1. Access to Affordable Land and Housing in South Asian Cities A Survey David Dowall, Peter Ellis Mark Roberts, Manjusha Rai

2. Introduction With 40 % of its urban population living in slums, South Asia is facing a crisis of affordable housing Over next 40 years, South Asia will add equivalent of more than twice the entire population of the United States to its towns and cities. Without appropriate policy action, this will only serve to further exacerbate the crisis This presentation: (a) projections of housing requirements over next 40 years; (b) constraints to affordable housing development; (c) broad policy recommendations for addressing constraints

3. Defining affordable housing Housing production that can be purchased or rented by households in bottom 40 % of income distribution: 1.Should not need to spend > 25 % of monthly h/h income on housing costs – i.e. rent, purchase (including payment of principal and interest, insurance & taxes) or payments for land acquisition & incremental construction 2.Housing should be “decent” - i.e. constructed of good quality materials on well-serviced land & not characterized by over- crowding

4. SAR housing needs Using estimates of average h/h size & urban slum population, SAR housing backlog is 52 million units

5. SAR housing needs Looking forward, demand for housing will be driven by: (a) rate of household formation in urban areas; (b) rate of decline in h/h size W.r.t. (b), assume average h/h size  by 2.5 % per decade (based on Bongaarts, 2001) Table 7 Estimated Absolute and CAGR Change in Urban Households, 1990-2050 Urban Household Change (000)Urban Household Change CAGR 1990-20102010-20302030-20501990-20102010-20302030-2050 Afghanistan 685 1,297 2,2875.8%4.5%3.8% Bangladesh 4,670 6,719 6,8413.5%3.0%2.0% Bhutan 30 34 225.2%3.0%1.5% India 43,791 63,918 75,8922.7%2.6%2.1% Maldives 10 13 74.0%3.0%1.3% Nepal 546 815 1,1805.6%3.8%3.0% Pakistan 4,241 6,327 7,5143.0%2.9%2.2% Sri Lanka 41 394 6180.3%2.2%2.3% Total 54,744 80,919 96,6122.8%2.7%2.2% Household size estimates assume that urban household size (see Table 6) decline by 5 percent each 20 years Aggregate projected housing requirements, 2010-2050: 230 m

6. Constraints To address current backlog & meet rising demand, must address constraints in four principal areas: 1.Policy & non-policy induced constraints in land markets 2.Constraints on infrastructure development 3.Constraints on expansion of formal construction sector 4.Capital market constraints Constraints are inter-related & mutually reinforcing…

7. Land markets 2010-2050: need to develop 229 million housing units Assuming population density  2.7 % p.a. & current backlog accommodated on existing urban land  require 97,900 km 2 of land India will require an additional 70,461 km 2 (72 % of total) Ability of land markets to respond undermined by 3 factors (a) Inadequacy of land tenure & titling processes  Land titling & registration systems not fully functional or slow, inaccurate & expensive – e.g. 9 separate procedures & 250 days to title in Afghanistan (Doing Business, 2013)  Resulting insecurity  private developers reluctant to acquire & assemble multiple land parcels for residential development

8. Land markets (b) Large & mismanaged public land holdings Land ownership in Karachi (Source: Karachi Strategic Development Plan, 2020) Occupancy rates in Karachi’s housing estates Source: Dowall (2013)

9. Land markets (c) Planning failures  Outdated, incomplete & un-enforced Master Plans  Overly restrictive regulations that, e.g., prevent developers substituting capital for land by building upwards  Costs of obtaining planning & building permits Table 12 Obtaining Construction Permits No. procedures Time required (days) Cost of permit (% annual per capita income) Afghanistan123344,308.6 Bangladesh11201126.5 Bhutan2215092.7 India341961,528.0 Maldives81748.2 Nepal13115654.6 Pakistan11222216.0 Sri Lanka1721635.4 Chile1515567.3 Source: World Bank, Doing Business, 2013.

10. Infrastructure Even if land supply expands with demand, for this to translate into increased supply of developable land, infrastructure provision must be extended Table 14 Urban Infrastructure Requirements, 2010-2050, South Asia Absolute Change in Urban Population (000s) Road Investments (new and replacement) $100 per capita (000s) Improved Water Investments (new and replacement) USD $400 per capita (000s) Improved Sanitation Investments (new and replacement) USD $700 per capita (000s) Total Infrastructure Investment Costs, (000s) Afghanistan25,802 2,580,200 10,320,800 18,061,400 30,962,400 Bangladesh59,881 5,988,100 23,952,400 41,916,700 71,857,200 Bhutan298 29,800 119,200 208,600 357,600 India496,608 49,660,800 198,643,200 347,625,600 595,929,600 Maldives140 14,000 56,000 98,000 168,000 Nepal12,062 1,206,200 4,824,800 8,443,400, 14,474,400 Pakistan91,677 9,167,700 36,670,800 64,173,900 110,012,400 Sri Lanka3,888 388,800 1,555,200 2,721,600 4,665,600 Total690,356 69,035,600 276,142,400 483,249,200 828,427,200 Source: Urban population--World Urbanization Prospects, the 2011 Revision, 2012; Chatterton and Puerto, 2006. US$20 bn per year required over next 40 years, yet over period 2006-10, only $US28 bn was invested…

11. Infrastructure Infrastructure investment constraints:  Institutional & governance issues: perverse incentives for local bodies to raise revenue created by central-local government relations; absence of capital investment plans from urban plans  Absence of tools for infrastructure finance: lack of ad valorem property taxation, development impact fees, user charges & PPPs (Petersen & Annez, 2007)

12. Construction & capital markets Construction industry:  Absence of formally organized residential construction & development industry…  … resulting in failure to move to scale  construction costs for formal housing too high  Helps explain dominance of self-build & informal housing solutions Capital markets:  Housing finance institutions cater to upper- & upper-middle income households  Need: (a) development of secondary mortgage markets; (b) increased developer access to construction & land acquisition finance from specialized lenders; (c) new models of finance for low income borrowers

13. Need to launch 4 reform programs: Policy recommendations Land Enabling approach to improve land and housing market responsiveness Overhaul land and property registration systems Revise urban planning and development controls Improve management of government land holdings Infrastructure Develop financially sustainable models of infrastructure finance Reform to remove perverse incentives which deter local revenue raising “new” infrastructure finance tools – e.g. ad valorem property taxation, development impact fees, user charges & PPPs Construction Task forces to consider how to modernize construction industries and allow them to move to scale Removal of barriers to land assembly & subdivision, land titling & registration, infrastructure access etc. Finance Capital market reforms to channel more funding into housing Underwriting, risk management & loan allocation policies to improve access to affordable long-term mortgages Develop underwriting criteria to provide developer access to construction loans

14. Need to launch 4 reform programs: Policy recommendations Land Enabling approach to improve land and housing market responsiveness Overhaul land and property registration systems Revise urban planning and development controls Improve management of government land holdings Infrastructure Develop financially sustainable models of infrastructure finance Reform to remove perverse incentives which deter local revenue raising “new” infrastructure finance tools – e.g. ad valorem property taxation, development impact fees, user charges & PPPs Construction Task forces to consider how to modernize construction industries and allow them to move to scale Removal of barriers to land assembly & subdivision, land titling & registration, infrastructure access etc. Finance Capital market reforms to channel more funding into housing Underwriting, risk management & loan allocation policies to improve access to affordable long-term mortgages Develop underwriting criteria to provide developer access to construction loans

15. Need to launch 4 reform programs: Policy recommendations Land Enabling approach to improve land and housing market responsiveness Overhaul land and property registration systems Revise urban planning and development controls Improve management of government land holdings Infrastructure Develop financially sustainable models of infrastructure finance Reform to remove perverse incentives which deter local revenue raising “new” infrastructure finance tools – e.g. ad valorem property taxation, development impact fees, user charges & PPPs Construction Task forces to consider how to modernize construction industries and allow them to move to scale Removal of barriers to land assembly & subdivision, land titling & registration, infrastructure access etc. Finance Capital market reforms to channel more funding into housing Underwriting, risk management & loan allocation policies to improve access to affordable long-term mortgages Develop underwriting criteria to provide developer access to construction loans

16. Need to launch 4 reform programs: Policy recommendations Land Enabling approach to improve land and housing market responsiveness Overhaul land and property registration systems Revise urban planning and development controls Improve management of government land holdings Infrastructure Develop financially sustainable models of infrastructure finance Reform to remove perverse incentives which deter local revenue raising Introduce “new” infrastructure finance tools – e.g. ad valorem property taxation, development impact fees, user charges & PPPs Construction Taskforces to consider how to modernize construction industries and allow them to move to scale Removal of barriers to land assembly & subdivision, land titling & registration, infrastructure access etc. Finance Capital market reforms to channel more funding into housing Underwriting, risk management & loan allocation policies to improve access to affordable long-term mortgages Develop underwriting criteria to provide developer access to construction loans