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Major markets in MENA face shortage of 3.5 million affordable housing units


Jones Lang LaSalle, the world's leading real estate investment and advisory firm, has today published a special report titled “Why Affordable Housing Matters?” for the Middle East and North Africa (MENA) region.

Focusing on seven major markets, the report confirms that whilst governments across the region are increasing their attention on the supply of new homes, demand is far out-stripping supply as the region experiences population growth around twice the global average. With a young and fast growing population, the report estimates that there remains a combined shortage of more than 3.5 million affordable dwellings across the major markets within MENA and that demand will continue to outstrip supply for at least the next five years. The extent of this shortfall varies from more than 1.5 million units in MENA’s most populous market (Egypt), to just 15,000 units in the Sultanate of Oman.

Joint author of the report and head of Jones Lang LaSalle’s specialist team of experts on affordable housing, Deepak Jain commented:

“As focus shifts away from top-end luxury development, Jones Lang LaSalle estimates that the provision of sufficient levels of affordable housing represents probably the single greatest opportunity for the real estate industry in MENA at the present time. There is currently a marked shortfall of such housing in all the major markets across the region and this shortage is forecast to increase as governments respond to the need to provide sufficient levels of affordable housing to address one of the key  social issues facing their respective populations.”

In summarising demand in each of the seven core markets, the report highlights the following:
  • Egypt: Has the highest current shortfall of affordable housing in the region. The government has recognised this problem and has made a provisional commitment to construct 1 million affordable new residential units across 32 cities.
  • Iraq: Thirty years of conflict and underinvestment have created a major housing shortage across the whole of the country. The National Investment Commission has recently been mandated to construct 1 million economic housing units with as many as 430,000 housing units expected to be completed by the end of the first quarter 2012.
  • Morocco: Has the most mature affordable housing market in the region. Despite the introduction of a wide range of government initiatives (including tax rebates for private developers), there remains an estimated shortfall of 600,000 affordable homes.
  • Saudi Arabia: The Kingdom has an estimated shortfall of 400,000 affordable homes and the government has recognised the need to provide more dwellings as part of its broader US$ 133 billion financial and social stimulus package.
  • Bahrain: The recent US$ 10 billion GCC stimulus package includes affordable housing where there is estimated for 40,000 additional dwellings. 
  • UAE: The government has recognised the need for more affordable housing with an estimated shortfall of about 20,000 new dwellings, predominantly in Abu Dhabi where the lack of affordable housing has resulted in high levels of shared accommodation.
  • Sultanate of Oman: The Sultanate has an estimated shortfall of about 15,000 dwellings and provision of affordable housing will form part of a Government programme following completion of a number of major infrastructure projects.
While there is no single definition of what constitutes affordable housing, with different markets across the region having quite different interpretations, it is generally considered to incorporate two forms: the first being social housing for those who have no ability to pay market rates; and secondly, low cost housing for those with limited incomes that are also unable to afford market prices or rentals.
 
The real estate industry has generally failed to provide sufficient affordable housing to meet the required demand. In highlighting the issues which have inhibited the level of supply, the report highlights six key factors:
  1. High land values which have reduced access to affordable land;
  2. High capital costs for associated infrastructure development such as electricity and sewerage;
  3. Costs in providing suitable multi-modal public transport access to remote locations;
  4. Low financial returns compared to other residential sectors;
  5. Limited access to suitable finance for low income families due to generally immature mortgage markets;
  6. Low acceptance of system building techniques amongst property developers that would create appropriate economies of scale which would create better margins.
In seeking solutions to the shortfall, the report recommends that governments need to provide more support as the private sector is unlikely to produce sufficient enough housing without assistance and incentives. It suggests that governments should look to promote a more active mortgage sector and other associated initiatives to stimulate and grow the availability of low cost housing finance. It also suggests more active involvement by local communities, highlighting the need for better urban design and community development to avoid the creation of residential ghettos.  The report also states that Governments need to implement a more holistic approach to urban planning by widening the existing framework beyond the periphery of current metropolitan areas.
 
Deepak Jain, Head of Strategic Consulting for the firm in the MENA region said, “As demand for more affordable housing increases across the region there is a significant need to radically re-think national housing policies and development programmes. Whilst governments around the region have started to allocate significant financial resources to address the shortfall in affordable housing the challenge extends beyond an investment issue. We believe Governments should get more involved to avoid the high social and economic costs involved in the current piecemeal approach where most sites for affordable housing are located in remote and inaccessible locations. The scale of demand requires a much more strategic and inclusive form of management to boost supply and ensure the right kind of developments are built in the right places that people can afford.”

He added: “The solution is complex and the market has a key role to play. For cities to be successful and operate efficiently and effectively, affordable housing needs to relate to the broader needs of the target market. More innovative planning and design is required, creating more attractive, environmentally sustainable and cohesive communities. Accessible financing and thus empowering low income families to take a stake in their future is another aspect of the holistic solution required. There  is a need to re-think the existing relationship between government and the development industry to create more attractive and effective investment agreements that harness the abilities of both to provide the best affordable housing that people actually need and want.”