Decades of research has shown that affordable housing is a cornerstone of urban livability and wellbeing. Beyond providing shelter, housing is a platform for improving health, education, economic activity and social stability. Affordable, good quality and stable housing is often associated with less stress and better overall health. Similarly, satisfactory housing can improve school performance by providing adequate space for study and minimizing the disruptions associated with frequent family moves. Investments in housing have numerous economic benefits through expenditures on construction, labor materials and services; increased local economic competitiveness, to the extent that lower housing costs are viewed as a comparative advantage by employers and workers; and financial innovations, such as the development of capital markets, bond markets and derivatives that enable investors to transfer risk, further increasing the supply of capital. The benefits of housing extend to neighborhoods where families have access to opportunities and support services they need, thereby contributing to overall social stability. As such, housing is among the most important public policy areas, and one of the most complex and challenging because it lies at the intersection of people and money; of public purpose and private assets.
A housing crisis
There is little doubt that Beirut lacks affordable housing. Even our notorious aversion to numbers fails to mask the scale of the housing crisis. Delayed marriages, extended family households and numerous other social patterns attest to this problem. Furthermore, long commutes, forced displacements and increasing social homogeneity indicate that Beirut is losing what is left of a once vibrant community, a community where residents of all ages, household sizes, and sectarian and socioeconomic backgrounds found opportunities to interact, develop ties and meet changing housing needs through different life stages, without losing social and family networks. The threat is further exacerbated by the eroding basis of middle income housing in the city’s central areas, as exemplified perhaps most eloquently by the numerous towers that now signal ongoing gentrification processes, as well as recent legislative moves to revoke the old rent law.
There is also little doubt that public sector interventions in the form of direct housing provision (in very rare instances) and credit facilities are insufficient. The brunt of the effort for housing provision has rested on middle and low income households who typically carry the heavy burden of financing developers through forward payments that require them to disburse installments over several years before they access the coveted apartment. Enticed by the large demand for affordable housing, developers have creatively looked for solutions to reduce costs by either building smaller apartments or introducing projects in locations outside the city proper where land prices are more affordable. Since 2006, the share of Beirut in total sales value has been gradually declining relative to other regions in the country, specifically in the Metn and Keserwan regions. Concurrently, commercial banks have been complementing the efforts of private developers by providing mortgage loans that cater to the needs of middle income groups. To boost these efforts, Banque du Liban has introduced stimulus packages over the past few years that supported the real estate sector by extending subsidized loans, capped at about $500,000, to eligible Lebanese. In addition, and since 1997, the Public Housing Corporation has provided subsidies that extend the period of housing loan repayment by refinancing housing mortgages over longer time periods for the lowest bracket of indebted households. Albeit important, these interventions have had a limited impact, particularly as they have focused on demand-side subsidies while the cost of housing supply (specifically land) has spiked. Real estate prices sharply increased during the first two decades following the end of the Civil War, widening the gap between the supply and demand of affordable housing in central locations. Between 2005 and 2010, strong demand and low interest rates led to a highly speculative real estate market in central Beirut that privileged high end housing and pushed prices up by 20 percent and 30 percent per year during the same period. These factors render the supply and cost of land a primary challenge for housing policymakers to target.
Our message is simple: middle income housing is not only desirable, it is attainable
Practical steps towards affordability
Our message is simple: middle income housing is not only desirable, it is attainable. To this end, however, we need to draft a national housing strategy that would consolidate political commitment and positive imagination. It takes a governance system that embraces its role as the defender of a common, shared good, that includes both developers, builders, property owners and other stakeholders to address the housing problem across the lower and middle market segments. Middle income housing offers the potential for fruitful collaborations between the public and private sectors — unlike the lowest income housing market that requires deeper subsidies and a larger role for the public and nonprofit sectors. To this end, Lebanon — and particularly Beirut — possesses a unique asset in the vibrant and competent entrepreneurial financial and building sectors. Within the framework of a national housing strategy, it is imperative to engage these actors as partners in the production of affordable housing. Such a partnership will however require a more aggressive regulatory and planning role for public agencies, along the lines of the interventions proposed below.
1. Enlarging the radius of urbanization: The expansion of the urbanization radius provides the opportunity to increase the supply of affordable land. This expansion is in fact well underway, but it occurs at the ad hoc initiative of developers, and with numerous negative effects. Today, suburban dwellers incur long and taxing commutes, suffer from poor levels of infrastructure services, inexistent amenities (e.g. playgrounds), as well as a social stigma associated with ‘leaving the city’ and/or living in localities where they are seen as ‘outsiders.’ Other impacts are shared more widely and include sprawl, environmental degradation, pollution, the destruction of agricultural lands and others.
The integration of the current sprawling suburbs under a coordinated and organized Greater Beirut Authority has the potential to produce a larger, more livable urban agglomeration that responds better to the housing needs of the city’s growing population. The first task of such an authority would be to define the boundaries of the metropolitan city limits, identifying the most adequate zones of urban expansion. Within zones earmarked for urbanization, incentives (e.g. higher exploitation ratios, infrastructure developments) can be introduced to encourage development. The public authority could also encourage mixed use community developments that include a mixture of housing, office, retail and/or other amenities integrated into walkable neighborhoods, improving the quality of life and reducing the need for travel. The Greater Beirut Authority should furthermore make the introduction of public transportation and Transit Oriented Developments (TODs) one of its main priorities, improving connections and mobility, and integrating the territory into a unified network. Given that research has shown unequivocal positive correlations between the proximity of households to transit and positive health indicators, improvements in air quality and reductions to levels of greenhouse gas emissions, investment in shared infrastructure should be a main priority.
2. Introducing incentive schemes: Governments can also directly intervene to boost the supply of middle income housing both in the current municipal districts and the larger agglomeration areas, if the latter is adopted. This could be achieved through a number of incentive programs, such as: (i) Turnkey building on underutilized government land, under which the government provides the front and back end of the development value chain — land up front, and guaranteed offtake commitments by qualified middle income buyers — and in between developers make a satisfactory profit while delivering homes at a lower cost than if they had to pay for the land; (ii) Incentives to build on private land, whereby governments offer private developers with access to land financial and non financial incentives to build middle income housing (as partial or whole projects). Although the current building law offers developers many advantages, the growing need for middle income housing is probably worth a deeper discussion between stakeholders to investigate whether the government could offer further ‘reasonable’ incentives to developers who commit to developing middle income housing in earmarked locations. Incentives could include easing and shortening government approval processes, relaxing planning regulations (such as parking requirements), density bonuses, low cost financing and government concessionary packages that reduce production related costs, including materials and infrastructure. As with the first option, the completed homes could be sold directly to consumers, operated as rental property (usually managed by nonprofit corporations), or purchased by the government through guaranteed bulk offtake commitments.
3. Controlling speculation: Conversely, and to reverse the current trend of speculative investments and prevent it from spreading further in the larger agglomerations, measures are needed to improve affordability in newly integrated areas but also in quarters of the existing municipal city. The success of the market in balancing the supply and demand of housing depends on catering to the demand of a city’s residents. Unfortunately, when the bulk of supply targets absentee high net worth owners, property prices become totally out of sync with local income levels, further widening the gap between housing supply and local needs. Furthermore, having absentee owners negatively impacts the vibrancy and livability of neighborhoods. To this end, housing policymakers in other countries have developed, tested and adopted a handful of tools that control speculation and its negative impacts, while providing incentives to developers, ensuring a reasonable profit and that positive impacts are felt by the communities in which they are building.
Changing mindsets, creating incentives
One such tool is ‘inclusionary zoning’, which requires a shift in the mindset from one where building development is automatically considered desirable, to one where the lucrative profits typically reaped by developers are partially shared with the community. In other words — and while bearing in mind that to be viable, developments have to be profitable — it is time to also think of capturing part of the value increases to benefit local communities. In an inclusionary zoning mandate, all residential development must allocate a portion (say 10-20 percent) of housing for middle income households. Inclusionary zoning is used in many high value and expanding cities, including several US and European ones. Such mandates, if properly enforced, represent opportunities to supplement limited public sector resources, and tap into part of the wealth created in the real estate market for social and economic purposes. Yet to succeed, inclusionary zoning must be properly calibrated so that the value lost from the below-market affordable homes is made up in development profits elsewhere in the same property. This is determined by: (i) the percentage and affordability level of the housing units required; (ii) the extent to which developers have a say in who lives in the middle income units to support healthy integration among residents; and (iii) the extent to which any costs imposed on developers are offset by public incentives as discussed above. Many cities rely on creative financial structures to improve the feasibility of these projects, such as granting affordable housing developers the ability to sell air rights to third party investors and developers (New York City) or using tax credits to leverage private capital and investor equity (most US cities). Moreover, some cities allow developers to substitute the inclusionary zoning requirement with a ‘linkage payment,’ or a stipulated cash amount per square meter, considered a social contribution that landowners must make on high value land approved for all types of new developments.
Such taxation can control real estate speculation and limit increases in real estate prices
Another important measure, although seemingly unpopular, is a system of property taxation on properties valued above a certain threshold. Such taxation can control real estate speculation and limit increases in real estate prices, therefore increasing the possibility of producing affordable housing. Current taxation systems are insufficient and inadequate: they fail to assess the actual value of property, neglect to distinguish between types of property (e.g. agricultural, development) and leave numerous loopholes that allow developers to evade even minimal taxes.
4. Establish a housing assistance fund: Such a fund could be established through channeling various government resources, some of which were listed above, and includes: (i) existing taxes, such as value added taxes on construction material; (ii) property taxes, long overdue for reform in Lebanon to ensure that the government does not leave money behind by failing to tax the most expensive homes at rates close to their market value; and (iii) new ‘linkage payments,’ considered a social contribution that landowners must make on high value land approved for new development. The housing assistance fund could support important housing programs such as a ‘Rental Vouchers Program’ to offer ongoing payments to rental properties’ owners and hence assist low and middle income households, or ‘Stabilized Housing Programs,’ through which the government plays a counter-cyclical role by purchasing adequate excess supply for the benefit of middle income households. Its role could also be obvious in providing reasonable alternatives to low and middle income communities currently benefiting from the dysfunctional, yet so far irreplaceable, ‘old rent control’ system. In Morocco, for instance, the government imposed a 5 percent tax on the sale of cement in 1999, to fund the Housing Solidarity Fund (HSF) for urban regeneration. Recently, this tax has expanded to include steel and sand. The HSF together with the Real Estate Inclusion Fund — also financed through the cement industry — provide $250 million for urban upgrading schemes. In Lebanon, this measure was introduced modestly when deposits placed to secure work permits for foreign migrant workers were allocated to subsidize housing loans by the Housing Bank. However, the role and resources of such a fund could be widely expanded.
In the absence of adequate government support, private developers have already intervened to ease the housing burden on low and middle income families. It is time, however, for the government to support their efforts by enhancing what they have built, encourage them to build more in specific locations and inspire them to become socially responsible. In order to create an equitable and affordable city, we have to ensure that new developments result in quality, affordable housing that also provides significant public benefit. Of course, the core of socially responsible development is when developers contribute to the surrounding community and support the local economy, through providing affordable housing and/or other neighborhood amenities like parks and open spaces. Such measures have become the norm in numerous cities around the world and may be easily adapted in Lebanon, where the practice of negotiating building rights is common.
Contrary to what might seem logical, developing luxury projects for affluent buyers is not the only way to make profits in the real estate business. Building middle income housing may provide developers the opportunity to do something important that still provides a reasonable return. With proper planning and incentive structures, affordable housing projects can be viable for developers without much compromise on their bottom lines.
All the initiatives mentioned above require an able and committed government, without which very little can be done to genuinely ease the pressure of rising housing costs on middle and low income families. Ultimately it is up to government officials to champion socially responsible development, implement policies that are respectful of existing communities and ensure affordable housing to people of all incomes.