Why don’t Gulf cities have enough affordable housing? Where can we put it?

As the region grows these questions become more urgent. Land for affordable housing seems scarce because of basic land use economics. For any undeveloped urban land plot, the highest and best use is normally that which maximises effective economic activity per square meter… and that is usually commercial property, retail, or luxury residential.

Certainly, not affordable housing. Since we cannot rely on the market, how can communities unlock land for affordable housing?

Public land targeted for development could be sold to affordable housing developers at a below-market price (in exchange for binding affordability commitments), or offered for government co-development, with the private partner as the co-developer in what is known as public-private partnerships.

When the affordable homes are complete, private developers could sell the finished units directly to suitable income-eligible homeowners, or to the government, which would then allocate the units to buyers or renters. In Morocco, the government introduced in 2013 a program targeting middle-income households (earning between $800 and $1,700).

Under this, developers bid for below market government land, and those who buy the land get tax breaks that make it profitable for them to develop at least 200 units, ranging between 80 and 150 square meters, over five years to be sold at no more than $750 per square meter. If the numbers still don’t work, developers can build other types of housing, based on percentages they agree upon with relevant authorities, as a cross-subsidy.

The buyers must live in the house, as their principal residence, for at least four years from the date of purchase.

Governments could offer private developers who can access private undeveloped land financial and non-financial incentives to build middle-income housing (as partial or whole projects). Incentives could include easing and shortening government approval processes, relaxing planning regulations (particularly parking requirements), density bonuses, low-cost financing, and concessionary packages that reduce production-related costs, including materials and infrastructure.

As with the first option, the completed homes could be sold directly to consumers, operated as rental property, or purchased by the government through guaranteed bulk off-take commitments. Incentives can also be non-cash-related, as in giving developers a density bonus in exchange for mandating the inclusion of middle-income housing in their developments.

‘Inclusionary zoning’ is used in many countries with high-value and expanding cities. For instance, Abu Dhabi introduced in 2010 a policy requiring developers of multi-unit residential buildings to allocate 20 per cent of the residential gross floor area (GFA) to the middle-income group, while Dubai Municipality recently proposed a similar law.

Such mandates, if properly enforced, represent opportunities to supplement limited public sector resources, and tap for social and economic purposes some part of the wealth being created in the real estate market. However, to succeed, inclusionary zoning must be properly calibrated so that the value lost from the below-market affordable homes is made up in development profits elsewhere in the same property.

This is determined by: (1) the percentage and affordability level of the housing units required; (2) the extent to which any costs imposed on developers are offset by public incentives discussed above; and (3) the extent to which developers have a say in who lives in the middle-income units to ensure social and cultural compatibility among residents.

Of course, many developers, and even some government authorities, worry that including middle-income people in a luxury development will hurt sale prices or community values. This has not happened globally, in part because such programmes have kept three points in mind: (i) avoiding extreme income gaps (i.e., the richest living next to poorest), and focusing on middle-income households; (ii) designing different floor plans and price points catering for different income levels and household types; and (iii) recognizing that many GCC cities are already ‘melting pots’ where more than 200 nationalities live side by side, so culturally and socially, communities are already very mixed even if residents have similar income levels.

3. In many GCC cities a substantial amount of land is held by religious organizations for charitable purposes, sometimes in waqf. Elsewhere in the world, land trusts and land leases have been effective in assuring that homes developed by charitable organizations are kept permanently affordable, leased directly or with a pathway to ownership via lease-to-own or cooperatives schemes.

Non-ownership tenures are most important for the lowest-income households, whose needs will unlikely be met by the private sector, even with government incentives. Beyond ownership types, Gulf cities are facing two new urban forces that could be channeled towards affordable housing delivery: Urban regeneration and historic preservation.

Because buildings in urban cores of many GCC are crowded and decaying, the region is likely to experience a wave of urban regeneration projects, which present a unique opportunity to weave middle- and low-income housing into future downtowns, while also preserving precious cultural heritage.

Even though Gulf residents are used to using their own cars, as Gulf cities become more dense, policymakers will increasingly emphasize urban public transportation, or what is known as Transit Oriented Developments (TODs). High-density schemes could link affordable housing with affordable transportation, improve access to jobs, provide an alternative to sprawl, reduce traffic congestion, and cut back greenhouse gas emissions.

This requires appropriate planning, because once the new line is announced, speculators jump in and land prices shoot up. Consequently, other affordable housing programmes discussed above, such as inclusionary zoning and public private partnerships become necessary to preserve affordability.

For the success of Gulf cities, production and delivery of quality housing is every bit as important to any city’s economic future as seaports, airports, highways, and utility grids. With appropriate measures, governments can choose to shape the housing supply-side (homes) and demand-side (affordable loans) marketplaces so they are producing what people of all incomes need.

The writer is the GCC managing director of the Affordable Housing Institute.