Tag Archives: government

Moving Forward: Alternative Forms of Subsidy in the GCC

By: Maysa Sabah Shocair, Managing Director, GCC Region


All GCC countries use a combination of non-cash and cash housing finance subsidies. Non-cash subsidies include: (i) making land available for housing either through land grants or directly producing residential projects on allocated land; (ii) housing grants to needy groups including families with limited income, families with special needs, and divorced, widowed, or unmarried women, and (iii) subsidizing water and electricity. On the other hand, cash subsidies include: (i) grants to purchase, build, repair, or expand a house given to those with limited income; (ii) interest free housing loans to buy, build, repair, or expand a house, ranging in value from USD 52,000 in Oman to USD 350,000 in Qatar with a repayment period ranging from 25 years in all GCC countries, with the exception of Qatar, which offers loans up to 35 years.


However these subsidy programs are not getting people into housing fast enough, resulting in long waiting periods and extensive waiting lists for government housing services. Indeed, government subsidy programs in most GCC countries are facing many challenges, including: (i) increased demand for housing due to local population growth; (ii) rising cost of housing, mainly due to rising cost of land reflecting the increased demand for housing from the growing expatriate population; (iii) lack of coordination between different government entities which is negatively impacting housing supply and affordability; (iv) complexities and red-tape involved in the present subsidy programs; (v) lack of clear eligibility and priority rules leading to friction (when some are denied and others helped), game playing (where some maneuver themselves to become eligible), and political subterfuge (where those who should not be eligible use personal connections and favors to try to wriggle into eligibility); and (vi) specific challenges to each program to be discussed in detail in another blog.

housing crisis 

Moreover, these subsidy programs heavily promote home ownership at the expense of rental housing. Even in countries such as Bahrain and Kuwait, which provide rental apartments, governments are unintentionally stigmatizing rental housing by offering rental assistance to the “least fortunate”, such as those who have been on waiting lists for more than 5 years, divorced or widowed women, or to households with very low incomes. However, quality affordable rental housing is an integral part of a well-diversified housing stock because it better serves many households, including: (i) young couples just starting out, who need a place of their own but lack the assets to buy a house and may not know how large their family will be; (ii) singles who wish to live independently but may be married in the future; and (iii) older couples whose children are grown and who no longer want the responsibility of maintaining and improving their home.


housing 2

housing brochure

Villa housing units

Furthermore, housing authorities are advocating living in villas by predominantly building villas, allocating apartments, in the rare event that they are built to the “least fortunate”, granting land to build villas, and mandating large residential plots. Although the desire for a villa is universal, the health of our cities and hence of our economies and nations, depends on diversifying beyond villa, mainly because (i) villas are ecologically stressful, adding to our rate of land and energy consumption; (ii) higher density resulting from greater diversity of housing types can lower average costs and incentivize developers to enter the affordable housing market; and (iii) diversifying housing types enhances social cohesion by allowing people in different stages of their lives to move to larger or smaller homes without leaving their community.

Governmental resources must be made to go farther through reforming the current subsidy programs and exploring new ones. Reforming current subsidy programs may include initiatives such as: (i) revising eligibility and priority rules, which need to be available only to those who cannot succeed in the open market, based on principles of ‘common sense equity’, clearly state who is in-or-out, and self-adjust with changing economic conditions; (ii) reinventing the land grant system. For example it could be a grant of a plot of land sufficient to hold a villa within a preapproved subdivision, to be built by a private developer according to specifications, with a loan on favorable terms. People who own a plot could have the option to turn it back for cash or credit.

sheik zayed apartment sheik zayed housing

Products of the Sheik Zayed housing program

Governments can promote rental housing through programs, such as: (i) a supply-side program, probably through non-profits or religious associations.  For example, Waqf land is grossly underused in the GCC and could be the source of land for rental or charitable housing; (ii) a demand-side housing subsidy that eligible households may use to pay part of their rent on accommodation found in the marketplace.

Moreover, governments can encourage diversifying beyond the villa, through strategies such as: (i) redefining the subsidy. Instead of asking “would you like a villa or an apartment?” ask “You have this amount of subsidy, how would you like to spend it?” Those who spend less can reserve the money for future use, or receive cash rebates. In other markets, when faced with such a choice, some voluntarily consume less; (ii) letting people move into apartments via rent-to-own and start enjoying their new home while saving to buy it. This will help those not in a position to purchase a home to do so and build equity; and (iii) letting people stay on a waiting list for a villa, while moving them into an attractive apartment now.

Other tools that governments may want to consider include non-cash tools, such as: (i) limiting density, which creates a renewable and monetizable commodity that government or the private sector can sell or trade; (ii) providing trunk and on-site infrastructure, a tool to improve the quality or affordability of housing and offer significant value to the developer or owner; (iii) assuming risk or enhancing credit to encourage private banks to participate. Governments can take the credit risk associated with lending to affordable households or properties through purchasing loans originated by others, insuring loans originated through approved intermediaries, and guaranteeing a government or private sector entity; and (iv) exempting eligible projects from government imposed fees to reduce overall costs and increase affordability.


Cash tools include: (i) soft debt – a government entity lends money to a developer or property owner, and takes a subordinate lien position to other lenders to encourage the development of new affordable housing; (ii) hard equity – to encourage the development of affordable housing, the government gains an ownership stake in the property, or the organization developer/ operator and seeks an economic return on its capital; (iii) operating subsidythis can be on the supply-side when given to property owners who then charge residents low rents or on the demand-side when given directly to householders or residents to help defray their costs; and (iv) re-directive subsidy – government can capture revenue from another income stream and direct it to housing, through, for example, payroll deductions, ore revenues from transportation or utilities. 


In other nations that we have looked at successful policy instruments have evolved during an extended period of trial and error that led to the evolution of a mixed system of low-income housing policy with a much diminished national role in program design and outcomes, an ascendant role for local governments and the private sector, and the opportunity for the recipients of housing vouchers to scout the private market for the best deal they can find. The permanent nature of housing inspires caution on the part of policymakers.  Homes can be the physical and enduring expression of policy, and as a result, every city in the world has some properties that are the reminder of a previous experiment that either failed or outlived its utility. Thus, giving stakeholders clear information and access to technical expertise can help them proceed with confidence.

oman housing 1 oman housing 3 oman housing 6

Housing in Oman

Affordable housing in Africa

By: Evans Essienyi, AHI West Africa Associate

Population experts predict that Africa’s population will double from 1,037,524,058 in 2011 to 1,998,465,920 by 2050.The increase in population has been attributed to high birth rate, the decline in infant mortality, and an increase in life expectancy across the continent.

Population growth, coupled with rises in rural to urban migration has resulted in over populated cities. The growth of cities appears to have taken many city mangers by surprise, as they appear to have very little idea about how to manage the seemingly inevitable growth. City infrastructure gravely lags behind the population growth.

Housing is one of the resources that come under intense pressure when there is population explosion. Housing shortage in most African cities have reached worrying levels. This is evident in the increasing number of slums that are so visible in most cities. People who migrate to the city from rural areas construct their own shelter when there is no supply to meet their needs. These shelters are usually not adequate structurally or physically because owners meant them to be only temporary homes.

Kibera slums, Nairobi, Kenya

In most cities, affordable housing for the urban poor is non-existent. The lack of affordable housing supply and the high demand for affordable housing in Africa has been seen as a business opportunity by a number of business people in the West. For example, there are a lot of businesses in the US promoting prefabricated building methods as a means of providing affordable housing for the urban poor in Africa.

Lagos’s famous floating slums, Nigeria, where the government has recently taken first steps towards total demolition and eviction

On the face of it, these prefabricated buildings seem to be a way out of the housing situation. What is missed by most of the proponents of prefab houses is that, houses serve more than the function of sheltering people in Africa. For most Africans, houses are an expression of their status in society. Houses are regarded as properties that must be passed on to future generations. As a result of this very important function of a house, mass produced houses that look alike, and lack any aesthetics does not serve the African vision of home ownership.

Some of the prefab houses being designed today have been estimated to cost between $10,000 -$20,000. By Western standards these houses may seem suitable and affordable. But by African standards these are not suitable even if they are affordable. Most Africans would not mind living in tin houses temporarily while they spend $20,000 over the long term to build their own suitable homes.

Some of the prefab houses would pass for boxes, and I feel even though their intended recipients are poor and are supposed to be content, the houses are lacking in an important way: they are not reflective of the identity of the owner. Instead, they are mass produced, cookie-cutter houses. Most people will be reluctant to buy these houses.

A row of barren prefabricated apartments

I feel the solution in meeting the grave demand is to empower the poor in the cities economically. When their incomes grow, they will save to build their own houses.

A cubic non-descriptive prefabricated affordable home

Incremental building is the common method among the poor and the middle class. This is the prevalent method due to limited access to mortgage services in many parts of Africa. By economic empowerment either through job creation or funding of houses through Housing Microfinance, capital will be made available to the poor and the middle class for them to construct suitable houses over a relatively shorter time frame.

How to solve India’s housing shortage: build at scale

By Janaki Kibe, AHI South Asia Associate

I attended The Indian School of Business Affordable Housing Conclave 2012 in Hyderabad a few weeks ago. Over the course of an intense, yet inspiring, day a group of developers, planners, architects, policymakers and academics discussed a range of topics including private-sector driven business models for affordable housing, public policy imperatives for facilitating affordable housing, and the role of finance in affordable housing. While this group of motivated players identified common challenges to developing affordable housing at scale—government bureaucracy, corruption, land prices—there seemed to be some disagreement about the ways to resolve these challenges. Some argued that the government should simply step away from the housing sector – let purely market-driven forces pave the way ahead. While I do agree that the Indian government tends to be more of a hindrance than a facilitator in low-income housing development, I think there is something to be said of their expansive network. If only there was a way to transform the government from the inefficient monstrosity that it is today and run it like a lean, private company leveraging their connectivity and reach into different parts of the country.

The need for affordable housing in India is unarguably acute. Current estimates predict a housing shortage of 25 million housing units. (Note: this is likely an outdated and conservative estimate.) Assuming an average price of construction cost of $10,000/unit, affordable housing in India represents a US$250 billion market opportunity. This potential market opportunity has recently driven (more adventurous) developers and financiers to enter the low-income housing market in India. While some headway has been made in the construction and financing of low-income housing, serious challenges remain to increasing the scale of affordable housing construction and finance in India.  And scale is the necessary element for combating such a severe housing shortage.

On the supply side, lengthy government permitting processes often hurt low-income housing developers. Drawn-out timelines reduce developer returns, and contribute to the sector’s relative unattractiveness to suppliers. Low-income housing developers use 12-15 months as the optimal product delivery time because of the difficulties of getting longer financing, much faster than traditional higher income housing developers. The quicker delivery time means that low-income developers are more significantly affected by permitting and construction delays. Additionally, permitting rules and processes vary significantly across India, making it difficult for developers to operate at a large, pan-India scale.

Role of the public sector: To enable growth at scale, the government must reform its own processes—especially permitting. One attendee, Jaya Kumar, the Managing Director and Chief Operating Officer of the low-income housing construction group Value and Budget Housing Corporation http://www.vbhc.com/, encouraged public opinion to drive reform in the permitting process. He stressed the idea of streamlining and computerizing the permitting process. Computerization would ideally also help increase transparency and reduce corruption in the Indian housing sector. Regardless of the exact methodology, it is clear that the government’s role should be as a facilitator, rather than as an impediment, to affordable housing.

For housing finance companies (HFCs), the challenge remains in developing reliable, scalable credit assessment models.  Currently, many low-income HFCs use field-based credit assessment models to gauge customer repayment capacity. While these have been successful at assessing risk at a smaller scale they are laborious and costly, which leaves some question regarding their ability to be scaled-up. Perhaps there is room to borrow some of the institutional capacity of microfinance institutions (especially those that have been able to reach a wide audience) in assessing borrower repayment capacity for this market and reducing home loan default rates.

An alternative approach suggested by Professor Richard Green of University of South California’s Sol Price School and Public Policy and the Marshall School of Business stressed that clearer titles and greater down-payment requirements could help reduce default rates. If people have equity to protect, they won’t default! Sounds a bit like the old push for “skin in the game.”

While I think that these tools are effective in the US—where titles are generally quite clear and low downpayments have contributed to high default rates—I am not confident that these are the right tools for the Indian context. In India, there is a tenure spectrum, and getting to the root of land titling disputes is akin to engaging in a horrific divorce battle that is likely to take 30+ years. Additionally, the aspiration to own a home in India is so strong that people do feel that they have “skin in the game” even if they have not paid large down payments. From my field experiences, people default on home loans not because they don’t have “skin in the game” but because of weak income situations.

More than land titles and down-payment requirements, I think we need to design better credit assessment models. Centralized databases where borrower credit history (including loans from moneylenders) can help reduce some of the information asymmetry that plagues the current low-income market in India.

At the end of the day, questions remain: how do we scale up small successes to address a 25 million housing unit shortage? How do we leverage private and public sector capacities to benefit low-income groups? How do we regulate an industry whose customer base is highly informal?