_How Saudi Arabia is responding to the need for more affordable housing?
Saudi Arabia’s rapid population growth over the last half-century, an almost six-fold increase, has seen with it a corresponding increase in urbanisation. The United Nations currently estimates that 84%of the Kingdom’s population reside in urban centres, up from 45% five decades earlier – in numerical terms this equates to 28.1 million urban residents in 2018 compared to 2.4 million in 1968.
Demographic and generational shifts
Arguably, no city in the Kingdom has seen this trend in a more concentrated form than its capital, Riyadh. Not only has the city’s population more than doubled over the last two decades, the demographic makeup of the city has changed rapidly, where currently almost half of the city’s population is below the age of 29.
Despite this younger and urban demographic, the nature of the city’s housing supply has not seen any noticeable change in the recent past. Developers have continued to focus on developments, which lie more in the luxury segment of the market where historically the largest margins have been found. This type of product is one, which the new demographic cohort will struggle to afford, despite prices softening since 2016.
"Overall, Riyadh appears to be an affordable city based on Knight Frank’s rankings. However, if we delve deeper we begin to realise that the reality is very different."
Historically, it was not unusual for generations of the same family to be living in a sizeable family home. This in turn has meant that average household incomes are recorded as questionably high and therefore metrics, such as the house price to income ratio, are marginally higher than some recognised affordability benchmarks. This in turn somewhat helps mask the affordability issue not only in Riyadh but in the wider Kingdom.
This younger generation now exhibits a desire to move away from the aforementioned multi-generational household structure. However, due to the lack of suitable product this generation will continue to face an acute challenge to enter the housing market.
As a result of these growing challenges, we have seen affordability come to the forefront of the agenda particularly as cultural and social attitudes change at a rapid pace.
If we consider average salaries rather than multi-generational household salaries, the affordability of Riyadh’s residential market changes dramatically and instead of lying in the most affordable quadrant the city moves into the second most affordable.
Using conventional affordability metrics, average affordability lies within SAR 400,000 and SAR 500,000 in comparison to average citywide prices of SAR 970,000. To this end, affordability coupled with falling household sizes, will underpin demand for higher density development, which provides smaller, more efficient units that are affordable due to a reduction in size rather than build quality.
- House prices have softened in Riyadh over the past few years, leading to alleviating affordability pressures.
- Housing affordability remains a key issue despite the city’s ‘most affordable’ quadrant status.
- The issue of affordability is set to exacerbate in conjunction with the rising attractiveness of Riyadh and its ability to attract workers and students from all over the Kingdom.
- The ambitious Sakani program scheme has allocated c. 580,000 housing and financing products in 2017 and 2018 and is expected to allocate 200,000 additional products in 2019.
Building a sustainable future
To help tackle the growing affordability pressures, the Saudi Arabian government has launched the “Sakani”program, a scheme by the Ministry of Housing that aims to ensure housing for all, through the distribution of affordable housing and financing products. Saudi Arabia is now in the third year of the program, which was launched in February 2017.
Around 580,000 products were allocated in 2017 and 2018 including mortgage loans, cost-free land plots, underconstruction residential units and residential units. In 2019, the target is to allocate 200,000 additional products to a number of beneficiaries across the different regions.
Whilst the program is in its early stages, waiting lists for products have reduced significantly over the past two years. Challenges still remain around suitable locations for land plots, quality of development and the bankability of beneficiaries, we foresee more progress being made in the coming years as the government continue to focus on the provision of affordable housing stock for the Kingdom’s burgeoning population.