Dr. Aslam Mia :
The comparative efficiency and economic success of a country will depend significantly on the overall wellbeing of its citizens and housing in particular. However, according to a recent report by the International Finance Corporation (IFC), Bangladesh needs at least 8.5 million dwelling units in the next five years to meet the urban housing shortage. The situation of homelessness and inadequate housing facilities is due to unplanned city development, exponential rise in housing prices, rapid rural-urban migration, young demographic profile, transition to nuclear families, and severity of the poverty.
The National Housing Policy is approved in 2017 by the government aiming to ensure housing for every citizen in Bangladesh. Thus, leaving housing industry in the free market concept without intervening is less likely to be helpful based on the current context of Bangladesh. To ensure housing for all and to make it affordable, understanding of ‘housing ecosystem’ remains a challenge, and this note would shed lights to some extent. In brief, housing ecosystem basically deals with both the demand (buyer) and supply (seller) sides of the housing market. None of the individual factor of demand and/ or supply could create the ecosystem; but, all of them collectively define it; and everything influences everything else and equally important to create an efficient/ effective housing market.
The supply side value chain leads to a production of physical housing units for buyers, which consists of total eight factors (land, trunk infrastructure, site layout, design, risk assumption, construction, offtake and management). The first and most important supply side factor is land, where the construction is going to take place. Given the scarcity of available land in Bangladesh, it is important to identify and acquire appropriate land through proper planning and management. Then, the land should be prepared accordingly for the development of physical construction.
Although land is crucial, however, the site should also be connected to the trunk infrastructure. If the accessibility to the housing site is difficult, then the marketability of the housing would be tough. Site component, which deals with the exact location of the plan in the land should also be properly identified. Another significant component in the supply side of housing framework is risk assumption/ financing. To absorb any potential risk and to provide sufficient funding to the developers/builders, government authorities should allocate sizeable amount of funds to the scheme.
Construction of housing requires an extensive amount of capital and builders will build/ construct physical development once they have accessibility to funding either through the financial institutions or through the buyers (buyers will link mortgage loans to the builders/developers). After that, the units will be occupied or sold to the clients. The last supply side factor is management that deals with running facilities, operation and maintains occupancy of the housing constructed for the clients/ beneficiaries.
The demand side value chain mainly deals with converting an eligible household into a successful home occupant given that they have accessibility to capital from financial institutions to buy the homeownership from developers/ builders. The main components of demand side value chain are eligibility, application, subsidy, credit underwriting, loan closing, funding, loan servicing and enforcement. The first factor in the demand side is to identify the target market (who will buy the home ownership) and based on that, the government should specify eligibility criteria to exclude non-targeted clients/ beneficiaries.
Then, the partnered financial institutions will solicit applications from the eligible applicant for housing finance/ mortgage loans to enter into the formal contract. The government also pledged subsidies/ incentives to the scheme. To make sure that the scheme and incentives are properly managed, credit underwriting mainly deals with due diligence and finally select the applicants who are going to receive targeted incentives/grants.
The contract (between buyer and seller) is then executed by considering all legal procedures. After that funding is given to the selected clients/ participants through various financial institutions who are officially included in the scheme/project. Then, loan-servicing starts, whereby principal and interest rates are collected from the loan takers (buyers) by financial institutions. The payment depends on interest rates, loan tenure and the amount of loans. Being default on the mortgage loan is not uncommon. Hence, the last component of demand side value chain is to mitigate risk of default and to recover losses if default occurs.
Although there are a couple of policies targeted at some of the factors of housing ecosystem, however, the government and policy makers in Bangladesh should come forward and target each of the factors as they are equally important to create and sustain the housing ecosystem. Because the success of the housing ecosystem depends on how well the demand and supply side value chains interact. Hence, without an integrated policy framework that target all factors, housing ecosystem may not perform effectively and efficiently, and could lead to another failure!
(Dr. Aslam Mia has researched and published numerous articles on microfinance and urban economics. Email: mdaslam.mia @siswa.um.edu.my)
