The final affordable-housing lever is expanded access to finance, especially for low-income households, which often face the highest borrowing costs – if they can gain access to finance at all. For the worlds many unbanked, who cannot accumulate savings or establish a credit record, the only option is to pay steep risk premiums for high loan-to-value mortgages.
To expand access to finance, countries can improve underwriting by establishing credit bureaus, which are uncommon in developing economies, and training and certifying property appraisers. In some countries, collective-savings programs – that is, provident funds and building societies – have helped low-income households to accumulate down payments, with the pooled savings also providing capital for low-interest mortgages.
At the same time, to reduce financing costs for developers, municipal bodies can de-risk projects by committing to purchase affordable units or guaranteeing qualified tenants. Cities can also streamline approval processes to accelerate completion.
These four levers, if used systematically, can reduce the costs of housing for those who need it the most, while creating a better-functioning market that provides more choices for households across income levels. Indeed, while municipal and national governments will have to take additional measures to address the needs of their poorest citizens, cities have powerful tools at their disposal for closing their affordable-housing gaps.
Though no single solution will work everywhere, initiatives that integrate land policy and more accessible finance with efforts to modernize housing construction and management can lead to progress everywhere