Social housing: A path to achieve affordable housing in Kathmandu

Access to housing ensures dignity and security – the basic human rights. However, shelter has exclusively become a prerogative of the rich in Kathmandu as affordable housing in the capital city of Nepal continues to dwindle.

Numbeo, which tracks global housing affordability, shows that Kathmandu’s housing price to income ratio is the 23rd highest among 105 Asian cities. Likewise, the city ranks 4th among 42 South Asian cities, right after Tehran, Mumbai and Colombo. The implication of such ranking could be better understood through the following comparison: One of the most expensive cities in the world, New York has an average rent of approximately 95% higher than that of Kathmandu. While it is tempting to postulate that housing is more affordable in Kathmandu than it is in New York, rent alone says essentially nothing about the affordability of housing. Taking a closer look, it becomes evident that Kathmandu’s housing is less accessible to the population than New York’s, with the price to income ratio amounting to 20.59 in the former and just 10.11 in the latter.

The land price in Kathmandu, along with other major cities of Nepal, has seen an average growth of 40 to 50% per annum. This excessive growth in price can be attributed to excess demand. The low rate of return on bank deposits induces many to put their savings into the more profitable real estate instead. However, given the more or less fixed supply of land, growing demand triggers inflation as supply shortage drives up the land price. This in turn fuels the demand more as rising prices make the housing market more lucrative. This self-reinforcing feedback loop is further intensified by the continually growing population of the city.

In this manner, the speculation of real estate has financially overburdened the working class as well as the local population. Moreover, the existing minimum wage fails to meet even the most basic living cost in Kathmandu. With wages staying stagnant, lower income residents are unable to afford a home inside Kathmandu and as a result, they are compelled to settle in the periphery of the city, further away from their schools or workplaces. This could lead to a long term economic and social exclusion of the cohort, trapping them in the cycle of poverty.

The COVID-19 pandemic has additionally highlighted the dire circumstance of limited access to housing for the poor in the city. Staying home has been one of the most reiterated measures against the spread of COVID-19. However, despite the recent enactment of Right to Housing Act 2018, staying in appropriate housing[1] is a privilege in itself which the majority of the working class cannot afford.

The nation’s policies centered on real estate, or lack thereof, are rife with loopholes and blindspots. Consequently, the sector provides an ideal investment opportunity to evade tax or launder money. Moreover, passing on properties to children cost very little in Nepal when compared to other advanced economies where inheritance tax could go as high as 55%. The absence of proper mechanism to redistribute unproductive wealth through taxes, encourages people to hoard land/houses.

Social housing:

Social housing has gained immense popularity among advanced as well as emerging economies as a response to soaring rents, especially amid the pandemic. While the definition and approach of social housing differs across countries, it typically refers to “residential rental accommodation provided at sub-market prices that is targeted and allocated according to specific rules, such as identified need or waiting lists”. Social/subsidized, public, council and general housing are some of the common types of social housing. Among the handful of countries that have invested in social housing, Austria strikes as the most exemplary.

In Austria, the municipalities are given complete autonomy to oversee housing policies. The delegation of authority to the local bodies has proved to be resourceful in effective policy implementation while maintaining low housing prices. Accordingly, in Vienna the city government owns most of the land and owns “25% of the city’s housing stock”. The city also partners up with private developers to provide affordable housing. The developers are incentivized through lower interest on loans and longer repayment periods. The city rents out half of these housing units to lower income residents while the developers rent out the other to moderate income residents. Furthermore, the city government stipulates the rent cap which means that rent is generally less than 20 to 25% of the residents’ income. Although the residents are free to remain in these housing units even if their income were to increase in subsequent years, lower-income residents are never displaced owing to the supply-side housing subsidies and abundant supply of affordable housing.

The Austrian system of social housing is remarkable not just for its efficacy in sheltering the financially disadvantaged, but also for its effort in bringing together different income classes under one roof which in turn promotes social cohesion and inclusion. The country manages to provide affordable housing units to the impoverished while ensuring that these do not “become stigmatized concentration of poverty”.

The model of social housing could thus be one of the many ways in which the Government of Nepal could increase the access to affordable housing.

For this, the federal government along with the subnational governments can work together to bring necessary tax reforms especially in the housing sector. The additional revenues from such real estate taxes could be thereby directed towards social housing, targeting the financially needy residents. Furthermore, the government can also look into the possibility of collaborating with private partners, as in the case of Austria, to advance their agenda of affordable housing.

[1] “Housing” means building, house, part of it or such permanent or temporary, partial or full structure constructed for the residential purpose (Right to Housing Act 2018).