Will The Affordable Housing Crisis Go From Bad To Worse?

People are housed better than they ever were. This is true even in India, where housing standards are not very high, by global standards. It is true that living spaces are congested in large Indian cities but living spaces were even more congested in 1947 when India became an Independent nation. Most people live in pucca houses though most people did not live in such houses at the time of Independence. So, there is a huge improvement. But throughout the world, there is rising pessimism when it comes to the affordability of housing. Housing affordability is seen as a problem in rich and poor countries alike, especially among low-income households.

Even in the United States, pessimism is rising, though, in most parts of the country, housing prices are not much higher than construction costs. For example, according to a  survey of housing attitudes of John D and Catherine T MacArthur Foundation released in 2016, 81 per cent of the people in the US consider housing affordability a major problem. Most Americans believe that housing is more expensive today than in the times of their parents or grandparents. Most people think that housing has become more of an unattainable goal today than in the past. But if you look at the facts, housing is unaffordable only in a few American cities, and these are mostly cities that face geographical constraints. Building regulations are also severe in some of these cities.  

According to McKinsey, 330 million households live in poor conditions today, and this number is expected to rise to 440 million by 2025. This is about one-third of the households in the world. To build houses for the new households that lack decent housing by 2025, it will cost $9 to $11 trillion. If we include land costs too, that would be around $16 trillion. According to McKinsey, the affordable housing gap now is worth about $650 billion. To build houses for everyone who lives in substandard housing the cost would be four times as much. It is clear that governments cannot afford to do this, especially the ones of developing countries. And housing shortage is largely concentrated in developing countries.

The housing crisis is becoming worse only in cities with unusual building restrictions. In San Francisco and the entire bay area, for example, housing has become so expensive that very few people can afford it. But this does not prove much. When the demand for housing is high, and when the government does not allow new housing to be built, it is normal that housing becomes expensive. Even near such expensive cities, enough land that is not used by anyone. So, in many affluent countries, there is not much of a crisis.

Poor housing standards and rising number of households living in substandard homes by 2025 is because of many reasons. When the world population rises and when new households form, the number of households that live in substandard houses will rise, unless supply rises to meet the rising demand. This is not because the society is becoming poor, but because more and more people are moving to large cities. It is inevitable that unless the government removes building restrictions, many of the people who move to large cities will live in substandard houses. For many of them, living in substandard houses is just a matter of choice. This does not necessarily mean that there is a crisis. This means that cities should upgrade infrastructure and allow more housing to be built.

Another reason is that governments raise minimum standards. When societies become more affluent, minimum housing standards rise, too. When standards of housing rise it just happens that many houses fail to make the cut. So more people will seem under-housed even when people are better housed than ever. By today's minimum housing standards, most Indians were under-housed in 1947.