The poor and middle class are struggling to find affordable housing across the region, but there are some basic steps cities can take to improve the situation. Cities in developing countries all over Asia face a severe housing unaffordability crisis. Prices as a portion of income have reached levels that prevent most urban dwellers from realizing their dream of becoming a homeowner. And as cities continue to grow, that does not look set to change. The consequences of the housing unaffordability crisis go beyond the individual household though and impact the entire economy. As housing becomes very expensive, people become reluctant to move and spend longer hours commuting. The city as an efficient labor market thus works less well.  It also means companies invest in real estate instead of more productive investments while banks favor firms that have large real estate portfolios instead of those with the best business models. High housing prices thus result in the misallocation of labor and capital and undermine the competitiveness of cities.

Over the past three decades Asia has experienced an urbanization rate unprecedented in human history. While the rapid urbanization helped to fuel economic growth, it has overwhelmed many cities, especially with respect to housing. While the demand for housing rapidly increased, the supply reacted slowly, resulting in high housing prices. In an attempt to gauge the magnitude of the problem, ADB’s economic research team gathered housing price data for 211 cities in 27 developing countries in Asia. Combining the data with the income of households allowed us to calculate the price-to-income ratio, the most common measure for housing affordability.