prefabrication, material efficiency and lower embodied carbon;

 

• Creating more goodwill within the community;

 

• Involving government officials and neighbours early in the process, which lessens their resistance to new methods and designs and speeds up the planning permission process; and

 

• Promoting occupant health and well-being linked to ventilation and air change effectiveness, air filtration and daylighting provision.

The Government’s Role

Governments must streamline their regulatory policies to enable transparent land acquisition, emphasise property rights over title, encourage skill-building in the construction industry, and develop a rental regulatory framework to protect tenants as well as landlords. Private land can be better utilised for development through incentives such as density bonuses – increasing the permitted floor space on a plot of land and, therefore, its value. In return, developers must provide land for affordable units.

 

The Private Sector’s Role

Private developers need to invest in sustainable design concepts to create energy-efficient and affordable housing. They should also improve productivity by mainstreaming low-cost construction methods through the use of prefabricated components, alternative materials and advanced automated equipment. Combating the crisis also requires innovative financing models in developing new homes or upgrading existing homes. The private sector must embrace novel mechanisms to finance development and help establish the creditworthiness of those looking to improve their housing situation. Employers need to work with communities to provide affordable housing for employees, or help with housing costs through loans, subsidies or mortgage deals. The non-profit sector also has a key role to play in working with housing providers to implement alternative tenancy models, while supporting advocacy efforts, formulating policy and providing technical support, information and know-how to developers and homeowners.

 

CONCLUSION

Multiple streams of evidence have confirmed the existence of a global crisis in the availability of affordable housing, with rents rising faster than incomes and with the proportion of rent-burdened households also rising. It is a multifaceted problem caused by various interlinked problems: housing supply deficit, demand crisis, construction quality, distribution of wealth, credit crisis, rental affordability, war, environmental problems and so on. Lawmakers need to urgently combat the housing crisis as part of a larger effort to prepare societies against the worst effects of climate change. All they need to do is allow market demand to fill cities with sustainable affordable and other middle-income housing forms while allowing high-income construction in limited numbers of places where it is economically viable. The COVID-19 outbreak should also be a reminder for governments that the housing crisis also has real and game-changing public health impacts.

Bronx, New York City, US

A mixed-income residential development, Via Verde contains 222 residential units, 71 ‘for sale’ units for middle-income households, and a balance of low- and moderate-income rentals. (Architect: Dattner Architects and Grimshaw Architects)

REFERENCES

  1. Bernama (2019, October 24). Malaysian homes ‘seriously unaffordable’, says BNM official. Retrieved from New Straits Times: https://www.nst.com.my/business/2019/10/532940/malaysian-homes-seriously-unaffordable-says-bnm-official
  2. Bivens, J. (2019, January 30). The economic costs and benefits of Airbnb. Retrieved from https://www.epi.org/publication/the-economic-costs-and-benefits-of-airbnb-no-reason-for-local-policymakers-to-let-airbnb-bypass-tax-or-regulatory-obligations
  3. Ji, Y., & Plainiotis, S. (2006). Design for Sustainability. Beijing: China Architecture & Building Press.
  4. King, R., Orloff, M., Virsilas, T., & Pande, T. (2017). Confronting the Urban Housing Crisis in the Global South: Adequate, Secure, and Affordable Housing. Washington, DC: World Resources Institute.
  5. National Low Income Housing Coalition (2020). The Gap: A Shortage of Affordable Homes. Washington, DC: National Low Income Housing Coalition.
  6. Phillips, B., & Joseph, C. (2017). Regional Housing Supply and Demand in Australia. Centre for Social Research & Methods Working Paper, 1/2017.
  7. Podesta, J. (2019). The climate crisis, migration, and refugees. Washington, DC: Brookings Institution.
  8. UN DESA (2018, May 16). 2018 Revision of World Urbanization Prospects. Retrieved from https://www.un.org/development/desa/publications/2018-revision-of-world-urbanization-prospects.html
  9. UN Human Rights Council (2017). Report of the Special Rapporteur on adequate housing as a component of the right to an adequate standard of living, and on the right to non-discrimination in this context. New York: United Nations General Assemby.
  10. UNFCCC (2012). Slow onset events. New York: United Nations Framework Convention on Climate Change.
  11. UNHCR (2018). Global Trends: Forced Displacement in 2018. Geneva: United Nations High Commissioner for Refugees.
  12. World Bank (2018). Groundswell: Preparing for Internal Climate Migration. Washington, DC: World Bank Group.
  13. World Economic Forum (2019). Making Affordable Housing a Reality in Cities. Cologny: World Economic Forum.

DR STELLIOS PLAINIOTIS

Dr Stellios Plainiotis is the Chief Executive Officer of NEAPOLI, an environmental design and engineering consultancy for the built environment based in Kuala Lumpur, London and Seoul.

Dr. Plainiotis is widely considered one of Asia’s leading sustainability experts. He draws on more than 20 years of professional experience in academic, policy and private sectors across the UK, Southeast and East Asia. Stellios has consulted over 60 construction projects which include Crystal Palace Park and Hoxton Square in London, Rohansky Ostrov Masterplan in Prague, Issam Fares Institute in Beirut, Kuala Lumpur International Airport 2, TRX, Menara PNB and the multiple award winning project PKNS HQ.

He is the co-author of the first Chinese Guidebook on Sustainable Building Design: “Design for Sustainability”, which is now used as a textbook at Tongji University, China and the University of Nottingham, United Kingdom.

Dr. Plainiotis is also the recipient of the Europa Award for Sustainability 2017 (Best Sustainability Leader).

JUNE 2020 | ISSUE 6

Sustainability in a Time of Crisis

About

Leaders and changemakers of today face unique and complex challenges. The HEAD Foundation Digest features insights and opinions from those in the know addressing a wide range of pertinent issues that factor in a society’s development. 

Informed opinions can inspire healthy discussions and open up our imagination to new possibilities. Interested in contributing? Write to us at info@headfoundation

Stay updated on our latest announcements on events and publications

About

Leaders and changemakers of today face unique and complex challenges. The HEAD Foundation Digest features insights and opinions from those in the know addressing a wide range of pertinent issues that factor in a society’s development. 

Informed opinions can inspire healthy discussions and open up our imagination to new possibilities. Interested in contributing? Write to us at info@headfoundation

Stay updated on our latest announcements on events and publications

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