Affordable Housing Shortage in the Middle East Requires Innovative Solutions

Housing as a whole—and affordable housing in particular—is a growing worldwide concern, particularly as the global population continues to trend toward urban migration. As more and more people move to urban areas—and as regions become urbanized in order to accommodate the influx of residents—the simultaneous increase in demand and decrease in available space for new developments is leading to a global housing shortage.

It's estimated that 1.8 billion people (nearly 20 percent of the world’s population) don’t have adequate housing, and that number is expected to increase in the next few years. By 2030, it is estimated that 3 billion people will be in need of housing. In order to meet this need, 96,000 homes would have to be built per day. This is a feat that is virtually impossible, given current resources, labor, and the different ways governments and municipalities approve housing developments.

The Middle East region is one area where the shortage of affordable and sustainable housing is reaching a crisis point; Northern Africa is also approaching crisis. Due to the rapid urbanization of these areas and ongoing migration to cities, there is a need to accommodate millions of families in relatively small areas. An estimated 56 percent of people in the Middle East live in urban areas, with this number expected to increase to 68 percent by 2050 (or approximately 646 million city residents). In order to accommodate this mass influx of residents, upwards of 70 percent of Middle East urban areas will have to be dedicated to housing by the middle of the century.

Dubai

In regional business centers (such as Dubai) in particular, affordable housing is an ongoing problem. Recent estimates indicate that only 20 percent of housing in Dubai qualifies as “affordable” (costing 30 percent or less than the average household income). As a result, middle-income families are being squeezed out of the housing market in cities such as Dubai, even as these same families seek to migrate to highly urbanized areas in pursuit of work and opportunities.

Saudi Arabia

The situation in Saudi Arabia is similar. While residential housing makes up 60 percent of all real estate transactions in the country, the availability of affordable housing has dwindled over the past five years as housing prices and interest rates on loans have both skyrocketed. The result is a growing population of urban residents who cannot afford housing—and, subsequently, a noticeable drop in homeownership.

Rising rents

The shortage of affordable housing is not limited to home ownership. Rent prices have also risen steadily as demand has outpaced supply, and millions of urban residents in the Persian Gulf region find themselves unable to access appropriate housing. This has resulted in overcrowding, dormitory-style accommodations in some areas, an increase in traffic congestion, the need for many people to commute longer distances to work, and a variety of related and escalating social issues.

Solutions

Regional governments recognize this growing problem and are taking steps to mitigate it. The Dubai 2040 plan, for instance, takes a multi-faceted approach to creating sustainable and affordable long-term housing solutions. Some suggested strategies include subsidizing land for housing development projects; this strategy has been used to varying levels of success in nearby nations where the government owns large areas of land, such as Egypt and Morocco. Other proposed solutions include awarding higher plot ratios to affordable housing development projects. Regardless of the steps that are taken, it is clear that solutions to this developing crisis need to be found quickly.

Some developers are looking to modular concrete homes and micro-flats to mitigate costs and expedite the building process. Innovative financing tools, such as social impact investing, also have potential to help address the issue. In Saudi Arabia, the Sakani housing scheme provides subsidized mortgages and opportunities to pursue rent-to-own strategies in order to help establish home ownership among the growing urban population.

In addition, projects such as the Muscat Housing Development Initiative, the Salman Town development in Bahrain, the Lusail City development in Doha, and the Mohammed bin Rashid City project in Dubai are all taking steps toward making affordable housing more accessible, including by providing payment plans that make it possible for more families to pursue home ownership.

These initiatives are positive steps, but on their own, are not enough to combat the growing housing problem, as land scarcity and costs are expected to continue to grow. It will be necessary to develop other innovative solutions, but also to encourage a new mindset in regard to housing development.

For instance, affordable housing projects do not tend to offer the same return on investment for developers, since they are intended for low- and middle-income residents. However, understanding that adequate housing is essential to the long-term sustainability of cities, governments may need to adopt subsidies and other initiatives that incentivize developers to take on these vital, but often less lucrative projects. At the same time, it is important to encourage durable, forward-thinking construction processes and infrastructure, which will help ensure that additional housing and infrastructure can be added in the future as city populations continue to grow.