Impact Investing/Social Sector Finance – Housing

What are the key issues and challenges related to access to affordable housing in the world, and why do they matter?

In both developed and developing countries, many economically active people lack access to affordable housing solutions. As more people migrate from rural to urban areas, this urban housing shortage becomes increasingly acute. The challenges faced include not only insufficient supply of housing units and construction, but also inadequate housing finance, cost-effective and energy-efficient construction technologies, and (especially in the developing world) lack of land title and/or related property rights.

To put the issue in historical context, 2008 marked the first time in history that more than 50% of all people live in urban areas; this figure is expected to increase to more than 70% by 2030. When the rate of urbanization is coupled with overall population growth, the results are staggering. For example, in 1950, 30% of a total population of 2.5 billion (or 850 million people) lived in urban areas; by 2030 the projected global population will be 9.5 billion people, 70% of whom (or 6.5 billion people) will live in urban areas. That reflects a nine-fold increase in less than a century, and the global housing market–especially in marginalized urban areas and urban slums–has not kept pace.

Access to appropriate mortgage financing is often difficult for economically active poor people to secure, due to the fact that it typically requires larger amounts and longer terms. In addition, the larger financing amounts means that the informal financial sector (which often plays a key role in developing country economies) typically is unable to get involved. Therefore, there is unmet demand for "micro"-mortgage financing for both new housing construction and improvement of existing housing.

What can be done about it?

There are many possible avenues to meet the housing needs of the world’s growing population. They mainly focus on real estate development, housing finance innovation, and construction technologies. Private and public sector stakeholders alike should focus on partnerships with construction companies to develop high-quality affordable housing, as well as partnerships with banks, employers, local financial institutions and government agencies to provide mortgage products tailored to people living in urban communities. Investment in this type of longer-term asset creation requires a deep understanding of the realities of urbanization, and provides great social returns over time.

In addition to private sector investment and public-private partnerships, governments have a key role to play in ensuring a legal and regulatory regime that appropriately acknowledges and ensures property rights. Governments and public sector agencies can also get positively involved by offering tax breaks and other incentives for organizations to develop and promote lower-income housing solutions.

How does Orrick get involved?

Orrick advises clients on transactions that bring innovative financing options to cities in the developing and developed world to increase the breadth of scalable, affordable housing solutions for marginalized communities. We also advise clients developing energy-efficient materials and cost-effective construction techniques. ​