Affordable housing: a billion-dollar opportunity

In the 50 years since independence, Bangladesh has achieved great success regarding the development of the country. There have been significant improvements in access to food, security, healthcare, and education, which have led to an overall increase in the standard of living and a decrease in poverty rates. However, not all sectors have developed in a similar fashion.

As part of the Sustainable Development Goals set by the UN in 2015, goal 11 aims to make cities inclusive, safe, and sustainable. For this to happen, affordable housing must be made available to all by 2030 around the world and in our country.

There is a scarcity of affordable housing in Bangladesh, particularly in Dhaka city. As of 2021, approximately 22 million people reside in the greater Dhaka metropolitan area, according to the World Population Review.

The urban population of Bangladesh makes up approximately 40 per cent of the total population, and it is projected that by 2030, it will be 50 per cent. With temperatures and sea levels rising, the number of climate refugees from low-lying areas of the country moving to urban areas will reach approximately 20 million.

The middle-income population of the city is increasing, and so is the demand for housing. The middle-income population is expected to be 37 per cent of the total population by 2025, according to the IFC. However, the rent per square feet of the homes that cater to the middle-income people is on the higher side compared to those catered towards the upper-middle and upper economic segments.

The needs of the middle-income population are being undervalued. The present demographic dividend creates a huge growth opportunity for Bangladesh. We have one of the youngest populations in the world. So, more and more people will be looking into better housing facilities as the working-age population grows larger.

Middle-income and lower-middle-income groups living in urban areas of Bangladesh are paying high amounts of rent per square foot to live in cramped spaces. In many instances, they are paying amounts that are equivalent to the rent of commercial spaces. There is a significant affordable rental housing gap.

With proper policy and adequate support, monthly rent payments can be converted into instalments towards home-ownership. This will help the people with monthly household incomes between Tk 50,000 and Tk 100,000 become homeowners.

 In the case of the greater Dhaka metropolitan area, the appropriate size of a unit for an affordable housing scheme should be from 600 square feet to 1,000 square feet. To be able to buy these homes, buyers of this income group would need assistance from financial institutions.

According to the Bangladesh Bank, mortgage finance penetration in the housing market is only 3 per cent (compared to the 50 to 70 per cent in developed countries), and home loans only make up about 6 per cent of the total loans in the financial sector.

At present, the mortgage interest rate for a period of 20 years is about 7 to 8 per cent, which is too high. Traditionally, this segment of society has faced insufficient financial support, and without this changing, it would not be possible for them to own homes. Thus, the government should formulate a policy that is conducive for them.

Possible policies could include interest rate subsidies for first-time homeowners for the initial years or interest rate reductions for the entire mortgage period. In addition, there should a progressive interest rate scheme from the financial institutions, whereby the mortgage payment will increase in parallel to the earning of the mortgage taker.

Another out-of-the-box possibility could be a collaboration between micro-lending agencies and real estate developers, whereby both can act as enablers for affordable housing. By combining the experiences from microfinancing and recovery with the experience of real estate developers, affordable housing can be attained.

The location of the potential project is a vital factor to consider when providing affordable housing. Housing schemes can be connected to export processing zones (EPZs) as thousands of workers from the middle-income segment are employed there.

There are eight EPZs across Bangladesh. The EPZs, which are located in Chattogram, Dhaka, Mongla, Ishwardi, Cumilla, Uttara (Syedpur), Adamjee and Karnaphuli, collectively employ 461,460 people. Beyond this, there are hundreds of localised industrial belts around the EPZ areas.

The people working in these areas can also be potential buyers. Their employers could act as a guarantor for home loans, or a scheme could be created so that a specific percentage from an employee's salary would go towards paying off their home loans. This would also increase job stickiness and reduce the turnover rate, which has traditionally been high in this sector, thus acting as an incentive for the employers to be part of such a scheme.

According to the Bangladesh Economic Zones Authority (Beza), there are a total of 88 economic zones spread throughout the country, 59 of which are government-owned and the rest are privately owned. This means that there are hundreds of thousands of employees who could be targeted for an affordable housing scheme, resulting in billions of dollars being added to the GDP.

In the global scenario, other countries have been successful in their efforts to provide affordable housing to the middle class.

For instance, Singapore went from having one of the worst housing shortages in the world in the 1950s to having about 90 per cent home-ownership today. This is because citizens are able to take loans from their pension fund from the first day they start earning.

India has also started a "Housing for all" initiative. The government has decreased the interest rates on home loans, incentivising buying homes. Renowned real estate companies have also started to provide affordable housing. As the affordable housing complexes are developing, localised amenities such as schools, hospitals and shopping malls are growing.

Providing affordable housing to middle and lower-middle segments of society in Dhaka will be a massive undertaking, which will need cooperation between the government, financial institutions, and real estate developers. With the substantive gap in the housing market, this project is very much needed.

The demand for housing will only continue to increase over the years, especially with the rising number of climate refugees and other migrants moving into urban areas. Thus, affordable housing should partly be funded by the World Bank's Climate Change Fund.

There should be a public-private partnership in policy preparation about housing and a target on how many affordable housing units will be provided per year.

The government has mentioned in the eighth five-year plan for 2020-2025 that for addressing the shortage in the supply of housing, PPP can be used and that the government can hand over government-owned land to lower and lower-middle-income people. With adequate support from international lending institutions such as the IFC, the World Bank and the Asian Development Bank, as well as conducive government policies, providing affordable homes in our country will be possible.

The author is managing director of Rangs Properties Ltd.