The complex world of housing finance takes centre stage at WUF13
Don’t get too excited — there was no lottery winner announced today at the thirteenth World Urban Forum (WUF13). But this thought exercise, posed to the participants in the high-level dialogue “A New Deal for Housing Finance,” got to the heart of the topic that will ultimately enable any serious effort to tackle the global housing crisis.
Because it will take money, and lots of it, to provide housing for everyone who needs it.
UN-Habitat Executive Director Anacláudia Rossbach was the first to weigh in on this hypothetical 10-figure figure. She explained how this money could pay for subsidies, infrastructure, loans, construction and management to provide well-built, well-located affordable housing. And how, when invested properly, it could unlock private capital and generate economic activity.
“I'm sure that $1 billion can become many billions if we are able to establish this social contract,” she said.
Mobilizing domestic finance
Billions are already on the table in some of the world’s largest economies, which have embarked on ambitious social housing schemes in recent years with a crucial component: domestic finance.
As Rossbach said, “No country has been able to address housing in a sustainable, long-term way with international finance. It requires domestic finance.”
Initially founded in 2009, Brazil’s Minha Casa, Minha Vida (My House, My Life) programme relaunched in 2023 with a R$15-20 billion ($3-4 billion) commitment and a pledge to build 2 million more houses, half of which are set aside for the poorest families. South America’s largest country funds the programme with low-cost loans from the workers’ severance fund.
India, the world’s most populous country, has built housing on a massive scale. Pradhan Mantri Awas Yojana is the world’s largest social housing programme, responsible for an eye-popping 29.5 million houses between 2014 and 2019. Another 30 million housing units are slated for the next five-year cycle, with two-thirds planned for urban areas and one-third for rural districts.
“We didn’t have anybody give us a $1 billion cheque,” said Sanjay Shukla, Managing Director at the National Housing Bank.
Instead, India split the cost burden between central and state governments and established a credit-linked subsidy scheme. Crucially, the central bank directed banks to make priority lending at the low rate of 4% to fund the affordable housing scheme, which relies on 94 mortgage lenders targeting low-income urban populations who have maintained a remarkably low delinquency rate below 1%.
Generation rent and microconstruction
While emerging economies like Brazil and India have made homeownership available to large swaths of the population that were previously shut out, the rental market remains an important sector with its own advantages.
Rental housing promotes social mobility since workers can more easily move between labour markets, as opposed to being tied down by a mortgage. And even with subsidies, low-income and migrant workers may not have adequate wages to save for a down payment. But existing rental housing in developing countries can often entail limited tenant protections and unscrupulous landlords.
“Most of our conversation has been about financing affordable housing, but I want us to think about how we increase access to affordable housing rather than just looking at finance,” said Srinivas Sampath, Director for Asian Development Bank’s Water and Urban Development Sector.
Another way to improve access is to think small.
Cape Town recently legalized microbuilders, small entrepreneurs sometimes with no more than a wheelbarrow who build backyard structures. Now that they are formally recognized, they can access housing finance.
While more piecemeal than a flagship national programme that delivers housing by the millions, these approaches are also more representative of reality in least-developed countries.
“We have this grand, Hollywood definition of what housing looks like,” said Kacia Rust. “There is a disconnect between expectations and reality.”
While large-scale housing finance schemes envision legions of formally employed workers worthy of mortgages, in the African context it’s far more likely that someone is saving their wages to build their own home incrementally.
Build habitat, not just houses
In the focus on numbers, experts cautioned not to lose sight that the ultimate goal is to do more than just erect houses. Uruguay’s Minister of Housing and Territorial Planning Tamara Paseyro brought the unique perspective of a country that has managed to house 5% of its population in cooperatives — the highest rate in the world.
For Uruguay, the lessons from its pioneering experience are that location of land, public-private financing and institutional capacity are the three necessary components to deliver affordable housing. But that, ultimately, the main lesson is to reframe the terms of the conversation.
“Building houses also means building a habitat,” said Paseyro, referring to the physical and social infrastructure that creates a thriving community, not just a warehouse for people.
Even $1 billion can easily go to waste if that fundamental principle is not kept front of mind.