Govt intervention and regulation needed to strike balance between public interest, social inclusion, profit and commercial feasibilityBy Lena Simet, Taimur Khilji and Arndt Husar, Published The Sunday Times, 15 May 2016
One of the foremost challenges facing humanity is affordable housing, especially for the urban poor.
The lack of liveable and affordable accommodation is fast becoming a front-line development issue, affecting diverse cities across the globe, from Lagos and Dhaka to New York and Tokyo.
For the urban poor in developing countries, living in slums or informal settlements has become the norm, with an estimated one billion people living in slums. With this number only set to grow, the lack of affordable housing has become a leading cause of concern.
In Asia alone, 30 per cent of the urban population live in slums.
The recently agreed set of Global Goals - the Sustainable Development Goals - is therefore apposite in anchoring development challenges as universal, affecting the poor in rich as well as in developing countries. How to achieve these Global Goals remains an open question for many countries. As market-driven approaches cannot solve social justice problems, it is key to identify mechanisms for the state to ensure housing affordability in urban areas.
Lack of affordable urban housing affects low-income populations in both developed and developing countries.
New York City, the city with the most billionaires in the world, is experiencing a chronic housing crisis due to limited access, unaffordability, a speculative real estate market and the precariousness of tenure for both renters and owners.
In 2014, almost 55 per cent of all rental households were rent-burdened, spending more than 30 per cent of household income on rent.
More than 116,000 New Yorkers were homeless, including around 42,000 children. Fast-spreading gentrification is threatening the existence of old public housing projects which are perceived to be crime havens, but are also the last resort for thousands of low-income citizens in a city that is pushing its poor to the fringes.
New York's housing authority estimates that 600,000 call the "projects" home, and roughly 270,000 are said to be on the waiting list. The effects from the housing crisis reverberate throughout the wider community and influence health, economic vitality, educational opportunities and other social capacities.
New York City's progressive mayor Bill de Blasio hopes to address these issues by building and preserving 200,000 affordable housing units over the next 10 years. Critics believe the plan will only spur gentrification, but avoids the root of the problem: relying primarily on market mechanisms to fix the housing crisis.
On the opposite end of the wealth spectrum, Badia East - a populated pocket in central Lagos, Nigeria - witnessed 9,000 forced evictions in February 2013.
At the same time, a growing well-to-do section of society has made Lagos' Victoria Island one of the most expensive spots of real estate globally.
While economic growth has brought Nigeria a steep increase in the number of millionaires, absolute poverty rose to 61 per cent in 2014 from 55 per cent in 10 years.
Increasing inequality is taking land and housing markets in fast-developing cities to extremes, repurposing housing from being a right to a commodity with high payoffs.
SHIFTS IN OWNERSHIP
Another trend contributing to the rising cost of living in cities has been the sharp shifts in ownership.
Large chunks of prime real estate are being bought up, with the shift in ownership from small private to large corporate owners, and from public to private.
In 2014, half of New York City's residences that cost more than US$5 million (S$6.9 million) each were sold exclusively to shell companies that were alleged to have funnelled untaxed and often illicit funds around the world.
In 2013-2014, year-on-year property investment grew by over 30 per cent in cities such as New York, London, Los Angeles and Tokyo. Cities are being carved up and bought out, directly affecting existing and future public spaces and reducing the stock of affordable housing and land that could be used for social or public housing.
Coming back to the problem, we bear witness to a rising inequality and an increasing number of urban poor and homeless in major cities across the developed world, and a burgeoning slum population in cities in the developing world.
SPATIAL DIVIDE
At the same time, there is a tendency towards even more spatially segregated cities.
Low-income households have no other option but to move to the periphery or deprived and neglected neighbourhoods, as inner cities are getting "revitalised", attracting posh shopping malls and high-priced condominiums.
Evidence points to the huge consequences of growing up in a poor versus a rich neighbourhood.
Children who move away from poor areas at an early age are less likely to become single parents, more likely to go to college, and more likely to earn more.
The spatial divide between the "haves" and the "have nots" does not happen by chance or by the choice of residents, but due to deliberate policies and unregulated markets.
American cities are slowly beginning to realise the consequences of high levels of inequality.
Thanks to the work of the economists Thomas Piketty and Joseph Stiglitz, we now know that high levels of inequality are negatively correlated with economic growth and can lead to increased levels of crime and social unrest.
Recent riots in Baltimore and other highly stratified cities in the United States confirm these economic theories.
The prevailing question is: How can policymakers address the wicked problem of affordability?
The cases of Singapore, Vienna and Berlin provide interesting ways to address housing unaffordability, and could serve as food for thought for cities both in developing and developed countries.
LEARNING FROM SINGAPORE
The Singapore housing story, which has become a key part of Singapore's development success story, is widely recognised as a case study of a proactive state that led and instituted changes pivotal in ensuring that housing needs across the social spectrum were met.
The approach or perhaps "innovation" came to be known as the developmental state in political economy jargon and is characterised by the state playing a lead role in planning, implementing and achieving long-term development.
The focus on building a first-rate public service administration is seen as an essential ingredient, and has proven instrumental in achieving the strong development results that followed in Singapore's case.
Singaporeans have seen massive changes in their urban landscape in less than a generation, from almost 70 per cent of the population living in squatter and informal housing in the early 1960s - 1.3 million out of a total population of 1.9 million - to squatter-free formal housing by the mid-1980s.
With the majority of its land in public hands, Singapore's Government has significantly more influence on the market than others.
Over 90 per cent of Singaporeans own their homes, and homelessness is non-existent, according to official statistics.
Despite Singapore's strong interventionist approach, the real estate business is not immune to the pressures of the global financial market.
Since the 1990s and through the 2000s, as Singapore emerged as a global and financial hub, foreign investment poured in and sparked a property boom, driving up prices in private housing.
Instead of incentivising investment and celebrating the flow of foreign capital into the real estate sector as New York has done, the Singapore Government took so-called "cooling" measures to dampen the residential property market and protect local residents, with positive results.
While Singapore managed to house its entire population, it now faces other challenges, including an ageing population, longer waiting lists for social housing, increasing cost of living and rising levels of inequality.
Moreover, the country is yet to establish a national poverty line, which would be useful in designing programmes to assist low-income households.
Equally important, it would help validate the effectiveness of the Government's existing economic and social services for the poor.
LEARNING FROM VIENNA, AUSTRIA
For the sixth consecutive year, Vienna has ranked as the city with the highest quality of life worldwide, with its high social standards, a diverse and attractive cultural milieu, and its good public transport and infrastructure, including its ability to provide affordable housing for every citizen. Vienna's commitment to provide housing for the working class dates back to the Red Vienna period in the early 20th century, when the government had made providing quality affordable housing a priority. The goal was to create aesthetically pleasing housing complexes for the working class, buildings that would otherwise be accessible to only affluent residents.
The purpose was not to build more units, but to provide a living space that connects residents to their communities and the city through design.
To this day, Vienna remains committed to this cause. The city owns and manages about 25 per cent of the housing stock, and indirectly controls another 23 per cent that is built and owned by limited-profit private developers, but developed via a regulated process that controls housing and land costs.
Private developers who collaborate with the city government are required to reserve half of the new apartments for low-income residents. The remaining 50 per cent are rented to moderate-income residents. It is common for tenants to participate in the design, planning and construction of the building.
Rents are regulated at 25 per cent of a resident's income. If the incomes of tenants increase over time, tenants are not required to leave the apartment - a measure that has contributed to a broader social mix of tenants.
Annually, approximately 5,000 affordable housing units are added to the housing market.
Large housing projects include a set of amenities, with shops, restaurants, kindergartens and often gyms. Outside of the subsidy system, luxury condominiums also exist. However, due to the expansive subsidy system, private developers must provide affordable prices to middle-income earners to remain competitive.
Vienna, however, is beginning to face challenges in ensuring affordability. Federal budget cuts for housing subsidies, a result of the economic crisis, might hinder the city from purchasing land the way it used to. In addition, a continuous influx of refugees is likely to increase the demand for social housing.
Innovative policy solutions will be needed to address these issues.
LEARNING FROM BERLIN, GERMANY
Recent legislative changes in Germany offer a third case of alternative policies to less successful market-driven approaches to housing.
According to CityLab, "Berlin just showed the world how to keep housing affordable". Similar to Vienna, a large share of Berlin's housing stock is regulated and subsidised, which ensured affordability in the past. Over the last decade, Berlin became a leader in Europe's start-up race for innovation, attracting more people to move to the city. As a result, Berlin's population has been growing twice as fast as city planners had anticipated.
The newcomers are a blessing for the economy and the real estate business, but represent a challenge for the city's affordability, especially for low-income earners.
To prevent rents from rising any further, the city government decided to implement a national legislation called the Mietpreisbremse or "rental price brake", which works as follows: An oversight body fixes the standard median price per square metre for each city district, using figures based on a biennial state census of rents.
No new rental contract is permitted to cross a 10 per cent limit above the standard median price.
Since its introduction last July, the rental housing market has already reacted with rents plateauing and then decreasing. A victory for affordable housing was thus achieved, to the delight of tenants and community organisations.
CONTINUING POLICY INNOVATION
Providing affordable housing to the world's urban poor will require policy innovations, investment partnerships, public service excellence and political settlements that support poverty-reduction efforts.
Vienna, Berlin and Singapore are living examples of continuing policy innovation, in effect, achieving the dual aims of keeping housing liveable and affordable, while maintaining economic growth in a competitive global economy.
While not without challenges, these cases show that more, rather than less, state involvement in the housing market is desirable in keeping cities affordable in both the developed and developing worlds.
Market mechanisms alone cannot be relied upon to ensure equitable outcomes. Government intervention and regulation are needed to strike a balance between competing objectives - public interest, social inclusion, profit and commercial feasibility. The government, private developers and the public have to work together to achieve mutually satisfying outcomes.
The experiences of the three cities, though not a route to a panacea, only underline the fact that it is indeed possible to marry the policy objectives of greater inclusion and commercial viability, and offer models for cities to pursue to achieve greater affordability of housing. Eventually, any solution will need to be adapted and be informed by local context.
In the spirit of the Global Agenda for Sustainable Development, let us continue to learn from one another.
A particularly helpful aspect is Singapore's willingness to take an active role in sharing its lessons and experience.
The Ministry of Foreign Affairs' Singapore Cooperation Programme showcases the city's work in this area. The hosting of the World Cities Summit in Singapore draws the world to experience this aspect of Singapore first-hand, and the city state's partnership with the United Nations, evident in bringing the UNDP Global Centre for Public Service Excellence to Singapore, helps to link with the global effort in this regard.
Still fresh in the minds of its retired policymakers, memories and experiences of Singapore's successful transformation greatly resonate among policymakers and mayors in developing countries.
Lena Simet is a PhD student in public and urban policy at The New School in New York.• Taimur Khilji is a programme specialist at UNDP Regional Hub in Bangkok who is currently on sabbatical. • Arndt Husar is deputy director of UNDP Global Centre for Public Service Excellence, Singapore.
