How Dubai can solve its lack of affordable housing

A lack of affordable housing in Dubai is a key barrier to the city achieving its sustainable development objectives and happiness agenda, as well as its vision of being a smart city. Its diversification strategies have built a competitive economy independent of oil, growing the city’s GDP from $11 billion in 1995 to $105 billion in 2016. Over the same period, Dubai's population increased from 690,000 to 2.5 million, of which 91% are expatriates.

As the city opened up its real estate market in 2002 and allowed foreign ownership, it attracted investors from more than 200 nationalities. But with a growing middle class and the demand for a more stable property market, Dubai needs a consolidated and multistakeholder strategy for affordability.

One of the major causes of Dubai's affordability problem is its domination by speculators. Between 2003 and 2015, they drove up apartment prices by 300% and villa prices by 500%, rendering homeownership difficult. Prospective owners and tenants have been left with no affordable choices, and spend more than 41% of their income on housing.

“Only 20% of all products are affordable, although the demand for the affordable sector comprises 40% of all demand”, said Craig Plumb, Head of Research at real estate advisory JLL. Consequently, the city has low homeownership, at just 30%. In addition, an estimated 56% of expat households are paying unaffordable rents, leading, unsurprisingly, to a housing satisfaction rate of just 49% recorded by a Gallup survey in 2014.

Given that 69% of expats working in Dubai don’t have university degrees and most likely have low-paying jobs, more than 33% of them have chosen to rent in cheaper emirates and commute to Dubai, thereby creating additional social and environmental problems.

In the 1970s, the government started affordable rental schemes for poor families, managed by Emaar Council. However, the schemes were soon stopped due to misuse, as properties were subleased at higher prices. In the 1990s, Dubai’s municipality allocated several parcels of land to governmental departments to provide housing to low-income government staff. This also failed to achieve its set goals.

Government vision

The government needs to put housing at the centre of land use plans. It should provide incentives to developers, such as inclusionary zoning, land subsidies and tax breaks, to level up affordable supply. Currently, the private sector does not have the tools or interest to develop affordable housing. On the contrary, high margins in the luxury market have encouraged high-end developments. Solving land supply in the right locations is the most important step in bridging the affordability gap. Dubai’s top-down planning model needs to readjust itself, and create a masterplan or long-term land usage plan to influence affordable housing, as Singapore did.

Moreover, the city needs to reconsider its supply-led demand approach, which ignores locally driven demand and focuses on attracting international buyers, who are mainly speculators. There have been several successful international schemes to boost affordable housing demand, such as the UK’s Shared Ownership Plus, and Australia’s Keystart and Homestart financing programmes, which aim to lower interest rates, down payments and transfer fees.

Developers

With profitability-driven land management programmes in new Dubai, government developers sell lands at high prices to small developers, who have no incentives but to build luxury developments to recover the high cost of the land. By implementing inclusionary zoning and giving small developers extra gross floor area or financial benefits, the private sector could cover most of the affordability gap in Dubai.

Technology

The government needs to encourage technology innovation. It should implement its announced plan to 3D-print 25% of buildings in a cost-effective way by 2025. An optimal combination of value engineering and industrial construction could reduce cost by 30% and project duration by 40% to 50%.

The government should also look into encouraging efficient sharing of living places, given that 28.9% of the population is single. In addition, in the age of smart cities, the government should consider unlocking citizen solutions such as crowdfunding, where development and financing can be done by citizens rather than by profit-driven developers.

To conclude, the solution is a multistakeholder approach that integrates affordable supply and enablers of demand, while going beyond economic sustainability to ensure social development and environmental management. Dubai’s government must develop a long-term land usage plan and integrate its urban planning functions, placing housing for all at the centre.