A blueprint for addressing the global affordable housing challenge

Title A blueprint for addressing the global affordable housing challenge
Author Name Jonathan Woetzel, Sangeeth Ram, Jan Mischke, Nicklas Garemo and Shirish Sankhe
Link http://www.mckinsey.com/insights/urbanization/tackling_the_worlds_affordable_housing_challenge


A new McKinsey Global Institute (MGI) report, A blueprint for addressing the global affordable housing challenge, defines the affordability gap as the difference between the cost of an acceptable standard housing unit (which varies by location) and what households can afford to pay using no more than 30 percent of income. The analysis draws on MGI’s Cityscope database of 2,400 metropolitan areas, as well as case studies from around the world. It finds that the affordable housing gap now stands at $650 billion a year and that the problem will only grow as urban populations expand: current trends suggest that there could be 106 million more low-income urban households by 2025, for example. To replace today’s inadequate housing and build the additional units needed by 2025 would require $9 trillion to $11 trillion in construction spending alone. With land, the total cost could be $16 trillion. Of this, they estimate that $1 trillion to $3 trillion may have to come from public funding.

However, four approaches used in concert could reduce the cost of affordable housing by 20 to 50 percent and substantially narrow the affordable housing gap by 2025. These largely market-oriented solutions—lowering the cost of land, construction, operations and maintenance, and financing—could make housing affordable for households earning 50 to 80 percent of median income.

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