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A home truth: We need better quality and more affordable housing

8 February 2017
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by Guest author

Alice Pittini, OECD Directorate for Employment, Labour and Social Affairs

A home is meant to be a safe and secure shelter for individuals and families, fulfilling the basic need to have a roof over your head. Yet a home is also a tradable asset, an investment from which there’s potentially big money to be made, or to be lost as the global financial crisis has shown us. Although the crisis led to a general drop in house prices in the short term, house prices have since picked up again in most countries and today they are growing faster than incomes in Austria, Canada, Germany, Luxembourg, New Zealand, Sweden, Switzerland, the United Kingdom and the United States.

Particularly in attractive metropolitan areas, house prices and rents are soaring, with a negative impact on access to opportunities and jobs, especially for people on low incomes. For example Auckland, New Zealand, has one of the most heated housing markets on the planet. Despite a recent reform increasing the taxation of housing property transfers, ‘flipping’ – i.e. the practice of buying properties and re-selling it at a much higher price over a short time span – has become increasingly common, with some properties reported as having been sold up to five times its initial value in four days. At the same time the capital is faced with an unprecedented housing affordability crisis, which led the Government to announce for the first time in its 2016 budget a four-year programme for emergency housing. Increasing house prices make it impossible for people to buy a home and step onto the property ladder, particularly young people. At the same time big cities and capitals are also faced with a shortage of affordable rental housing, and the spread of Airbnb and other short-term letting agencies is further aggravating the situation.

As a result, housing costs constitute the single highest expenditure item from the household budget, with an increase in the OECD average share of housing-related expenditure from 20.3% in 2000 to 22.9% in 2013. Housing costs represent a substantial financial burden for low-income households in many OECD and EU countries. For example, in Chile, Croatia, Greece, Portugal, Spain, the United Kingdom and the United States more than half of poor tenants (those in the bottom fifth of the income distribution) spend more than 40% of their disposable income on housing costs. Furthermore, in nearly all countries, the overcrowding rate increases as household income decreases, with countries like Hungary, Mexico, Poland and Romania experiencing overcrowding rates that are over 40% among poor households. Lack of sufficient living space for household members can significantly hamper wellbeing, with negative effects on health and on child outcomes. Worryingly, poor children are most prone to living in overcrowded dwellings, compounding their economic disadvantage and hurting their chances of succeeding in life compared with children from richer backgrounds.

Moreover, there are many people who have no permanent roof over their heads at all. Even though the homeless make up less than 1% of the total population in OECD countries surveyed, that is still a significant number of people without a home. The United States reports 564 708 homeless people, and Australia, Canada and France all report having over 100 000 in their most recent surveys. Progress on this front has been uneven in recent years, with the number falling in Finland and the United States, but increasing in Denmark, England, France, Ireland, the Netherlands and New Zealand.

Improving access to affordable housing, particularly for low-income households and those in need, is an important policy objective across OECD countries. What can countries do to meet this goal? There is no one-size-fits-all solution, but countries are implementing a range of different instruments. Most countries have housing allowances and/or social housing arrangements as well as different kinds of financial support towards homeownership. Indeed, housing allowances are now one of the most widely used instruments of housing support. At 1.4% of GDP, public spending on housing allowances in OECD countries is by far the highest in the United Kingdom, followed by France and Finland. Most countries also provide social rental housing (either directly or increasingly through supporting not-for-profit housing organisations). However, in a number of countries there has been a decline in the amount of social rental housing available, partly due to the slowdown in construction and privatisation of social housing, such as in Germany and the United Kingdom. That being said, social rental accommodation still represents over 20% of total housing in Austria, Denmark, and the Netherlands.

Grants, subsidised mortgages and mortgage guarantees are common ways to help low- and middle-income people buy homes. Chile is the country with the largest share of support to home buyers through grants, and most other countries are aiming to ease access to mortgage credit. Tax relief is another frequently used instrument for homeownership support: mortgage interest deductibility alone costs 0.5% of GDP in the United States and 2.1% of GDP in the Netherlands. However, the extent that measures supporting home buyers really target those in need varies across countries and schemes. The OECD’s new Affordable Housing Database helps countries monitor access to good-quality housing and provides governments with clear evidence to design the best combination of policy options to tackle homelessness, unaffordable housing, and overcrowding.

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One Response leave one →
  1. February 20, 2017

    In addition to direct supports, tax credits and the like, affordable housing needs market-based incentives to encourage builders and investors to participate. For example, land-use restrictions might be relaxed to allow to higher-density housing in key areas near transportation hubs, most especially for the development of both subsidized and market-rate rental properties.

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