Failures in the housing market in terms of shortages of housing causing homelessness, housing insecurity and high housing costs is called a “Housing Crisis”. Cities in developing countries all over Asia face a severe housing unaffordability crisis, with prices as a portion of income reaching levels that prevent most urban dwellers from realising their dream of becoming homeowners. The consequences of the housing unaffordability crisis go beyond the individual household and impact the entire economy. As housing becomes very expensive, people become reluctant to move and spend longer hours commuting, making cities less efficient labour markets. Companies invest in real estate instead of more productive investments, while banks favour firms with large real estate portfolios. High housing prices result in the misallocation of labour and capital, undermining the competitiveness of cities.
A housing affordability crisis is being experienced by cities in various Asian developing countries. The high prices of homes relative to income are stopping many city residents from achieving their goal of owning a home. And with cities growing continuously, it seems unlikely that this will change. As housing prices rise, individuals are less eager to relocate and end up spending more time commuting. The efficiency of the labour market in the city is not as effective as it could be. It implies that businesses choose to put money into property rather than more efficient options, and banks show a preference for companies with extensive real estate holdings over those with superior business strategies. High housing costs lead to labour and capital being allocated inefficiently and harm cities’ competitiveness.
In the last thirty years, Asia has undergone urbanisation at a level never seen before in the history of mankind. Even though rapid urbanisation has contributed to economic growth, it has also burdened numerous cities, particularly in terms of housing. The supply of housing lagged behind the rapidly rising demand, causing housing prices to soar.
How to tackle the housing crisis in Asia
What is the solution to the housing crisis? Housing price information is not typically gathered systematically within urban areas. Policymakers find it difficult to determine the extent of the issue and cannot evaluate the effectiveness of current housing policies. Multiple governments in the area, such as Malaysia and the Philippines, have acknowledged the necessity for improved data and have implemented new initiatives to methodically gather additional information on the real estate market. New advancements in information technology are providing rich data sources that can be used affordably to enhance understanding of the housing and labour market.
Lowering housing prices can be achieved by easing supply constraints. The reason for high housing prices is the fast rise in demand coupled with a slow supply reaction. One of the primary factors is the sluggishness of cities in offering affordable new land for development. Stringent land use rules and issues with coordination between different jurisdictional boundaries frequently cause delays in the process. Ideally, the availability of additional land is connected to the growth of low-cost housing.
Thirdly, ensure public transportation is both affordable and efficient. An effective and inexpensive transportation system within the city enables individuals to travel easily throughout the city and broadens the available options for commuting to work. This reduces the necessity to reside in city areas and lessens the demand for housing. Improving urban public transportation systems in Asian cities would not only alleviate the significant congestion issue but also lead to lower housing costs.
Encourage the leasing industry. Housing policies have concentrated on improving the rate of homeownership. Even though owning a home has benefits like building equity, there are also drawbacks like potential debt from borrowing too much and reduced ability to easily change jobs. The low-income groups in most Asian cities still have limited options for rental properties. Encouraging the growth of a bustling rental market that includes a good balance of public and private rental housing is important. There is a need to increase and improve the management of the public rental housing inventory. Financial incentives like tax breaks or subsidies can motivate the private sector to participate in constructing private rental housing.
South Korea: An example of tackling the housing crisis in Asia
As a result of rapid economic expansion in the 1980s, South Korea experienced a significant rise in real estate prices in its primary urban centres. The government’s reaction was to introduce the “Two-Million Housing Drive,” with a commitment to construct 2 million new housing units in 5 years. The goal was accomplished by a combination of public and private initiatives. The government implemented a successful policy of assigning housing units to specific income groups based on their financial capabilities. This method enhanced housing conditions in terms of both quantity and quality, while also assisting the middle class in accumulating wealth through owning homes. The housing policy of the country was effectively incorporated into urban planning, allowing for the swift elimination of supply constraints. Even though it faces difficulties, South Korea offers a valuable model for addressing housing affordability.
With the continued growth of cities in Asia, addressing the housing affordability crisis has become a pressing and immediate issue. The lack of affordable housing may negate the advantages of urbanisation. Because cities are hubs of economic activity, the lack of affordable housing negatively impacts the competitiveness of the economy as a whole and sustainable development.
