Urban development

Housing policies under the New Urban Agenda

Housing policies under the New Urban Agenda

The biggest intergovernmental conference on housing and urbanization, Habitat III, took place in Quito, Ecuador, in October 2016. The main outcome of the conference was the adoption of the New Urban Agenda (NUA). The NUA does not consider urbanization as an obstacle to development but rather a key development driver. Providing adequate and affordable housing is one key theme in the NUA. It stresses the need to promote not only homeownership but also other types of tenure, such as cohousing.

Urbanization as development tool

The main objective of the NUA is to propose solutions to manage the process of urbanization in a sustainable and inclusive way. Currently, already more than half of the world population lives in urban areas and the trend to move to cities is expected to continue. By 2050, the United Nations expects that two-thirds of the world population will live in cities. Urbanization will therefore be a major trend shaping societies and economies across the world for the decades to come, especially in Asia and Africa which are bot1h latecomers in terms of urbanization. The key question is how we can achieve sustainable urban development.

The NUA perceives cities as a key development actor. For example, it shows how well-planned urbanization can boost economic growth. Furthermore, it emphasizes the need to create safe, inclusive, accessible, and green cities. This holistic approach requires well-integrated planning instruments across sectors. Overall, NUA can be understood as describing the “right to the city,” whereas the previous urban agenda established the “right to adequate housing.”

The NUA reaffirms the right to adequate housing. It adds that housing policies should be based on the principles of “social inclusion, economic effectiveness and environmental protection.” Furthermore, the NUA places itself into the context of the United Nations Sustainable Development Goals. The first target of Goal 11 is to “ensure access for all to adequate, safe and affordable housing and basic services and upgrade slums.” This target is enshrined in paragraph 46 of the NUA which commits countries to promote affordable and sustainable housing and housing finance.

The NUA calls for mixed-income development in order to avoid segregation. Furthermore, the NUA also stresses the need to adapt housing policies to the local context. For example, it recognizes different forms of tenure in paragraph 107, such as cohousing and community land trusts. Finally, it explicitly encourages support for incremental housing and self-build schemes.

The role of the public sector to achieve affordable housing

There is always a delicate balance to strike between public and private sector interventions in the housing market. However, governments in many low- and lower-middle-income countries nowadays rely excessively on the market. In contrast to other markets, the private sector depends crucially on supply side policies of the government for housing. Unclear land titles or a shortage of developable land constrain the supply of additional housing and lead to a surge in housing prices. As a result, low-income groups are priced out of the market. The role of the government in providing adequate and affordable housing therefore starts by ensuring that supply constraints are eliminated.

We have witnessed in too many instances that governments subsidized housing demand without removing supply constraints. For example, the Government of the United Kingdom (UK) introduced a Help to Buy program in 2013 in order to facilitate access to homeownership. However, the government did not tackle the UK’s rigid planning system which basically makes the housing supply inelastic. As a consequence, Help to Buy pushed up housing prices and made homeownership even more elusive for many.

Looking back in history reveals a more successful experience by governments in providing affordable and adequate housing. For example, in Japan after the Second World War the government used a three-pillar approach by (i) establishing a government housing loan corporation to facilitate housing construction, (ii) constructing rental houses for low-income groups, and (iii) providing large-scale supply of residential land. The restoration of the housing stock was achieved in the 1960s.

The Republic of Korea followed a similar strategy in the 1970s by expanding the land supply and increasing the provision of housing loans. However, the government interventions fell short of increased demand and prices increased sharply in the late 1980s. In response, the government expanded its housing programs with the so-called Two Million Housing Drive and was eventually able to curb the property prices. Since then, the Republic of Korea has been relatively successful in containing price surges and has avoided real estate bubbles. The country’s housing policies are based on the idea to hold the public sector responsible for the supply of developable land and let the market develop housing solutions. Government regulations ensure that low-income groups can access adequate housing either through subsidies for their rent or housing finance.

The experiences of developed and emerging countries, such as the Republic of Korea, provide ample examples of the challenges and risks when designing housing policies to increase the affordability of housing. Asia’s rapid urbanization (every day 127,000 new residents are drawn into urban areas) makes housing policies a key concern for almost every local and central government. Urbanization can only become an engine of economic growth and prosperity, as long as urban areas provide affordable and quality housing options for all urban citizens.

Matthias Helble

About the Author

Matthias Helble is an Economist in the Asian Development Bank’s Economic Research and Regional Cooperation Department and an Adjunct Fellow at ADBI.
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