Affordable Housing

The effect of the Middle East housebuilding boom has been – ironically – to make it harder to house people. A shortage of housing at the right price points risks forcing millions out of the market.

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House prices in Riyadh have risen more than 80%, and apartment prices more than 50%, in the past five years. In Dubai, rent on a basic one-bedroom apartment is almost three times what an average migrant worker earns.

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With growing populations, matters are likely to get worse before they get better – even though some real estate segments are over-supplied.

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Why is that?

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Saudi giga projects have focused on luxury at scale, leaving income earners in the “squeezed middle” and lower segments under-served. The high-performing luxury segment in the UAE has had a similar effect.

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Large-scale projects have inflated prices for both materials and labour, hurting affordable housing schemes, while at the same time higher prices skew feasibility studies towards production of further luxury product.

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Rising interest rates and market corrections in Saudi Arabia have seen median incomes fall in real terms, with many buyers not able to pay the asking price of new housing.

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Finally, it’s more expensive to build at higher densities – although density is what we need to meet demand.  

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What’s the solution?

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Big developments will need to begin to look more closely at the needs of existing, rather than “target” populations.

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Re-focusing the economy on growth areas outside the construction sector, for example in manufacturing and emerging technologies, would help lift incomes.

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Supply chain improvements within the construction sector, such as in modular and off-site fabrication, would help deliver efficiencies.

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Government incentives and/or law changes to aid in the buy-back and redevelopment of existing apartment stock close to urban centres would increase supply without the need for new supporting infrastructure.