Affordable housing gap-need for financing environment

After attaining independence in 1971 and facing hundreds of challenges, Bangladesh went through a remarkable developmental journey for the last five decades and achieved self-sufficiency in food and basic yarn production. It is also true that though Bangladesh has many successes in socio-economic arena, the 8th most populous country in the world is lagging behind to fulfill the third basic need for survival— affordable and adequate housing. Affordable housing gap is enlarging day by day due to the hike in prices of land, construction materials compared to disposable income of the people.

To understand this housing gap, it is important to know about housing scenario with its demand and supply portfolio in the country. Regarding housing structure in the country, only 11.06 per cent house-roofs are made of brick/cement, 30.50 per cent houses-walls are made of brick/cement, and a large number of households fail to enjoy sanitary toilet facilities which represent inadequate living requirements for the dwellers. The largest city in the country, the capital Dhaka stressed with over 23 million people, is one of the fastest growing (estimated 31 million people by 2035) and most densely populated (8,229 people/ mega city in the world. One-third of its inhabitants live in the slums due to lack of access of affordable and as well as adequate housing. Again, as the country is marching forward from lower middle income to higher middle-income country and per capita income is rising, middle-income class (earning between BDT 31K-99K per month) people is growing in the urban areas. A study of International Financial Corporation (IFC) states that the current demand of affordable housing is 249,000 units annually and total demand of the current market is 6 million housing units. IFC opines that it is necessary to upgrade or build 3.5 million affordable housing units immediately. It is estimated that by 2030, the projected demand will be 10.5 million units. Against the demand, annual supply of housing stock is 31.5 K units that represent only 12.65 per cent  supply of the required demand and the supply gap is 87.35 per cent. Failing to meet housing demand every year, the estimated shortage will be 8.5 million houses by 2030.

Housing affordability gap in Dhaka is the second highest in the world after Lagos of Nigeria which symbolises the vulnerable condition in housing. Affordable housing gap is widening due to supply-side constraints and its underlying reasons are manifold. The prime cause of supply-side limitation is inadequacy in housing finance. IFC estimates that to meet the current demand of upgrading or building 3.5 million affordable housing units immediately, we have to channel $59 billion or 6.3 trillion BDT ($1=BDT107) for financing.

If we look into the housing finance system in the country, we find that housing finance modality is mainly debt-based representing “institutional patchworks” that comprise private sector lenders like private commercial banks, employee loans, life insurance policies, housing cooperatives and informal means as well as government-managed housing finance institution like Bangladesh House Building Finance Corporation (BHBFC) or loan programmes for government employees at low interest. National Housing Authority (NHA), Rajdhani Unnayan Kartipakkha (RAJUK), Chittagong Development Authority (CDA), Khulna Development Authority (KDA) and the 1191 member Real Estate & Housing Association of Bangladesh (REHAB) are working to improve the housing sector but their dimension is limited to certain segments of the society due to financing impediments. NHA and RAJUK’s housing and satellite town development projects are progressing very slow as well.

Debt-base mortgage markets are small (only 3 per cent), fragmented further by unorganised and the organised segments run by the commercial banks and financing institutions that only cater to the upper and middle income segments. On the other hand, mortgage finance penetration in neighbouring India is 10 per cent, and 50-70 per cent in developed countries. Apart from debt financing modality, we are also practising equity-based informal community (e.g. friends, family members/relatives and colleagues) financing for housing that is small in size and unstructured in formation. This equity-based housing finance is gaining popularity in the country where some of the like-minded people form a group and finance in purchasing land or building apartments. This form of financing poses many uncertainties and risks due to the problem of timely payment by each member, lack of skill in operation and managing fund, delays in decision making etc.

Under the situation, it is high time to devise solutions for closing this affordable housing gap. In this context, the government is the key player to close this affordable housing gap through enabling sustainable housing financing environment by preparing conducive housing policies and strategies for mobilising, prioritising and allocating capital efficiently (e.g. low cost financing), leveraging activities of the private sector, ensuring inclusive development. Bangladesh Bank may open a new window for supporting affordable housing and treat it as a productive investment to stimulate macro economy of the country. Learning lessons from global experiences and best practices might be useful in the case of policy formulation and implementing strategies regarding housing finance like PPP model, Real Estate Investment Trust (REIT) etc. Asset Backed Securitisation Act, Indirect Investment Asset Management Business Act, Administration and Promotion of Real Estate Development Business Act might be enacted for the Asset Backed Securities (ABS), a leading form of structured finance widely used in developed as well as developing markets. Through implementing the above mentioned policies and strategies, we can expect to attain one of the targets of the Sustainable Development Goals (SDG-11) which is “Make cities and human settlements inclusive, safe, resilient and sustainable”.

Dr Md Abdul Latif is Additional Director at Bangladesh Institute of Governance and Management (BIGM) and Global Ambassador Scholar, KDI School of Public Policy and Management, South Korea.
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