The Global Housing Affordability Challenge: understanding of the housing sector
Introduction
The challenge of providing adequate and affordable housing is a global issue, impacting both developed and developing countries. Recognising housing as a basic human need and a crucial component of an adequate standard of living, various international instruments and national constitutions have enshrined the right to adequate housing. This document explores the multifaceted aspects of housing adequacy and affordability, examining measurement methods and global variations in housing affordability, and emphasising the importance of housing policy and practices for creating sustainable and inclusive urban environments.
Defining Inadequate Housing:
The Sustainable Development Goals (SDGs), particularly target 11.1, have built upon previous methodologies to address housing inadequacy and informal settlements. In addition to components such as slums and informality, the definition of inadequate housing includes qualifiers that measure accessibility, affordability, and cultural adequacy. Experts agree that adequate housing must provide more than basic shelter, encompassing factors that promote well-being and equitable living conditions.
The Importance of Measurement in Global Housing:
Measuring and defining inadequate housing is crucial for informing policy and ensuring that no one is left behind in the pursuit of adequate housing. The SDG indicator 11.1.1 tracks the proportion of urban populations living in slums, informal settlements, or inadequate housing. This measurement also considers housing affordability as a key factor, aligning with the human right to adequate housing4.
Affordability as a Key Measure in Global Housing:
Housing affordability is generally defined as housing that is adequate in quality and location and does not cost so much that it inhibits occupants from meeting other essential living costs or enjoying basic human rights. Several factors, including capital variables like land, infrastructure, and building materials, and occupational variables like land leases and interest rates, influence housing affordability. Common measures of affordability include:
- House price-to-income ratio: Calculated by dividing the median house price by the median household income, this measure shows the number of annual median salaries needed to buy a median-priced house.
- House rent-to-income ratio: Calculated by dividing the median annual rent by the median annual renter household income.
High land prices and construction costs tend to lead to high house price-to-income ratios, which can also be seen in low-income countries with high market distortions7. Globally, the median house price-to-income ratio is estimated to be 6.1, and the median rent-to-income ratio is 35%9…. These ratios reflect a global housing affordability crisis. For housing to be considered affordable, it should cost no more than three times a household’s annual income to buy or more than 30% of a household’s monthly income to rent.
Global Variations in Housing Affordability in Global Housing:
The proportion of households without access to affordable housing is higher in Sub-Saharan Africa (SSA), where an average of 55.4% of households spend more than 30% of their income on housing. In contrast, Australia and New Zealand have about 6% of households spending more than 30% of their income on housing. There are significant variations in housing affordability within regions. For example, in Africa, unaffordability rates range from 1.5% in Mauritius to 100% in Sierra Leone. In Europe, Malta has the lowest proportion of the population without access to affordable housing (1.1%) compared to Greece with the highest (40.9%). These variations are influenced by factors such as a country’s development status, infrastructure development, and average household incomes.
The Role of Policy and Practices in Global Housing:
The affordability of housing directly impacts the form and function of a city, influencing how inclusive and sustainable a city is. The document indicates that public and private sector engagement is required to ensure housing is affordable. Governments need to implement measures and policies to maintain a vibrant and healthy housing sector that addresses the needs of all citizens. Conversely, if governments are less engaged, the private sector may provide housing that is unaffordable for those who need it most or inadequate in terms of location or quality.
The current global housing affordability crisis demonstrates that the formal private housing market is failing to provide housing for all. A focus on all housing segments including public and informal housing is needed. Housing policies and strategies should be integrated into urban development policies and coordinated with economic and social policies to contribute to the socioeconomic development of people and cities.
Sustainable Solutions:
Investment in sustainable energy production systems and resource-efficient housing construction is essential for long-term affordability. Making sustainable building practices standard for social housing could reduce household utility costs and contribute to making housing affordable. Housing policies should also consider environmental impacts and ensure that cities are resilient to climate change. National and local authorities need to take a leading role in addressing housing needs and affordability constraints18.
Conclusion
In conclusion, ensuring access to adequate and affordable housing requires a multi-faceted approach that involves integrating housing policies into urban development, addressing both public and private housing and promoting sustainable practices. It also requires effective measurement of affordability, a clear understanding of its key drivers, and an increased role for government in addressing housing needs, ensuring the right to adequate housing for all is realised. The affordability crisis cannot be resolved without considering all segments of the housing stock, including public and informal housing. By prioritising housing, integrating it into national urban policies, and utilising sustainable solutions, cities can become more inclusive and provide a better quality of life for all.
For further reading:
Addressing the global affordable housing challenge – World Bank
A blueprint for addressing the global affordable housing challenge