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4 Ways To Make Housing More Affordable

We are running out of housing and no one can afford the housing we do have. Here’s some ways we could fix the problem.

4 Ways To Make Housing More Affordable
[Top photo: Ryan DeBerardinis via Shutterstock]

If you thought big cities like New York, Mumbai, and London were unaffordable already, here’s a depressing prediction: It’s going to get worse.

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A new report forecasts a growing shortage of reasonably priced housing in the coming decades, based on current migration and income trends. The McKinsey Global Institute estimates that by 2025 1.6 billion people–or 440 million households–will either be “financially stretched by housing costs” or be living in “crowded, inadequate, and unsafe housing.”

McKinsey defines affordable as 30% of income, and its 440 million figure includes 200 million existing households in developing countries, 32 million households in advanced economies living in substandard housing, and 100 million households that are finding it hard to meet their costs. On top of that, it expects 106 million households to join the ranks of the “stretched” by 2025.

That has huge implications for society, the report says:

For families lacking decent affordable housing, health outcomes are poorer, children do less well in school and tend to drop out earlier, unemployment and under-employment rates are higher, and financial inclusion is lower.

So what’s to be done? McKinsey’s overriding point is that traditional approaches are likely to fail. Handing out income support or subsidies will be inadequate. Cities need to take “market-based approaches” that “create value while reducing costs.”

Below are the four approaches the report recommends:

Unlock land

The best thing cities can do is to make more land available for housing, preferably land that puts poor people near opportunities. Siting affordable housing on the outskirts of town runs the risk of cementing poverty, rather than alleviating it. McKinsey recommends cities pursue transit-oriented development (housing built around new lines and stations), open up unused public land, and have policies designed to get development started quicker (like higher taxes for land that sits idle). “Inclusionary planning,” meanwhile, allows developers to build more densely in return for commitments to make more affordable housing available.

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Value engineering

McKinsey says improving the productivity of the construction industry would also help make more housing units available (it’s been falling behind other industries). Here the report recommends standardizing more aspects of home design, and doing more construction off-site then wheeling it into place. “The off-site manufacturing process improves quality and enables the developer to shrink schedules by having parts delivered as needed, rather than waiting for them to be fabricated on site,” the report says.

Operations and maintenance

Driving down the cost of maintaining and operating buildings might also help make more homes available. Ways to do that include focusing on energy efficiency (new windows, insulation and so on) and scaling up service operators to make them bigger and more cost competitive.

Better financing

Cities can help lower-income residents afford new homes by minimizing barriers to finance,particularly in the developing world. The report suggests three ways: reducing the cost of issuing mortgages (by, for example, standardizing the way properties are valued), reducing the cost of funding mortgages, and setting up mandatory savings funds that offer below-market interest rates.

Affordable housing may be a dry topic (and the report is a little dry) but it’s a vitally important one affecting billions of people. McKinsey believes its four approaches can meet the housing gap for everyone earning 50% to 80% of median income, while those earning less will also need additional support. “Despite efforts to address the affordable housing gap, it continues to grow and its effects are spreading, potentially causing greater harm to citizens and economies,” says the report.

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About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.

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