Cities and Urbanization

3 ways to stop the housing crisis killing our cities

A housing complex in Berlin, Germany

Spiralling rents are driving key workers out of our city centres – and into the clutches of costly commutes Image: Grant Lemons

Jonathan T.M. Reckford
Chief Executive Officer, Habitat for Humanity International
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Cities and Urbanization

This article is part of: World Economic Forum Annual Meeting

With 60 percent of people worldwide projected to be concentrated in urban areas by 2030, developing sustainable communities that are inclusive and equitable for all will require creating affordable housing located near job opportunities. Some of the most promising ideas emerging in both developed and developing economies involve combining mixed-income housing with transit-oriented developments.

In 2015 in the US, nearly 21 million renters and 18 million homeowners spent more than 30 percent of their income on housing. Thirty percent is the threshold considered to be the maximum affordable limit. The Joint Center for Housing Studies of Harvard University also reports that more than 11 million renter households and 8 million homeowners spent more than half their income on housing – a level considered “extremely cost burdened". This is especially true if the cost of transportation to jobs and to acquire essential goods and services is included.

Image: JCHS tabulations of US Census Bureau, American Community Survey, one-year estimates

Even those earning higher wages – particularly essential service workers like fire fighters, teachers, entry-level government workers and hospital workers – find it impossible to live near the places they work and the communities they serve. Gentrification and gated communities in urban centres are driving up costs and pushing people to the periphery of the city, where they are then faced with the additional cost and time burdens of commuting. Internationally, the workforce is often driven away from urban centres into outlying, informal settlements. When the sense of community is weakened and segregation among economic groups grows, myriad social problems can result.

A way forward: mixed-income communities

Many cities in the US have demolished unsustainable public housing complexes, which have declined into pockets of concentrated poverty, while in other countries, families living in informal settlements in the central areas of the city have been relocated. New housing plans instead focus on mixed-income communities – a strategy proven to lift families out of poverty when located near jobs. Mixed-income communities enable all residents to create new social ties that often result in improved household and community assets for all.

Evidence for the efficacy of these communities can be found in cities around the world and across a variety of economic contexts. In Vienna, for example, private developers collaborate with the city to build affordable housing, renting half of all new apartments to lower-income residents. Rents are regulated by the city for a set period of time so that no residents pay more than 20 to 25 percent of their income for housing.

Sold out luxury flats in Fourways, South Africa.
Luxury flats in Fourways, South Africa. Image: Reuters/Siphiwe Sibeko

For members of the workforce who are forcibly or economically driven outside of city centres, the creation of well-planned, high-density transit-oriented developments is critical. These complexes, which place housing, retail and office properties around transit stops, are particularly important for lower-income families. Building them presents challenges however.

• Land prices are high, and transit-oriented development sites frequently require rezoning and land assembly, which can lead to lengthy – and expensive – acquisition and permitting processes.

• Developers can’t afford to buy land and hold it for several years without making improvements in anticipation of the arrival of transit.

• Mixed-income developments require more complex financing structures and robust public infrastructure. Researchers have determined that such developments are largely absent from older, slower-growth cities. The trend is strongest in high-growth metro areas.

• The success for lower-income families requires long-term investment. The city of Atlanta, for example, demolished ageing public housing high-rises in an effort to decrease crime, replacing them with low- and medium-rise mixed-income communities. The residents who stayed in the neighborhoods received a real boost, as they became a part of a much more diverse economic population with better schools and flourishing social networks. However, those who moved further towards the city’s periphery and became reliant on an inadequate transit system face diminished opportunities. The incentives that were offered to the developers around transit stops are about to run out, and studies show that, for successful developments, prices will revert to market rate when income restrictions expire. Then families will once again be forced to relocate further from jobs in the city, with even fewer transit options, to find an affordable place to live.

So what are the solutions?

Three essential steps

1) As a broad commitment, communities must commit to allocating land for affordable housing. Specifically, it is going to be increasingly important to preserve affordable housing near dense transit-oriented development.

2) Communities should also consider creating an affordable housing acquisition fund to provide the capital necessary both to obtain and hold land or buildings near transit routes for affordable housing purposes.

3) Government leaders should consider offering long-term tax credit incentives for developing mixed-income housing at transit-oriented developments. Short-term incentives will not support sustainable solutions.

A significant hurdle will be raising awareness that creating affordable housing opportunities can be a long-term economic driver. In Asia, housing leaders report that every job created in the housing sector generates two more jobs elsewhere in the economy. A New York State housing group reports that the development of affordable housing has a positive impact not only on the families who are able to live in affordable apartments, but on the local economy as well. Between 2011 and 2015, affordable housing projects created 329,400 total jobs and 46,800 permanent jobs.

Have you read?

A key mindset in the development and sustainability of cities is the realization that housing is more than a product. It is a system that integrates financing and revenue generation, policy, land use and transit. It is important to note that we are not talking only about large metropolitan agglomerations. Cities that are a million or less make up more than 50 percent of the global urban population and are the fastest-growing communities around the world.

Now is the time to make systemic changes in secondary cities that often are less politically complicated and more open to public/private ventures and entrepreneurs with creative ideas who can improve the lives of millions of their residents. If we take action today, 20 to 30 years from now we will see urban areas that are thriving as inclusive and equitable cities.

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Cities and UrbanizationFuture of Work
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