Ambo University

Program :- B.Sc. URBAN PLANNING AND

DESIGN
Year III, sem. II
Course title:- Housing and Facilities
Development

Course Code:-UPD 3132

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Housing Market & Affordability
 CONTENTS

 Housing market
 Housing Supply
 Housing Demand
 Affordability

 Major
Actors in the housing
market

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 HOUSING MARKET
Definition of the Housing market
 Housing market: virtual market in which
housing changes owners and occupants.

 This is the interaction of housing supply and

housing demand at any time of different
spatial levels.

 A second point of urban housing involves

defining a "housing market," especially its
spatial dimension.

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WHAT ARE THE FACTORS THAT AFFECT HOUSING MARKET?

•The housing market is influenced by:

1. the state of the economy,
2. interest rates,
3. real income and
4. changes in the size of the population

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 CHARACTERISTICS OF HOUSING
The most important features of housing that make them different from other goods
• The stock of housing is heterogeneous: Dwelling units differ in size, location,
age, flor plan,interior features and utilities

• Housing is immobile: it is impractical to move dwelling from one location to

other
• Housing is durable: If properly maintained, a dwelling can be used for several
years
• Housing is expensive: to purchase a dwelling, household must borrow a large
sum of money
• Moving costs are relatively high

The housing market is a good example of how supply and demand works within an
industry. When the demand for housing is high, but supply is low, home prices often
rise. When there is a glut of housing available in a market, homeowners may lower their
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prices due to less demand in the market.
 HOUSING SUPPLY

 Housing supply is defined as The stock of housing at any point in

time is the total number of dwelling units, including detached

homes, attached homes, condominiums, co-ops and apartments.

 The occupied housing stock is, by definition, equal to the number

of households.

 The overall stock of housing obviously represents the totality of

all previous construction, including additions, less units

withdrawn due to depreciation, destruction or conversion to other

uses.
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 HOUSING SUPPLY…
CONT’D

 Rental units become available when new

apartments are built or converted, or leases
expire and tenants move to new quarters or
buy houses.
 The "vacancy rate" is often used as one

measure of available supply, although this does

not reflect occupied homes for sale or
apartments available for lease at a future date.
 Housing supply is sensitive to price in the

usual way; other things equal, higher market

prices would typically induce more construction
and more new and existing units to be offered
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for sale or rent.
DETERMINANT FACTORS OF HOUSING
SUPPLY
 The Role of New Construction
 Special Qualities of Houses

 Competitive Environment in Residential

Construction
 Role of Land Development

 Production Factors, Inputs and Constraints

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 HOUSING DEMAND

Housing Demand is the desire, willingness, and

ability to buy a house or rent housing service.
fundamental factors/determinants of overall
demand for housing services. These factors
include:
 The number of households and net rate of

household formations,
 Household incomes, including current income and

"permanent income,"
 Trends in household incomes, and the income

elasticity of demand for housing, 9

 Family sizes and household composition,
especially the number of dependent children,
 Job creation (or job loss) in the local market area,
 HOUSING DEMAND

Urban housing demand is a reflection of households‟ desire to live in cities.

Indicators of housing demand:
1. Registration for government‐sponsored housing (IHDP).
• About one million dwellers of Addis Ababa have registered for units in
the IHDP condominium.
In general, all major urban centers of Ethiopia have high housing demand due
to,
• their favorable locations along major transport and trade routes,
• their status as regional/zonal administrative centers, and
• the demolition of low‐rent public housing during urban renewal.
• Addis Ababa has the highest housing demand ratio of 361 per
1,000 population.
•Semera has the second highest ratio: 277 per 1,000 (the capital of
the Afar Regional State).
•Bahir Dar (the regional capital of the Amhara National Regional
State) has the third highest ratio of 272.4 per 1,000 population.
• Others include: Bishoftu, Adama, Dire Dawa, Shire Endaselassie,
Jimma and Hosanna.
•Two measures of the intensity of urban housing demand are
house prices and the rate of
house price growth.
 2. Another indication of high demand for a
city is population growth.
• The rapid growth in the number and earnings of high-income
households led to an

increased willingness to pay for important locations.

• In some major cities like Addis Ababa, households outbid each

other to live there, leading to land prices that grow with the

aggregate spending power of the clientele that prefers that

particular city.

•As the national high-income population grows, the greater

number of high-income families outbid relatively low-income
families (as well as some high-income families) who are unwilling
or unable to pay a higher premium to live in their preferred
 As preference agglomerations form, the highest
willingness-to-pay households are
those that share the same preferences.

 If such sorting is along income lines, rising house

prices can lead to high-income homogeneity,
which itself makes an area more desirable to
high-income residents.

•That dynamic implies that certain urban markets will

evolve into luxury areas and grow increasingly
unaffordable for the average household.
• In some cities, housing is an inelastic supply
because:
• there is little or no open land, and
• no local regulations (which either restrict
development or make it prohibitively expensive
or slow).
 Demand and Supply

Housing need:
Number of dwelling units, regarded as socially
desirable in terms of:
o Structural quality,

o Rates of occupancy,

o Sanitary and other facilities and

o Standards of health,

o Privacy etc. 14
 Demand and Supply

Housing required:
o replace deteriorated units

o relieve overcrowding

o house new families (for both backlog and

future).
Effective need for housing: Influenced by
affordability (economic capacity) and willingness
to buy, construct and to rent.
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 HOUSING
SUPPLY
Based on a survey of 27 city administrations (MoUDH, 2015):
• Formal: 69.8%
• Government (IHDP) is the leading provider: 51.1%.
• Individuals (cooperatives and leases) contributed the second largest
provider: 22.2%.
• Provision of plots for individual households and cooperatives has
been temporarily suspended, particularly in those towns that were
implementing the IHDP, which was considered to offer opportunities
for more intensive use of land.
• Municipalities (outside the context of IHDP) 0.5 %.
• Real estate developers contributed the lowest percentage of 0.4%.
• Informal: 30.2%.
Condominium Housing under Integrated
Housing Development Program (IHDP)
• The IHDP has been implemented in the major urban
centres
• Multiple objectives:
• Increasing the urban housing stock.
• Upgrading dilapidated inner-city neighbourhoods.
• Achieving efficient use of land.
• Promoting private and national saving.
• Making low‐income households homeowners.
• Promoting low-cost housing construction
technologies.
 Challenges of Integrated Housing
Development Program (IHDP)
• The number of houses constructed so far is small compared to
the demand.
• Some of the families that won the condominium lotteries
could not readily take the units for they found their cost to be
unaffordable.
• The project is focused more on ‘cost efficiency’ rather than
the low‐income.
• Some could not raise additional finance to complete the
finishing work.
• Lack of provision of administrative and social services
such as schools and health facilities, market
places.
• Absence of access to infrastructure such as local roads, water
 Demand and Supply
Housing need - Example Ethiopia
o Estimated housing stock 2,331,126 units (2005)
Total urban housing needed due to population growth
2, 250,831 units (between 2005 - 2015)
By 2005 (1999 projection)
o 30% of total housing units, good condition
o 30% fair condition
o 40% bad condition.
Therefore:
o New housing need 2,250,831
o To replace dilapidated units (40% of housing stock) 932,450
o To relieve over-crowdedness (10% of housing stock) 233,113 19

o TOTAL 3,416,444
 Demand and Supply
Housing need - Example Ethiopia
o Housing supply largely become acute in the last
26 years due to nationalization of urban land and
rental houses.
o Assuming out of 30% good condition 10 % would,
through time, join fair condition
o Only 20 % good condition
o The rest 80% fair and bad (SLUM?).
Except Tigray, Harari, Dire Dawa; all >70% wood,
mud and thatch.
Oromia, Amhara (2/3 of urban centers and about ½
of urban population) 20

About 80-90% of urban population, substandard

Factors affecting supply
and demand of housing

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 Demand-side
factors
• Affordability.
• Confidence.
• Interest Rates. ...
• Population. ...
• Mortgage availability. ...
• Economic growth and real incomes. ...
• Cost of renting.
Affordability
o Ability to Pay

o Choose to Pay

o Not ‘spend beyond their capability and

willingness’
o Capability implies income; willingness alludes
to choice’.
o Housing affordability:- the generally
accepted definition of affordable housing is23
housing for which a household pays no more
 Affordability

Affordability in the context of Developed and

Developing Countries
o Developed countries: it is housing that can be
purchased by families earning between 30% and
80% of the community’s median income;
o Developing countries, it is housing that is
provided for the middle and low-income groups
who need assistance or supplements to fulfill
housing needs.
Access To Housing
o Access to housing for the low income people can
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be achieved through affordable housing
development.
 Affordability
External Factors affecting Affordable
Housing provision –
o Cost
• Land acquisition,

• Infrastructure,

• Planning, designing,

• Administration and

• Community facilities
o Financing
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• interest rates, amortization (pay back) periods and

Affordability
Internal Factors affecting Affordable Housing
provision
o Socio Economic Factors
• Employment, and Type of occupations

• Income level

• Expenditure patterns.
 These affect the Ability to pay.

• House hold size, Family structure and its needs

• Customs, Aspirations, Priorities.

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Affordability
Affordable Housing
o Cost Reduction

o Target Group Life Style, Satisfaction

o Pride and Belongingness.

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Affordability

Measurement of Affordability
• Income Based measurement
@ Effective Need of Housing: Need + Ability to pay
* This ignores the factors discussed above.
• More refined method
@ The proportion of income available for housing and
utilities
@ The ability of households to mobilize resources from
other
sources, including the household itself, the extended
family
and credit.
• Cost to Income Ratio 28

@ A house should cost three to four times the annual

household’s income.
 Factors Affecting Housing Demand
• Real incomes: If real incomes increase the demand for housing increases due to a rise in
the standard of living
• The cost of a mortgage: when interest rates increases in economy, mortgage interest rates
are likely to rise
• Availability of credit: The more lending banks and building societies are willing to provide,
the more people will borrow and spend on housing and hence the higher will be the price
house
• Economic growth: When the economy is in the recovery and boom stages, wages will be
rise and increase the demand for houses
• Population: When the population increases, demand for housing increases
• Employment/unemployment: The higher the level of unemployment in an economy, the
less people will able to afford housing
 Factors Affecting Housing Supply:
• Costs of production: The higher the cost of production, the fewer houses are built,
reducing the supply
• Government policy: If the government increases taxation and reduces subsidies for new
house developments, there will be fewer new houses build
• Number of construction companies: The more construction companies, the more likely
there is to be an increase in the supply of housing
• Technology and innovation: With improved technology and innovation in the
construction industry, houses become cheaper and easier to build, thus increase the
supply
• Government spending on building new social housing: The government has the
ability
to influence the supply of housing by increasing spending on new social housing
 Real Estate Housing
• The National Urban Development Policy emphasizes the role the
private real estate development sector can play in providing
housing for the high-income group under the framework of free
market principles.
• The private real estate sector has managed to construct a
considerable amount of houses but significantly below the
expected output.
• In Addis Ababa, between 2000 and 2011, the housing supply by
real estate was only 3.8%, compared to 61.1% by the government
and 35.1% by individuals (cooperative and lease).
• Speculative tendencies to benefit from the rise of land and
Ayat Real Estate, Addis Ababa
Finance for the formal supply of urban housing
• Regional governments will mobilize finance for the construction
of IHDP condominium housing by selling bonds to the
Commercial Bank of Ethiopia (CBE).
• The CBE will also provide mortgage finance for households
to purchase completed condominium units from city
administrations.
• Households, cooperatives and real estate developers are
expected to mobilize 100% of the construction finance on their
own.
• The lack of financial system for formal housing, especially for
cooperatives, contributes to proliferation of informal
settlements.
THANK YOU

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