Mena housing jam to worsen

The Middle East and North Africa faces a shortfall of 3.5 million low-cost houses to meet the needs of its rapidly expanding population.

In the UAE, low income is defined as a household with a monthly income of Dh9,000 or less, with the population of such households numbering about 390,000. Delores Johnson / The National

The Middle East and North Africa (Mena) region is facing an acute shortage of affordable housing, with a substantial lack of low-cost homes reported in Egypt, Iraq, Morocco and Saudi Arabia.

The problem is expected to become far worse during the next five years, owing to chronic under-investment in homes for low-income families and the rapid rate of population growth in the region, according to a report from Jones Lang LaSalle.

"While there is currently a significant over-supply of upscale or luxury housing in many markets, there remains a shortage of more than 3.5 million affordable dwellings across the major markets within Mena," the report said.

Inflated land values, high borrowing costs related to infrastructure and underdeveloped mortgage markets were the key factors inhibiting construction of affordable housing in these markets, the report said.

In the UAE, government efforts to subsidise housing for Emiratis have resulted in expatriate families struggling further to find low-cost housing, creating a shortfall of about 20,000 homes.

"In markets such as the UAE, the shortage of affordable housing disproportionately impacts expatriates [as the government provides free land and low-cost finance to assist Emirati families]," the report said.

However, the shortage of housing leaves many low-to-middle income expatriates forced to share apartments in the capital to save cash, with an average of two families to every dwelling last year.

By contrast, Dubai's recent plunge in property prices has effectively solved the problem of providing low-cost housing rental rates, the report said.

The report classifies low-income housing as affordable if it costs less than 35 per cent of the income of low-income households, definitions of which vary from country to country. In the UAE, low income is defined as a household with a monthly income of Dh9,000 or less, with the population of such households numbering about 390,000. Many governments in the Gulf have taken measures to increase access to low-cost housing in the wake of the Arab Spring. King Abdullah bin Abdulaziz Al Saud of Saudi Arabia announced a plan to build 500,000 homes in March to combat fears of unrest in the kingdom.

Meeting the housing shortfall would create challenges for many construction companies and property developers across the Mena region, said Majed Azzam, a property analyst at AlembicHC.

"We don't think it's going to be easy," he said. "Affordable housing seems to be something on the backburner right now," he said.

"So far a lot of developers haven't felt any motivation to pursue this line of product."

Properties for high-income individuals created much higher margins for developers so they tended to under-invest in the low-income market, Mr Azzam said.

Attempts at providing low-cost housing in Egypt had also proved difficult for some of the country's developers, whose affordable housing units proved a flop.

Developing public-private partnership between governments and developers was one way to stimulate construction of affordable housing, said Matthew Green, the head of research at CB Richard Ellis.

"The price you pay for the land governs what you need to build to make it profitable," he said. "Looking at the land prices, and you're struggling to make money with high-end properties feasibly."

Since many developers struggle to make a profit on affordable housing, subsidies may be necessary to spur growth, he said.