Housing the World: Leveraging Private Sector Resources for the Public Good

December 11-12Bangalore, India

Simon WalleyHousing Finance Program Coordinator

Content

2

Challenge

Obstacles

Opportunity

Solutions?

Title of Presentation 3

Trends in Global Slum Population

4

Slum Population

% of globalslum

population% of urban population

China 181 million 25% 29%

India 105 million 15% 29%

Nigeria 48 million 7% 63%

Brazil 45 million 6% 27%

Pakistan 30 million 4% 47%

Source: UN data, WB own calculation

• 5 countries account for 57% of total global slum population

• Overall proportion of population living in slums is falling

• But as Urban population is rising, total slum population still on the increase in certain regions

0%

10%

20%

30%

40%

50%

60%% of Urban Population living in slumconditionsTrend up to 2030

Proportion of Urban Population living in slum conditions

5

0%

10%

20%

30%

40%

50%

60%

70%

80%

Sub-Saharan AfricaMiddle East & North AfricaLatin America & CaribbeanSouth AsiaEast Asia & PacificEurope & Central Asia

• All regions expected to show fall in proportion of urban population living in slum conditions

• Sub-Saharan Africa shows slowest level of decline

• Latin America also goes from 2nd lowest to 2nd

highest

Source: UN data, Projections are WB own calculations based on simple linear trend

Global Slum Population by region

6

• At global level slum population is on a downward trajectory both in absolute numbers and as a proportion of overall urban population

• Except in Africa where rapid population growth means that improvements in city conditions are outweighed by urbanization growth

-

50

100

150

200

250

30019

9019

9520

0020

0520

0720

1020

1520

2020

2520

30

Mill

ions

Sub-SaharanAfricaMiddle East &North AfricaLatin America &CaribbeanSouth Asia

East Asia &PacificEurope &Central Asia

Low Penetration levels for Housing Finance Globally across both LICs and MICs

[0,5](5,15](15,25](25,35](35,60]No data

Has a Loan to Purchase Home/Apartment (% adults)

Source: Findex Global Financial Inclusion Survey, 2012

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Housing Finance Penetration Levels

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HIGH‐INCOME ECONOMIES DEVELOPING ECONOMIESGENDER

FEMALEMALE

AGE GROUP15‐2425‐6465+

WITHIN‐ECONOMY INCOME QUINTILE

POORESTQ2Q3Q4

RICHEST

EDUCATION LEVELPRIMARY

SECONDARYTERTIARY

RESIDENCE

RURALURBAN

0 20 40 60 80 100020406080100

020406080100 0 20 40 60 80 100

020406080100 0 20 40 60 80 100

020406080100 0 20 40 60 80 100

020406080100 0 20 40 60 80 100

EDUCATION LEVEL

RESIDENCE

WITHIN‐ECONOMY INCOME QUINTILE

AGE GROUP

GENDER

Note: Primary includes those with less than a primary education; tertiary includes those with more than a  tertiary education.Source: Demirguc‐Kunt and Klapper 2012.

Low Penetration levels across all developing economies, but especially among the young, and those on lower incomes even in developed economies

Current size of mortgage markets and urban growth projections by income group

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While mortgage depth averaged 40% in high income countries (2006-2010), it averaged 5%-10% for middle income nations and less than 1% for low Income economies, In contrast, projected urban growth rates between 2015 and 2050 are highest for low and lower middle income countries.

0.0% 1.0% 2.0% 3.0% 4.0%

High income

Upper middleincome

Lower middleincome

Low income

Urban Population Growth By Income Group (2015-2050)

0%5%

10%15%20%25%30%35%40%45%

High income Upper middleincome

Lower middleincome

Low income

Mortgage Depth (2006-2010) and Penetration (2011)

Mortgage Depth

MortgagePenetration

Urban growth projections and housing finance development by region

10

0% 10% 20% 30% 40% 50% 60% 70%

North America

East Asia & Pacific

Europe & Central Asia

Middle East & North Africa

Latin America & Caribbean

Sub-Saharan Africa

South Asia

Mortgage depth (2006-2010) and Penetration (2011)

MortgagePenetration

Mortgage Depth

The mismatch in housing finance market development is also evident across regions, with North America, and East Asia and Pacific regions showing the highest mortgage depth and penetration, and South Asia and Sub-Saharan Africa the lowest.

0.0% 2.0% 4.0%

North America

Europe & Central Asia

Latin America & Caribbean

Middle East & North Africa

East Asia & Pacific

South Asia

Sub-Saharan Africa

Annual Urban Growth Rates By Region (2015-2050) Though the fastest growing

urban cities are located in South Asia and Sub-Saharan Africa, these regions currently have relatively underdeveloped mortgage markets.

Housing Finance 2030 Roadmap

11

Source: World Bank mortgage Database

43 Countries >15% mortgage

debt/GDP

17 Countries <15% but >5% mortgage

debt/GDP

135 Countries >5% mortgage

debt/GDP

135 Countries have mortgage debt levels lower than 5% of GDP equivalent. Of these a number of high/upper income countries such as Qatar, Gabon, Hungary, Chile

Mortgage Debt to GDP

Content

12

Challenge

Obstacles

Opportunity

Solutions?

Obstacles to Meeting Housing Gap

Demand for Housing

• Lack of long term funds• Credit Risk• Informality/low incomes• High interest rates• Foreclosure system• Lack of affordable housing• Financial literacy

Lack of Effective Demand

• Availability of Developer finance (debt and equity)

• Planning and building regulations

• Cost of infrastructure• Access to Land• Titling/Registration system

Lack of Affordable Supply

Supply of Housing

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Drivers of Housing Finance

Variable Impact

Inflation volatility -

Age of Population +

Development of Insurance sector +

Urban Population +

Overall wealth – GDP per capita +

Government Bond Market -

Government Bank ownership -

Private Capital Market +

Creditor Rights +

Property Rights +

Source: Badev, A; Beck, T; Vado, L; Walley, S; Housing Finance Across Countries, World Bank Policy Research Paper, January 2014

Content

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Challenge

Obstacles

Opportunity

Solutions?

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Affordable Housing is a Global Economic Opportunity

Source: McKinsey Analysis

Value of affordable housing shortage, 2012, $ Billions

High Shortage and market attractiveness

Developed market, redevelopment opportunity

Other emerging market opportunity

Potential Economic Stimulus from Housing

Source: McKinsey Analysis 17

Ksh 502,515    

Ksh 343,964    

Ksh 0

Ksh 2,656,203 

Ksh 1,800,463  ($22,283)

($32,874)

($6,219)

($4,257)

50% 

30% 

15% 

4% 1% 

Kenya Example - Urban Income Distribution

Potential Mortgage Market (8%)

Kenya – Potential Opportunity

•No affordability in Rural areas – income not high enough for mortgage market to develop

•In Urban areas just 8% of the population could afford a mortgage product.

•Represents around 1.4 million people or 350,000 households

•Potential mortgage market therefore around Ksh 1,128 billion or $13.7 billion

Content

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Challenge

Obstacles

Opportunity

Solutions?

Reducing Affordability Gap

21Source:McKinsey Global Institute analysis

World Bank impacts the entire housing value chain – example for sub-Saharan africa

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Land and Tenure

Water, sanitation power

Financing

Building Materials

Design and building skills/services

Housing & Construction

Community Development

Govts. Often don’t provide essential services -drinking water, sanitation

Banks target the wealthy, interest rates high: 16-19% in nominal terms

Local developers lack skills, staff, capital to manage large scale projects

Steel & cement costs >20% higher in SSA vs. China, India, CIS, Turkey

SSA residential construction costs >2x South Asia, China

Schools, clinics, groceries, supplies, proximity to livelihoods, transportation

High costs, long delays to transfer titles, register liens

WB support for EE reforms, housing & urban policy >8 SSA countries

WB & IFC invest in infra-structure

WB & IFC invest in mortgages, MFIs, capital markets growth in >12 SSA countries

IFC invests in cement, steel in >15 SSA countries

IFC invests in developers & builders

IFC invests in developers & builders

WB Urban work, IFC’s ASHA standards for sustainable developments

Housing Finance Solutions•Development of solid primary market basis – efficient property rights, credit risk management systems, consumer information/protection, regulation

•Strong products which are long term, affordable and limit risks for households and financial system

•Secondary markets to leverage impact by using capital markets

•Information systems – data collection, research and analysis

•Developer finance – equity & debt

Conclusion•Take holistic approach across housing value chain to obtain maximum economic benefits

•Clear role for government in improving enabling environment rather than as property developer

•Create housing finance system to allow for long term investment into housing – leverage capital markets

•Provide solutions across the income distribution – make use of smart subsidies or partial guarantees to work in tandem with market based pricing

•Home-ownership not only option – rental should play role as part of inclusive housing policy

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