Financing Urban Shelter

Global Report on Human Settlements 2005

Un-Habitat

• Publisher: Routledge
• Year: 2013
• Print ISBN: 9781844072118
• eBook ISBN: 9781136565748
• Topic: Architektur
• Subtopic: Stadtplanung & Landschaftsgestaltung

'Achieving the goals set by world leaders in the United Nations Millennium Declaration will be difficult without a significant improvement in the lives of slum dwellers, and the lives of slum dwellers cannot be improved without the sound and sustainable economic development that is conducive to the establishment of a strong shelter sector. As Financing Urban Shelter: Global Report on Human Settlements 2005 emphasizes, one of the key challenges in meeting the Millennium Declaration Goal on slums is mobilization of the financial resources necessary for both slum upgrading and slum prevention by supplying new housing affordable to lower income groups on a large scale.
. . . It is my hope that, by highlighting the impacts of current shelter financing systems on low-income households and by identifying the types of financing mechanisms that appear to have worked for them, this report will contribute to the efforts of the wide range of actors involved in improving the lives of slum dwellers, including governments at the central and local levels, as well as non-governmental and international organizations.'
From the Foreword by KOFI ANNAN, Secretary-General, United Nations

Financing Urban Shelter presents the first global assessment of housing finance systems, placing shelter and urban development challenges within the overall context of macroeconomic policies. The report describes and analyses housing finance conditions and trends in all regions of the world, including formal housing finance mechanisms, microfinance and community funding, highlighting their relevance to the upgrading of slums. Recent shelter finance policy development is discussed at the international and national levels, and the directions that could be taken to strengthen shelter finance systems are examined.

The Global Report on Human Settlements is the most authoritative and up-to-date assessment of conditions and trends in the world's cities. It is an essential tool and reference for researchers, academics, public authorities and civil society organizations around the world. The preceding issues of the Global Report on Human Settlements have addressed such topics as An Urbanizing World, Cities in a Globalizing World and The Challenge of Slums.

Published with UN-HABITAT

CHAPTER

1

CHALLENGES OF SUSTAINABLE
SHELTER DEVELOPMENT IN
MACROECONOMIC CONTEXT¹

During recent years, there has been a growing recognition of the importance of urbanization in the economic and social futures of nations by the international community, member states of the United Nations and a wide range of civil society organizations. This recognition is based on country experiences, development policies, studies and projects since the first United Nations Conference on Human Settlements held in Vancouver, Canada, during 1976.

Urbanization – and its many dimensions – has been important in all countries. The first and most evident dimension is demographic, as most developing countries have urbanized considerably since the 1950s and are projected to continue this process through the middle of the 21st century (see Figure 1.1). This increasing share of total population living in cities is similar to the historic patterns of Europe and North America, with increasing urbanization accompanying rising levels of gross domestic product (GDP). The key differences lie in the faster pace of urban growth in developing countries during this period and the absolute levels of urban population as represented both in the concentration of people living in mega-cities (urban agglomerations of over 10 million residents) and the increasing numbers of medium-sized cities of up to 3 million.

These facts of contemporary life in the 21st century have themselves transformed the world, with higher levels of individual and household incomes resulting from unparalleled levels of economic productivity benefiting from economies of agglomeration and scale. The concentration of economic activity and power in cities has, in turn, attracted footloose capital from the global economy, transforming the world itself in what is now understood as a process of ‘globalization’.

These processes, however, have also created many problems and contributed to growing patterns of difference within countries and people. Urbanization, for example, has been accompanied by continued out-migration from rural areas in many countries. The mechanization of agriculture and the globalization of agricultural production have reduced both the local control of the rural sector and the demand for rural labour. When placed into a national and international context, what might be called ‘a geography of difference’ can be easily seen.

Together, these processes set the stage for the fundamental issue that this Global Report addresses: how can housing and infrastructure services be financed for growing numbers of urban residents during the 21st century? The first part of this chapter presents the building blocks of a conceptual framework for answering this question, while the second part presents, as a background, the macroeconomic context of financing urban shelter development.

The fundamental issue is: how can housing and infrastructure services be financed for growing numbers of urban residents during the 21st century?

UNDERSTANDING URBAN
SHELTER DEVELOPMENT
CHALLENGES

As mentioned in the preceding section, this first part of the chapter presents the building blocks of a conceptual framework for understanding the global challenge of financing the development of urban shelter, as well as related infrastructure and services. Individually, these building blocks are not controversial. They reflect the current knowledge and the collective thinking of observers and participants in the world's urbanization experience. However, when linked together, they demonstrate that the world is facing an urgent and dramatic problem, with significant consequences for individual cities, countries, regions and the world itself.

Demographic framework

The starting point of this analysis is the process of demographic transformation. United Nations projections and recent assessments of expected demographic growth in developing countries (see Statistical Annex, Tables B.1 and B.2) indicate that the developing countries will add approximately 2 billion new urban residents during the next 25 years.² This robust finding, added to the existing numbers of 1 billion people currently living in slums, frames the ‘demand side’ for the need for housing and infrastructure services in developing countries.

Table 1.1

Demographic highlights (China and India)

	China	India
Urbanization level in 2000, estimate (%)	35.8	27.7
Urbanization level in 2030, projection (%)	60.5	41.4
Urban population in 2000, estimate (000)	456,247	281,255
Urban population in 2030, projection (000)	877,623	586,052
Increase in urban population, 2000–2030 (000)	421,376	304,797
Increase in number of total households, 2000–2030 (000)	284,040	129,358
Average quinquennial increment, 2000–2030 (000)	47,840	21,560
Average annual increment, 2000–2030 (000)	9.568	4,311
Source: UN Population Division, 2004. UN-Habitat, 2003a.

Developing countries will add approximately 2 billion new urban residents during the next 25 years

Looking more closely, approximately 90 per cent of this demand will occur in 48 countries, with most of the growth occurring in East and South Asia. The concentration of this demand reflects both the overall population sizes of China and India, but also other large Asian countries such as Bangladesh and Pakistan in South Asia, and Indonesia, the Philippines and Viet Nam in East Asia. During 1950, these countries were largely rural; today they continue to experience rapid urban growth, with many of their urban concentrations reaching over the 1 million population level. Much of this growth has been fuelled by economic growth itself, with higher urban incomes attracting rural migrants. The enormous growth of urban populations of China and India are shown in Table 1.1, demonstrating that these countries have both experienced large-scale shifts in their populations towards urban centres while continuing to grow at aggregate levels.

It is predicted that the scenario of a decreasing rural population and increasing urban population, with the only possible exception of the African continent, will be exacerbated by expected universal reductions in fertility levels. Indeed, the prediction is that by 2020, the rural population growth rate will turn negative for the first time.³

Africa will also continue to experience rapid urban demographic growth, reflecting continued rural-to-urban migration, with push factors from the lack of productivity of agriculture and the inability to feed and provide incomes for rural populations. The slow growth of rural productivity in African countries has many causes: environmental pressures in the Sahel and East Africa, with severe water shortages, loss of topsoil and lack of rural infrastructure; overpopulation in some parts of the Great Lakes Region of Central Africa; or armed conflicts destabilizing cultivation patterns. These internal problems have been exacerbated by the global trading system, with subsidies by developed countries – for example for cotton – which displace cotton produced in Burkina Faso or Mali from world markets.

Even though Africa's cities have not generated the jobs needed to sustain growing urban populations, they have, nonetheless, attracted large numbers of people fleeing rural poverty. While studies during the 1970s showed that these migrants were largely attracted by the prospects of higher wages from urban employment,⁴ this motivation has been strengthened by the lack of food security in rural areas, as well as by the need for physical security from armed conflict and environmental risks. This ‘urbanization of rural poverty’ is reflected in the increasingly large urban slums in most African countries.

In contrast, the Latin American countries experienced urbanization at an earlier period in which economic growth generated the financial resources needed for the construction of housing and urban infrastructure. Cities such as Buenos Aires, São Paulo or Mexico City demonstrated spectacular growth during the mid 20th century. Even during these periods of economic boom, however, this growth did not keep up with the growing demand for housing and urban infrastructure, such as water supply, sanitation and electricity. Public-sector institutions were unable to provide these services at a rate faster than the proliferation of favelas in Rio de Janeiro, barriadas in Lima or tugurios in Quito.

Nevertheless, Latin American cities have become the loci of economic productivity and employment growth. At the same time, they are also the loci of growing urban poverty and inequality between the rich and poor. How to bridge this gap will be discussed in later chapters of this Global Report.

In contrast to the developing countries, transition economies and developed countries face different challenges in the financing of urban development. Previous public patterns of provision of housing and infrastructure in the transition countries have been disrupted by the political and economic changes following the collapse of the Soviet Union. These systems had provided a very minimum quality of housing and infrastructure in most countries, with long waiting periods for new households. Whether these cities will become productive engines for the growth of their new reformed economies remains to be seen.

Cities in developed countries have occupied an increasingly important place in their respective national economies. As economies shift towards financial services and the knowledge economy, these activities tend to be located in large cities. How well the cities perform with these functions depends upon the reliability of their infrastructure and the quality of urban life as factors in attracting new investment.

Each of these regions and individual countries have always had their own set of characteristics that determine their patterns of urban growth and specific development challenges to be faced by their governments and societies at large.⁵

Translating demographic growth into the
demand for housing and infrastructure

Recent data and analyses indicate that the current global backlog of slum dwellers is about 925 million people.⁶ As shown in Table 1.2, when this figure is combined with the projected 1.9 billion additional urban population, approximately 2.825 billion people will require housing and urban services by 2030. This projection is the starting point for this Global Report.

In considering this number, precision is not really very important. What is critical, however, is the order of magnitude. Close to 3 billion people, or about 40 per cent of the world's population by 2030, will need to have housing and basic infrastructure services. Table 1.3 demonstrates that in order to accommodate the increments in the number of households over the next 25 years, 35.1 million housing units per year will be required. This estimate, in turn, translates into completing 96,150 housing units per day or 4000 per hour. These figures do not include replacements of deteriorated and substandard housing stocks.

Socio-behavioural framework

The challenges raised are not, however, exclusively about the quantity of population, but also about its composition. A recent publication argued that the processes of social differentiation in cities are also accelerating⁷ because they are interacting with the scale and rate of demographic change. There are not only more people in cities, but they eat, work, play, educate, dress and express themselves differently. The richness and, indeed, the tolerance of the culture and diversity of urban behaviour is a major factor in explaining why there is not more violence and conflict than exists in cities. One could easily make the argument that Mumbai and Bangkok are surprisingly peaceful, given their scale and complexity. These processes of urban social and cultural differentiation require much more documentation and research because they are an impo...

Table of contents

• Front Cover
• Half Title
• Title Page
• Copyright
• Contents
• Foreword
• Introduction
• Acknowledgements
• List of Figures, Boxes and Tables
• List of Acronyms and Abbreviations
• Key Issues, Findings and Messages
• MDG Special Feature: Financing the Target on Slums
• Synopsis
• PART 1 ECONOMIC AND URBAN DEVELOPMENT CONTEXT
• PART II SHELTER FINANCE: ASSESSMENT OF TRENDS
• PART III TOWARDS SUSTAINABLE SHELTER FINANCE SYSTEMS
• PART IV STATISTICAL ANNEX
• References
• Index