We are running out of affordable housing

"Canada and the unprecedented housing crisis," "European housing crisis is booming," "The total breakdown of the social contract when Ireland faces housing crisis," and "Housing crisis and the final fall down of the American middle class" are titles of a few recent newspaper articles.

Housing, employment, healthcare, and education, are the four necessities of human lives that all governments need to take active care of.

Some countries that focus too much on the proclaimed self-balancing nature of the capitalist economy have entirely delegated the housing development to the private sector. This leads to an unprecedented housing crisis, especially against the less privileged who cannot afford the ever-rising real estate prices.

Vietnam treads a balance between capitalism and social welfare with regard to real estate development. The recent package of VND30 trillion (US$1.22 billion) for social housing aims to subsidy land usage fees, real estate tax, and bank interests, though valuable as it is, has faced many challenges. The bright side of this package is that the loan interest is very low, at only 5%.

Meanwhile, the $4.88 billion package, which aims to develop one million social housing apartments by 2030, has a loan interest rate of 8.2%. Though this interest rate is still subsidized, it remains very high compared to the incomes of the average Vietnamese.

Financial resources are finite, and the allocation of such resources is also very limited. Some resources, though valuable as they are, could not reach the designated recipients in time. Some of these delays are due to the constant need for inspection and regulations of government funding.

The real estate market has three property classes, class A for the upper class, class B for the middle class, and class C for the less privileged. Class C has the highest demand, but the least supply in the current market, Vietnam and internationally. Some may even say that housing for the less privileged is extinct.

According to research by Vietnam Real Estate Research Institute and commercial real estate company Savills, affordable housing with a price of less than $81,300 accounts for only 3% of the total real estate supplies.

Similarly, HCMC Real Estate Federation reported that in 2023, affordable housing has gradually evaporated from the metropolitans across Vietnam. The housing prices in general have risen dramatically, making Hanoi one of the world's most expensive cities in terms of housing prices.

Vietnam has yet to have any concrete definition of affordable housing, and has not codified any laws regarding this issue.

According to UN Habitat, a United Nations programme for human settlements and sustainable urban development, affordable housing needs to have a price point that is accessible to the majority of society, with total costs smaller than 30% of the total annual household income, with proper and safe amenities according to social standards. Similarly, the U.S. Department of Housing and Urban Development provides a shared understanding.

Though the Vietnamese government has not codified any laws defining affordable housing, other local stakeholders typically consider housing with a price lower than $1,000 per square meter to be affordable. This category, sadly, no longer exists in Hanoi and HCMC, with the "standard" being 20 to 30% higher, with a total cost of a low-cost apartment between VND 2 billion and 2.4 billion.

This clear difference in supplies and demands of the real estate market is not sustainable.

There are various reasons why this imbalance happens, including the lack of supplies, rising material and labor costs, rising bank interests, and rising land prices.

Lessons from various countries show that having affordable housing available plays a vital role in social stability and welfare, as well as providing economic benefits, including stability in jobs and social necessities. Governments in various countries have attempted different approaches to ease the housing pressure, including financial and non-financial approaches.

Financial approaches are familiar, including grants, subsidized loans, and tax reductions. In my opinion, these measures need to be supplemented with some non-financial measures to be the most effective.

These include providing the legal basis for affordable housings, creating policies to promote affordable housing development, preparing the standard frameworks and encouraging urban planning towards social sustainability.

First, the government should carefully calculate the proportion of affordable housings compared to the overall market, which would provide the overall guideline for localities.

Second, the government should plan and organize housing with considerations of urban infrastructure, including public transportation accessibility, schools, healthcare facilities, supermarkets, and green space.

Third, the government should promote the construction of affordable housing, encourage the transition of urban structures like shopping malls to affordable housing construction, and increase the density of affordable housing structure throughout the city planning.

Fourth, the government should simplify the administration, bureaucracy, and procedures related to affordable housing development, and encourage foreign investments and public-private projects for such purposes.

Fifth, the government should attempt to research, adopt, and apply new technologies in construction and planning, which would reduce the costs and make housings in general more affordable.

Sixth, the government should attempt to effectively manage the market, prevent the inflation of housing prices, and create incentives for real estate developers to conduct more affordable housing projects.

Some states in the U.S. allow real estate developers to receive a bonus point while applying for the construction of commercial projects if the developers have previously compensated with affordable housing projects.

Besides this, the government should apply financial measures like imposing higher tax brackets for high-end real estate to raise subsidy funds for low-cost housing projects, or founding real estate investment funds.

The government should also impose a maximum price point for the real estate market by sub-class, like how Australia, Canada, the U.S., and New Zealand have approached.

These non-financial approaches helped to facilitate a more sustainable development for the real estate market.

We need to provide more supplies and limit the prices of low-cost, social housing to ensure social stability.

*Doan Van Binh is vice chairman of the Vietnam Real Estate Association and member of the Tourism Advisory Board.