“We have seen surveys suggesting Saudi Arabia has a 400,000-home backlog; Bahrain, 40,000; the UAE 20,000; and Oman 15,000. In all the GCC countries there is an ongoing rise in demand (Saudi Arabia’s is estimated to be 200,000 annually) through population growth and people’s desire to form new households,” David A Smith, CEO and founder of the Affordable Housing Institute (AHI), a USA-based global non-profit organisation, providing housing finance expertise, and present also in the GCC region, told bq doha.
Although the GCC governments are trying their best to solve the problem, it has not been enough. “In every country I have worked, when people have housing troubles, they become dissatisfied with their government, as we have seen here in the US since the foreclosure crisis of a few years ago. Fortunately, dissatisfaction seldom means public unrest. “
Shortage of homes – a fundamental socioeconomic issue
Despite favourable regional economic indicators, house ownership is elusive for many people in the GCC, regardless of their national origin. Land and house ownership is mainly concentrated in the hands of high-net-worth individuals and large family business owners. Strategy&’s report states that only 35 percent of Saudi households own their homes, while in the UAE, this number is somewhat higher – around 48 percent. The report reveals that an average house in Kuwait, for example, was priced at 30-times the average gross income of a person aged 25 to 29, compared to 11-times the average younger person’s salary in Norway and six-times the average salary in the US.
In addition to high prices, high unemployment among nationals – especially youth, explains the relatively low rate of home ownership among GCC citizens, as a younger unemployed population is unable to purchase or even rent homes. This problem can have a profound impact on GCC societies as owning a home is linked to household formation; lack of affordable housing tends to raise the age of marriage, and as people delay starting families, the birth rate slows down and the existing housing becomes crowded, adds Smith.
“These trends accelerate when a country’s economy is growing and become particularly urgent when there is a major regional or global event (for instance, Dubai Expo 2020). At AHI, we say “1=1+1”, meaning that for every +1 job an economy adds, it must add +1 home and +1 cost-effective, sustainable commute – otherwise the city and country get out of balance,” he explains.
The shortage of housing is an especially serious problem among low and middle-income non-nationals, just the people the fast-growing GCC economies need a constant influx of. However, the situation varies from state to state. While in the UAE and Qatar the need for affordable housing is rapidly growing among the expatriate population, in Bahrain, Saudi Arabia and Oman, a growing younger population is on the top of the demand scale.
Governmental efforts not enough
GCC governments have tried to solve the problem by introducing mega-housing programmes often aimed at low-income residents, investing billions of dollars in mega housing projects. Kuwait’s Five Year Plan 2010-2015 envisages a budget of USD 140 bn to meet the urgent housing demands in the country, as well as Oman’s Five Year Development Plan, which provides for investment of USD 1.6 bn for housing projects. Saudis also see housing programmes as one of their priorities, as they intend to increase supply through the construction of one million housing units. Meanwhile, Qatar has increased the ceiling for home loans to USD 330,000 for eligible nationals and the repayment tenure extended to 37 years.
These examples clearly show the tremendous efforts to overcome the growing shortage of housing units. However, the Strategy& report states that this will not be enough to meet escalating and evolving housing needs. While such projects are a short-term solution of providing physical housing through large quantities of low price units, they fail in overcoming the region’s broader socioeconomic and environmental challenges and fostering stronger communities for residents.
In her paper ‘Promoting a Rare Breed: Private Non-profit Housing Developers in the GCC’, AHI’s Maysa Sabah Shocair identifies a combination of challenges that GCC states are faced with, namely a lack of coordination between different government entities; a lack of clear housing eligibility and priority rules; budget constraints; a limited supply because authorities are largely acting as the sole developers; high cost of projects because value engineering tends to be absent from many government project reviews and a limited legal action against defaulters, which increases the effective subsidy cost of housing.
On top of this, Smith notes that “money alone does not solve the problem – in fact, if money is added quickly without restructuring the delivery system, the result will simply be runaway prices, skyrocketing land values and even less affordability than before”.
State programmes are no doubt important and the largest source of housing programmes. However, the majority of real estate experts underline that one of the future solutions should include public-private partnerships offering sustainable solutions. Furthermore, introduction of non-profit developers in the region could certainly contribute to effectively solving the matter.
Smith believes that “each country must devise its own solution, because while the principles of housing delivery and housing affordability are universal, each country’s ecosystem is different, so one must customise and adapt”. But despite the country’s particularities, the challenges faced by non-profit housing developers, wherever they are, are likely to be similar: how they act as entrepreneurs, how they activate resources, how they stimulate change and how they struggle for viability, successful business models and a solid organisational grip.
Regionally, the public-private partnership model has been successfully incorporated in other sectors. States should look towards more holistic solutions while collaborating with private builders, banks, as well as non-profit developers and charities. The latter have a special role in Gulf societies. “The tradition of Islamic charity goes back to religious origins of the caravanserai (as well as zawiya, sabeel, and imaret, all as part of charity).
The GCC is a major donor source in philanthropy and GCC governments are committed to affordable housing. For GCC countries, the challenge is to convert that cultural heritage, personal impulse and government desire into programmes that work effectively in the modern world. “The right package of laws, incentives, resources (e.g. land), and subsidies can make non-profit affordable housing bloom in the desert,” said Smith.
In addition, it is important that these projects include expats as well, otherwise any solution would be only partial. Affordable housing delivery systems should cover availability of land, finance, infrastructure, services, and construction, building materials and maintenance and be well integrated into wider urban areas, while avoiding situations where such units would be erected in the periphery, isolated from the rest of society and leading to creation of slums.
“Personally, I would like to see greater exploration of properties in Waqf for affordable housing, as well as Zakat as a housing-affordability funding source,” adds Smith.
Shocair suggests in her paper: “Housing authorities could connect private developers and non-profit developers who may purchase units from private developers and rent them to the lower-income households. Such an approach would encourage mixed-income communities and create “hybrid value chains by forging new connections between the public, private and the non-profit sectors”.