World Needs $16 Trillion to Solve Housing Crisis

Monday, November 17th, 2014
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The world needs to spend $16 trillion over the next decade in order to meet challenges associated with housing affordability, according to a new report.

In their Blueprint for Addressing the Global Affordable Housing Challenge report, researchers from McKinsey & Company warn the number of households around the world which are either living in substandard housing or are financially stretched to the point of forgoing other essential costs such as food, healthcare and schooling for children could jump from $330 million to $440 million by 2025, meaning the global housing gap could affect 1.6 billion people, or one in three urban dwellers.

Moreover, between $9 trillion and $11 trillion would be needed in construction spending alone to replace any inadequate houses which exist today and also build entirely new units during that time – a figure which rises to $16 trillion when land costs are added in.

“Decent, affordable housing is fundamental to the health and well-being of people and to the smooth functioning of economies,” the researchers say. “Yet around the world, in developing and advanced economies alike, cities are struggling to meet that need.”

While the economic issues and opportunities surrounding affordable housing are significant, stories of the human cost associated with the problem abound.

In Mumbai, for example, The Express Tribune told the story in 2012 of an 11-year-old girl being forced to cram with her parents and four siblings into a one-room house of just 11 square metres and share a single neighbourhood toilet which is five minutes’ walk away and is often broken and unavailable.

The problem is not limited to less developed parts of the world. In New York, a New York Times report last year indicated that more than 130,000 families sit on public housing waiting lists and more than 50,000 people, including 20,000 children, are housed in homeless shelters. In some of these shelters, the NY Times report said, stories of appalling living conditions and sexual assault are not uncommon.

McKinsey researchers called for a number of measures to close the gap, including use of value engineering (standardised design) and offsite manufacturing to reduce construction costs and government funding for energy efficient upgrades of social housing such as insulation and new windows to reduce household running and maintenance costs.

It said, however, that the critical factor revolves around unlocking land supply in major cities.

“The myth is that there is no place for affordable housing in increasingly crowded cities,” report co-author Jonathan Woetzel said. “The reality is that if we look around we see plenty of opportunities to better use existing land which is in many cases undeveloped as well as to densify and build up not out and finally take advantage of new infrastructure development to essentially create a new mixed-income developments around transit in particular.”

Woetzel said an example of what can be done can be seen in the Indian state of Gujarat, where an arrangement which saw the government provide infrastructure to improve the value of privately owned land in return for developers setting aside land for affordable housing provided a ‘win-win’ mechanism. In this case, the right conditions were created for owners to bring forward development of their land.

Similar arrangements had proven effective in Japan and South Korea, he said.

Ultimately, however, the researchers stress there is not a one size fits all answer, and add that issues need to be tackled at localise levels with policy makers at higher levels focusing upon fostering a dialogue and conversation which is conducive to outcomes at the localised level.

“What we’ve seen work is that cities that do create the dialogue between public and private sector and the community at large – they are the ones that ultimately wind up with a better and more sustainable housing outcome,” Woetzel said.

Key facts:

  • Around the world, about 330 million people either live in housing that is substandard or are considered to be in housing ‘stress’ (needing to spend 30 per cent or more of their income in order to put a roof over their heads) – a number which will increase to around 440 million (or one third of everyone living in a city) by 2025 if nothing is done.
  • Of these, around 200 million are in Asia, Africa and Latin America, while around 60 million are in the US, Western Europe and Australia (the remainder are in other regions).
  • Between $9 trillion and $11 trillion would be needed in construction spending alone to replace any inadequate houses which exist today and also build entirely new units during that time – a figure which rises to $16 trillion when land costs are added in.
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