Can People On Low Incomes Access Affordable Housing Loans In Urban Africa And Asia

Introduction:

While delivering decent, affordable housing at scale is essential to global sustainable development, one formidable blockage is a lack of accessible affordable housing finance for end users. People on low incomes have been perceived by lenders as high risk. They are excluded from financial systems and are forced to self-build using informal credit at exorbitant rates. This article engages with this problem, discussing practical examples and potential ways forward. It does so through case studies of models from Reall (a UK-based international development organization and social enterprise that promotes affordable homes) and its partner organizations in India, the Philippines, Nepal, Mozambique and Pakistan.

The article evaluates the strengths and limitations of these models, and their potential for scaling up. Reall’s partners demonstrate that decent houses can be delivered at a cost that is accessible for potential low-income homeowners, while proving the viability of lending to borrowers in the bottom of the income pyramid. This is essential for demonstrating the commercial viability and impactful investment opportunity represented by affordable housing in urban Africa and Asia.

Rapid urbanization and an endemic lack of affordable decent shelter have compelled millions of people to live in overcrowded informal settlements. At least one-third of the urban population in the global South lives in such settlements, often lacking access to basic services such as electricity, running water and sanitation. Access to decent-quality living conditions is essential for realizing the positive future envisioned in the UN Sustainable Development Goals and New Urban Agenda.

For the billions of people on low incomes across the global South, housing offers more than simply shelter – it represents the ownership of a financial, economic, social and cultural asset with the potential to break the poverty cycle. Improving access to housing can also yield several societal benefits, including increased political participation, macroeconomic growth and job creation. However, the scale of the challenge remains enormous.

Reall and “Affordable Housing”:

Reall’s partners are heterogeneous in approach. Some emerged from a conventional development NGO background; more recently Reall has entered into partnership with commercially oriented housing developers. Reall acts as a financial intermediary among development finance, impact investment and the partner organizations, which might otherwise struggle to attract capital investment.

While some occupants of Reall-supported housing may previously have resided in “informal” settlements, the majority of Reall partners do not operate directly in such environments or engage in informal settlement upgrading work. Instead, Reall partner organizations deliver “formal” affordable housing – defined as housing that has secure tenure, is built to agreed standards, adheres to all relevant laws and regulations, is fully equipped with basic services, and uses permanent building materials.

Reall Partners and Affordable Housing Finance Models:

India: SPARC Samudaya Nirman Sahayak (SSNS), transferable development rights and sustainable low-income affordable housing:

As most African and Asian governments lack the capacity to build millions of affordable housing units themselves, the responsibility is borne by other actors. Yet the work of Reall’s Indian partner (SPARC Samudaya Nirman Sahayak or SSNS) highlights the important role of the state in fostering amenable policy frameworks. SSNS was formed in 1998 as the construction arm of the Society for the Promotion of Area Resource Centres (SPARC). SPARC is an NGO focused on affordable housing and infrastructure issues relating to the urban poor.

The Philippines: Link Build, community loans via government initiatives:

Reall operates in the Philippines via the Philippine Alliance – a network of five organizations that brings together low-income community associations from cities across the Philippine archipelago. Within the Alliance, Reall partners with Link Build, a housing enterprise promoting bespoke incremental housing products for self-organizing communities financed by community savings through micro-mortgage loans. These loans are delivered through Community Resources for the Advancement of Capable Societies (CoRe-ACS), a microfinance institution and Alliance member.

Nepal: Lumanti, community co-operative loans and bank loans:

In Nepal, Reall collaborates with Lumanti, an NGO established in 1994 to alleviate poverty through improving shelter. Soaring land prices and accelerating rural-to-urban migration has produced an endemic lack of affordable housing in urban areas across Nepal, and a rapid growth of informal settlements. Lumanti has pursued a holistic approach that includes informal settlement upgrading, housing, savings and credits, water and sanitation, research and advocacy.

Mozambique: Casa Real, affordable housing mortgages in Beira:

Mozambique is an extremely low-income country. Many of its cities are hindered by endemic infrastructural challenges, while housing affordability is constrained by high construction costs and inaccessible finance. Reall’s partner in Mozambique is Casa Real, a social enterprise established in 2017 to make decent housing accessible in Beira (Mozambique’s second city). Supported by capital from Reall, Casa Real has built a pilot project of 10 quality homes on land provided by the Beira Municipality.

Pakistan: Ansaar Management Company (AMC), affordable housing development and commercial bank mortgages:

In Pakistan, Reall partners with the Ansaar Management Company (AMC), a social enterprise established in 2008 to make quality housing more accessible. AMC works within or close to large cities, including Faisalabad, Lahore, Multan and Peshawar. Operating as a private property developer, AMC focuses on developing sustainable mixed-tenure housing to be sold on the open market with the aim of building safe and sustainable communities. AMC emphasizes high design quality of both the houses and their surrounding neighborhoods.

Conclusion:

It is important to identify and develop housing finance models that work in different low-income urban environments. There is no universally adaptable approach, and in practice a toolbox of diverse solutions is required. Yet these case studies do highlight a number of important learnings and implications for the policy and practice of delivering decent affordable housing to people on low incomes in Africa and Asia.

Making housing genuinely more “affordable” for lower-income segments requires a wide range of financial measures, in addition to cost-cutting methods during land acquisition and development. These include lowering established interest rates for housing finance products; reducing or outright removing large deposit conditions; and extending the term lengths of housing loans to spread out costs for people on low incomes. In practice these initiatives require innovative planning, effective implementation, patient nurturing of partnerships, and careful attuning to the experiences of low-income groups.

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