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The opportunity in tackling the affordable housing challenge (via McKinsey & Company)
Experts in housing and urban development weigh in on ways that countries are addressing or plan to take on the $650 billion affordable housing gap.
As the world grapples with what some have deemed “the age of urbanization,” affordable housing has become a great concern. At a conference held in Nairobi, the McKinsey Global Institute (MGI) discussed what affordability means, how various countries are tackling the growing challenge, and what more can be done. Affordability, as defined by the authors of a recent MGI report on affordable housing,1is the threshold of financial burden that an individual household will bear—about 30 percent to 40 percent of income. Three of the authors of the report, Jonathan Woetzel, Sangeeth Ram, and Jan Mischke, gathered with several housing and urban-development experts, including Dr. Joan Clos, executive director of UN-Habitat, Britt Gwinner of the World Bank’s International Finance Corporation, and Kenyan housing official Jane Weru. Edited transcripts of their conversations follow.
Dr. Joan Clos: Putting housing at the center of urban strategy
In order to confront the issue, we have developed a new theme. And this new theme is housing at the center. We mean two things with that, that housing should come back to the center of the urban strategy: urban planning, design, and urban strategy.
For example, we know about central business districts, which are a common feature of many new urban projects. We know a lot about industrial-land zoning, which, for example, is one of the most common zoning of cities in China. And housing has been diluted in these urban strategies.
There’s a third paradigm in our housing policy: The first two are housing at the center of the policy, housing at the center of the city, and the third one is that, before you build affordable housing, you need an affordable plot, an urban plot, to build the house on.
A good planned city increases the productivity of the economy. They call that “economics of agglomeration.” They say that in the well-designed urban space, the factors of production are closer. When the factors of production are closer, the cost of transaction is lower.
And when the factors of production are nearer, and the transaction goes lower, the productivity goes up. And this is a very substantive increase of the productivity. This is why all the finance ministers, when they need taxes, know where to go to collect taxes—they go to the cities. Because in the cities there’s a lot of value generated by the process of urbanization.
These economies of agglomeration flourish when the urban structure is well designed. What creates urban value is the location of the buildable plots. This is the origin of urban value—the good location of the buildable plots.