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Housing supply in emerging economies

25 Apr 2014

A report launched recently finds that the effective provision of affordable housing is a universal problem.

Evidence has found that a substantial focus on the creation of homeownership, along with a lack of attention being paid to the development of an efficient rental housing market, has led to a shortage in affordable housing supply.

Click here for the report.

The most notable shortages of adequate housing are in the developing nations, where housing provisions have failed to keep pace with economic development. 

In the advanced economies, rising income inequalities and a tendency for housing costs to rise faster than incomes have posed major difficulties for younger and poorer households in finding adequate homes.

The research, presented at the Royal Institution of Chartered Surveyors (RICS) International Summit, held in São Paulo, by RICS President Michael Newey, investigates how housing demands, needs and supply in three of the BRIC economies, Brazil, India and China have been affected by economic growth and compares the policies outlined by governments to meet the demands for housing. 

Commissioned by RICS and authored by a team led by Professor Duncan Maclennan from the University of St Andrews, the report includes recommendations to governments, academic researchers and international agencies on the need to focus more critically on the diversities within the BRICs and OECD (Organisation for Economic Co-operation and Development) nations to convey accurately how housing systems actually operate on a local scale.

Furthermore, findings suggest that there has been too great a focus on broad housing policy ‘visions’ at the national scale, rather than the feasibility of housing policies at a local level.

As a result the report argues for decision-makers to adopt locally effective policies, recognised and supported at a national level and implemented at neighbourhood, town and city level. 

The report also examined the current issues with existing housing policies across Brazil, India and China. Evidence has found that a substantial focus on the creation of homeownership, along with a lack of attention being paid to the development of an efficient rental housing market, has led to a shortage in affordable housing supply. 

This has been most apparent in Brazil and India, where limited housing supply has been exacerbated by lagging infrastructure provision, inadequate developer funds, long delays in the planning system and, in some instances, corruption. 

In Brazil and China, sluggish housing supply systems paired with deregulated housing finance markets, has created a housing market susceptible to booms, bubbles and busts and poor market stability. However, in China, with public ownership of land and a past tradition of public housing provision, there is a record of stronger and effective policy action to deal with urban housing shortages.

Findings from the research also conclude that rapid urbanisation has led to a rise in informal settlements, particularly in Brazil and India. The formation of ‘favelas’ (shantytowns) and slums, while providing shelter for those in need, can deter the development of quality housing provision; with slum and favela formation outstripping other major housing investments since 2006.

Key findings stress the importance of improving supply, fashioning an efficient rental market, integrating housing and city development policies, and taking a contextualised and local approach to housing policy supported by adequate national frameworks and resources, according to Eriksson.

However, lessons can be learnt from the intimate links established in Brazil and China, between housing policy, urbanisation and infrastructure, which many OECD nations could benefit from. 

Comments Dr Clare Eriksson, director of RICS Global Research and Policy: “The research traces how housing provision and policies in Brazil, China and India have responded to economic growth.” 

Based on the study, recommendations are made for both BRICS and OECD (Organisation for Economic Co-operation and Development) economies to ensure more effective delivery of housing in the future. 

Key findings stress the importance of improving supply, fashioning an efficient rental market, integrating housing and city development policies, and taking a contextualised and local approach to housing policy supported by adequate national frameworks and resources, according to Eriksson.

“Although some progress has been made, particularly in Brazil and China, the research highlights that much still remains to be done until sufficient levels of decent affordable housing are a reality.

“Over the coming months, RICS will be considering the role it can play in promoting this outcome.”

Report author, Professor Duncan Maclennan, says: international bodies and lobby groups talk of the looming challenges of population ageing, the environment, worklessness, immigrations and the like. 

They also need to recognise that there is an emerging global crisis in relation to the provision of decent homes and neighbourhoods. 

Policy responses have been too little and too late in many countries and with deregulated finance markets a demand side emphasis on policies to support homeownership has shaped sluggish housing provision systems. 

“New times need a new emphasis on rental housing provision and for programmes to help the poor there will have to be a new, sustained government commitment of resources,” he adds.

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