Financing urban shelter : global report on human settlements 2005

'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 NationsFinancing 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

Author Notes

The United Nations Human Settlements Programme, UN-HABITAT, is the United Nations agency for human settlements. It promotes socially and environmentally sustainable towns and cities with the goal of providing adequate shelter for all.

Foreword	p. v
Introduction	p. vi
Acknowledgements	p. vii
List of Figures, Boxes and Tables	p. xv
List of Acronyms and Abbreviations	p. xviii
Key Issues, Findings and Messages	p. xxiii
MDG Special Feature: Financing the Target on Slums	p. xxvii
Synopsis	p. xxxii
Part I Economic and Urban Development Context
1 Challenges of Sustainable Shelter Development in Macroeconomic Context	p. 3
Understanding Urban Shelter Development Challenges	p. 3
Demographic framework	p. 3
Translating demographic growth into the demand for housing and infrastructure	p. 4
Socio-behavioural framework	p. 5
Economic framework	p. 5
Environmental framework	p. 7
Financial framework	p. 7
International development aid	p. 7
Foreign direct investment	p. 8
National public investment in shelter	p. 8
Valuing urban assets	p. 8
Governance framework	p. 9
Mobilizing finance: removing constraints and reducing risks	p. 9
Addressing shelter and infrastructure standards	p. 9
Constraints to mobilizing resources	p. 10
Risks to providers of finance for low-income households	p. 10
The Macroeconomic Context of Urban Shelter Development	p. 10
Patterns of economic growth	p. 10
Sectoral performance and productivity	p. 11
Income distribution and inequality	p. 11
Poverty and employment	p. 12
Savings	p. 13
External debt	p. 13
Patterns of investment	p. 14
Foreign investment	p. 14
Public investment	p. 15
Private investment	p. 15
The impact of external factors on macroeconomic performance	p. 17
The urbanization of national economies	p. 17
Concluding Remarks	p. 17
Notes	p. 18
2 Shelter Policy and Finance: Retrospective Overview	p. 19
Context to International Thoughts on Financing for Urban Development	p. 19
Trends in Shelter and Municipal Finance Development: 1972-2004	p. 21
Between 1972 and 1982: Habitat I	p. 21
The project approach	p. 21
Self-help	p. 21
Who took part in and benefited from the projects?	p. 22
Towards financial sustainability: the 1980s	p. 23
Structural adjustment: towards macroeconomic orthodoxy	p. 24
The birth of the enabling strategy: the mid 1980s	p. 25
Sustainability and the Brown agenda	p. 25
Whole-sector development: 1987 onwards	p. 26
The Global Strategy for Shelter	p. 26
Focus on building institutional capacity to develop housing and urban services	p. 27
Finance capital in development	p. 28
Globalization of Finance	p. 29
The New Millennium: Policies and Organizations in Shelter and Urban Development	p. 30
The Habitat Agenda	p. 30
Reaching the lowest income groups: community-based finance	p. 30
The right to housing	p. 30
Concluding Remarks	p. 31
Notes	p. 32
3 Financing Urban Development	p. 34
Municipal Finance and Urban Development: The Main Issues	p. 34
National Municipal Finance Systems	p. 35
Sources of Municipal Finance	p. 37
Transfers	p. 37
Taxes on property and businesses	p. 38
User fees	p. 39
Betterment taxes and development exactions	p. 40
Borrowing	p. 40
Short-term borrowing	p. 41
Credit enhancement, access to financial institutions and capital markets	p. 41
Income-generating enterprises	p. 42
Municipal development funds	p. 42
Other sources	p. 42
Municipal Spending Patterns	p. 43
Local government budgeting	p. 43
Participatory budgeting	p. 44
Multi-year capital budgeting	p. 44
Lack of funds for maintaining existing assets	p. 44
Managing municipal expenditures	p. 45
Accountability and transparency	p. 45
Privatization of Municipal Services	p. 47
Key features	p. 47
Challenges of privatizing urban services	p. 47
Joint funding of infrastructure and urban services	p. 48
Joint funding of community-based initiatives for the delivery of basic services	p. 48
New trends in partnerships for local development	p. 48
Summing Up: Assessing the Effectiveness and Impacts of Municipal Finance Systems	p. 49
Municipal finance and sustainable urban development	p. 49
Municipal finance and the delivery of land and services	p. 49
Impact of decentralization upon municipal finance and service delivery	p. 50
Impact of privatization upon municipal finance and service delivery	p. 51
Notes	p. 51
Part II Shelter Finance: Assessment of Trends
4 Mortgage Finance: Institutions and Mechanisms	p. 55
Highlights	p. 55
Cost of houses and need for mortgage finance	p. 55
Mortgage finance and poverty	p. 55
Recent Trends	p. 56
General trends related to providers	p. 56
Sources of finance	p. 58
Strengthening secondary markets	p. 59
State support for housing finance	p. 61
Direct construction and loans	p. 62
Taxation-related incentives	p. 63
Interest rate subsidies	p. 63
Securing stability: insurance and guarantees	p. 64
Regional Analysis	p. 65
The North	p. 66
Transition countries	p. 67
The South	p. 69
Asia	p. 71
Latin America	p. 74
Sub-Saharan Africa	p. 75
Terms and Conditions	p. 76
Loan periods and loan-to-value ratios (LTVs): accessing loans	p. 76
Savings	p. 77
Interest rates	p. 78
Housing Finance, Affordability and Lower Income Households	p. 79
The price of housing	p. 79
The cost of housing - and the response of supply to increased demand	p. 80
The implications for homeownership for the young	p. 80
More general problems of affordability	p. 81
The continuing problem of informality	p. 83
Assessing systemic risks	p. 84
Notes	p. 84
5 Financing for Social and Rental Housing	p. 87
Conditions and Trends	p. 88
State rental housing in the North	p. 88
State rental housing in transition countries	p. 90
Rental housing in the South	p. 91
Social housing and homeownership	p. 91
Challenges	p. 95
Poor location due to market choice and financial shortage	p. 96
Notes	p. 97
6 Small Loans: Shelter Microfinance	p. 98
Small Loan Challenges	p. 98
Incremental development	p. 99
Access to financial services	p. 99
Microfinance: what is it?	p. 101
The Growth of Microfinance for Shelter	p. 102
Links to formal financial agencies	p. 104
The microfinance institution (MFI) experience: enterprise to housing loans	p. 105
Reasons for expansion of MFIs into housing	p. 106
Neighbourhood improvement (slum upgrading)	p. 106
Land development	p. 108
Other Providers and Sources of Finance	p. 109
Sources of capital finance	p. 112
Shelter microfinance and subsidies	p. 113
Terms and Conditions	p. 113
Savings	p. 114
Collateral and security	p. 114
Interest rates	p. 115
Loan periods	p. 115
Technical assistance	p. 115
Orientation towards women	p. 116
Income generation	p. 116
Foreseen Challenges	p. 117
Affordability	p. 117
Securing capital	p. 117
Notes	p. 119
7 Community Funds	p. 120
What Are Community Funds?	p. 120
Trends	p. 122
Funding Sources	p. 126
Terms and Conditions	p. 129
Strengthening collective capacity: savings	p. 129
Interest rates	p. 130
Collateral and security	p. 131
Loan periods	p. 132
Technical assistance	p. 132
Income generation	p. 133
Challenges	p. 133
Long-term strategies for continued viability	p. 133
The challenge of inclusion	p. 134
Notes	p. 135
Part III Towards Sustainable Shelter Finance Systems
8 Assessing Shelter Finance Systems	p. 139
Affordability and the Difficulties of Reaching the Poor	p. 140
The role of finance: relationship-building	p. 142
The Role of Mortgage Finance: Access to Capital and the Lack of Loan Finance	p. 142
The Bigger Picture and What the Market Cannot Manage	p. 143
Financial risks	p. 144
The need for local organization	p. 144
The issue of urban development	p. 144
Connections and Diversity within Globalization	p. 145
No global financial flows in housing	p. 145
Concluding Remarks	p. 146
Notes	p. 146
9 Policy Directions Towards Sustainable Urban Shelter Finance Systems	p. 147
Towards Inclusive Urban Infrastructure and Services	p. 148
Financing for municipalities and service providers	p. 148
Public-sector inadequacy to the task	p. 148
Balancing local, provincial and national financing	p. 148
Importance of a municipal capital financing fund	p. 149
Debt swaps	p. 149
Betterment levies	p. 149
Improving tax collection	p. 149
Strengthening property tax systems	p. 149
Adjusting charges for local services	p. 150
Improving maintenance to reduce expenditure	p. 150
Private finance	p. 150
Improving the efficiency of resource use	p. 150
Multi-year programmes and budgets	p. 150
Participatory budgeting	p. 150
Government as creditor of local authorities and service providers	p. 150
Eliminating corruption	p. 151
Reducing the cost of urban services	p. 151
Enhancing households' willingness and ability to pay	p. 151
Income and employment	p. 151
Reducing transaction costs	p. 151
Strengthening the Sustainability and Performance of Shelter Finance Systems	p. 152
Reducing housing costs	p. 152
Enabling household decision-making through more effective policy	p. 152
Addressing the need for rental accommodation	p. 152
Contractor financing	p. 153
Development of 'developers'	p. 153
Reducing financing constraints and risks	p. 153
Financing informal development	p. 153
Savings and debt	p. 153
Improving the accessibility of mortgage finance	p. 154
Terms of housing loans	p. 155
The price of housing	p. 155
Recognizing the need for incremental loans	p. 156
Lending based on the idea of housing as a productive good	p. 156
Enhancing pro-poor formal housing finance systems	p. 156
Subsidies	p. 156
Social housing	p. 157
Incentives for investment in low-income rental housing	p. 158
Small loans and housing microfinance	p. 159
The issue of default among low-income borrowers	p. 160
Guarantees	p. 160
Widening the scope of housing microfinance	p. 160
Credit for building materials	p. 160
Remittances	p. 160
The role of charity in low-income housing	p. 161
Strengthening community-based funding mechanisms	p. 161
Notes	p. 162
Epilogue: Towards Sustainable Urban Shelter	p. 163
First Element: Abating Housing Costs	p. 165
Capital	p. 165
Land	p. 166
Infrastructure and land-use planning	p. 166
Building materials	p. 166
Standards	p. 166
Design	p. 167
Location	p. 167
Modes of production and delivery	p. 167
Second Element: Increasing Purchasing Power	p. 168
Synergizing the Two: Lower Housing Prices and Higher Incomes	p. 169
Capital	p. 169
Infrastructure and land-use planning	p. 170
Building materials and standards	p. 170
Design	p. 170
Modes of production	p. 170
Formulating and Implementing Urban Shelter Policies: Sheltering the Poor from 'Market Poaching'	p. 170
'High-end poaching' in attractive urban locations	p. 170
'Residential poaching' in the urban periphery	p. 171
'Mortgage finance poaching'	p. 171
Political commitment and policy reform as the key to sustainable shelter	p. 171
Local engagement in the pursuit of the Millennium Development Goals (MDGs): the Millennium Towns and Cities Campaign	p. 172
Concluding Remarks	p. 172
Notes	p. 173
Part IV Statistical Annex
Technical Notes	p. 177
Explanation of Symbols	p. 177
Country Groupings and Statistical Aggregates	p. 177
World major groupings	p. 177
United Nations Regional Groups	p. 177
Countries in the Human Development aggregates	p. 178
Countries in the income aggregates	p. 178
Sub-regional aggregates	p. 179
Nomenclature and Order of Presentation	p. 179
Definition of Statistical Terms	p. 180
Sources of Data	p. 184
Notes	p. 185
Data Tables	p. 186
Regional Aggregates	p. 186
A.1 Demographic indicators	p. 186
A.2 Shelter indicators	p. 187
A.3 Social indicators	p. 188
Country-Level Data	p. 189
B.1 Urbanization, urban population and urban slum dwellers	p. 189
B.2 Total and rural population size and rate of change	p. 192
B.3 Households: Total number and rate of change	p. 195
B.4 Household's consumption indicators	p. 197
B.5 Environmental infrastructure	p. 199
B.6 Basic economic indicators	p. 202
B.7 Investment in infrastructure and foreign direct investment	p. 204
B.8 Energy and transport infrastructure	p. 207
B.9 Social indicators	p. 209
City-Level Data	p. 212
C.1 Urban agglomerations: Population size and rate of change	p. 212
C.2 Housing and basic services, selected cities	p. 218
C.3 Urban transport and environment, selected cities	p. 221
C.4 Social indicators, selected cities	p. 224
References	p. 228
Index	p. 237

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