A Global Perspective on Affordable Housing Solutions for the Gulf / MENA region

The Affordable Housing Institute (AHI) works globally to strengthen housing ecosystems in developing and transitioning economies. This work informs our perspective on the challenges and trends relevant to the MENA region.

The changing relationship between the government and private sector

Governments in almost all countries around the world have moved away from serving as the primary providers of low- income (shaabi/ Eskan) housing. The MENA private sector has an increasingly widening role, but remains limited in its interest and capacity to serve the lowest-income populations. Collaboration and co-ordination between public and private agencies will become increasingly critical in addressing the range of affordable housing needs in the region.

Governments can create regulatory and incentive-based environments to stimulate the private sector in better delivering scalable affordable housing solutions that serve the most needy. While PPP is not as prevalent in the MENA region as it is globally, Bahrain is one example of a country aggressively pursuing Public-Private Partnerships (PPP). Private sector co-operation can provide greater accountability, financial capacity and opportunities for innovation. In leveraging their unique strategic advantages, governments can offer both financial and non-financial incentives to the private sector in the delivery of affordable housing, at scale.

Create and enforce resilient regulations that are necessary to encourage responsible and well-distributed primary lending, and underpin secondary market vitality. The creation of a nuanced legal framework that encompasses a diversity of tenure configurations, and that can provide enforceability of contracts and foreclosure laws, is the unique and vital mandate of governments. The formation of a mortgage law, such as the one pending in Saudi Arabia, is one example of this mandate.

Engage in direct interventions, either through financial incentives, such as the issuance of public debt, or through non-financial tools, such as transferable development rights, or the contribution of land to an affordable housing development.

Support from the central government for new partnerships between local governments and the private sector can facilitate uptake and localized innovation of the regulations and direct interventions. While relatively uncommon in the Gulf region, some examples of innovations beginning at the municipal level, such as subsidized mixed-income development, land banking, municipal leasing, tradable development rights and municipally-sponsored trusts, have high potential adaptability to the MENA environment.

Defining affordability

A specific understanding of “affordable housing” must be defined for the particular country or project. To be effective, initiatives must be clear about who they are trying to serve in terms of income targeting and housing costs.

Often times, affordability is erroneously discussed purely in terms of absolute cost or the value of a unit. For example, government supply-side programs often incentivize the creation of units that will be offered for sale under a certain price ceiling, without evaluating the income level of the residents or the ongoing costs of residents. The absolute cost of housing is actually less crucial than the affordability of payments.

Housing affordability is better defined by the payment burden that the residents bear. When gauging affordability in rental and ownership scenarios, the monthly housing payment for a resident/owner, including utilities, insurance, etc. should be compared with the family’s income and other non-housing costs. In ownership housing this payment takes into account the cost of housing as well as the terms of the debt that is available to finance its acquisition. In rental housing, this accounts for payments paid to the property owner in rent.

Globally, definitions of housing payment affordability vary. In most developed countries housing is considered affordable if monthly payments do not exceed 30% of a family’s income. However, at the lower end of the income pyramid all around the world, basic needs like food consume a higher proportion of household income, therefore limiting payment capacity to sometimes less than 20% of income.

Without clear goals and incentives, the market tends to serve upper and middle-income demand, as it is easy to make “affordable housing” for those with more to spend. Therefore, setting parameters around the income segments that a program or project seeks to serve is another important step in defining affordability. Countries that have an extremely uneven distribution of income across their population, like many in the MENA region, need to be particularly careful about setting appropriate income targets.

Targeting specific income segments and evaluating cost burden is a more sophisticated approach to defining affordability and can help to ensure that the limited public and philanthropic resources are being applied to those most in need.

Design and planning

Housing developments that include affordable units are most successful when designs are tailored to the social needs and cultural preferences of the local environment and population. Global best practices include:

Participatory design processes that seek feedback from potential residents and other stakeholders. These can help to ensure long-term functionality and faster sale or lease up.

Careful integration of projects within the surrounding urban fabric, employment opportunities, transit, and employment.

Residents with low and middle incomes can best maintain their financial and social contributions to a healthy community when they have easy access to these resources. One frequently-cited example from the region is the Hafsia project in historic Tunis.

Purposeful design of public spaces, transit and other amenities. This is crucial to create a sense of ‘place’ beyond a collection of residences, and to encourage social interaction. This has also has implications for neighborhood safety and vitality.

Variation in unit size and design. Affordable housing needs to serve households of different configurations and at different points in a family lifecycle. Therefore a mix of unit types will attract a diverse set of residents. This household diversity can be lost if the unit design isn’t varied enough. This is particularly important in very large-scale, greenfield developments that are common in the region and that tend to take a cookie cutter approach.

Finance and structure

Affordable housing developments internationally provide a clear set of best practices relevant for the financing and structure of initiatives in the MENA region:

Transparent processes and competitive bidding are essential, whether originating in the public or private sector. A critical aspect for private sector developers who are often securing some level of financing in the global credit markets is the maintenance of a predictable timeline for key decision making. This is especially important for the success of public- private partnerships.

Partnership with local entities can maximize project impact and responsiveness. Through a productive dialogue with entities with deep local expertise, initiatives can provide significant benefits in project design, implementation and management. These partners can be from civil society, the for-profit sector, and/or local government offices.

A sufficiently diverse set of affordable housing tenure options will allow households to save and then invest in the housing over the long term. Multiple tenure configurations, from full ownership to co-operatives, waqfs, long-term leaseholds and rental are crucial to better address the spectrum of demands present in the target population.

Development of a self-supporting secondary affordable housing market is key to the delivery of genuine sustainable communities. The objective of the secondary housing market is to enable the formation of generational wealth through equity appreciation for residents by standardizing, and lowering, the premium that financing providers require to cover risk. Establishing a robust secondary market requires the support from regulatory mechanisms authorized at the central government level.

In the development of affordable housing options, it is both possible and important to tailor the housing finance models (and physical products) to local customs and laws. For example, shariah-compliant housing products using concepts such as Ijara and mushtaraka al-mutanaqisa are both finance models that meet the local needs and expectations of resident populations, and can provide the diverse type of financial mechanisms needed for the development and evolving of a robust affordable housing finance system.

Though this may seem obvious, no single affordable housing finance solution will solve all the housing challenges experienced by a resident population. It is important for the design of master plans and their accompanying housing units to reflect the variation and diversity of affordable housing finance solutions being developed. This will adapt and evolve to reflect the ever changing needs of affordable households.

Incorporating environmental innovation and advances. Many recent developments around the MENA region now incorporate some element of ‘green’ performance standards and incorporate new energy-efficient technologies. Progress in the appropriate application of these techniques and technologies needs to be made for the low-income and affordable markets, especially in:

Framing ‘green building’ as the maximization of building lifespan and durability, and the minimization of operating expenditure of a home. This is a powerful way to evaluate potential inclusion of energy-related components in construction or rehabilitation of affordable housing. However, getting the full benefit of energy-efficient systems may require some initial household training.

Low-cost, high-yield options are the most important green technologies to incorporate into affordable housing. These can be new or traditional additions, with or without high-tech additions. Passive cooling systems and water management are some of many examples, such as through the ventilation chimneys and qanawat.

Physical solutions can be especially cost effective for the developer, and later for the family, if they are tailored to take advantage of the unique ecosystem of Gulf / MENA region, and not imported directly from more temperate or humid regions.

Long-term view and management. Effective management is one of the most essential components of successful affordable housing endeavors internationally. This stewardship needs to look beyond just the physical maintenance needs of the property. In the United States for example, asset management of affordable housing has developed to augment simple property management only in the last 10 or 15 years. The MENA region is still developing these functions. (It should be noted that the long-term management of housing maintenance is especially important where ‘green’ building technology is used, due to optimization of systems whether passive or active requiring resident awareness of ‘optimal’ behavior. This is even more important if systems are used in affordable housing developments.) Some suggestions include:

Involvement of the developer in long-term strategies for property stewardship. Development entities that bear responsibility for the ongoing physical maintenance and affordability will be motivated to create better products. Ideally developers should bear some financial and operational burden in the long-term to protect the value of the asset.

Engagement of professional property management. Particularly important in rental and multifamily configurations, professional property management helps to ensure that the physical asset is maintained and that resident behavior supports livability.

Ongoing compliance. To ensure that affordable housing is allocated to and then continues to serve the target population requires some mechanism for review. In rental housing compliance measures can be easily applied at lease renewal. In ownership housing compliance is much more difficult.

Tailoring to local context. The MENA region has a unique heritage of housing, cities, and commitment to low-income populations. To have a sustained and well-received impact, any affordable housing development must tightly align its content, design, project structure, management plan, and financing delivery with existing patterns of local practice and, whenever possible, partner with experienced local organizations. Some examples of incorporating local practice include:

Hybrid housing finance. With a comprehensive study, and in close consultation with local advisors, it is possible to develop affordable housing finance products that use locally accepted financial concepts as a core and basis, to deliver the type of hybrid housing finance solutions that affordable housing markets require to properly address the needs of populations. For example, co-operative ownership of housing, a model of home-ownership that uses the strength of a group to address the housing needs of its owner-residents, could use ijara as the method of lease. This provides the population with a familiar financial contract that has broad cultural acceptance, while delivering a useful type of housing option that is needed to deliver a diverse and flexible set of affordable housing finance solutions.

Traditions of Zakat and charity. We recognize that in the MENA region there is a strong tradition of individual philanthropy as well as the established practice of Zakat. Globally, philanthropic initiatives have moved away from ‘gifting’ homes in favor of other strategies that can reach larger populations, better ensure long-term affordability, and support the retention of long-term value. The strong potential of the MENA charity and zakat sectors can contribute significantly to these innovations, especially with the incorporation of the rich regional traditions of varied land tenure. For example, capital from these groups can be used to sponsor the provision of land held in permanent affordability via charitable land trusts. The provision of pockets of land of permanent affordability is crucial to the development of a robust affordable housing system.

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