Housing is a basic human need. But a lack of affordable housing to buy or rent is fuelling a global housing crisis.
By 2025, 1.6 billion people are expected to be affected by the global housing shortage, according to the World Bank.
In most countries, the cost of housing has grown faster than incomes, data from the International Monetary Fund shows.
In a study of 200 cities globally, 90% were found to be unaffordable to live in, with the average home costing more than three times the average income.
The United States alone is short of 1.5 million homes, according to a study by financial research company Moody’s Analytics. The country has less housing for sale or rent than at any time in the past 30 years, finds the study, Overcoming the Nation’s Daunting Housing Supply Shortage.
A shortage of land, lending, labour and materials since the financial crisis in 2008 are the main causes of the US housing shortage, the Moody’s study finds.
This has driven up costs and cut the profit margins builders can make. They have less incentive to build more homes, “particularly lower-priced housing with lower margins,” Moody’s Analytics says.
COVID-19 is considered to have made the housing crisis worse, as buyers and renters looked for more space during lockdowns. Historically low-interest rates in many countries, which make it cheap to borrow money, have fuelled this phenomenon.
House prices globally have risen at their fastest rate for 40 years as demand has outstripped supply, according to research from financial services firm JP Morgan.
Rents are also soaring. In Europe, for example, rents across all home types have risen 14.5% in the first three months of this year, finds the HousingAnywhere International Rent Index by City.
In Asia, home to some of the world’s costliest and fastest-growing housing markets, renters spend more than half their income on housing costs, according to The Cost of Rent Index, which compares the average cost of a three-bed home in more than 50 countries.
Around 11 million Americans also spend more than half of their income on rent.
Rising housing costs mean people have less money to spend on other essentials, like groceries, bills, transport and looking after their families. So it’s harder to get by.
Unaffordable housing also fuels homelessness. An estimated 100 million people globally don’t have a home, according to UN-Habitat, the United Nations programme for human settlements and sustainable urban development. And a quarter live in conditions that are harmful to their health, safety and prosperity.
When housing costs climb, it also pushes up inflation – the price of goods and services – and depresses economic growth, The White House says in a new policy statement on housing.
Lack of affordable housing forces low-income workers to live farther away from their jobs, “requiring long and costly commutes and reducing productivity,” Moody’s Analytics says in its study.
The world needs to build 96,000 new affordable homes every day to house the estimated 3 billion people who will need access to adequate housing by 2030, UN-Habitat says.
The organization says its advice has helped 43 countries improve their housing policies.
For example, one of its programmes helps countries with urban planning. Countries experiencing huge influxes of migrants and refugees – including Cameroon, Egypt, and Jordan – are among its beneficiaries.
Japan has been very successful in supplying affordable housing, even in big cities, according to the Centre for Cities, a think tank in the United Kingdom. Simple planning laws that encourage development in response to need and favourable property taxes are part of its approach.
In the US, the government is pledging to close America’s housing supply shortage in five years. Its plans include incentives to relax state and local land use laws and regulations that limit housing density. Other plans include introducing new ways to finance housebuilding.
In Scotland, the Scottish Government plans to increase the supply of homes by 2040 through policies including a range of funding mechanisms to build affordable homes.
In India, a new building system that uses low-cost, prefabricated panels made from waste material has been approved by the government and is expected to cut the cost of building homes.
Other initiatives include the development of 3D-printed homes in Africa, Mexico, India, Europe and other regions. 3D printing can produce high-quality homes much more quickly and cheaply than traditional construction.
While investable real estate has grown by more than 55% since 2012 (PwC), the COVID-19 crisis has underscored weaknesses in relation to human and planetary health along with drastic inequalities, leaving a stark reminder of the influence the built environment has on societies and the vulnerabilities that exist in times of crisis regarding how spaces perform.
As the real estate industry looks towards recovery, the need for transformation is clear. Portfolios must be rebalanced, and distressed assets repurposed. Technology must be fully embraced, and sustainability and wellness must be at the core of design and operation. The affordable housing crisis that already existed pre COVID-19 must be systemically approached to ensure access to adequate and affordable housing. If the Real Estate industry is to deliver transformation, it is more important than ever to ensure that policy, financing and business solutions are aligned in delivering better buildings and cities.
The World Economic Forum has brought together CEOs from the Real Estate industry to develop a Framework for the Future of Real Estate to help drive the industry’s transition to a healthier, more affordable, resilient and sustainable world.
Victoria Masterson, Senior Writer, Formative Content
The views expressed in this article are those of the author alone and not the World Economic Forum.
By 2025, 1.6 billion people could be affected by the global housing shortage. But what exactly has caused it? And what are countries doing to tackle the issue?
Even relatively wealthy parts of the world share an inability to ensure people are wealthy enough to afford a home, and inflation isn't making things any easier.