Replacing the world’s substandard housing and building affordable alternatives to meet future global demand would cost as much as $11 trillion, according to initial findings in a McKinsey & Co. report.
The shortage of decent accommodation means as many as 1.6 billion people from London to Shanghai may be forced to choose between shelter or necessities such as health care, food and education, data disclosed at the 2014 CityLab Conference in Los Angeles show. McKinsey will release the full report in October.
The global consulting company says governments should release parcels of land at below-market prices, put housing developments near transportation and unlock idle property hoarded by speculators and investors. The report noted that China fines owners 20 percent of the land price if property is undeveloped after a year and has the right to subsequently confiscate it.
“Cities struggle with the dual challenges of housing their poorest citizens and providing housing at a reasonable cost,” said the paper, whose lead author, Jonathan Woetzel, is a Shanghai-based director of McKinsey Global Institute, the company’s research unit.
About 330 million households -- about 1.2 billion people -- now struggle with substandard housing, a number that may increase to 440 million in 11 years, McKinsey forecasts. Acceptable housing is within an hour’s commute of work and has basic services including flush toilets and running water, the report says.
What the authors call the affordable-housing gap now stands at about $650 billion a year, or 1 percent of global gross domestic product. The baseline for their calculation is housing payments that exceed 30 percent of household income in 2,400 cities around the globe.
In Lagos and Bombay, two of the world’s fastest-growing cities, the issue of inadequate housing is particularly grim as both emerging metropolises are poverty-ridden. There, the affordable-housing gap amounts to more than 10 percent of each city’s economic output.
The deficit presents an opportunity for construction companies -- with some of largest markets in emerging economies such as China, India, Brazil and Russia. Mortgage lenders also stand to benefit; by 2025, the market for affordable-home loans could be worth as much as $400 billion a year, the report said.
Still, the biggest challenge facing policy makers is the cost and availability of land.
“Where land is available at a lower prices, on the fringes of the city, housing projects may fail due to lack of infrastucture” such as school, hospitals and access to buses and trains, the report said.
The conference where the paper was presented is co-sponsored by the Aspen Institute, Atlantic Media Co. and Bloomberg Philanthropies, which was founded by Michael Bloomberg, also founder and majority shareholder of Bloomberg LP, the parent company of Bloomberg News.