HOUSING DEMAND STUDY For The Arab Republic of Egypt
June 22, 2006 This publication was produced for review by the United States Agency for International Development. It was prepared by Suzette Aziz, Hazem Kamal, Maha Samy Kamel, Kamal Selim, Hany Serageldin, and David Sims.
HOUSING DEMAND STUDY FOR THE ARAB REPUBLIC OF EGYPT
TECHNICAL ASSISTANCE FOR POLICY REFORM II CONTRACT NUMBER: 263-C-00-05-00063-00 BEARINGPOINT, INC. USAID/EGYPT POLICY AND PRIVATE SECTOR OFFICE DATE: JUNE 22 2006 AUTHOR: SUZETTE AZIZ, HAZEM KAMAL, MAHA SAMY KAMEL, KAMAL SELIM, HANY SERAGELDIN, DAVID SIMS. SO 16 < OR ACTIVITY TITLE AND ASSOCIATED NUMBER>
DISCLAIMER: The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.
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CONTENTS
ACRONYMS & DEFINITIONS...... 1
EXECUTIVE SUMMARY: KEY FINDINGS AND RECOMMENDATIONS...... 2
INTRODUCTION...... 2
CHAPTER 1: MACROECONOMIC LINKAGES OF THE HOUSING SECTOR ...... 13 1.1 Introduction ...... 13 1.2 Importance of Housing Sector Production in GDP ...... 14 1.3 Construction & Building and Real Estate Activities in GDP...... 15 1.4 Investing in Construction and Real Estate Activities on the National Level...... 17 1.5 Contributions of Investments to the Housing Stock ...... 19 1.6 The Role of the Informal Sector ...... 21 1.7 System of Credit Allocation to the Housing Sector ...... 22 1.8 Lending Volumes and Mechanisms...... 24 1.9 Lending Interest Rates and Inflation ...... 26 1.10 Reforming Housing Mortgage Finance ...... 27 1.11 Conclusions...... 28 1.12 Recommendations ...... 29
CHAPTER 2: QUANTITATIVE AND QUALITATIVE OVERVIEW OF HOUSING SUPPLY AND THE HOUSING MARKET...... 31 2.1 Introduction and Methodology...... 31 2.2 A Context for Examining the Housing Supply...... 31 2.2.1 A Brief History of Egypt’s Housing Policies ...... 31 2.2.2 Economic Trends That Relate to the Housing Supply ...... 32 2.2.2.1 Increase in Population and Urbanization ...... 32 2.2.2.2 Patterns of Industrialization, Employment and Income ...... 33 2.2.2.3 Urban Problems in the Greater Cairo Region...... 34 2.2.2.4 Factors Influencing Housing Need and Demand...... 35 2.2.2.5 Housing Prices and Rent ...... 35 2.3 Overview of Housing Stock and Housing Conditions ...... 36 2.3.1 Housing Stock In Urban Areas...... 36 2.3.2 Informal Housing Stock...... 37 2.3.3 Surplus Units...... 38 2.3.4 Housing Provision by the Government ...... 39 2.3.5 Types of Tenure...... 40 2.3.6 Occupation Densities and Overcrowding...... 40 2.3.7 Access to Main Utilities ...... 41 2.3.8 Age of Dwellings ...... 42 2.3.9 Maintenance Status ...... 42 2.4 Market Overview and the Supply of Financing ...... 42 2.4.1 How the Housing Supply is Influenced by Market Conditions ...... 43 2.4.2 Current Financing Options ...... 43 2.4.3 Current Acquisition Options ...... 44 2.4.4 Arrangements Adopted Between Developer and Customer...... 45
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2.5 Conclusions...... 45 2.6 Recommendations ...... 46
CHAPTER 3: CURRENT AND FORECAST HOUSING DEMAND BY INCOME SEGMENT...... 48 3.1 Introduction ...... 48 3.2 Methodology...... 49 3.2.1 Using the “Structure Plan Forecasting” Approach ...... 50 3.2.2 Local Housing Needs Assessment for Cairo ...... 50 3.3 Forecast of Future Needs on the National Level ...... 51 3.3.1 Urban Population Projections and Expected Number of Households in 2017 ...... 51 3.3.2 Existing Urban Housing Stock in 2006 ...... 53 3.3.3 Calculation of Housing Needs Through 2017 ...... 55 3.3.4 Breakdown of New Needs by Income Bracket, 1999-2000 ...... 56 3.4 Local Housing Needs Assessment for Greater Cairo ...... 60 3.4.1 Characteristics of Survey Respondents...... 60 3.4.2 Characteristics of the Housing Currently Occupied by Survey Respondents...... 61 3.4.3 Reasons That Respondents Have a Demand for New Housing Units ...... 62 3.4.4 Characteristics of the Housing Demanded by Survey Respondents...... 63 3.4.5 Characteristics of the Financial Arrangements Acceptable to Survey Respondents...... 63 3.5 Choices and Residential Strategies Currently Available to Young Households...... 63 3.5.1 The Private Sector ...... 63 3.5.2 The Public Sector...... 64 3.6 Further Demand-Related Considerations For Egyptian Housing Policy...... 65 3.7 Conclusions...... 67 3.8 Recommendations ...... 68
CHAPTER 4: AFFORDABILITY ANALYSIS ...... 69 4.1 Introduction ...... 69 4.1.1 Preface...... 69 4.1.2 Objectives ...... 70 4.1.3 Methodology...... 70 4.2 Prices of Housing Units...... 73 4.2.1 Current Housing Prices...... 73 4.2.1.1 Formal Public Housing...... 73 4.2.1.2 Formal Private Housing ...... 75 4.2.1.3 Informal Housing...... 77 4.2.2 Evolution of Formal Housing Prices in the Last Decade ...... 78 4.2.2.1 Formal Public Housing...... 78 4.2.2.2 Private Formal Housing ...... 79 4.2.2.3 Informal Housing...... 80 4.2.3 Housing Unit Cost ...... 81 4.2.3.1 Formal Public Housing...... 81 4.2.3.2 Formal Private Housing ...... 81 4.2.3.3 Informal Housing...... 81
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4.3 Housing Rents...... 82 4.3.1 Formal Public Housing...... 82 4.3.1.1 Units Available for Rent ...... 82 4.3.1.2 Occupied Units...... 82 4.3.2 Formal Private Housing ...... 84 4.3.2.1 Units Available for Rent ...... 84 4.3.2.2 Occupied Units...... 85 4.3.3 Informal Housing...... 87 4.4 Income and Savings...... 87 4.4.1 Income Brackets ...... 87 4.4.2 Income Characteristics ...... 91 4.4.2.1 Income from Primary Jobs...... 91 4.4.2.2 Secondary Work Income...... 92 4.4.2.3 Other Sources of Income ...... 92 4.4.2.4 Income of Household Members (Wife/Offspring)...... 93 4.4.2.5 Total Household Income ...... 93 4.4.3 Income and Tenure Status...... 94 4.4.4 Income, Employment Type, and Employment Regularity...... 96 4.4.5 Savings ...... 96 4.4.6 Savings and Tenure Status...... 97 4.5 Affordability Analysis...... 98 4.5.1 Rent-to-Income Ratio...... 98 4.5.2 Payment-to-Income Ratio ...... 99 4.5.3 General Properties of the Research Sample ...... 99 4.5.3.1 Education ...... 99 4.5.3.2 Occupation...... 100 4.5.3.3 Total Household Income ...... 100 4.5.3.4 Number of Household Members...... 100 4.5.4 Affordability Analysis...... 100 4.5.4.1 Preferences for Housing Prices, Rents and Payment Arrangements...... 100 4.5.4.2 Relation Between Down Payment, Monthly Payment, and Income ...... 101 4.5.5 Current Funding Conditions...... 101 4.5.5.1 Acquiring Loans ...... 101 4.5.5.2 Other Funding Channels...... 102 4.5.6 Evaluation of Governmental Housing Programs...... 103 4.5.7 Analyzing Social Strata ...... 104 4.5.8 Results of the Analysis: Households’ Ability to Pay for Housing ...... 105 4.5.8.1 Maximum Affordable Down Payment ...... 105 4.5.8.2 Maximum Affordable Monthly Installment/Rent ...... 106 4.5.8.3 Cross Analysis of Down Payment and Installment/Rents...... 106 4.5.9 Results of the Analysis: The Government’s Role in Providing Housing ...... 107 4.5.9.1 The Government’s Role: Providing a Construction Loan ...... 107 4.5.9.2 The Government’s Role: Providing Site and Services...... 107 4.5.9.3 The Government’s Role: Providing Site, Services, and Construction Loans ...... 108
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4.5.9.4 The Government’s Role: Providing Site, Services, and Core Housing ...... 108 4.5.9.5 The Government’s Role: Providing Subsidized Finished Housing Units Along With Housing Finance Loans ...... 108 4.5.9.6 Cross Analysis of Alternatives for the Public Role in Providing Housing ...... 108 4.5.10 Results of the Analysis: Effectiveness of Mortgage Financing ...... 109 4.6 Conclusions...... 109 4.7 Recommendations ...... 110
CHAPTER 5: CURRENT HOUSING SUBSIDIES BY MARKET SEGMENT ...... 114 5.1 Introduction and Methodology...... 114 5.2 General Types of Current Housing Subsidies ...... 114 5.2.1 Government-Financed and Produced Housing ...... 115 5.2.2 Subsidized Land for Housing ...... 115 5.2.3 Subsidized Building Materials and Construction Methods...... 115 5.2.4 Subsidized Infrastructure Services ...... 116 5.2.5 Implicit Housing Subsidies in Tax Regimes...... 116 5.3 History of Government Housing Programs ...... 116 5.4 Public Housing Production Volumes by Authority...... 117 5.5 Public Housing Production Volumes by Type...... 119 5.6 Public Housing Production Volumes by Location ...... 120 5.7 Government Authorities Which Produce Housing and Current Programs...... 122 5.7.1 The Mubarak Youth Housing Project (Agency for Youth Housing in MHUUD)...... 122 5.7.2 Cooperative Housing ...... 123 5.7.3 Governorate Housing – For New Households ...... 123 5.7.4 Governorate Housing – For Resettlement and Welfare ...... 124 5.7.5 Public Sector Housing Company Housing – Maadi, Madinet Nasr, etc...... 125 5.7.6 Housing and Development Bank (HDB) ...... 125 5.7.7 Future Foundation Housing ...... 125 5.7.8 Taameer Agency Housing ...... 125 5.7.9 Special Authorities Employee Housing (Police, Army, Etc.)...... 126 5.7.10 Housing Programs in the Pipeline – the National Housing Project of the President ...... 126 5.7.11 Other Housing Programs in the Pipeline ...... 126 5.8 Target Beneficiaries, Qualifying Criteria, and Distribution Mechanisms...... 126 5.8.1 Governorate Housing (Other Than Resettlement)...... 127 5.8.2 Governorate Housing (Resettlement) ...... 127 5.8.3 MHUUD Housing Projects (Mostly Mubarak Youth Housing)...... 127 5.9 Estimating the Subsidy Element in Government Housing Programs ...... 128 5.10 Government Budgeting for Housing Subsidies...... 131 5.11 Land for Government Housing and Main Locations ...... 132 5.12 Typical Government Housing Designs, Layouts and Densities...... 132 5.13 Quality of Government Housing...... 133 5.14 Contracts and Titling ...... 134 5.15 Repayment, Eviction, and Post-Project Accounting ...... 134
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5.16 Selling or Transferring Units to a Third Party...... 135 5.17 Coverage of the Housing Subsidy System ...... 135 5.17.1 Coverage in General...... 135 5.17.2 Coverage by Market Segments ...... 136 5.17.3 Coverage by Location ...... 136 5.18 Conclusions...... 136 5.19 Recommendations ...... 137
APPENDIX A: ARAB REPUBLIC OF EGYPT HOUSING DEMAND STUDY TERMS OF REFERENCE ...... 139
APPENDIX B: A REVIEW OF WHAT IS KNOWN ABOUT INFORMAL HOUSING IN EGYPT...... 148
APPENDIX 3.1: PROJECTION OF URBAN POPULATION UNTIL 2017...... 160
APPENDIX 3.2: AVERAGE FAMILY SIZE IN URBAN AREAS, 1986, 1996 AND 2004, AND PERSONS/ROOM ...... 161
APPENDIX 3.3: SURPLUS UNITS IN URBAN AREAS, 1986 AND 1996 ...... 162
APPENDIX 3.4: DISTRIBUTION OF HOUSEHOLDS ACCORDING TO ANNUAL EXPENDITURE CATEGORIES, BY GOVERNORATE IN 1999/2000 ...... 163
APPENDIX 3.5: TAPR II MARCH-APRIL 2006 HOUSING DEMAND SURVEY ...... 165
APPENDIX 4.1: LETTER (IN ARABIC) FROM EL-OBOUR CITY COUNCIL REGARDING THE AVAILABILITY OF LOW-COST HOUSING UNITS ...... 168
LIST OF FIGURES Figure 1.1 Number of Units Built and Average Investment Per Unit Figure 1.2 Deposit, Lending and Inflation Rates
Figure 2.1 Urbanization in Egypt’s Governorates (by Percentages) Figure 2.2 Percentage of Surplus Units in 1996 by Governorate
Figure 2.3 Number of Housing Units by Decade Built Figure 3.1 Distribution of Households by Expenditure Categories in 2000-2001 Figure 3.2 Gap Between Governmental Low-Cost Housing Supply and Expected Needs Figure 3.3 Public vs. Private Housing Supply 1995-2003 Figure 3.4 The Percentage of Low-Income Housing in the Public Sector Supply, 1995-2003
Figure 4.1 Components of Affordability Figure 4.2 Number of Formal Housing Units Established From 1982 – 2003
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Figure 4.3 Cost Per Housing Square Meter in Safat El-Laban, Boulaq El-Dakrour, Prior to 1997, Through 2003 Figure 4.4 Components of the Affordability Analysis
LIST OF TABLES
Table 1.1 Profile of the Construction and the Real Estate Sectors' Contributions in Gross Domestic Product Table 1.2 Implemented Investment in Construction & Building and Real Estate Activities Table 1.3 Implemented Housing Units and Investments Over the Period 1982/83 to 30/6/2001 Table 1.4 Annual Averages of Deposit and Lending Interest Rates, and Inflation Rate
Table 2.1 Surplus Housing Units in Egypt in 1986 and 1996 Table 2.2 The Informal Districts in the Greater Cairo Region Table 2.3 Surplus Housing Units in the Greater Cairo Region Table 2.4 Floor Area Per Person (1996)
Table 3.1 Expected Number of Households in 2017 Table 3.2 Estimation of Total and Informal Housing Units in 2003 Table 3.3 Housing Needs for New Households and Replacement of Deteriorated Stock Table 3.4 Estimation of Housing Demand by Income Bracket Until 2017
Table 4.1 Percent of Surplus Units in 1996 Table 4.2 Prices and Financing Arrangements for Housing Units (63m 2) for Low Income Brackets in New Cities Table 4.3 Prices of Housing Units Suggested by the Government Table 4.4 Prices and Financing Arrangements for the Youth Housing Units in New Cities and Governorates Table 4.5 Prices of Public Housing Units by District Table 4.6 Prices of Housing Units in the Formal Private Housing Sector in Selected Greater Cairo Areas Table 4.7 Prices of Housing Units in the Formal Private Housing Sector in Selected Satellite Cities of Greater Cairo Table 4.8 Prices of Housing Units in the Informal Housing Sector in Selected Greater Cairo Areas Table 4.9 Prices of Housing Units - President Mubarak's Youth Project Table 4.10 Variables Regulating and Determining Housing Unit Prices Table 4.11 Level-Based Estimated Cost of Housing (Excluding Land Cost and Utilities) Table 4.12 Rental Values of Housing Units Owned by Governorates and Rented to Citizens
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Table 4.13 Rents of Available Old Law Rental Units, and Down Payment/Key Money in Sample Areas of Greater Cairo (in LE) Table 4.14 Rents of Available New Law Rental Units (in LE) Table 4.15 Rental Values of the Occupied Housing Units in Selected Districts in Greater Cairo (in LE) Table 4.16 Rental Values of Occupied Housing Units in Locations Within Cairo, Giza, Qalyubia and Sharkia Governorates (in LE) Table 4.17 Rental Values and Down Payments for Different Units in Selected Informal Settlements Within Greater Cairo Table 4.18 Distribution of the Number of Families Based on Income Brackets in Selected Districts Table 4.19 Distribution of the Number of Households Based on Income Brackets Table 4.20 Distribution of the Number of Households Based on Merged Income Brackets Table 4.21 Distribution of the Respondents Based on Gender, Employment, and Other Income Sources Table 4.22 Distribution of Households Based on Income Brackets and Tenure Status Table 4.23 Relation Between the Chronological Age of the Building and Rental Scheme Table 4.24 Average Family Savings Capacity in Selected Districts Table 4.25 Distribution of Families Based on Income Brackets, Savings of Both Owners and Renters (in LE) Table 5.1 Annual Government Sector Housing Production (Urban) 1982 - 2005 by Executing Agencies Table 5.2 Government Housing Production by Type (Urban) 1982-2005 by Five Year Period Table 5.3 Government Housing Production (Urban) by Governorate 1982-2003 by Housing Units Table 5.4 Mubarak Youth Housing Profile Table 5.5 Governorate Housing Examples Table 5.6 Example of Point System for Phase II of the Mubarak Youth Housing Project (Maximum 100 points) Table 5.7 Calculating the Subsidy Element in Government Housing Under Different Assumptions
TECHNICAL ASSISTANCE FOR POLICY REFORM II viii ACRONYMS & DEFINITIONS
CEDEJ Centre des Etudes et Documentation Economiques, Juridiques, et Socials
ECES Egyptian Center for Economic Studies Feddan Unit of land area equaling 4200m 2 (roughly one acre) GABHC General Authority for Building and Housing Cooperatives
GOPP General Organization for Physical Planning (part of MHUUD) GTZ German Technical Cooperation HDB Housing and Development Bank
HIECS Household Income, Expenditure and Consumption Survey ILD Institute for Liberty and Democracy (Lima, Peru) LE Livre Egyptien (Egyptian Pound)
MHUUD Ministry of Housing, Utilities, and Urban Development O&M Operations and maintenance Rural See definition of “urban,” below.
UNDP United Nations Development Program Urban The official and Census definition of urban areas in Egypt is purely administrative and thus is problematic. Urban areas are either (1) urban governorates; (2) agglomerations which have been declared “cities” and have a city council, or (3) the capitals of all rural districts. This definition has no relation to the size of the agglomeration’s population or its importance as an urban area. As a result, the urban population of Egypt is undercounted and fringe urban growth is considered rural. In fact, in the intercensal period 1986-96, official figures show that the population of rural areas in Egypt grew at a faster rate than that of urban areas. USAID United States Agency for International Development
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EXECUTIVE SUMMARY: KEY FINDINGS AND RECOMMENDATIONS
INTRODUCTION This report is the product of a three-month period of intensive efforts carried out by a team of experts assembled by Bearing Point Inc. under the USAID Technical Assistance for Policy Reform Project II (TAPRII). The effort responds to requests from the Egyptian Ministry of Investment, and in particular to a Terms of Reference issued by the Ministry in late January 2006. This TOR called for a national housing market study focusing on major cities and urban areas to aid in the GOE’s preparations for reform in the sector. The objective of the study is stated as follows: “to examine the key issues and challenges facing the housing sector from the demand point of view, with a special focus on housing demand from the poor and middle income strata.” Housing is one of the most serious problems facing the urban Egyptian household, especially for those who wish to start or expand a family, and it is a source of frustration and social tensions for all but the well-off. Much of private housing on the market is simply not affordable, and couples commonly postpone marriage for years in attempts to save enough to enter the market. The Egyptian Government has maintained for decades a policy of directly supplying housing for those who cannot afford to find solutions in the private sector. This policy has meant a considerable drain on the State investment budget. The Government recognizes that existing housing approaches need to be reformed. It has pledged, over a six-year period, to create an affordable home production program aimed at constructing 500,000 new units for low-income families. Better knowledge of housing demand and of housing markets is an important first step in improving the functioning of the delivery of housing as a social good and in satisfying an extremely important basic need. This is the reason for the present Housing Demand Study. The Housing Demand Study had two crucial limitations: a very short time span and the reliance mostly on secondary data. Within the three months it was possible to carry out a small random sample survey of applicants for the announced new government housing programs, 1 which allowed some tentative findings about that specific subset of housing demand. But otherwise, the Study had to rely on and hunt down secondary data from different sources, and this data was often found to be incomplete, inconsistent, and/or out of date. A non-structured sampling of housing prices was also carried out in parts of Greater Cairo. Even with its limitations, this Study allows a preliminary view of the different segments of the housing market in terms of housing stock, household demand, affordability and affordability gaps, modes of financing for housing and existing Government policy actions towards those segments. The study’s findings and recommendations can form the basis for further crucial investigations and the design of effective social housing schemes by the Government.
1 A sample of 323 cases was randomly selected from about 5000 applications for new housing under the President’s housing program. Applicants surveyed were currently living in Greater Cairo. A specialized consultant was contracted. The sampled applicants were subject to structured interviews with numerous questions about socio-economic status and desires and preferences for housing. Results were tabulated and analyzed.
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THE CHALLENGE Findings of this Housing Demand Study, while preliminary, point to the huge challenge that GOE will face in attempting to construct 500,000 new units which are at the same time suitable and affordable for a wide range of low-income families. The many facets of that challenge include: • Determining the effective demand for low-income housing: To what extent can the non-government sectors meet this demand, and where best should government intervene? What types of low- income housing are needed? Where should they be built and in what magnitude?
• Identifying the ability to pay among poor Egyptian families: How much can low-income families pay in terms of down payment and monthly payment? Should payment conditions for a specific target group be uniform or be differentiated based on financial ability, household priorities, or location in Egypt?
• Designing an effective government housing subsidy program: Should there be a single program or multiple programs that target specific low-income groups? How much subsidy should the government provide for construction, down payment and monthly payments? How should allocation and screening systems be designed which allow for effective targeting and which minimize abuses? • Designing effective monitoring and feedback mechanisms: How should government programs be monitored and tracked to ensure that subsidies reach the intended beneficiaries? How best can the results of this monitoring be fed back to improve program design in successive stages?
These considerable challenges are accompanied, and made more difficult, by another challenge. This is the non-existence of and, especially, access to primary and secondary data required to adequately analyze and determine: the effective demand for low-income housing; the ability of poor households to pay; and the effectiveness of government subsidy programs. These data are essential should the GOE want to find empirically-tested responses to the above mentioned questions, monitor and track its existing housing programs, and learn from current and past experiences.
Even though this Housing Demand Study encountered serious data problems, it has been possible to extract some findings and conclusions. These are presented in the following paragraphs.
KEY FINDINGS ABOUT THE URBAN HOUSING MARKET, THE URBAN HOUSING STOCK, AND PROJECTED HOUSING NEEDS The housing market in Egypt is in pronounced disequilibrium. There is an excess supply of housing for medium and high-income households at the same time the supply for low-income households is inadequate. It is “supply driven” in that private suppliers and developers tend to promote up-market schemes and build luxury- oriented housing rather than responding to the type of housing actually demanded by consumers.
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The housing market is inefficient and results in a huge unutilized surplus. In all urban market segments and, crucially, in expanding urban areas, there are masses of housing units which are either unoccupied, unsold, or unfinished. Speculative withholding of units from the market is common. The informal housing sector is the largest producer of urban housing in Egypt and constitutes a large portion of the housing stock. Between 1986 and 1996 it is calculated that 45 percent of new urban housing units were built by the informal sector, compared to 28 percent by the government and 27 percent by the formal private sector. Although there are no data for urban Egypt, various studies of Greater Cairo have put the portion of inhabitants living in informal areas at between 45 and 60 percent, depending on the definition used. These facts highlight the tremendous importance of the informal sector in providing housing to low-income families. Since 2000/2001 the official private sector has been the main supplier of new formal housing units, providing an average of 100,000 to 140,000 units per year. However, the large majority of this housing is aimed at the middle and high end of the housing market.
The Government is an important but declining contributor to the supply of low-income housing. Over the past 23 years the Government has directly financed and produced 55,000 units on average each year, practically all of which were “economic” or “low- cost” units. Yet in recent years supply has sharply declined, from 52,211 units in 2001 to 12,328 units in 2004.
Conservatively, it is estimated that 2.1 million units will be needed between now and 2017 to meet the need for new urban households and replacement housing , and of this 1.6 million units will be required to house low-income households. These estimates for urban Egypt express only partial need since they (1) exclude peri-urban and rural areas under urbanization, (2) assume that all currently vacant urban units will eventually be occupied and thus satisfy a portion of the need, and (3) do not include the need for units to meet the current backlog or pent-up demand by families for new housing.
Over two-thirds of the estimated future housing need is for low-income families. Currently government housing only addresses a fraction of this need, leaving a gap of approximately 150,000 units per year. An unquantifiable portion of this gap is being filled by small and cheap units produced by the informal sector, but the larger portion simply becomes additions to the already huge ranks of urban families suffering from a lack of proper housing. The existing urban housing stock suffers from poor maintenance and upkeep, and an increasing portion is deteriorated and in need of replacement. Negligence, the low income of inhabitants, and a lack of clear responsibility for building maintenance have created a situation where the basic quality of a large portion of the housing stock is compromised, especially in units under “old contract” rental tenure. Also 10- 15 percent of the urban housing stock in any city was built before 1950 and can be assumed to be in need of replacement. Re-housing those who must evacuate precarious buildings is a significant and increasing burden on local governments. Ownership of urban housing units (either traditional ownership or “tamlik”) is the main form of tenure, although renting is also very common and in some areas rental tenure
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will be predominant. In the last decade rental housing has become more popular both for formal and informal housing due to the enactment of more liberal rental housing legislation in 1996 which allows fixed-term rentals. Long term leasehold of housing is practically unknown in Egypt. Housing market exchange still depends mainly on traditional methods, and security of tenure relies on “semi-official” mechanisms rather than on official property registration. Word of mouth, informal real estate brokers, and advertisements in newspapers and on signboards are the main mechanisms of market information flows. Practically all purchases of housing units in urban Egypt are simple ourfi contracts, some of which formalized by court sanction (endorsing sales contracts or power of attorney). Only in extremely rare cases is it possible to register property with offices of the Ministry of Justice, even should a purchaser desire to effect such registration.
KEY FINDINGS ON HOUSING DEMAND AND HOUSING AFFORDABILITY, ESPECIALLY FOR LOWER INCOME SEGMENTS Affordability of housing for large numbers of urban households in Egypt will continue to be problematic for the foreseeable future. Incomes of a wide range of urban households are just not sufficient to either rent or purchase acceptable standard housing units. For example, the 30 th percentile urban household (with a monthly income of LE 610 in 2005) can afford at best to devote LE 150 per month on housing; the median income urban family can afford at best LE 230 per month. In addition, savings rates of these families are very low, thus it cannot be assumed that they are able to mobilize significant funds to make large down payments on housing units. Housing demand is segmented by the motivations for new housing. The limited TAPR II survey analysis gives an indication of the segmentation of household expression of demand for low-cost housing. Thirty percent are newly established or establishing households, and 10 percent need to replace living quarters in an advanced state of disrepair. The remaining sixty percent of the demand comes from those who wish to upgrade their living conditions, citing a desire for more independence, reduced overcrowding, or better housing quality. This would seem to indicate that priority should be given to those in the first forty percent who are either new households or households in dilapidated housing. True housing affordability must take into consideration educational and occupational characteristics of the targeted beneficiaries as well as family incomes. The limited TAPR II survey appears to indicate that respondents who are not permanently employed, whose education is limited, and who have household incomes less than LE 9,000 annually have chosen less than LE 5,000 as a housing down payment and preferred a monthly installment/rent less than LE 160, which suggests a relationship between the category’s weak income, unstable employment and limited education and their ability to pay. On the other hand, respondents who have permanent employment (commonly as junior administrative employees), are university graduates and have household income less than LE 9,000 per year much preferred a down payment in the range of LE 5,000 to under LE 15,000. Just over a majority of the same category chose a monthly installment/rent less than LE 160. This reaffirms
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the proposition that affordability can be expressed as a function of target group characteristics.
KEY FINDINGS CONCERNING HOUSING SUBSIDIES Government-financed and produced housing represents by far the main form of subsidy in the housing sector in Egypt. This subsidy is both direct, in terms of the cost of housing construction and preparing and servicing land for it, and indirect, in terms of the opportunity cost of the land so utilized. There are also a few cases of a subsidy element in some private developer and armed forces housing where land has been acquired at below the cost of servicing it. Subsidized government housing volumes have averaged more than 50,000 units per year over the last 23 years , with the greatest share (44 percent) of units produced and distributed by local governments, 22 percent through the cooperative housing system, and 20 percent by the new city agencies. Recently the cooperative housing share of production has declined markedly. The subsidy element in government housing is very large. In all cases the direct subsidy element is over 50 percent of the total cost of the typical housing unit, with most former government housing schemes concentrating in the 60 – 70 percent range. Indirect subsidies (mainly the opportunity cost of the land) raise the total subsidy by 5 to 10 percentage points. Government housing programs are frequently badly located. Housing schemes are frequently poorly located, and in particular in remote desert locations where poor families, especially those without steady jobs, cannot survive.
Government housing programs are, in general, poorly managed and monitored. For example, the actual subsidy element in a particular program is rarely calculated. Targeting of beneficiaries and assignment of units is frequently arbitrary. Although it is illegal to do so, beneficiary households often sell their new units to third parties for windfall profits. There is very weak monitoring and tracking of individual government housing projects and very poor aggregation of public housing statistics.
GENERAL RECOMMENDATIONS DERIVED FROM THE HOUSING DEMAND STUDY Although not required by the Study’s Terms of Reference, and even though the Study has encountered considerable data problems, it is possible to set down some preliminary recommendations of ways to improve housing approaches and policies, especially as concerns future government housing programs which target low-income families:
CONCERNING SUBSIDIZED HOUSING SYSTEMS IN GENERAL There is still a role for subsidized housing production in Egypt. In particular, there is continuing and even increasing need for resettlement of urban families and housing welfare cases. Innovations are needed as to design of this housing (infill, mixed use, core, etc.). Also, key weaknesses in the present housing subsidy system should be addressed:
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• The total subsidy element in a housing scheme should be clearly calculated and its financing clarified. • The confusion and inconsistencies in the targeting and selection of beneficiaries should be corrected. • Housing projects should be better monitored and post-project accountability should be strengthened. • More appropriate locations for government housing projects should be identified; locations of public housing projects are frequently inappropriate because they must be situated on no-cost available State land.
• Legal and tenure status of government housing units should be clarified. As a result of current practices, government housing units have confusing legal and tenure status, which makes subsequent transfer sub-optimal.
CONCERNING TARGETING SEGMENTS OF DEMAND AND UNDERLYING AFFORDABILITY The government should focus its limited resources where they are needed most, i.e. on the 40 percent of demand based on new household formation and replacement of housing that has become uninhabitable. The remaining 60 percent (needed to reduce family crowding and upgrade living conditions) can be left largely to the private sector and to market forces.
Designing new housing programs should take into account not only income levels of beneficiaries but social attributes as well. This implies that housing programs should be split into several distinct components. Each component can address a distinct category of beneficiaries, with differences in the housing provided, tenure types and financing options. For instance, one component may address home ownership for young university graduates. Another component may be concerned with rental housing for young laborers and the self-employed. A third one may be oriented toward "financing leases" for factory workers, with ownership transferring to the "lessee" at the conclusion of the lease for a nominal or minimal payment, if the worker continues working for the same employer for a certain number of years. The geographic dimension is crucial in targeting demand. This geographical dimension expresses itself at the governorate but also the sub-regional, city and sub- city level, and also in terms of locations which generate or will generate considerable employment opportunities. Thus it is not enough to “balance” supply and demand at the governorate level. On the sub-city level, relying on State land for housing project locations means that these locations are almost bound to be inappropriate.
LOOKING TO A FUTURE WITH A RATIONAL HOUSING POLICY The Government must conduct an exhaustive review of the housing sector and begin to realign itself towards a more “enabling” housing strategy for families of limited income. This implies recognizing that housing is a market good and that policies which influence the market are more effective than those which attempt direct intervention. It is more an issue of getting it right in terms of provision of suitable land,
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technology, and finance for housing, allowing the dynamic of the informal 2 and private sectors to build and maintain the housing itself. Public house agencies should progressively refocus on policy analysis and strategic planning, based on solid and empirical information. The Government should examine and learn lessons from various past experiments and pilots in affordable housing provision which rely on the informality or “self-help” dynamic and are grounded in local reality. Although the GOE is supposedly promoting decentralization, the current public housing programs are extremely centralized. New thinking is required to draw in the private sector in land and housing provision. Reliance on public housing agencies to develop land and housing for lower income groups exposes governments to significant financial risks, allows inefficiencies to drain resources from the governments’ overall development efforts, and is a fertile ground for abuses and favoritism.
RECOMMENDATIONS CONCERNING THE KNOWLEDGE BASE FOR HOUSING Many of the recommendations above will have little or no value in the present weak state of knowledge as concerns Egypt’s housing sector. As a first priority the nature and dynamics of the housing sector needs to be much better understood. First of all, there needs to be a critical assessment of the different data and information sources about housing activities that are currently used. Contradictory, questionable, unreferenced and undated data and information are commonly relied upon when documenting achievements or preparing research reports. An unbiased overview of the quality and substance of data now in use may provide a springboard for the next generation of government housing programs. Using the limited TAPR II survey already conducted as a starting point, it is important to design and conduct a much larger and comprehensive representative household sample survey of housing conditions, housing demand, and housing finance. It must be extensive enough to generate unbiased results from specific geographic areas and typical urban settlement patterns (e.g. inner metropolitan areas, suburban fringes, peri-urban zones under pressure, secondary cities, small towns, and even large villages). Because the housing market is essentially local and the characteristics of supply and demand can differ greatly from one area to the other, further surveys should study market forces and equilibrium for individual geographical locations. In parallel to more comprehensive sample surveys, smaller “thematic” surveys need to be undertaken to answer a host of questions. In particular, these are needed to better understand how the massive informal sector acquires land, finances construction, and markets a product, part of which is affordable to all but the desperately poor. This may lead to policies which will be effective in harnessing the dynamic of the informal sector in new “formal” urban areas. Another thematic survey
2 Perhaps the “owner-builder” sector is a better phrase.
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would look in detail at the reasons behind the massive amount of unutilized, unfinished, and vacant housing found in urban Egypt. Better information can be gained from the processes of application for subsidized housing itself. Detailed questionnaires can be included with applications which will generate rich data sets which can, after feedback and analysis, allow much better matching of preferences with housing products and the construction of homogeneous groups of demand which are targeted with specific housing schemes. In addition, a much better system of integrated housing indicators needs to be generated on an annual basis. This will allow longitudinal studies of housing affordability. In the same vein, maximum use needs to be made of the household income and expenditure surveys that are regularly conducted by CAPMAS. Generating data sets on the micro level (without compromising privacy) to conduct deep analyses will put the researchers and housing policy makers in a better position.
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INTRODUCTION This report is the product of a three-month period of intensive efforts carried out by a team of experts assembled by Bearing Point Inc. under the USAID Technical Assistance for Policy Reform Project II (TAPRII). The effort responds to requests from the Egyptian Ministry of Investment, and in particular to a Terms of Reference (TOR) issued by the Ministry in late January 2006. This TOR called for a national housing demand study to aid in the GOE’s preparations for reform in the sector. The objective of the study is stated as follows: “to examine the key issues and challenges facing the housing sector from the demand point of view, with a special focus on housing demand from the poor and middle income strata.” 3 There is now a generally recognized need for a much improved knowledge base of housing and its dynamics in Egypt, and a comprehensive study of housing demand and housing markets has been long anticipated. Not only is housing an important economic sector in and of itself, housing is a crucial element of the population’s well being, as housing cost claims a significant portion of households’ budgets. Housing is one of the most serious problems facing the Egyptian household, especially for those who wish to start or expand a family, and it is a source of frustration and social tensions for all but the well-off. Much of private housing on the market is simply not affordable, and couples commonly postpone marriage for years in attempts to save enough to enter the market. Housing is a particularly important problem for the growing ranks of the urban poor, many of whom live in substandard and very crowded circumstances. Better knowledge of housing markets is an important first step in improving the functioning of the delivery of housing as a social good and in satisfying an extremely important basic need. The Egyptian government has maintained for decades a policy of directly supplying housing for those who cannot afford to find solutions in the private sector. This policy has resulted in the building of subsidized housing units in various locations in governorates as well as in the new cities, which have been allocated to beneficiary families under a number of housing programs. Over the last 25 years such a program has averaged a production of over 40,000 units per year in urban areas, which because of the considerable direct and indirect subsidy element (reaching 75 percent of all costs in some programs), has meant a considerable and continuous drain on the State investment budget.
The government recognizes that existing housing approaches need to be reformed. It has pledged, over a six year period, to create an affordable home production program aimed at constructing 500,000 new units for low-income families. Such a program is to be financed by a mix of beneficiary payments, mortgage finance loans, and up-front State subsidies, and private developers are to have a key role.
As stated in the TOR, the original intention was to develop an in-depth, nationwide study of housing demand which would provide comprehensive answers to crucial policy questions. However, the government is under tight time pressure to launch its new housing approaches and needs quick results by the end of May 2006. During early discussions with the Ministry of Investment, and in particular during a meeting on February 6, 2006, it was agreed that the requirements of the original TOR were
3 TOR p. 1. This TOR is included as Appendix A.
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too ambitious to be fully implemented and completed by this deadline. This was because crucial parameters simply could not be fully achieved during the short timeframe, specifically:
• primary quality data of housing markets and housing demand, to be obtained through representative surveys;
• relevant and detailed secondary data, to be obtained principally from ministries and other government agencies; and
• a geographic scope which is nationwide. During the meeting on February 6 at the Ministry of Investment, the TAPR II Project proposed that, in order to fully meet the scope of the TOR, a phased, multi-track approach should be adopted. This was agreed to by the Minister of Investment. Under this approach, Track One would run through to the end of May 2006 and would undertake what could be realistically achieved in this short timeframe. This Track would focus primarily on a review of existing and available secondary data and also selected primary data generated by a small, in-depth and time-sensitive survey of a sub-set of housing demand. This would allow preliminary conclusions of value to the Ministry of Investment which would serve as inputs into the design of the national housing program. It would also allow more precise identification of what are remaining and outstanding knowledge gaps required to fulfill the original TOR. This report represents the completion of Track One. The proposed approach calls for more intensive efforts during Track Two, which would run until the end of 2006. The underpinning for Track Two would be to undertake a definitive and in-depth representative sample survey which would allow an empirical analysis of current and expected housing demand at the national level, including geographical disaggregation. In parallel with this primary data survey, gaps in secondary information would be pursued, and based on the results a revised housing demand report would be produced.
THE HOUSING DEMAND STUDY TEAM This report is the result of a combined team effort over the period March 1 through May 23, 2006. The overall effort was directed by Tham V. Truong, Task Manager, Reviewer and Technical Editor. Drafting responsibilities were divided by report chapter, and the following were the lead drafters: Chapter One: Macro Linkages of the Housing Sector KAMAL SELIM Chapter Two: Overview of Housing Supply and Housing Markets MAHA SAMY KAMEL Chapter Three: Housing Demand by Income Segment SUZETTE AZIZ Chapter Four: Affordability Analysis HANY SERAGELDIN and HAZEM KAMAL
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Chapter Five: Current Housing Subsidies by Market Segment DAVID SIMS Appendix B, Informal Housing in Egypt DAVID SIMS Outlines and early drafts of each chapter were reviewed and discussed by the whole drafting team. In addition to the chapter drafters, other important contributions were made as follows: Carol Walker Stylistic Editor Ghada Mahmoud Translator
Kamal Selim Statistician and Survey Advisor It should be mentioned that the Housing Demand Study Team received useful and continuous support from Sherif Arafat and Nesma Mostafa Abas at the Ministry of Investment, and their contributions are very much appreciated. SPAAC carried out the small in-depth survey under very tight deadlines. THE REVIEW PROCESS TAPR II submitted on May 23, as planned, a draft housing demand study to the Ministry of Investment, USAID and the World Bank. TAPR II received comments from all three institutions by June 15. Among the more important comments made are the need for the study to: have an overall conclusion; present technical/policy recommendations; integrate the findings of Chapters 6 and 7 in previous chapters, especially Chapters 3 and 4; and, eliminate Chapters 6 and 7 to avoid repetition. The TAPR II Housing Team took into consideration these comments in revising and finalizing the housing demand study in June. The final version of the study contains an overall conclusion, specific technical/policy recommendations and other format changes. The TAPR II Housing Team would like to thank the Ministries of Investment and Housing, other public institutions, USAID and the World Bank for their comments.
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CHAPTER 1: MACROECONOMIC LINKAGES OF THE HOUSING SECTOR
1.1 INTRODUCTION Urbanization, economic growth, and capital formation — notably real estate — are entwined processes. Every modern economy has real assets which comprise human capital and tangible capital (equipment and machinery, infrastructure, and real estate), and financial assets (or capital) which assign claims on the output of the tangible and human capital. Housing is important to development in both economic and welfare terms. It typically constitutes 15 percent to 20 percent of household expenditures. For all but the wealthy, it is usually the major goal of family saving efforts. It is increasingly recognized as a profitable investment item that yields a flow of income. The import content of housing construction is usually relatively low, so that multiplier linkages tend to be substantial. 4 Housing as a significant part of tangible capital is a durable good, unlike most consumer goods in several important respects. First, it is a fixed-location asset. In this respect it forms a significant portion of privately held wealth in most developing countries. Its production requires close coordination with transport networks and water supply, sewerage, and community services. It may yield a source of income in rental payments or as a place of business and so can be directly productive to families. And the benefits to society as a whole — the social returns — are often higher than the returns to private investors. 5 As it is set in the National Housing Strategy 6 and based on the directions of the election program of President Hosni Mubarak, there are three main priorities of the new housing policy, which aim to address the housing problems in a holistic manner. These priorities tend to address the housing need/demand of different income and social groups, based on their ability to afford shelter. The three main directions are: • Development of certain uninhabited desert areas, and creating new cities and communities. Besides continuing to develop the 22 new cities that have been developed over the last 25 years, the strategy aims at creating 44 additional inhabited communities by the year 2017. Some desert areas in Sinai, the North Coast, Red Sea, and New Valley are targets of development to attract business and habitation.
• Upgrading the current housing structures and conditions, especially in urban metropolitan centers. Improving the housing environment, decreasing the population density, improving infrastructure and utilities, and limiting the expansion of informal areas are the main objectives to be achieved over the coming 12 years (2005-2017).
4 World Bank, 1975. Housing , Sector Policy Paper. 5 Crimes, Orville F., Jr. 1976. Housing for Low-Income Urban Families, World Bank. 6 Ministry of Housing, Utilities, and Urban Development (MHUUD), 2004. Mubarak and Inhabitation: Current Accomplishments for Building the Future, Cairo, Egypt, in Arabic.
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• Developing the financial sector for housing and public-private partnerships for the provision of more affordable houses. The aim of this collaboration is to develop more affordable products both in housing loans and in the construction sector, which will have a great impact on increasing the access to housing. Financing and building 500,000 housing units over the coming six years has been stated as a commitment of the President’s current housing program. The above strategy and directions have been implemented through various policies and programs over the last 25 years. Broadly speaking, the main objectives of these policies could be summarized as follows: • To address the housing needs of low and low-middle income families, historically through government intervention, and recently, through attracting investors, private banks and other financial institutions to make use of funds for investing in housing, thus alleviating pressure on the state budget. • To increase access to housing loans for different income groups, and to make these loans more affordable for lower income families, and hence, to rationalize the use of public money for housing by allocating it to those most in need of assistance.
• To develop a sustainable housing market by strengthening the legal and institutional framework, and increasing and diversifying supply so as to increase competition in the housing market. The current study, from the methodological point of view, has a clear objective of assessing the current status of the demand side of housing. Emphases of the study are on the dimensions of housing affordability, subsidies, current demand and its future forecasts, and the macro linkages of the housing sector with the national economy. It is the purpose of this chapter to highlight some of the salient features of the housing sector and to speak about some of its linkages on the national level. It should be kept in mind that a huge and active body of research and literature does exist about housing problems in Egypt. Despite this fact, very little of this wealth of research considers the linkages of this sector within the context of the national economy, which is the subject of this section.
1.2 IMPORTANCE OF HOUSING SECTOR PRODUCTION IN GDP From the macroeconomic standpoint the housing construction industry contributes to the national economy in many ways; most of all it helps absorb the urban workforce, as it generates a fairly large number of jobs. This is partly due to the backward linkage, which produces jobs in building materials and related trades, and the forward linkage such as housing-induced consumer purchases of furniture and other home appliances. Besides, the bulk of construction materials are domestically produced in Egypt, thus having positive effects on the balance of payment. In fact this is one effective way to alleviate the capital shortage problem in less developed economies. 7
7MHUUD, General Organization for Physical Planning (GOPP), National Urban Observatory and Korea International Cooperation Agency (KOICA). (December 2001). Housing in Egypt: Problems, Issues and Suggestion for Solution.
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Residential construction makes up as much as 20 to 30 percent of gross fixed domestic capital formation in countries in which emphasis is given to housing, and about 2 to 5 percent of gross domestic product (GDP) in most developing countries. The true importance of housing is even greater, especially in developing countries, since self-help construction and commercial activity by independent contractors is not reported at all or is greatly undervalued. Implicit rents of owner-occupiers tend to be ignored or underestimated, and rents paid to private property owners often go unreported. The value of subsidized housing may be recorded at less than its cost of production. 8
1.3 CONSTRUCTION & BUILDING AND REAL ESTATE ACTIVITIES IN GDP Table 1.1 shows a profile of the construction sector and the contributions of real estate activities to GDP over the last 14 years. The first observation which can be made based on this table is the speed by which the real estate GDP is increasing as compared with the progress of the GDP in nominal terms. While GDP on the national level has quadrupled over the 14 year period, real estate activities’ share in GDP has multiplied more than 7 times. The construction and building sector did not grow as fast as the total economy, since the GDP it has generated has doubled just three times over the period in question. Starting from the year 2001/2002, the Ministry of Planning started to factor out real estate leases from the rest of real estate activities and businesses. The contribution of leases to GDP represents more or less half of the real estate contribution in GDP, with a magnitude ranging between LE 6.3 billion and 8.2 billion in the last four years. GDP in constant prices as published by the Central Bank of Egypt and presented in Table 1.1 should be interpreted with caution, as three different sets of price deflators are used to generate this series. Regardless of this inconsistency, the above mentioned comments are still valid.
The structure of GDP between public and private sectors reveals that the share of the private sector out of the total level stays slightly above the level of two thirds of total GDP. The construction and building sector has a slightly different structure. The big private construction companies generate about 60 to 70 percent of the total GDP of this sector. The performance of these companies was better in the first half of the last decade, with an average of 71 percent. It then decreased to a percentage that fluctuates around 59 percent. Almost all activities of the real estate sector are conducted by the private sector. The exact structure of GDP in this sector is 96 percent private and 4 percent public.
8 Crimes, Orville F., Jr. 1976. op. cit.
TECHNICAL ASSISTANCE FOR POLICY REFORM II 15 Table 1.1 Profile of the Construction and the Real Estate Sectors' Contributions in Gross Domestic Product 9 2004/05 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 Expected GDP at factor cost - current prices (LE mil) Total GDP 131057 146160 162967 191010 214185 247028 266758 282578 315667 332544 354564 390623 455881 526057 Construction and Building 6735 7100 8500 9500 11040 12094 13730 14555 15140 15760 16560 16710 18503 20233 Real Estate Activities 2350 2585 2850 3450 3816 4375 4860 5412 6003 6879 13923 14651 16036 17464 Leases 7575 7966 8594 9267 Other RE Activities & Business Services 6348 6685 7442 8197 GDP at factor cost - constant prices* (LE mil) Total GDP 131057 134335 139622 146131 153369 247028 257033 271022 286979 296812 354564 365177 381001 400110 Construction and Building 6735 6800 7079 7485 7898 12094 13450 13988 14268 14567 16560 15704 16439 16770 Real Estate Activities 2350 2452 2568 2712 2819 4375 4645 4965 5313 5690 13923 14208 14574 14871 Leases 7575 7585 7714 7829 Other RE Activities & Business Services 6348 6624 6860 7042 Share of private sector in GDP at factor cost (%) Total GDP 61.2 61.8 61.8 62.7 63.4 66.0 67.9 70.2 71.8 72.1 72.1 65.4 65.9 65.7 Construction and Building 70.8 70.9 70.9 71.3 72.1 57.8 58.8 59.1 59.1 59.1 58.5 58.4 60.0 60.1 Real Estate Activities 94.6 94.6 94.6 94.5 94.4 95.7 95.9 96.1 96.3 96.5 95.9 95.9 95.9 95.9 Leases 96.7 96.7 96.8 96.8 Other RE Activities & Business Services 94.9 94.9 95.0 95.0 Real GDP at factor cost - structure (%) Total GDP 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Construction and Building 5.1 5.1 5.1 5.1 5.1 4.9 5.2 5.2 5.0 4.9 4.7 4.3 4.3 4.2 Real Estate Activities 1.8 1.8 1.8 1.9 1.8 1.8 1.8 1.8 1.9 1.9 3.9 3.9 3.8 3.7 Leases 2.1 2.1 2.0 2.0 Other RE Activities & Business Services 1.8 1.8 1.8 1.8 Growth rate of real GDP at factor cost (%) Total GDP 1.9 2.5 3.9 4.7 5.0 5.3 4.1 5.4 5.9 3.4 3.2 3.0 4.3 5.0 Construction and Building 0.7 1.0 4.1 5.7 5.5 8.5 11.2 4.0 2.0 2.1 2.1 -5.2 4.7 2.0 Real Estate Activities 1.1 4.3 4.7 5.6 3.9 6.7 6.2 6.9 7.0 7.1 6.6 2.0 2.6 2.0 *The period 1991/92-1995/96 at 1991/92 prices, the period 1996/97-2000/2001 at 1996/97prices, and the period 2001/2002 - 2004/2005 at 2001/2002 prices.
9 Sources : The Central Bank of Egypt, Monthly Statistical Bulletin, Various Issues. The Ministry of Planning.
TECHNICAL ASSISTANCE FOR POLICY REFORM II 16 It is important to know the relative contributions of the construction and real estate activities in the total GDP. Table 1.1 reveals that the construction and building sector performed as expected in a developing country. The sector’s relative contribution reached levels close to the limit of 5 percent common in developing countries. Real estate activities are in a better situation during the last four years. The contributions achieved by this sector averaged around 1.8 percent of total GDP during the nineties and then doubled on average afterwards. As a final remark from Table 1.1, the growth rate of real GDP on the overall level has no stable pattern other than fluctuating around the level of 4 percent during the period in question. The construction sector was growing unsteadily, with rates that reached 11.2 percent in 1997/98, dropped to -5.2 percent in 2002/03, and recovered to 4.7 percent and 2 percent in the following two years respectively. The real estate ownership sector reflected greater stability, as it grew by 4.3 percent annually on average with a peak of more than 7 percent in 2000/01 and a trough of 1.1 percent in the early beginning of the economic reform and structural adjustment program of 1991/92.
1.4 INVESTING IN CONSTRUCTION AND REAL ESTATE ACTIVITIES ON THE NATIONAL LEVEL Housing investment is a key component of economic development, both because housing is a basic social need and because private home ownership is often an important source of capital at the grass roots level. A fully functioning housing market, including clearly defined titles to privately owned property, is an important element in the construction of a dynamic market economy. Developing mortgage finance helps low- and middle-income citizens to acquire ownership of housing and enables these citizens to turn housing assets into a source for financing small business activities. 10 The weaknesses of the public sector and its inability to mobilize substantial financial resources for housing point to the need to give greater attention to private sources of finance. Here, there is a major policy paradox: on the one hand, it is possible to readily identify the constraints facing private financiers — for example, why should they provide scarce capital to investments with medium- to long- term pay-offs, and why should they orient capital to the urban poor or even to municipalities, who for different reasons are equally risky even if they are deserving beneficiaries? Yet, while these questions are posed it is true that private finance is the foundation for most investment in cities (the private sector finances precisely those infrastructure services and types of shelter for which there is such a large demand). 11
Table 1.2 investigates the status of investment in the housing sector in Egypt on the national level. Since the early beginning of the economic reform in the early nineties, the private sector’s role in investment has been steadily increasing. This came as a result of the ongoing process of revising both legal and institutional frameworks to attract local as well as foreign private investment.
10 De Soto, H., 1997. Dead Capital and the Poor in Egypt. The Egyptian Center for Economic Studies. 11 UN-HABITAT, 2005. Financing Urban Shelter – Global Report on Human Settlements 2005.
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Table 1.2 Implemented Investment in Construction & Building and Real Estate Activities 12
2004/05 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 Expected
Gross implemented investment -
Current prices (LE mil) Total 25107 31644 33452 39412 42106 50176 62010 76974 81611 83021 67511.5 68103.1 79556.0 92500.0 Public 13441 21103 22235 23277 21406 24347 23019 33529 33470 27459 35665.1 35315.1 42456.0 45500.0 Private 11666 10541 11217 16135 20700 25829 38991 43445 48141 55562 31846.4 32788.0 37100.0 47000.0 Implemented investment in construction & bldg - current prices (LE mil) Total 446 414 542 628 767 897 1350 1442 1891 2814 1909.7 1876.6 1089.2 1694.8 Public 196 310 312 336 246 163 230 242 191 964 374.7 456.6 289.2 844.8 Private 250 104 230 292 521 734 1120 1200 1700 1850 1535.0 1420.0 800.0 850.0 Implemented investment in RE
Activities - current prices (LE mil) Total 3041 3265 3688 3774 3647 5523 8019 8628 9784 10448 7921.6 6123.6 7358.4 11207.5 Public 91 282 215 249 147 363 259 128 132 108 161.6 116.6 138.4 207.5 Private 2950 2983 3473 3525 3500 5160 7760 8500 9652 10340 7760.0 6007.0 7220.0 11000.0 Investment as % of total GDP at factor
cost - current prices Total Implemented Investment 19.2 21.7 20.5 20.6 19.7 20.3 23.2 27.2 25.9 25.0 19.0 17.4 17.5 17.6 Investment in Construction and Building 0.3 0.3 0.3 0.3 0.4 0.4 0.5 0.5 0.6 0.8 0.5 0.5 0.2 0.3 Investment in Real Estate Activities 2.3 2.2 2.3 2.0 1.7 2.2 3.0 3.1 3.1 3.1 2.2 1.6 1.6 2.1 Sector's investment as % of total
investment Investment in Construction and Building 1.8 1.3 1.6 1.6 1.8 1.8 2.2 1.9 2.3 3.4 2.8 2.8 1.4 1.8 Investment in Real Estate Activities 12.1 10.3 11.0 9.6 8.7 11.0 12.9 11.2 12.0 12.6 11.7 9.0 9.2 12.1 Investment as % of sector's GDP Investment in Construction and Building 6.6 5.8 6.4 6.6 6.9 7.4 9.8 9.9 12.5 17.9 11.5 11.2 5.9 8.4 Investment in RE Activities 129.4 126.3 129.4 109.4 95.6 126.2 165.0 159.4 163.0 151.9 56.9 41.8 45.9 64.2
12 The Central Bank of Egypt, Monthly Statistical Bulletin, Various Issues - for absolute figures. All Indicators are calculated.
TECHNICAL ASSISTANCE FOR POLICY REFORM II 18 As shown in Table 1.2, the annual implemented investment ranges between 17.5 to 27.2 percent of the total GDP at factor cost on current terms, with an average equaling 21.1 percent over the last 15 years. However, there is a steady decrease of the rate of investment since the fiscal year 1998/1999, during which it was 27.2 percent; it went down to about 17.5 percent in the last three fiscal years. The implemented investment share of the construction and building sector gradually increased from 1.3 percent in 1992/93 to 3.4 percent in 2000/01, then went downwards after that to reach 1.4 percent in the year 2003/04. Investing in real estate activities is seen to be profitable, especially from the perspective of private sector investors. Investment in real estate activities represents 2.3 percent of total GDP on average. This means that an average of 11 percent of the total investment is implemented in this sector annually. Private sector investments are expected to reach LE 47 billion, i.e. 51 percent of the total investment of 2004/05. About LE 11 billion of private sector money invested is expected to go to real estate activities (23.4 percent). It is worth mentioning that the average annual investment in the real estate sector equals 111.7 percent of the sector’s GDP contribution to factor costs. This rate peaked at 165 percent in the fiscal year 1997/98. This result indicates how this sector is sufficiently attractive to investors that they are willing to inject fresh money to expand their investments.
1.5 CONTRIBUTIONS OF INVESTMENTS TO THE HOUSING STOCK The latest census of population and housing in Egypt was conducted 10 years ago, in 1996. According to this census, 13 housing stock in urban areas reached 8,357,103 housing units. Out of this total, use figures are reported as follows: 6,083,222 dwellings, 199,959 work places, 36,054 dual use as dwellings and work places, and 11,307 public housing institutions. A huge number of units (2,026,561) is reported under the category “other,” which mainly consists of vacant or closed units. These units are vacant for several reasons: parents may be keeping them for their children’s future use; owners may not want to rent them because the low rents they can receive due to rent controls do not make it worthwhile; or owners may not be able to find buyers who can afford to buy the unit due to the lack of available financing options. 14 Excluding units of work and public housing institutions, the Ministry of Housing, Utilities, and Urban Development considers the rest (8,145,837 units) as the urban housing stock at mid-1996. According to Ministry statistics, 15 1,335,468 units have been added during the period July 1996 to June 2005. Accordingly, the Ministry updated its estimate of stock to 9,481,305 as of mid-2005. Table 1.3 and Figure 1.1 report the housing sector’s achievements since mid 1982.
13 CAPMAS, 1998. Population, Housing and Establishment Census, 1996. 14 World Bank, 2005. The Macroeconomic and Sectoral Performance of Housing Supply Policies in Selected MENA Countries: A Comparative Analysis. April 2005. 15 MHUUD, 2005. Summary Report of Housing Data, 2005, Unpublished.
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Table 1.3 Implemented Housing Units and Investments Over the Period 1982/83 to 30/6/2001 16 First Second Third Forth Fifth Plan Plan Plan Plan Plan*
1982/83- 87/88- 92/93- 97/98- 02/03- 82/83-
86/87 91/92 96/97 01/02 04/05 04/05
Housing Sector Investments (Millions LE) 9701.8 15213.4 16072.5 23085.3 20927.0 85000.0
Average Annual Implemented Investment in Housing (Millions LE) 1940.4 3042.7 3214.5 4617.1 4185.4 3695.7
Total Implemented Housing Units
Total 845679 903986 520857 662607 585969 3519098
Public 197647 386879 331417 287957 53392 1257292
Private 648032 517107 189440 374650 532577 2261806
Average Annual Implemented Housing Units
Total 169136 180797 104171 132521 195323 153004
Public 39529 77376 66283 57591 17797 54665
Private 129606 103421 37888 74930 177526 98339
Average Investment per Unit (Thousands LE) 11.5 16.8 30.9 34.8 35.7 24.2
Percentage of Units Built by the Private Sector 76.6 57.2 36.4 56.5 90.9 64.3 * Absolute figures for this three year period are calculated by subtraction.
16 Aggregated and computed from: MHUUD, 2004. Mubarak and Inhabitation: Current Accomplishments for Building the Future, Egypt, and Summary Report of Housing Data, 2005, Unpublished; MHUUD, 2003, as cited in: El-Batran, M. 2004, Profitability Versus Responsibility: Sustainable Housing in Focus, The 48th IFHP World Congress: Governance for Urban Change, Oslo, Norway; CAPMAS, 2005. The Statistical Year Book – 2004.
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Figure 1.1: Number of Units Built and Average Investment per Unit 700000 40.0 648032 35.7 34.8 35.0 600000 30.9 532577 517107 30.0 500000
25.0 Thousands LE Thousands 386879 400000 374650
331417 20.0 16.8 287957
Housingunits 300000
15.0 11.5 197647 189440 200000 10.0
100000 53392 5.0
0 0.0 1982/83-86/87 87/88-91/92 92/93-96/97 97/98-01/02 02/03-04/05
Public Private Average Investment per Unit (Thousands LE)
Total additions to the housing stock since mid-1982, a 23-year period, reached 3.52 million units with an average of 153,000 per year. Two thirds of these additions were built by the private sector. The private sector’s share dropped to its lowest point of 36.4 percent during the period of 1992-93 to 1996-97 and reached its maximum of 90.9 percent during the last years. From Table 1.3 figures, it can be observed that the difficult period of the Economic Reform and Structural Adjustment Program (ERSAP) in the mid-1990s had a significant effect on the housing sector. The private sector built an average of 37,800 housing units during this period as compared with an average of 129,600 in the mid-eighties and 177,500 during the early years of the current decade. The average investment per housing unit is an important indicator of building costs and, hence, affordability for certain levels of income segments. According to the calculations reported in Table 1.3, this average is ever increasing, as expected (see Figure 2.1). In current terms, it has tripled in 23 years. The average investment per housing unit was LE 11,500 during eighties and reached LE 35,700 during the last few years.
1.6 THE ROLE OF THE INFORMAL SECTOR Generally speaking, the nation’s housing stock is accurately known only in census years. Many reasons are behind this fact; among them are: the significant contributions in the informal housing sector which, in most cases, are not registered; the lack of clear and timely mechanisms for continuously updating the stock status by
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statistical agencies; and the contradictory figures of many authorities that publish their accomplishments, occasionally without accurate definitions or even dates. As a matter of fact, little is known about the actual volume of the informal housing sector (see Appendix B of this study for a discussion of informal housing). Studies and surveys to measure this volume and its dynamics country-wide are almost nonexistent. Unclear definitions, illegal practices, provision of misleading or wrong information, difficulties of registration, and absence of organizational responsibilities are at the top of the list of reasons that the picture is vague. Adding to this is the fuzziness of the classifications used, specifically the urban/rural dichotomy, with respect to definitions and measurements of its dynamic change. Consequently, it is important to bear in mind that published statistics that report quantitative variables such as housing units built, money invested, or shares contributed to GDP all suffer from lack of coverage of the informal sector’s role. Estimates of the current stock of informal housing units based on concrete methodology do not exist. The latest Human Development Report speaks of about 3 million units, 17 i.e. 32 percent of the total housing stock in urban areas. Somewhat older studies on informal housing in the early eighties 18 estimated that during the period 1966-1976 approximately 77 per cent of all housing units built in Egypt were informal, and another study estimated that informal units represented 84 percent of all units built in Cairo during the period 1970-1981. De Soto 19 estimated that 92 percent of dwellings in the urban sector in Egypt are informal as defined by the absence of legalization and registration.
1.7 SYSTEM OF CREDIT ALLOCATION TO THE HOUSING SECTOR Finance for housing sector activities and enhancing the systems that manage it are essential elements of economic development. Financial systems comprise banks, bond and other capital markets, markets for trading equity, and so on. In addition to these public markets, there is a wide range of important private markets, from the individual moneylender to venture capitalists and large institutional investors. 20 In- house financing through relatives, friends, and local communities represent other means of finance, especially in the informal housing sector.
It is worthwhile for researchers and policy makers to focus on the relationships between the financial side of the economy and the real estate side of housing markets. Among the many reasons for such a focus are the following: • Housing comprises a significant part of the tangible capital stock. Efficient and equitable deployment of this part of stock is an essential precondition of development.
17 United Nations Development Program, and the Institute of National Planning, 2005. Egypt Human Development Report – 2005, Cairo, Egypt. 18 See El-Batran, M. and Arandel, C., 1998. A Shelter of Their Own: Informal Settlement Expansion in Greater Cairo and Government Responses, Environment and Urbanization, Vol. 10, No. 1. 19 De Soto, 1997. Op. Cit. 20 Malpezzi, S. 2001. “Tales From the Real Side: The Implications of Urban Research for Real Estate Finance,” in: Wachter, S. and Leo Penne, R., Housing Policy in the New Millennium, Conference Proceedings, U.S. Department of Housing and Urban Development, Washington, D.C.
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• Because the cost and value of housing are large relative to any period’s income or production, without a well functioning financial system, most households’ housing consumption would be adversely affected. Housing in particular is a larger share for lower- and even most middle-income households’ consumption. The main challenge facing the housing sector in Egypt is the lack of affordable housing, not a lack of available housing stock. The lack of efficient financing options is a large component, and the single most correctable component, of these high housing costs. Since housing policies affect the entire economy — influencing saving, consumption, financial depth, employment, and government budgets — improving the availability of housing finance would go a long way towards furthering overall economic development and reducing poverty. 21 Lack of affordable housing in the market is constrained also by the lack of affordable loans and in general by an underdeveloped housing finance system. The main reasons are the lack of a capital market, which represents the basic foundation for building investors' confidence; and the inadequately developed framework for legal instruments, such as mortgage law, lien enforcement, efficient land registration, etc. In Egypt, the home finance market is not well developed. Most home purchases, especially in the private sector, are generally financed by developers. The purchases are for cash or with 25 percent to 50 percent cash and the balance financed over at most 3 to 8 years, usually by the real estate developer; deferred installment arrangements imply an effective interest rate of about 20 percent. Currently, there is little mortgage financing in Egypt. Some 490 mortgage finance loans totaling EGP 178 million from mortgage companies have been made up to March 2006. 22 Without mortgage financing, low- and middle-income households cannot afford to buy housing in the formal sector. Consequently, most of this part of the population lives in public housing or informal housing units with no clear legal title. The biggest obstacle to mortgage finance in Egypt is cumbersome property registration. Other issues include restrictions on extending bank credit to the housing sector; lack of valuation information; lack of credit risk information; and complex regulations. 23 As will be detailed in Chapter 3, the prospective needs for housing in urban Egypt is expected to be about 2,104,300 units during the period 2007–2017, 24 assuming that housing for middle and high income groups would be implemented entirely through the private sector. The challenging question that faces the Egyptian government is how to ensure the provision of the expected demand of housing units on an affordable basis for poor households, and how to develop efficient financial
21 Overseas Private Investment Corporation, 2005, Egypt: Overview of the Housing Sector. 22 “New home loans near 500,” Press Releases, 30 May 2006, Ministry of Investment Portal, http://www.investment.gov.eg/MOI_Portal/Announcements/meeting+30-6-2006.htm (accessed May 31, 2006) 23 Overseas Private Investment Corporation, 2005, op.cit. 24 For other demand an needs estimation studies see: General Organization for Physical Planning, National Urban Observatory 2005. An Experimental Study about the Egyptian Trial in Estimating Housing Needs by Using Indicators (in Arabic). Information and Decision Support Center, 2005. Estimating the Housing Demand Volume in the Republic Governorates. (unpublished Arabic Report). Ministry of Planning (2001), Housing and Construction Sector in Egypt, Background paper, (in Arabic).
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mechanisms based on cost recovery, revolving funds and public/private partnerships. 25
1.8 LENDING VOLUMES AND MECHANISMS Only high-income and high-middle income segments of Egyptian households can afford to buy housing units either in cash or in installments based only on their income and savings. This fact does not mean that these segments do not value and compare the possible opportunity to borrow money from banks to finance their new properties instead of paying in cash. On the other hand, being unable to afford housing in cash for obvious reasons, low-middle and low income segments have no options other than borrowing. The challenge facing these segments is not only to meet the obligations and requirements to borrow money, but also to compete with others who are assumed to be in the low-risk category, more able to pay back, and ready to accept higher lending interest rates. Lenders also have to carefully consider the degree of credit risk and the associated interest rates necessary to ensure a profit. Unfortunately, the majority of demand for housing is coming from the lower income segments of population, and the government is not able any more to play the role of “always-ready subsidizer.” The best hope of getting out of this dilemma — at least from the view point of the policy makers — is building a successful mortgage lending market. 26 Besides being a wealth/income/expenditure problem, the lack of mortgage lending in Egypt is due to the following issues: 27 • Inadequate legal infrastructure: The lack of well defined legal procedures for enforcing claims, curing defaults and evicting former owners of foreclosed property has limited the willingness to provide housing finance and forced interest rates on secured loans to increase.
• High registration fees, taxes and inefficient property registration procedures: Much property is either unregistered or is registered at unrealistic valuation levels. Some progress has been made in this area, reducing fees from 12 percent to 3 percent with consideration to further reducing the fees to the administrative cost of registration. • Restrictions on bank credit to the housing sector: The Central Bank has imposed a 5 percent ceiling on real estate lending. This limit applies cumulatively to both the supply and demand side of the market: residential and commercial real estate loans, as well as loans to individuals and housing developers. • Lack of borrower’s credit risk information for lenders: Quite often, lenders mistakenly assume that low-income people are poor credit risks and so do not tend to lend to them. Instead, lenders assume the rich are a better risk, so there tends to be a good supply of high-income housing, but a shortage of low- and middle-income housing.
25 United Nations Development Program, and the Institute of National Planning, 2005. Egypt Human Development Report – 2005, Cairo, Egypt. 26 See for example: Bahaa Eldin, Z., Mohieldin, M., Nasr, S. 2004. “Prospects of Mortgage Markets in MENA Countries: An Analysis of Financial, Legal and Institutional Aspects with Emphasis on the Egyptian Case Study,” Economic Research Forum, 11 th Annual Conference, Cairo, Egypt. 27 Overseas Private Investment Corporation, 2005, op. cit.
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• Inconsistent approach to property valuations: The lack of valuation information makes the effective use of financing very difficult, as lenders have very little idea of the true value of property that they will recover in the case of default.
As a result of these limitations, Egyptian bank lending for financing housing is limited and unlikely to grow significantly in the near future. The Central Bank of Egypt limits commercial bank real estate financing to 5 percent of the bank’s loan portfolio plus an additional 5 percent for real estate loans made under the Real Estate Finance Law. Banks use their limited capacity to make real estate loans to developers, for commercial real estate and as an accommodation to large customers of the bank. A relatively small amount of home loans are made to middle income individuals other than borrowers referred to the banks by the developers they are financing.
According to the Ministry of Housing, the government allocated LE 16 billion over the period June1982 to June 2005 as subsidized lending for public housing projects. 28 Generally, the financial schemes followed in implementing these projects are heavily subsidized. Not long ago, the financial mechanisms provided by the government to sponsor its housing schemes were mainly in the form of bearing 40 percent of the unit's cost as a government grant, with the remaining 60 percent divided between a down payment and a subsidy by the government through a cooperative loan of a total amount of LE 15,000, repaid over 40 years at an interest rate of 5 percent and average monthly installments of LE 73. Another scheme is known as housing cooperatives. The General Authority for Building and Housing Cooperatives (GABHC), a governmental agency, is the main provider of this scheme, which assists cooperatives to provide housing for their members. Through this scheme, the cooperatives make loans available to those cooperative members who are candidates to finance housing units, each loan being based on the cost of the housing unit. In addition, the equity payment of each member of the cooperative in an individual unit is collected and disbursed to the contractor, along with the loan proceeds, as the building progresses. The GABHC borrows funds from commercial banks to grant loans to the cooperatives’ individual purchasers. These loans are on a long-term basis against a repayment guarantee to the creditor bank by the government. Terms are up to 30 years. Interest only is to be paid during the first three years, following which annual installments of principal and interest are required. Loan payments are made annually on a direct reduction loan basis, so that the annual payment amount remains constant.
The GABHC has provided loans amounting to LE 4 billion to support moderate and economy housing during the period 1983 –2003. The government was responsible for subsidizing LE 3.12 billion of these loans. In 2004, the loan forecast given by GABHC to cooperatives was LE 700 million to finance the construction of 75,000 housing units. 29
The Housing and Development Bank (HDB) grants medium and long-term loans to companies, cooperatives, and individuals to build new housing units. Recently, HDB
28 MHUUD, 2005. Summary Report of Housing Data, 2005, Unpublished. 29 Aref, H, 2004. State versus civil society: An approach to affordable housing in Egypt: Policy and practice, in: Adequate and Affordable Housing for All, International Conference Proceedings, University of Toronto, Canada.
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established, along with some other banks and companies, the first mortgage finance house, El-Taameer Real Estate Financing Company. The company started to disburse approved loans beginning in 2004. The loans, covering 80 percent of a property’s total price, would be paid back over 20 to 30 years, with an annual interest rate subsidized at 6 percent for the lower-income borrowers, while carrying rates of 14 percent for those in higher income levels. 30 For low income groups, monthly installments should not exceed 25 percent of the borrower’s income. Although such housing schemes may present affordable options for the beneficiaries, they place a huge burden on the governmental budget and are not sustainable. The government needs to explore new financial options, with a balance between full cost recovery and affordability. One proposal is to require a reasonable down payment based on a percentage of the unit’s total cost to be paid by the beneficiary, and the remaining cost could be sponsored through a combination of cooperative and special loans, provided by mortgage/banking institutions, or public/private partnerships. 31 Such loans can be provided at a lower interest rate than the actual free market rate over a longer period of time, with a maximum monthly installment affordable by the low- and middle-income beneficiaries.
1.9 LENDING INTEREST RATES AND INFLATION The current lending interest rate in Egypt is fluctuating around 12 to 15 percent. This level is too high to make housing finance affordable to a large segment of the population. It may be possible to structure mortgage-backed securities at a lower interest cost than the effective cost of bank deposits, thereby enabling real estate lenders to charge a lower interest rate on their loans. Any reduction in the interest rates on home loans, combined with longer maturity loans, will increase the affordability of home finance. As Table 1.4 and Figure 1.2 show, the deposit interest rate has been declining since 1992. It went downwards from 12 percent to 7.73 percent in 2004, and it is expected to further decline. As observed before, the nineties witnessed a relative slow down in investments directed to the building sector from the private sector. Bank savings were rewarding at that time; meanwhile lending interest rates were as high as 20.33 percent and 18.3 in 1992 and 1993 respectively. Table 1.4 Annual Averages of Deposit and Lending Interest Rates, and Inflation Rate 32 Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Deposit Rate - Time (3M) 12 12 11.8 10.9 10.5 9.84 9.36 9.22 9.46 9.46 9.33 8.23 7.73 Lending Rate 20.3 18.3 16.5 16.5 15.6 13.8 13 13 13.2 13.3 13.8 13.5 13.4 Average Annual Inflation Rate 13.62 12.09 8.15 15.74 7.19 4.62 3.88 3.08 2.68 2.27 2.74 4.51 11.26
30 Aref, H., 2004. op. cit. 31 United Nations Development Program, and the Institute of National Planning, 2005, op. cit. 32 International Monetary Fund, (2005). International Financial Statistics, Database on CD-ROM.
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Figure 1.2: Deposit, Lending, and Inflation Rates 25
20
15 Percent
10
5
0 Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Deposit Rate - Time (3M) Lending Rate Avg Annual Inflation Rate
During the early years of the new millennium the government succeeded in controlling the side effects of the local currency devaluation through effective monetary policies. Currently Egyptians are facing relatively higher inflation rates and significant increases in commodities and services prices. The cost of building is becoming very high, to the point that the majority of Egyptian demand for housing can not be met because the population cannot afford it. During 2005, inflation has sharply subsided. The monetary instruments contributed to bringing inflation back to single digits. The Consumer Price Index inflation rate subsided to 4.7 percent in June 2005 from its peak of 12.7 percent in October 2004. The Wholesale Price Index inflation rate has also slowed sharply to 4.2 percent in May 2005, down from a peak of 21.7 percent in January and February 2004. The current recovery phase of the Egyptian economy should provide a suitable financial environment for a better housing mortgage financial system.
1.10 REFORMING HOUSING MORTGAGE FINANCE The development of a mortgage market in the modern economy would greatly improve the efficiency of the housing finance system. It would particularly improve the ability of households to afford a loan, mostly through longer amortization terms. In addition, mortgage finance can reduce the financial pressures on developers that are imposed by their unsold stock of housing, and can help channel frozen profits and land repayments to the government for new housing projects. However, the expected acceleration of mortgage markets mainly depends on the capabilities of mortgage lenders, their degree of acceptable transformation risks, and their capacity to issue long-term securities. It also depends on the overall evolution of housing markets, which could be affected by a shift of households from the informal and rental markets. 33
33 Bahaa Eldin, Z., Mohieldin, M., Nasr, S. 2004. op. cit.
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Recently, Egypt has been making major strides toward the development and emergence of a new system of mortgage finance. The new system is expected to open new opportunities for both Egyptian households and market investors. The affordability of and access to better housing for Egyptian households, mostly through longer amortization terms, is the primary objective of this system. Gains from financial sector efficiency should also be achieved through the introduction of new financial securities to help unlock new sources of financing for the real estate sector. The development of a mortgage market should greatly improve the efficiency of the housing finance system. 34
Real Estate Finance Law 148 was passed by the Parliament in June 2001, setting out the foundations for a market-based system. This law introduced various mechanisms for long term mortgage financing, which are expected to enhance the real estate market. Some progress has also been achieved in establishing a new government regulatory institution to oversee newly specialized mortgage lending companies, and to prepare the executive regulations for the law. In addition, the government has been taking action to streamline property registration processes and to put in place the judicial infrastructure that will underpin the mortgage market.
Substantial progress was also made in strengthening the legal and institutional framework for the mortgage market in early 2004. In terms of enhancing the property registration process, the government has further reduced property registration fees from 4.5 percent to 3 percent in February 2004 through the issuance of Law 3 of 2004 amending Property Registration Law 70 of 1964.35 The Ministry of Justice has also undertaken various measures to streamline the process of property registration, difficulties with which may have hindered the development of the mortgage market in the past.
Nevertheless, much remains to be done to complete the foundations for a comprehensive, well-functioning mortgage market. The housing finance market in Egypt faces several challenges. One of the major constraints is the high tax and inefficient procedures for land registration. Lenders as well as the government itself have not been able to take possession of properties when borrowers have defaulted. There is no consistent approach to property valuation, making the valuation process of limited use. The Central Bank has imposed a 5 percent limit on credit extended to the real estate sector, and mortgage loans are not currently available.
1.11 CONCLUSIONS The housing sector plays an important role in the economy. It has linkages, first to the direct lives of people, their human needs and social rights, and their ownership and welfare; and second to the different economic and financial activities people practice in society.
34 Economic Research Forum, and Institut de La Méditerranée, France, 2004, Egypt Country Profile: The Road Ahead for Egypt. 35 At its 8 February 2006 meeting, the Cabinet approved a reduction in registration fees to a fixed fee of a maximum of EGP 2,000 instead of calculating fees as percentage of real state value. The new amendment will be proposed to the People’s Assembly. Third Quarterly Review, Press Releases, 11 May 2006, Ministry of Investment Portal, http://www.investment.gov.eg/MOI_Portal/Announcements/Third+Quarterly+Review.htm (accessed May 31, 2006)
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Better development of financial policies will attract investors to allocate more money and to explore new alternatives to cover ever wider segments of the population seeking to meet their needs for housing. Adding to this, attracting foreign direct investment will provide hope for making a breakthrough in this chronic problem. More important, people, regardless of their economic status, should feel that there are possible, affordable, and secured arrangements that they can follow to obtain suitable living quarters.
The government, although having long experience with housing projects, has not succeeded in finding dynamic mechanisms to let the wheels move. Continuing the current subsidized housing programs for the long term will put a heavy burden on the public budget.
Realizing this fact, the Egyptian government has begun the process of building the institutional capacity and infrastructure necessary to grow a sector that will bring broad economic and social benefits.
1.12 RECOMMENDATIONS If the Egyptian government is to move forward effectively, it must base its initiatives on a clear understanding of the dynamics of the housing market and the citizens to whom programs are targeted. Thus, before policies are finalized, the government should:
• Critically assess the different data and information sources about housing activities that are now used to paint a picture of the housing market. At present, contradictory, questionable, unreferenced and undated data and information are commonly relied upon when documenting achievements or preparing research reports. An unbiased overview of the quality and substance of data now in use will provide a springboard for the next recommendation.
• Obtain the data that are essential for informed policy-making before determining the exact parameters of housing and financing programs: Determine more accurately Egypt’s housing demand and needs. Conduct nationally representative sample-based surveys to develop consistent and accurate profiles of population segments according to their preferences and financial capabilities, and institutionalize periodic measurements to capture trends and understand their dynamics.
• Make maximum use of the household income and expenditure surveys that are regularly conducted by the Central Agency for Public Mobilization and Statistics, as these offer a wealth of nationally representative data about family incomes and expenditures, living conditions, and housing financing arrangements. Disseminating such data sets on the micro level (without compromising privacy) to conduct deep analyses will put the researchers who try to assist the Egyptian government in a better position.
If the above recommendations are followed, they may lead in new directions and suggest new solutions. However, given what is known today, it seems appropriate to recommend that the government:
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• Direct more investment to construction and housing, first to respond to the existing real demand, second to achieve a higher growth rate of the GDP, and third to absorb more employment in through labor-intensive economic activities.
• Think creatively to design financing alternatives in order to meet heterogeneous household financial capabilities. Programs such as subsidized mortgages should target only those who are truly in need and otherwise incapable of arranging financing.
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CHAPTER 2: QUANTITATIVE AND QUALITATIVE OVERVIEW OF HOUSING SUPPLY AND THE HOUSING MARKET
2.1 INTRODUCTION AND METHODOLOGY This chapter is concerned with existing housing conditions throughout Egypt in general and in Cairo in particular, and gives an overview of the quantity and quality of Egypt’s housing stock. It begins with a historical review of laws and policies governing the housing sector during the last 60 years. This chapter then gives background about current housing problems and the causes of these problems, and offers an overview of the housing stock and the housing conditions in Egypt, identifying the principle forces that affect the housing market in the country.
The most recent figures available – in particular the 1996 census – were used. It is recommended that figures be revised based on newer census data when it becomes available.
2.2 A CONTEXT FOR EXAMINING THE HOUSING SUPPLY
2.2.1 A BRIEF HISTORY OF EGYPT’S HOUSING POLICIES A brief overview of housing policies in Egypt over the past six decades can help us understand the roots of the current housing situation. 36
The Fifties: The July revolution in 1954 ushered in a socialist government under Gamal Abdel Nasser. Government policies stressed the provision of housing for the poor and rent subsidies. The Sixties: By the mid-sixties serious problems in the housing market were evident. A side effect of rent control was a lessening of investment in housing, creating a shortage in supply. The Seventies: Housing shortages peaked in the mid-seventies, exacerbated by several phenomena: • Anwar Sadat’s “open door” economic policies increased competition and thereby raised the prices of building materials. • Labor for housing construction was short and consequently wages high. • Laws designed to benefit tenants at the expense of landlords discouraged private investment in housing. Construction of the “new cities” by the government began in the late 1970s.
The Eighties: There were major achievements during this decade in construction and infrastructure development, particularly with the expansion of the new cities, but
36 Are, H., “Overview of the Housing Policies of the Government of Egypt, 1950-2002,” ENHR Conference July 2-6, 2004.
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demand was still well in excess of supply. The government continued to provide housing subsidies, but private investment declined. The Nineties: The government continued to emphasize housing subsidies, but also created policies designed to encourage private sector investment in the housing sector. The government has focused on infrastructure and the further development of new cities, helping to promote rapid industrialization and the spread of new settlements throughout the country.
2.2.2 ECONOMIC TRENDS THAT RELATE TO THE HOUSING SUPPLY
2.2.2.1 INCREASE IN POPULATION AND URBANIZATION 37 Egypt experienced very rapid urbanization until the mid-1980s, caused by both rural to urban migration and natural population growth. Today the country is very urbanized: The major cities and towns account for about 43 percent out of a total population of approximately 70 million. Smaller urban villages of between 10,000 and 50,000 inhabitants account for an additional 24 percent of the population. (See Figure 2.1.) The overall population is growing at about 1.5 percent annually. The percent of the population in urban areas is projected to rise to 64 percent (61 million) by 2025 due to natural population increases and migration. Accommodating this projected urban population growth will present major challenges for the government. However, lessons have been learned from earlier periods of rapid urbanization, and the government has been building on this past experience to improve and strengthen its urban and housing policies, infrastructure and institutions.
Egypt’s urban areas present opportunities for investment in housing finance, housing construction and associated infrastructure. The Egyptian government plans on increasing the number of new urban cities from the current 22 cities to 44 cities by the end of 2017. 38
37 The data in section 2.2.2.1 is taken from “Housing in Egypt: Problems, Issues and Suggestions for Solutions,” Ministry of Housing, Utilities and Urban Communities, GOPP, National Urban Observatory, Korea International Cooperation Agency (KOICA), December 2001. 38 MHUUD, 2004, Mubarak and Inhabitation: Current Accomplishments for Building the Future,” Cairo, Egypt.
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Figure 2.1 Urbanization in Egypt’s Governorates (by Percentages)
120
100
80
60
40
20
0 H I a A A A G D O li EK A M A A NAI NA DRIA aied KI BI ILIA Z U UT A AN DI UH I R R O SEA O AI S Suez ah IO A GI ENI SA AI AN t EMIAT q UEN SW GE S C a AL EHER M Q I H D D ELSH B ISM ASI OUH A TH Por SHA GHARBIA MENOFIA FAYO S RED QU BANI-SUIF AD MATR ALEX W NORT SOU KAFR
1960 1976 1986 1996 2002
2.2.2.2 PATTERNS OF INDUSTRIALIZATION, EMPLOYMENT AND INCOME 39 Until the 1970s the Egyptian economy relied primarily on the agricultural sector to employ its citizens. But due to rapid industrialization throughout the 1980’s, other sectors began to absorb a large portion of the workforce, including the manufacturing and service sectors in particular. In the 90s the economy has experienced serious structural changes as a result of privatization policies and globalization. It seems likely these trends will continue and even intensify in the coming years.
The economy, however, has not produced enough jobs to keep unemployment at acceptable levels., The rate of unemployment was 8.2 percent in 1999, up from 5.2 percent in 1976, but down from 14.6 percent in 1986. The size of the nation’s workforce rose at a rate of 3.5 percent per year, growing to 17.63 million in 1999, but the number of newly created never jobs has not kept pace. The agricultural sector has still absorbed the largest part of the labor force most at over 33 percent, followed by construction, transportation and telecommunication. Industrial production has been concentrated in a few regions. Over 50 percent of the total value added in industrial production was within the three governorates of Cairo, Giza and Qalyubia, followed by Alexandria. According to the 1987-1992 plan the Cairo region enjoyed over 40 percent of the total industrial investment and the Alexandria region over 26 percent. Industrialization helped to increase household income per capita, which jumped from LE 2,176 in 1992 to LE 4,822 in 1999, a nominal increase of 2.5 times for the seven- year period. Household income has similarly increased; from LE 3,264 in 1992 to LE7,233 in 1999 for the nation as a whole and from LE4,173 to LE 13,281 in Cairo. The city of Cairo saw the largest increase in household income, which served as an important factor to attract additional migrants into the city. However, income distribution is skewed, which could act against growth in the housing market at lower income levels. Nevertheless, as family’s net income increases, so does its
39 “Housing in Egypt: Problems, Issues and Suggestions for Solutions,” Ministry of Housing, Utilities and Urban Communities, GOPP, National Urban Observatory, Korea International Cooperation Agency (KOICA), December 2001.
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purchasing power. Even in the absence of firm statistics it seems safe to posit that housing demand has increased substantially in the last ten years. These intertwined trends toward urbanization, industrialization and increased-but- skewed income are relevant for a number of government organizations which are charged with urban management. These institutions include:
1. the Ministry of Housing, Utilities and Urban Development, which oversees several different agencies concerned with urban planning and new communities; 2. the Ministry of Local Development, which is mainly concerned with the construction of villages and the provision of their utilities; 3. the Ministry of Agriculture and Land Reclamation, which is charged with the oversight of villages, built on newly reclaimed land, which are not under the administration of the Ministry of Local Development; 4. the Ministry of Electricity and Energy, with responsible for the supply of city and village electricity networks and the establishment of power generation plants;
5. the Ministry of Transportation, which is responsible for building main highways and sub-intercity and village roads; and
6. the Ministry for Investment (and for the Public Business Sector), which supervises housing and contracting companies, and which plays a significant role in urban activities.
2.2.2.3 URBAN PROBLEMS IN THE GREATER CAIRO REGION Cairo and the greater Cairo region have suffered from various urban problems as a result of an over-concentration of population and industries. The region now has over 13 million people and over 40 percent of the nation’s industries. This population is far beyond the region’s carrying capacity. The city itself is also not easily manageable. The population density was 23,700 persons per square kilometers in 1976, but jumped to 32.8 thousand persons in 1996. The density is still rising. A large number of informal settlements are emerging in and around the city; such as Shobra El-Khema, Ain Shams in the northern section; Imbaba, Boulaq El-Dakrour along the west bank of the Nile; and Dar El-Salam in the southern part of the city. The problems with informal settlements are likely to worsen because the Cairo region will have to accommodate over 16.5 million people in the year 2020 unless current trends reverse. The population of the city of Cairo is more than three times that of Alexandria, which is the second largest city. Some of the major problems resulting from population concentration are traffic congestion, air and water pollution, dilapidation of housing stock, neighborhood deterioration, distortions of land use, disorientation of communities and a shortage of parking and recreational space. In other words, the city is rapidly losing amenities, to the extent that this threatens the health and safety of citizens.
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2.2.2.4 FACTORS INFLUENCING HOUSING NEED AND DEMAND This chapter is concerned with housing supply; Chapter 3 will consider the question of housing demand in detail. However, since the need/demand for housing and its supply are interrelated, some relevant background on housing need and demand is provided here to set the stage.
Housing need can be distinguished from demand . The former, which broadly defined means the shelter requirements of a nation’s population (regardless of their ability to pay or their preferences) is usually assessed by policy makers based on demographics, projected household formation, and available supply of housing stock. Housing demand, which characterizes what consumers of housing are willing and able to pay for, is more difficult to predict and relies on income analysis and assumptions of what percentage of household income can be spent on housing 40 (see Chapter 4 for an affordability analysis).
A number of factors influence housing demand directly or indirectly including macroeconomic factors such as economic growth, increase in aggregate income, labor market participation, inflation and employment; and micro-economic factors, including household income, household formation rate, price-to-income ratios (PIR) and rent-to-income ratios. 41 Population mobility also affects housing demand, as households move from one community to another. In Egypt household/family income almost tripled in real terms from 1986 to 1996. Much of the net income was spent on consumption goods and services at the earlier stage of economic growth, but as economic growth continues, households tend to spend more on durable goods, including housing. The percentage of total household income spent on housing increases with rising household income, up to a certain point. Household income also affects household formation rate (and hence demand for housing(; the rate tends to rise with an increase in household incomes.
Another factor influencing the housing sector is the propensity to save for housing among the middle and upper middle income households. They defer current consumption for better housing in the future. Housing finance mechanisms usually rely on their savings. These factors all point toward increased demand for housing in the Cairo region.
2.2.2.5 HOUSING PRICES AND RENT 42 This section looks at the prices of housing units in comparison with income; we find that due largely to the absolute shortage of habitable housing units for the low- income households, housing prices rose sharply. The price of a reasonably sound dwelling unit in Cairo ranges between LE 50,000 and LE 80,000 on average, varying
40 “ Housing Market Assessment Report for El-Maadi, Madinet Nasr, and Sixth of October” Egypt Financial Services, USAID, January 2006. 41 “Housing in Egypt: Problems, Issues and Suggestions for Solutions,” Ministry of Housing, Utilities and Urban Communities, GOPP, National Urban Observatory, Korea International Cooperation Agency (KOICA), December 2001. 42 Ibid.
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depending on factors such as location. The price is beyond the reach of a majority of newcomers to the housing market. The price-to-income ratio averages approximately 6 to 7, implying that a median income household must save all its income for six or seven years to purchase a median-priced home in Cairo. This figure is not bad; PIR in some countries is as high as 11 and even in the US it is around 4. Price information is not available, but it may be that prices in the other major cities are not be as high as in Cairo. A significant problem is that the rate of increase in average home prices far exceeded that of increases in the average family income. Home prices might have nearly doubled in Cairo, but household net income increased only by 15 percent during the same period.
Rents are also very high for flats in Cairo, above what a substantial portion of renters can afford. The rent-to-income ratio is 33 percent, meaning that a median income tenant will spend over 30 percent of its net income to obtain a median-priced rental quarters. 43 Landlords, however, will not invest in rental housing unless the rent they receive represents a reasonable rate of return on their investment.
2.3 OVERVIEW OF HOUSING STOCK AND HOUSING CONDITIONS This part will discuss the existing housing stock in Egypt and the relation between the number of families and the number of housing units. It will also give an idea of the breakdown of this housing stock to discuss the housing conditions in Egypt.
2.3.1 HOUSING STOCK IN URBAN AREAS 44 In urban areas there is not enough housing stock to meet the needs of low-income households. Most of the formal housing supply by the private sector has targeted higher-income groups. It is estimated that some 1.8 million of these housing units are kept vacant, due in part to rent control laws. From Table 2.1 we see that housing units increased from almost 11.2 million units in the year 1986 to 15.7 million units in 1996, an increase of over 4.5 million units in Egypt; in urban areas the increase was over 2.1 million units. At the same time the number of families has increased by about 2.9 million households, about 1.7 million of them in urban areas. In other words, during this decade housing units were being added at a faster rate than new households were being formed.
43 IDSC (2006), Study of inhabitants' preferences on housing prototypes proposed by the government in Mubarak National Housing Project. 44 “A Guided Study About the Egyptian Experience in Housing Needs Assessment Through Segments,” Ministry of Housing, GOPP, October 2005.
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Table 2.1 Surplus Housing Units in Egypt in 1986 and 1996 45 No. of families Housing units Difference % extra between units housing units and families 1986 Rural 4,586,872 5,737,967 1,151,095 20.06 Urban 5,145,856 5,425,994 280,138 5.16 Total 9,732,728 11,163,961 1,431,233 12.82 1996 Rural 5,839,877 8,157,135 2,317,258 28.41 Urban 6,862,723 7,550,531 687,808 9.11 Total 12,702,600 15,707,666 3,005,066 19.13
It is estimated that the housing stock reached 17.4 million units in 2003 (by adding in the formal housing built from 1996-2003) and that there were about 2.6 million surplus units in the same year.
The government has constructed about 22 new and satellite cities with more than 230,000 housing units to provide housing alternatives in the desert and contain the demand for building on agricultural land in the Delta and Nile valley.
2.3.2 INFORMAL HOUSING STOCK This section will discuss the number of the informal housing in urban areas, especially in Cairo. Informal housing units are those built in “unauthorized” areas on agricultural lands outside the city. They are mostly unlicensed buildings on illegally subdivided land. They are very densely developed, lacking such basic infrastructure as water and sewage. The amount of informal housing has grown tremendously since the 1980s. As of 2000, the percentage share of informal housing out of the total housing stock in Egypt was recorded at 34 percent for the country as a whole, and 31 percent for the city of Cairo. (See Appendix B for a more complete discussion of informal housing.)
In the census of 1996 there were 1.6 million housing units in informal areas. Informal districts are growing very fast across agricultural lands and lack planning, utilities or services. The Ministry of Housing conducted a statistical survey of the informal housing in the Greater Cairo Region; results are shown in Table 2.2.
45 Ibid.
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Table 2.2 Informal Districts in the Greater Cairo Region 46 Governorate No. of Population in Total Area in informal informal districts population acres districts Cairo 11 3,847,000 6,800,992 10,300 Qalyubia 2 65,000 4,784,099 3,600 Giza 10 3,383,500 3,301,244 7,835 Total Cairo region 23 7,295,500 14,886,335 20,625
More than half the inhabitants of Cairo live in the informal areas, with densities between 250 and 400 persons/acre, which is considered high density. A survey in 2003 covered two informal areas, Boulaq El-Dakrour in Giza and El- Matariah in Cairo, 47 to explore the mechanisms of informal housing outside the law and the means used to manipulate regulations and legal enforcement. It showed that construction is carried out through local contractors from the area or district because of their experience in dealing with the district authority, finalizing the procedures and their contacts with the local construction labor force.
2.3.3 SURPLUS UNITS Figure 2.2 shows the distribution of surplus units by governorate. Figure 2.2 Percentage of surplus units in 1996 by governorate 48
45
40
35
30
25 1986 1996 20
15
10
5
0 H I I IA A A A R z K IA A A M ID N N L e E F R U AG D A OBIA H E SUIF E T Su I O AILI GIZA - O H t Saied L N H M Y U G SAI SAI O CAIRO r A LS E E MENIA QUENA I H H T o DEMIAT Daqahlia E B IS A ASIOUT O ASWAN EXAND P SHARKIA U GHARBI M F S RED SEA D T T L Q R BANI MATROUHR U A F WA O O A N S K
We can see that in Cairo surplus units comprise about 27.5 percent of the housing stock and in Alexandria the figure is about 31 percent. The percent of surplus units is higher in the urban areas overall; the highest percentage was in Marsa Matrouh, with 42.4 percent surplus units, compared to a country-wide total of about 19.1 percent. (see Table 2.1). Table 2.3 shows surplus units in 1986 and 1996 broken down as urban/rural for the greater Cairo region. The number of surplus units in urban areas increased from
46 “Informal districts in Greater Cairo: A Case study of Boulaq el-Dakrour,” Dr. Mostafa Madbouly- Eng. Amro Lashin, Cairo, 2003. 47 Ibid. 48 Census 1996.
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549,263 units in 1986 to over a million units in 1996. There was a surplus housing rate of almost 41 percent in 1996, a considerable amount. Table 2.3 Surplus Housing Units in Greater Cairo Region 49 Greater Cairo Surplus units % of total Surplus units % of total Region 1986 units 1996 units urban 549,263 47.71 1,060,186 45.75 rural 27,359 9.76 162,544 23.63 total 576,622 40.29 1,222,730 40.69
2.3.4 HOUSING PROVISION BY THE GOVERNMENT 50 The government in Egypt has provided housing for low-income people for a long time, beginning with Workers City in Imbaba 1952. This section will discuss the governmental share of the housing supply. Achieving a balance between housing supply and demand has been a difficult objective that all Egyptian governments have tried to reach over the last four decades. The past 25 years witnessed a substantial increase in the total number of units built, with the public sector contributing 1.24 million units (36 percent), and the private sector 2.15 million units (64 percent). Despite this the formal housing market has not met the housing needs of the urban poor, and informal settlements continue to develop with conditions that violate regulations and construction codes.
From 1982 to 2003 the government built about 1.2 million housing units, including 460,000 dwelling units in Cairo Governorate. The government continues to build a significant number of public housing units, particularly through the Mubarak National Project for Housing in Egypt’s new cities. The government has also provided subdivided land for housing projects and governorates in new cities and around major cities for private developers. Most of these lands are sold at below market price under installment mechanisms. 51 The National Mubarak Youth Housing and Future Housing programs cover 40 percent of the cost of housing, with the remaining amount to be paid by purchasers beginning with a small down payment followed by a soft loan to be repaid over 40 years at a low interest rate. 80,000 units have been provided since 1997 through these programs. Recently, the radical increase in the price of building materials has forced the government to adjust the design of these housing units by reducing their size to keep prices within the range of low-income households. Currently, it is estimated that the average cost of the new units should be limited LE 800/m 2, which will then be subsidized.
49 “A Guided Study About the Egyptian Experience in Housing Needs Assessment Through Segments,” Ministry of Housing, GOPP, October 2005. 50 Egypt Human Development Report, 2005. 51 “Housing Market Assessment Report for El-Maadi, Madinet Nasr, and Sixth of October,” Egypt Financial Services, USAID, January 2006.
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2.3.5 TYPES OF TENURE There are five different types of tenures in Egypt: fully owned (50.5 percent), mortgaged/renting-to-own (3.7 percent), directly rented (20 percent), sub-leased (20 percent), and wholly subsidized/rent free (5.8 percent). The government has consistently promoted home ownership by providing housing finance in various forms to meet the needs of households. Such policies were effective in the 80s and early 90s when a large number of privately financed homes were built.
Middle income tenants could easily find suitable rental accommodations in private market in the 80s and early 90s too, because rents were fairly stable. More recently they have had to make downward residential adjustments in order to cut the housing costs, as rents rose faster than their income. Much of the government’s effort has been devoted to the tenure security of low- income households. The government has leased public land on a long-term basis to individuals who had previously illegally occupied state land and created squatter settlements. The government also protected low-income households from forced eviction and promoted their rights to safe shelter as it provided a minimum level of necessary services. Over 250 squatter settlements have been upgraded out of a total of 817 squatter areas. Currently 418 settlements are being upgraded and only 10 areas have been demolished for renewal and redevelopment purpose. The government spent over 192 million LE in 1996 to implement those projects, which increased to 1.65 billion LE for the year 2000. These funds were spent largely for improving utilities, roads, safety/security measures, wastewater treatments and prevention of water pollution.
2.3.6 OCCUPATION DENSITIES AND OVERCROWDING 52 There are many ways to measure housing density: floor area per person, number of persons per room, and number of households per dwelling unit. These measures are complementary and serve as key indicators of housing quality and overcrowding. Using the limited data available, Egyptians seem to enjoy relatively spacious accommodations if not amenities in general. The floor area per person as measured in square meters increased substantially from 27.3m 2 in 1986 to 33m 2 in 1996 53 for the nation as a whole. The households in Cairo are living even more spaciously: from 28.3m 2 in 1986 to 34.7m 2 in 1996 (see Table 2.4), a substantial improvement within a 10-year period. Similarly, secondary cities experienced as much improvement. These figures give an imperfect picture, however. First, they are only the averages, and do not indicate density levels of low and moderate-income households. Housing density can be expected to vary substantially from one income class to another, given the highly skewed distribution of income and wealth. Second, the figures look only at formal housing. It seems likely that if informal sector housing, which provides
52 “Housing in Egypt: Problems, Issues and Suggestions for Solutions,” Ministry of Housing, Utilities and Urban Communities, GOPP, National Urban Observatory, Korea International Cooperation Agency (KOICA), December 2001. 53 1996 Census.
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a significant fraction of housing, could be taken account, the densities would be higher. Nevertheless, over 60 percent of the nation’s households are fairly well housed, at least on the basis of space per person, when only the formal housing sector is taken into account. Table 2.4 Floor Area Per Person, 1996 54 1986 1996
total Square total Square total pop. house meters/ total pop. house meters/ units person units person
National 21,215,504 5,792,626 27.3 25,286,335 8,357,103 33.05 level
Cairo 6,068,695 1,719,594 28.3 6,800,992 2,358,995 34.69
On the other hand the number of persons per room turns out to be relatively high, although it has declined in recent years. The figure for the nation as a whole was 1.47 in 1986, but it fell to 1.27 in 1996. Likewise it fell from 1.46 to 1.14 in Cairo during the same period. 55 The other measure of crowding is the number of households per dwelling unit. The figures changed very little from 1986 (0.8 households per unit, for both the nation as whole and Cairo in particular) to 1996 (.7 for both the nation and Cairo), suggesting a high rate of surplus units.
2.3.7 ACCESS TO MAIN UTILITIES 56 Most of the formal dwelling units in Egypt are fairly well equipped with modern facilities, including sewage, water and electricity. In 1996 for the country as a whole, 96.5 percent of housing units were connected for piped water, 98.4 percent for electricity, and 22 percent for sewage. In Cairo the figures were 97.2 percent for water, 98.6 percent for electricity, and 79 percent for sewage. The picture is unchanged when looking specifically at major cities. But statistics based on formal housing do not tell the whole story. Those who live in informal settlements and in rural areas — more than one third of the total population — suffer from deficiencies in these services. But as mentioned, there are no reliable statistics that can be used to determine the housing conditions of informal settlements. In-depth studies are required if the government, both central and local, wants to develop more realistic and workable strategies for improving the housing welfare of those who live in informal settlement areas.
54 ibid. 55 ibid. 56 “Housing in Egypt: Problems, Issues and Suggestions for Solutions,” Ministry of Housing, Utilities and Urban Communities, GOPP, National Urban Observatory, Korea International Cooperation Agency (KOICA), December 2001.
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2.3.8 AGE OF DWELLINGS 57 The age of housing units gives a perspective on its general condition and whether it will need replacement in the foreseeable future. About ten percent of the current housing stock was built before 1950 and can be assumed to need replacement. The situation is more severe in Cairo, where about 14.4 percent of the housing units are more than 60 years old.
Figure 2.3 shows that the period between 1980 and 1989 was the most active for the construction of new housing units.
Figure 2.3 Number of Housing Units by Decade Built 58
2500000
2000000
1500000 Cairo 1000000 total
500000
0 befor 1940 1940-1949 1950-1959 1960-1969 1970-1979 1980-1989 1990-1996
2.3.9 MAINTENANCE STATUS Egyptian housing stock is generally considered to be inadequately maintained, a phenomenon that is perhaps at least in part due to the absence of laws specifying responsibility for maintenance. In the case of owned residences, owners don’t want to maintain common areas of the building because the law doesn’t specify the responsibility for this work. In rented properties, the owner may refuse to maintain the building because income from the rental does not cover costs. At the same time the renter refuses to spend money on something he feels he is not responsible for.
2.4 MARKET OVERVIEW AND THE SUPPLY OF FINANCING 59
57 1996 census. 58 ibid. 59 “Egypt: Overview of the Housing Sector,” Issues Paper 1, 2005, Overseas Private Investment Corporation, Office of Economic Development.
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2.4.1 HOW THE HOUSING SUPPLY IS INFLUENCED BY MARKET CONDITIONS Despite being a local market, the housing market is nonetheless complicated. In this section we summarize the impact that certain aspects of Egypt’s housing market — the extent of the informal housing supply, and access to credit — may have on total housing supply. Readers wishing a fuller discussion of the subject are referred to “Egypt: Overview of the Housing Sector,” Issues Paper 1, 2005, Overseas Private Investment Corporation, Office of Economic Development. The fact that so much of Egypt’s housing is informal tends to restrict the development of the housing supply in several broad ways. For example:
• Without a formal title to their property, residents cannot use their houses for collateral, limiting investment and economic growth.
• Utilities cannot determine who owns the properties using their services, diminishing the incentive to fully develop these services.
Another problem hindering the development of housing supply is the lack of financing. There are many bottlenecks to a fully functioning credit system for the housing market, including restrictions by the Central Bank on housing sector loans, lack of data on valuation and credit risks, complex regulations, inadequate legal infrastructure, and limited availability of mortgage and property insurance. Such factors force up interest rates on secured loans. As the OPIC Issues Paper makes clear, housing finance is a key component of economic development. The lack of a fully functioning mortgage market constrains the development of the housing sector. Without financing options, low- and middle- income households cannot afford to purchase homes.
Living standards increase when there is widespread availability of home mortgages because mortgages have a positive impact on the quality of housing, infrastructure, and urbanization. Housing finance also encourages the growth of the financial services sector, which studies have also shown to be a key factor in economic development. In recognition of the need for greater accessibility to finance by low and moderate income groups, Egypt’s Parliament approved a new mortgage law in 2001, though implementation was delayed until 2004. The law allows banks to offer subsidized and non-subsidized loans for the purchase of houses. Statistics are not available to document the effect of the new law but the impression is that it is increasing financing to low and moderate income groups.
2.4.2 CURRENT FINANCING OPTIONS The government’s primary mechanism to facilitate its housing schemes in new cities and relocation from slums was to provide 40 percent of a unit's cost as a government grant, with the remaining 60 percent divided between a down payment (ranging from
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LE 1,000 to LE 3,000) and a subsidized loan of up to LE 15,000, to be repaid over 40 years at an interest rate of 5 percent with average monthly installments of LE 73. 60 Although such a scheme may present an affordable option for the beneficiaries, it places a huge burden on the governmental budget and is not sustainable. The result has been a massive decline in the number of housing units built under this system in recent years. Alternatives have emerged in the informal housing market, such as down payments of 10 percent to 20 percent of total cost and average monthly installments of LE 100 to 150, depending on size. The GOE needs to explore new financial options, with a balance between full cost recovery and affordability. The new law has helped in regulating loans for financing housing but still the loans are at high interest rates, making it especially difficult for low- and middle-income households to buy a home. When developers finance housing, they use an installment system. The down payment is normally between 25 percent and 50 percent of the purchase price, with the rest of the payments occurring over the next three to eight years. The title does not formally transfer until the entire amount has been paid. The high down payment is a severe constraint, especially for low-income households. In April 2005, the Egyptian government approved a joint cooperation program between the Mortgage Financing Authority and the National Bank of Egypt, designed to finance mortgages with interest rates at or below 12 percent and a term of 10 to 20 years.
The Law initiated the establishment of a Guarantee and Subsidy Fund (GSF) in 2004 to expand housing affordability to low income households. The role of the GSF is to grant subsidies to low-income individuals wishing to buy housing units, in two ways: 61 (a) By lowering the mortgage to an affordable level. The Gaff’s current contribution is 15 percent of the value of the unit, with a maximum of LE 10,000, as a total subsidy granted by the Fund. This form of subsidy reduces the monthly installments to the level not exceeding a quarter of the monthly income of the homebuyer.
(b) By providing partial insurance against payment default. The GSF provides coverage for up to three months of payment default for every 5 years of the loan.
Since the inception of the finance law, two mortgage finance firms have been established, Al-Taameer Company and the Egyptian Housing Finance Company. Three banks have already engaged in real estate lending and 10 more banks have expressed interest in mortgage lending, especially since the Central Bank of Egypt has set guidelines for all banks to direct 5 percent of their loan portfolios to mortgage finance.
2.4.3 CURRENT ACQUISITION OPTIONS In the Egyptian housing market there are many financial arrangements available for occupying a housing unit, but the three types described here are the most prevalent:
60 Egypt Human Development Report, 2005. 61 “Egypt: Overview of the Housing Sector,” Issues Paper 1, 2005, Overseas Private Investment Corporation, Office of Economic Development.
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• Ownership: buying the unit either by paying in cash or paying a down payment and installments. • Renting under the old law, which entails an average of LE 15,000 to 20,000 as key money 62 for low-income housing, followed by comparatively low rents for as long as the inhabitant occupies the unit. Title is not turned over to the occupant. • Renting under the new rent law, Law no. 4 of 1996, which entails no down payment but has high monthly payments averaging LE 500/mo. 63 The repayment schedule is defined by the purchaser and buyer and is normally less than five years. The title is turned over to the buyer immediately.
Most developers prefer to recoup their investment as quickly as possible and therefore prefer shorter repayment terms.
According to a January, 2006 study 64 of housing units in Cairo, 58.4 percent of housing units are rented and about 37.1 percent of housing units are owned.
2.4.4 ARRANGEMENTS ADOPTED BETWEEN DEVELOPER AND CUSTOMER Irrespective of whether a purchaser is obtaining a home through the private sector or a government subsidy, various arrangements can be made in regard to finishing and payments to contractors. In the private and informal sector, the contractor is usually responsible for the concrete structure of the building, while the finishing work is the landowner’s responsibility. Sometimes, payment is based on the price per concrete column. Building materials are provided by the landowner from locations near the neighborhood. Any bribes required are paid by landowner directly or by the contractor and then collected from the landowner. The contracting fee is paid for in cash, and the practice is to pay by installments, such that 30-40 percent of the total value is paid up front and the remaining amount is paid according to an installment schedule on which the two parties agree. The majority of individuals rely on loans from relatives, their own savings, or social mechanisms for acquiring the required down payment for construction. However, they usually have the connections and financial means to bribe.
2.5 CONCLUSIONS The overview of housing stock and conditions and the market overview that are provided in Chapter 2 are hampered by data limitations. No recent housing statistics are available (the last census data available is from 1996), and nothing has been documented to show whether changes have occurred the housing market following
62 see Table 4.13 63 see Table 4.14 64 “Housing Market Assessment Report for El-Maadi, Madinet Nasr, and Sixth of October” Egypt Financial Services, USAID, January 2006.
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implementation of the new rental law in 1996 and the new mortgage finance law in 2001. The lack of accurate information about informal areas and informal housing is also a severe limitation.
Nonetheless, available information sources suggest several key findings about the housing stock:
• At the same time there is a substantial surplus of housing (perhaps nearly 20 percent by 1996 figures), there is inadequate formal housing supply for low- income families, particularly in urban areas.
• The supply of surplus housing is due to several causes, including owners holding units for their children, rent control that makes it economically infeasible to have tenants, and high asking prices by owners.
• Despite government programs to provide low-income housing, the government has been unable to provide sufficient housing for this income group.
• Many low-income households in Egypt rely on informal sector housing – as of 2000, 34 percent of the country’s total housing stock and 31 percent of Cairo’s housing were in the informal sector.
• Informal housing is growing quickly and is likely to be densely developed and lacking basic infrastructure such as water and sewage.
• About 10 percent of the housing stock nationwide was built before 1950 and can be assumed to be in need of replacement; the figures are higher for Cairo, with nearly 15 percent needing replacement.
• The maintenance status of housing is considered to be poor, due to lack of laws and agreement on who is responsible for maintaining common areas, as well as inadequate income to owners of rent-controlled stock.
2.6 RECOMMENDATIONS First, better data must be obtained and utilized. Researchers and policy-makers should:
• Accompany studies of housing with parallel social studies designed to improve understanding of the Egyptian housing market. (Such studies would look at whether families prefer to live closer to relatives or closer to work; whether they prefer to split into smaller families or form multigenerational households, etc.)
• Conduct studies specifically related to housing prices: why, for example, is a low-quality unit in downtown Cairo higher in price than a better quality unit in the new cities?
Armed with current and complete data, policy-makers can consider steps such as these to make sure that government housing programs have maximum effectiveness:
• Acknowledge and address identified imbalances between where low-income housing is available (i.e., in new cities) and where low-income households are
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congregated (i.e., in informal areas in and around urban centers). If people are to be encouraged to move to where the housing exists, such problems as labor opportunities and transportation must be addressed.
• Develop laws to clarify and enforce responsibility for maintaining housing stock.
• Supply informal buildings with infrastructure in the context of required improvements to building conditions (external painting, maintenance, adherence to building codes, etc.)
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CHAPTER 3: CURRENT AND FORECAST HOUSING DEMAND BY INCOME SEGMENT
3.1 INTRODUCTION Egypt has experienced both rapid urbanization and industrialization. Its population has become largely concentrated in the urban areas where industrialization has taken place. Over 54 percent of the nation's population now lives in two metropolitan regions: Greater Cairo and Alexandria. Egypt’s population growth rate is high compared to other developing countries. The urban governorates — Cairo, Alexandria, Port Said and Suez — have attracted the most migrants during the last decade. On the other hand, according to data from CAPMAS, family size in urban areas has gradually decreased, from an average of 5.3 persons in 1976 to 4.1 persons in 2004. The occupancy rate per room is also high, suggesting that many families are doubling up or even tripling up (see Appendix 3.2). Nonetheless, as described in Chapter 2, there is a large amount of surplus housing. According to the 1996 census, the total number of households in urban areas was 5.84 million, whereas the number of dwelling units was 8.36 million for the nation as a whole, including shelters in informal 65 areas and shantytowns. The concentration of population in Cairo has resulted in serious problems, including a shortage of low income housing, pollution, and deterioration of amenities. In 1996 it was estimated that half a million households (45-50 percent of the total) live in informal areas of Cairo.
Despite the government’s intent to encourage private sector investment, in recent years the private sector has made relatively little contribution to the housing supply for low income groups. Private developers, assisted by favorable terms for borrowers made available by private banks, have built a large number of condominium units since 1990, targeted to high-income families. But a significant portion of the newly built units were not sold, or were sold and kept vacant, resulting in huge losses and no contribution to solving housing shortages. The shortage seems to be partly the result of an absence of market demand forecasting. Before a government can initiate policies that will be effective in addressing housing shortages, it must conduct research to answer the question "who wants what types of housing and where?" and determine the price range at which such housing could be sold. It must also distinguish between the concept of “need” and “demand”: while everyone needs shelter, an understanding of demand means taking into account people’s preferences, willingness to pay, and ability to pay, the three basic components of demand. The housing market is basically a local market, but is nonetheless complex because housing is heterogeneous and possesses characteristics both of consumption and investment. Occupants can be divided into different categories according to whether
65 See Appendix B of this document for a discussion of the definition of “informal” housing.
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they are home owners or renters, and in terms of their household income and social status. Therefore a meaningful study of housing demand must be based on a market analysis for each local area, examining the factors that affect demand, including employment, disposable income, household characteristics, economic and social conditions, surplus housing rates and tenure structure. While reviewing any analysis of housing demand, readers would do well to keep in mind the context in Egypt, where the housing market is in pronounced disequilibrium. As described in Chapter 2, there is an excess supply of housing for medium- and high-income households at the same time the supply for low income groups is inadequate. The market can be characterized as “supply-oriented” market, in that incentives have caused suppliers to provide certain types of housing, unrelated to actual demand.
3.2 METHODOLOGY There are several types of methodologies used to forecast demand for social housing, which are illustrated by the six methods listed below: 1. Local housing needs assessments, Bramley & Fordham 66 2. Affordability models, Bramley 67
3. Multi tenure net stock models, Holmans and others 68 4. Gross flows models, Holmans 69 5. Econometric model for national and regions, Cambridge 70
6. Structure plan forecasting, Cambridge 71 A couple of observations must be made about the nature of the data needed for such forecasting. First, it is important to note the different levels of data aggregation that are required for each approach. The six methods are presented in rough order of how finely disaggregated the necessary data must be, from most detailed to least. Thus, for example, estimates of future demand for social housing at a local level such as Cairo require data that is more finely broken down than do estimates of housing at a national level. Second, not all important elements of the forecast can be determined simply by manipulating raw data on population and infrastructure. Patterns of structural change
66 Bramley G, Pawson H with Parker J (2000), Local Housing Needs Assessment: A Guide to Good Practice, DETR, London. 67 Bramley, G (2003), Local Housing Need and Affordability Model for Scotland, Report to Communities Scotland. 68 Holmans A (1999), Housing Demand and Need in England 1996-2016, Joseph Rowntree Foundation, York. 69 Department of the Environment (1977), Housing Policy Review: Technical Volume, DoE, London. 70 Gibb, K, Mackay, G and Meen, G (2000), The Demand for Social Housing in the City of Glasgow: Citywide Needs and Demand, A Report to Glasgow City Council, Scottish Homes and the West of Scotland Forum of Housing Associations. 71 GCVSPJC (Glasgow and Clyde Valley Structure Plan Joint Committee) (2000), Technical Report 3: Demand and Supply for Owner Occupation at 2006 and 2011.
TECHNICAL ASSISTANCE FOR POLICY REFORM II 49
and certain important variables such as the quality of life or economic confidence can only be analyzed through qualitative analysis and by examining the outcomes of policies that have been implemented.
In this study, two of the above mentioned methodologies — structure plan forecasting and local housing needs assessment — will be used to estimate demand at two different levels, the national level (section 3.3) — and Cairo (section 3.4) respectively.
3.2.1 USING THE “STRUCTURE PLAN FORECASTING” APPROACH This approach has as its objective providing an overview of future needs according to the geographic distribution of population and demographic projections. It is not designed to cover the demand side in great detail. It considers population trends and average family size to estimate needs, but a limitation is that it makes no use of data broken down by household type or age. The main virtue of this approach is that it can take census information and secondary data that are often available and reliable to produce a projection ten years into the future.
The main steps used to calculate future housing needs for urban areas by governorate are summarized as follows:
1. Identify the existing housing stock in 2006 and its characteristics, in particular the age of structures and surplus housing rates. This information was drawn from 1986 and 1996 censuses using extrapolation analysis, and from secondary data gathered from building permits and previous studies on informal housing.
2. Estimate the expected number of households in 2017 using previous studies undertaken by CAPMAS and the National Research Centre for Housing and Building to estimate the expected population growth rates and family size. 3. Identify needs due to population increase by comparing the expected number of households with the amount of existing stock, taking surplus housing rates into consideration. 4. Determine how much housing will be needed to replace deteriorated stock and temporary shelters, based on data regarding the age of housing stock and its condition.
5. Calculate the amount of housing needed for different income levels by drawing on data in the 2000-2001 income and expenditure survey conducted by CAPMAS.
3.2.2 LOCAL HOUSING NEEDS ASSESSMENT FOR CAIRO Housing needs assessments are produced on the basis of district-wide housing needs surveys. The larger the sample surveyed, the more reliable the assessments and the more likely that any broad generalizations which are drawn will be supported
TECHNICAL ASSISTANCE FOR POLICY REFORM II 50
by the data. 72 In addition, a recent review of housing needs assessment methodology 73 resulted in best practices guidance for districts aiming to promote consistency and comparability between surveys and to enable the aggregation of data up to the level of sub-regional housing markets. In this context, it should be noted that the survey conducted for this study was needs- specific and was based on too small a sample size to be representative or comparable to other studies. Additional surveys should be carried in Track 2 of the study to provide a higher degree of confidence.
The affordability approach can also be used in Track 2 to produce a more detailed picture of current demand as well as projections. In either case the approach stresses the importance of considering what households can afford to purchase. Bramley's affordability analysis estimates the proportion of households in a district who would be able to purchase housing in the lowest quartile of housing prices. The emphasis here is on recognizing not only those households who are eligible for assistance with their housing costs, but also households who are ineligible but who nevertheless cannot afford entry-level housing prices.
3.3 FORECAST OF FUTURE NEEDS ON THE NATIONAL LEVEL Future needs are influenced by population increase rates, household size and new household formation rates, as well as the characteristics of existing housing stock in terms of quantity and quality.
3.3.1 URBAN POPULATION PROJECTIONS AND EXPECTED NUMBER OF HOUSEHOLDS IN 2017 Extrapolating from CAPMAS data, we can expect the size of the urban population in 2017 to reach 37.6 million. (See Appendix 3.1.) Average growth rates vary among locations. Historical growth rates at the national level range between 1.87 and 1.55, with a generally decreasing trend. Cairo represents 24.2 percent of the urban population while Greater Cairo reaches around 40.6 percent. The average family size in urban areas has been decreasing since 1976, from a national average of 5.3 persons in 1976, to 4.57 persons in 1986, to 4.33 persons in 1996 and 4.1 persons in 2004. (See Appendix 3.2.)
The projected number of households in 2017 has been estimated by assuming that the average family size will continue decreasing at the same rate as occurred from 1996 to 2004. 74 This extrapolated family size was then used along with estimated population figures to estimate number of households in 2017. (See Table 3.1.)
72 Bramley G, Pawson H with Parker J (2000), Local Housing Needs Assessment: A Guide to Good Practice, DETR, London. 73 Cambridge Centre for Housing and Planning Research, 2003 74 Extrapolating from observed historical trends is a legitimate method for forecasting and doubtless the best available here. Nonetheless, it is understood that this method is imperfect, notably in this instance because of the definition of “urban” used in the census (see Acronyms & Definitions for details), as well as the possibility that the rate of change in household size may not be constant. If the rate of decrease in household size slows, this will likely introduce bias in the direction of overestimating the number of households and therefore the amount of demand.
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Table 3.1: Expected Number of Households in 2017 Estimated Expected number Estimated Family Governorates of households in size in Population in 2017 2017 2017
Cairo 9,119,000 3.653337 2,496,074
Alexandria 4,604,000 3.525465 1,305,927
Port Said 716,000 4.035823 177,411
Suez 631,000 3.823504 165,032
Damietta 371,000 3.412535 108,717
Dakahlia 1,664,000 3.942553 422,062
Sharkia 1,404,000 3.696369 379,832
Qalyubia 2,093,000 4.03743 518,399
Kafr Sheikh 731,000 3.486567 209,662
Gharbia 1,456,000 3.43093 424,375
Menoufia 780,000 3.768158 206,998
El-Beheira 1,300,000 3.813165 340,924
Ismailia 569,000 3.737979 152,221
Giza 4,039,000 3.709451 1,088,840
Beni Suef 630,000 4.765734 132,194
Fayoum 656,000 4.022094 163,099
Minya 908,000 4.226943 214,812
Assiut 1,603,000 4.61987 346,979
Sohag 977,000 4.079552 239,487
Qena 981,000 4.68839 209,240
Aswan 594,000 4.292619 138,377
Luxor 678,613 3.90863 173,619
Red Sea 363,000 3.952795 91,834
New Valley 108,000 3.018729 35,777
Matrouh 205,000 4.349674 47,130
North Sinai 326,000 3.669611 88,838
South Sinai 101,000 3.682772 27,425
Total 37,607,613 9,905,285
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3.3.2 EXISTING URBAN HOUSING STOCK IN 2006 Housing supply is usually generated from two sources: housing rehabilitation and new construction. Poor management of the existing stock in Egypt has resulted in significant loss of valuable resources.
According to censuses, the total number of housing units in urban areas was 5.85 million units in 1986, which increased to 8.35 million units in 1996, including informal units. The city of Cairo witnessed an almost 20 percent increase in housing stock during this period, from 1.73 million to 2.37 million units. Although precise data are not available for reference, one can presume that a substantial number of the newly built homes are informal ones. In 1986, at the nation-wide level, 186,000 newly built units were formally recorded, which declined to 86,000 in 1996. In Cairo, 97,000 formal units were recorded in 1986 and 22,000 in 1996.75
From 1997–2003, 1.1 million units were built by the formal sector, according to informa- tion drawn by CAPMAS from building permits, with an annual average of 157,000 units.
The private sector supplied most new stock starting from 2000-2001, around 60 percent of the total formal supply according to the CAPMAS Statistical Yearbook 2004 .
Undoubtedly, new formal housing construction activities have sharply declined recently. Housing production per 1,000 inhabitants decreased from 8.71 units in 1986 to 3.4 units in 1996 at national level and from 16.03 units in Cairo in 1986 to 3.29 units in 1996. Clearly, the housing industry did not properly respond to the increasing demand and need. Bottlenecks — created by government regulations and inadequate resource allocation for housing development — caused a backlog of unmet demand and need. With the amount of formal housing available being very limited and the prices high, a large number of households, the new migrant population in particular, settled in either temporary units (built in wood or brick without a permanent roof) or informal units. There has been a constant increase in informal housing units. As of 1993, 45.6 percent of the total population of Greater Cairo lived in informal housing. 76 When attempting to characterize housing demand, failing to distinguish between formal and informal housing can provide a misleading picture of the housing situation, since most of the informal stock is inadequate by any measure. There is no way to assess the characteristics of the informal stock without undertaking an intensive residential building survey.
The total number of urban housing units in 2003 was estimated assuming that the rate of supply from 1986 to1996 remained unchanged. Using this estimate, an attempt was made to calculate the share of the informal sector in total housing supply during the period of 1997-2003. (See Table 3.2.) The difference between the estimated housing stock in 2003 and the number of formal units according to building permits during this period was considered informal. By this method, the estimated number of informal supply during 1997-2003 is 1.65 million, compared to 1.1 million unit built by the formal sector.
75 “Housing in Egypt: Problems, Issues and Suggestions for Solutions,” Ministry of Housing, Utilities and Urban Communities, GOPP, National Urban Observatory, Korea International Cooperation Agency (KOICA), December 2001, page 8. 76 ibid
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Table 3.2: Estimation of Total and Informal Housing Units in 2003 Number of urban housing Avg. Estimated units, including units in Actual Estimated annual number of mixed use buildings Estimated formal informal rate of additional units in units, units, change, units 2003 97-2003 97-2003 1986 1996 1986- 1997-2003 (B) (A-B) Governorate urban urban 1996 (A)
Cairo 1,734,100 2,379,546 0.032 2,969,532 589,986 223,839 366,147
Alexandria 797,560 1,194,338 0.041 1,584,463 390,125 38,449 351,676
Port Said 93,212 155,298 0.052 221,999 66,701 39,059 27,642
Suez 86,337 132,834 0.044 179,592 46,758 22,433 24,325
Damietta 65,356 104,157 0.048 144,335 40,178 40,022 156
Dakahlia 266,803 399,298 0.041 529,507 130,209 37,664 92,545
Sharkia 204,825 320,172 0.046 437,707 117,535 63,041 54,494
Qalyubia 287,447 421,452 0.039 550,911 129,459 128,537 922
Kafr Sheikh 111,706 150,052 0.030 184,483 34,431 23,479 10,952
Gharbia 258,520 346,187 0.030 424,700 78,513 37,158 41,355
Menoufia 103,545 176,320 0.055 255,931 79,611 52,367 27,244
El-Beheira 189,312 353,868 0.065 548,284 194,416 59,967 134,449
Ismailia 71,039 110,223 0.045 149,905 39,682 24,111 15,571
Giza 650,304 956,360 0.039 1,252,780 296,420 63,815 232,605
Beni Suef 90,400 127,295 0.035 161,756 34,461 28,081 6,380
Fayoum 90,223 128,030 0.036 163,572 35,542 34320 1,222
Minya 152,115 191,931 0.024 225,853 33,922 20482 13,440
Assiut 175,656 321,959 0.062 492,036 170,077 36608 133,469
Sohag 144,082 209,011 0.038 271,182 62,171 29062 33,109
Qena & Luxor 130,154 187,049 0.037 241,104 54,055 29474 24,581
Aswan 71,373 110,840 0.045 150,838 39,998 24866 15,132
Red Sea 21,214 34,767 0.051 49,130 14,363 14274 89
New Valley 11,522 18,762 0.050 26,394 7,632 5554 2,078
Matrouh 22,574 45,605 0.073 74,610 29,005 8380 20,625
North Sinai 24,824 33,317 0.030 40,938 7,621 7327 294
South Sinai 4,768 10,017 0.077 16,843 6,826 6372 454
Total 5,858,971 8,453,694 11,348,384 2,729,696 1,098,741 1,654,495 The number of surplus units in urban areas increased from 1.15 million units in 1986 to 2.3 million in 1996 (28.41 percent from total stock). (See Appendix 3.3).
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3.3.3 CALCULATION OF HOUSING NEEDS THROUGH 2017 Using the same extrapolation of 1986-1996 data as shown in Table 3.2 above for 2003, total housing stock was estimated for 2006. The number of housing units currently occupied in urban areas was then determined by subtracting the number of surplus units from the estimated total stock for 2006. The figure for the percentage of surplus units in 1996 was used without any change, since the 1996 new rental law was assumed to have prevented rates of vacancies from increasing in the same manner as it had from 1986 to 1996. The amount of housing needed to meet the increased number of households was estimated by comparing the expected number of households to the number of current housing units available in the market (assuming that each household will occupy one unit). Calculations shown in Table 3.3 indicate that 1.27 million units are required to accommodate the increase in households by 2017. The demand for replacement housing was estimated according to building age. This information was extracted from an unpublished report on housing requirements prepared by the Housing Sector of the Ministry of Housing, Utilities and Urban Development. Buildings built before 1940 were considered in need of replacement.
Table 3.3 Housing Needs for New Households and Replacement of Deteriorated Stock (F) (D) (G) (E) Demand (A) (B) (C) Housing De- (H) Estimated for Annual No. of % of Surplus units mand Total Gover- no. of units Demand units surplus units occu- for demand norates families for new (H/10) in 2006, units in 2006 pied replace 2017 in 2017, house- estimated in 1996 (A*B) in 2006 -ment (F+G) urban holds (A-C) units (E-D) 2,300,03 Cairo 3,265,232 29.56 965,203 0 2,496,074 196,044 211,800 407,844 40,784 1,196,87 Alexandria 1,788,509 33.08 591,639 0 1,305,927 109,057 95,250 204,307 20,431 Port Said 258,738 32.61 84,374 174,363 177,411 3,048 14,700 17,748 1,775 Suez 204,372 26.66 54,486 149,886 165,032 15,145 13,200 28,345 2,835 Damietta 165,994 38.39 63,725 96,431 108,717 12,286 8,250 20,536 2,054 Dakahlia 597,590 30.15 180,173 417,417 422,062 4,645 45,000 49,645 4,964 Sharkia 500,477 30.77 153,997 346,480 379,832 33,352 32,700 66,052 6,605 Qalyubia 617,929 27.83 171,970 445,959 518,399 72,440 36,750 109,190 10,919 Kafr Sheikh 201,561 25.53 51,459 150,103 209,662 59,559 19,200 78,759 7,876 Gharbia 463,583 26.29 121,876 341,707 424,375 82,668 47,550 130,218 13,022 Menoufia 300,244 32.58 97,819 202,424 206,998 4,573 23,100 27,673 2,767 El-Beheira 661,461 20.09 132,888 300,246 340,924 40,678 33450 74128 7413 Ismailia 171,020 22.66 38,753 132,267 152,221 19,954 11700 31654 3165 Giza 1,406,457 33.91 476,929 929,527 1,088,840 159,313 64650 223963 22396 Beni Suef 179,248 26.86 48,146 131,102 132,194 1,092 17,100 18,192 1,819 Fayoum 181,680 22.49 40,860 148,166 163,099 14,933 16,350 31,283 3,128 Minya 242,169 23.92 57,927 184,242 214,812 30,570 27,750 58,320 5,832 Assiut 590,117 32.14 189,664 300,433 346,979 46,546 31,350 77,896 7,790 Sohag 303,200 30.19 91,536 211,664 239,487 27,823 29,550 57,373 5,737 Qena 268,815 22.25 59,811 209,004 209,240 237 20,205 20,442 2,044
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(F) (D) (G) (E) Demand (A) (B) (C) Housing De- (H) Estimated for Annual No. of % of Surplus units mand Total Gover- no. of units Demand units surplus units occu- for demand norates families for new (H/10) in 2006, units in 2006 pied replace 2017 in 2017, house- estimated in 1996 (A*B) in 2006 -ment (F+G) urban holds (A-C) units (E-D) Aswan 172,131 19.96 34,357 137,774 138,377 603 13,200 13,803 1,380 Luxor 173,619 173,619 6,495 180,114 18,011 Red Sea 56,979 31.22 17,789 39,190 91,834 52,644 1,800 54,444 5,444 New Valley 30,551 25.39 7,757 22,794 35,777 12,982 900 13,882 1,388 Matrouh 92,133 48.33 44,528 46,605 47,130 525 4,350 4,875 487 North Sinai 7,144 27.59 1,971 5,173 88,838 83,665 2,700 86,365 8,636 South Sinai 21,045 42.96 9,041 12,004 27,425 15,421 1,800 17,221 1,722 Total 12,748,377 28.41 3,621,814 8,633,867 9,905,285 1,273,424 830,850 2,104,274 210,427
In addition to the above-mentioned need created by new households and replacement of old structures, there is a considerable need to upgrade inadequate informal units and reduce overcrowding. If the percentage of informal units in need of upgrade is assumed to be 50 percent, and the total occupied units in 2006 is estimated at 8.6 million units with 45.2 percent of it (3.8 million units) being informal stock, we calculate that 1.95 million informal units need upgrades, or 195,000 units/year until 2017.
3.3.4 BREAKDOWN OF NEW NEEDS BY INCOME BRACKET, 1999-2000 The income and expenditure survey conducted by CAPMAS in 2000-2001 shows the distribution of households according to categories of annual household expenditure (See Figure 3.1; the source numbers can be found in Appendix 3.4). The distribution indicates that a high percentage of households spend from LE 8,000/year to LE 10,000/year, or LE 650-830/month. Households earning an annual income lower than LE 12,000 were classified as low income by the executive statute of the real estate financing law of 2001, which was modified in 2005 to a threshold of LE 18,000. 77 This study kept the old definition because it is applied on 1999/2000 income and expenditure data. 78
77 As mentioned above, low income brackets are identified as the families whose income is less than 18,000 EGP, Alwaka'ae Al-Massrya, March 22, 2005. 78 The 1999/2000 HIECS is the latest published study, with a 48,000-household survey sample from all governorates. HIECS 2004/2005 has not yet been published.
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Figure 3.1: Distribution of Households by Expenditure Categories in 1999-2000 79
Distribution of Households by Expenditure Categories
6000 5000 4000 3000 2000
1000
0 ------Number of Number Households of 8000- 2000 4000 6000 40000-
12000 16000 20000 70000 <1000
Expenditure Categories
For the purpose of this study, expenditure categories have been defined as follows::
Very poor: This group is defined as households who spend LE 416/month or less, i.e. LE 5,000 a year.
Low-income: This group includes households spending between LE 416 and LE 1,000/month.
Middle-income: This group includes households spending between LE 1,000 and LE 2,500/month.
High-income: These are households spending more than LE 2,500/month.
In order to determine housing needs by income bracket, the needs were weighted according to the proportion of each income group in the total population. These calculations were done for each governorate.
79 CAPMAS, Housing and Expenditure Survey 1999-2000.
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Table 3.4: Estimation of Housing Needs by Income Bracket Until 2017 Distribution of households 80 Total Housing needs by income bracket by expenditure level Governorates housing very very low middle high needs low middle high poor poor Cairo 5.9 58.5 30.5 5.1 407,844 23,902 238,580 124,534 20,829 Alexandria 9.7 64.0 24.8 1.5 204,307 19,918 130,656 50,697 3,035 Port Said 3.8 37.0 51.9 7.3 17,748 666 6,572 9,207 1,303 Suez 2.0 46.8 49.0 2.2 28,345 577 13,263 13,884 621 Damietta 10.8 72.0 17.3 0.0 20,536 2,208 14,786 3,542 0 Dakahlia 20.5 70.6 8.5 0.4 49,645 10,197 35,043 4,213 191 Sharkia 25.2 70.4 4.3 0.2 66,052 16,637 46,496 2,810 110 Qalyubia 13.8 71.1 14.3 0.7 109,190 15,096 77,636 15,663 795 Kafr Sheikh 8.8 79.7 11.4 0.2 78,759 6,891 62,761 8,983 123 Gharbia 10.4 70.7 18.4 0.5 130,218 13,596 92,008 23,910 703 Menoufia 14.0 76.7 9.3 0.0 27,673 3,868 21,226 2,579 0 El-Beheira 11.3 76.8 11.4 0.4 74,128 8,398 56,951 8,474 305 Ismailia 3.5 72.5 23.0 1.0 31,654 1,108 22,949 7,280 317 Giza 14.6 64.3 17.4 3.7 223,963 32,726 143,948 39,047 8,242 Beni Suef 26.9 63.5 9.4 0.2 18,192 4,889 11,559 1,705 38 Fayoum 24.0 70.0 6.0 0.0 31,283 7,508 21,898 1,877 0 Minya 15.3 68.8 15.0 0.9 58,320 8,930 40,095 8,748 547 Assiut 35.8 62.2 2.0 0.0 77,896 27,883 48,454 1,560 0 Sohag 26.8 68.3 4.5 0.3 57,373 15,378 39,208 2,608 180 Qena 12.7 79.8 7.2 0.4 20,442 2,596 16,310 1,463 73 Aswan 17.5 72.9 9.6 0.0 13,803 2,416 10,065 1,323 0 Luxor 39.6 55.0 5.4 0.0 180,114 71,295 99,063 9,756 0 Red Sea 0.0 70.0 30.0 0.0 54,444 0 38,111 16,333 0 New Valley 1.3 78.8 20.0 0.0 13,882 174 10,932 2,776 0 Matrouh 5.1 72.2 22.8 0.0 4,875 247 3,517 1,111 0 North Sinai 2.5 75.0 21.3 1.3 86,365 2159 64,774 18,353 1,080 South Sinai 0.0 40.0 57.5 2.5 17,221 0 6,888 9,902 431 Total 12.1 64.3 21.2 2.4 2,104,274 253,893 1,354,048 445,158 51,175
Total housing needs by low-income households (newlyweds and replacement housing) between 2007 and 2017 are estimated to be 1.35 million housing units, or135,000 units/year. Households in Cairo account for 17.6 percent of this need (23,858 units/year), Alexandria 9.6 percent and Giza 10.6 percent (see Table 3.4).
In addition, 12.1 percent of the total need (254,000 units until 2017) comes from households classified (using 2001 CAPMAS data) as “very poor” — in other words, they cannot afford to buy formal units and are considered ineligible for loans. These households will seek units in the informal sector and can be categorized as need for informal housing.
80 CAPMAS (2001), Income and Expenditure Survey 1999-2000. Percentages were deduced from the number of families in each group (see Appendix 3.4).
TECHNICAL ASSISTANCE FOR POLICY REFORM II 58
Therefore, the total need for urban housing by low income and very poor groups combined is estimated as 160,000 units per year until year 2017, not including units needed to replace substandard informal housing. Figure 3.2 shows the governmental supply of low-cost and economic housing 81 during 1994-2003. The difference between needs and governmental supply is to be covered by the private sector.
Figure 3.2 Gap Between the Government's Low- Cost Housing Supply and Expected Needs
180000 160000 140000 Public sector supply 120000 of low-cost housing 100000 80000 Future housing 60000 needs for newlyweds 40000 and replacement 20000 numberofunits built 0
2 3 97 98 99 00 01 0 0 9 9 9 0 0 0 0 1995 1996 1 1 1 2 2 2 2 years
Source: CAPMAS Yearbook 2005
Clearly the housing shortage is serious among poor and low-income households in large cities. The high cost of housing relative to household's income seem to be associated with the inability of the housing industry to produce affordable housing units. This conclusion is drawn from the analysis on affordability in Chapter 4 of this study, which indicates that the amount households at the lowest end of the scale can afford to pay is LE 75/month, much lower than the installment amount proposed in the Mubarak National Housing Project, which starts with LE 160 and increases 7.5 percent annually. The analysis above concerning needs for housing can be compared to the results of a recent study done by the Ministry of Planning, which states that the total housing needed until 2017 in order to accommodate the expected population increase is 5.3 million units. The Ministry study indicates that the total need in urban areas amounts to 2.8 million units: 1.9 million for low-income, 0.7 million for middle income and 0.2 million for high-income households 82 (compared to the calculation in this study of a need of 160,000 units/year in urban areas, or 1.6 million by 2017, for very poor and low-income households combined, along with to 195,000 units/year requiring upgrading). The Middle East Ratings and Investors Service estimates that annual need for housing units for urban and rural areas for all income groups is
81 In this figure, “low-cost” and “economic” refer to categories used by the government to define public housing units based on average area. These two are the smallest, and hence least expensive, categories. 82 Institute of National Planning, (2005) Egypt Human Development Report, page 131.
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approximately 750,000 units (480,000 for newlyweds; 220,000 for upgrading and 50,000 for replacement of old buildings). 83
3.4 LOCAL HOUSING NEEDS ASSESSMENT FOR GREATER CAIRO The forecast of housing needs at the national level has shown that a large portion of Egypt’s low income households are located in Cairo and Giza, and they represent over 28 percent of the low-income housing demand. Therefore, a local housing needs assessment for the Cairo region has been produced based on a housing survey conducted by TAPRII 84 (see a detailed methodology for the survey in Appendix 3.5) with a sample of 323 households living in poor districts. All survey participants had already applied for a housing unit under the Mubarak National Housing Project. Applications were submitted for housing in three new cities surrounding Cairo: 6th of October, Al-Obour and 10th of Ramadan. All applicants are residents of Greater Cairo: Cairo city (62.5 percent), Giza (28.8 percent) and Qalyubia (8.7 percent). Applications indicated that residents of Giza generally sought a unit in 6th of October, while those living in Qalyubia prefer Al-Obour. Cairo city residents applied to all three new cities but showed a clear preference for Al-Obour. The applicants currently live mainly in old and low-income districts: Old Cairo (18.6 percent), Shobra El-Sahel (11.1 percent), Rod El-Farag (8 percent), and El-Salam city, El-Matariah and Ain Shams (7 percent each).
With reference to the expenditure-based definitions of income group given for Table 3.4, most applicants in the sample can be assumed to be either very poor (which was defined as monthly expenditure of LE 416 or less or annual expenditure of no more than LE 5,000) or low-income (monthly expenditure in the range of LE 416 to 1,000). The mean total household income is LE 568, with a standard deviation 85 of LE 550.7 and a median of 500LE. The minimum is LE 80 per month.
3.4.1 CHARACTERISTICS OF SURVEY RESPONDENTS The mean age of applicants was 34.02 years (std. dev. = 9.05) and a median of 33. 66.6 percent of applicants are married and 90 percent of them have children. The mean number of children is 2.46 (std. dev. = 1.12) and the median is 2. The mean number of people living together in the applicants’ current residence is 5.52 (std. dev. = 1.87). Extended families account for 42.6 percent of the living situations.
83 “Egypt: Overview of the Housing Sector,” Issues Paper 1, 2005, Overseas Private Investment Corporation, Office of Economic Development, page 5. 84 Technical Assistance for Policy Reform II, March-April 2006 survey. 85 When a distribution is “normal” (i.e., shaped like a bell curve), about two thirds of the observations in the sample will fall between the mean and plus or minus one standard deviation. (In this example, with a mean total household income of LE 568 and a standard deviation of LE 550.7, if the distribution is normal then two thirds of the sampled households will have total household income between LE 80 and LE 1,020.) While standard deviations are provided here, readers are cautioned against over-interpreting the results, as some of the sample categories are very small and the shape of the distribution is not known.
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The educational status of the applicants can be broken down as follows: • 28.8 percent of applicants have university degrees.
• 37.2 percent have secondary vocational degrees. • 26.3 percent have a primary school education. • 7.7 percent are have little to no formal education and are illiterate or semi- literate. In terms of financial assistance available from family members:
• 45.8 percent of survey respondents said that they have no one to help them financially.
• 27.2 percent of have parents who are willing to help. • 11.1 percent of wives are willing to participate by paying part of the required purchase amount. The average amount that respondents said they were able to save each month for the family was LE 273.1, with the lowest response being LE 50 and the highest LE 700.
3.4.2 CHARACTERISTICS OF THE HOUSING CURRENTLY OCCUPIED BY SURVEY RESPONDENTS 95.4 percent of applicants currently reside in apartment buildings of 4 to 5 stories. As reported by those surveyed, 55.1 percent of these buildings are in “moderate” condition and 30 percent in “good” condition — which implies that poor conditions of current living quarters are not the main impetus for moving.
The tenure type of applicants is as follows: • 43.7 percent are renting apartments under the old rent law. • 27.9 percent are renting apartments under the new rent law.
• 20.1 percent own their residence (3.4 percent are joint owners, 57percent inherited it).
• 8.3 percent own or rent apartments from the government. The mean monthly rent is LE 99.73 with a standard deviation of LE 92.08. The median rent is LE 66.5 and the maximum is LE 450. The mean area of applicants’ current living quarters is 67.4m 2 with a standard deviation of 22.45m 2. The minimum is 9m 2, implying a one-room residence, and the maximum is 140m 2.
82.6 percent live in apartments with one living room and two to three bedrooms. 100 percent are connected to water and electricity networks and 94.4 percent are connected to public sanitary drainage. 12 percent have toilets without flush and 2.8 percent share a bathroom.
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3.4.3 REASONS THAT RESPONDENTS HAVE A DEMAND FOR NEW HOUSING UNITS With respect to their demand for housing from the Mubarak National Housing Project in particular, 85.4 percent of the survey respondents said that they choose to participate in this program because the private sector is so expensive. This is consistent with data from the program as a whole: According to data from the Ministry of Housing, 93,000 persons responded to first announcement and have applied for a unit through the Mubarak National Housing Project. Of these, just 4,860 applicants (5.3 percent) were found eligible for housing loan, as they were able to make a down payment of 5,000 LE. Looking more generally at the demand for new housing, 77.1 percent of survey respondents described themselves as dissatisfied with their current residence. The principal reason given is small size (identified by 63.5 percent of those surveyed); other dissatisfactions identified include noise, lack of security and poor internal .
Asked to pinpoint the reason they desired to move, applicants responded as follows: • 28.8 percent of the applicants would like to get married (note that this reflects a demand for additional housing based on an increase in the total number of households).
• 4 percent of those surveyed need new housing because their current residence is being demolished (note that this reflects a demand for replacement housing stock). • 22.6 percent wish to own rather than rent their housing (this is a demand for ownership ). • 5.3 percent residence want to move because their current residence needs major repairs (indicating a demand for maintenance ). • 39.3 percent said they were seeking independence, a better environment and formal housing (representing a demand to upgrade current living conditions ). These survey results can be combined with information in Table 3.4 to yield forecasts of housing demand: According to the table, the total housing demand for Greater Cairo (consisting of Cairo, Giza and Qalyubia) is 740,997 units until 2017, or 531,888 units once demand by high and middle income- households is excluded. This suggests that demand by very poor and low-income households in Cairo can be characterized as follows:
• 153,184 units for new households (i.e., 28.8 percent of 531,888) • 120,206 units for ownership • 21,275 units for replacement
• 28,190 units for maintenance • 209,030 units for upgrading
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3.4.4 CHARACTERISTICS OF THE HOUSING DEMANDED BY SURVEY RESPONDENTS According to the survey, the characteristics of the housing demanded are as follows:
• Required area : The mean area sought by survey respondents was 79.5m 2, with a standard deviation of 16.02m 2 and a range of 60 to 150m 2.
• Number of bedrooms : 53.3 percent of households surveyed require 3 bedrooms while 38.1 percent of households require 2 bedrooms.
• Tenure type: 93.5 percent said they prefer ownership and 6.5 percent prefer long-term rent.
• Finishing status: 74.5 percent prefer to move into units that are completely finished.
• Location: 85.1 percent prefer to move to new satellite cities and the remainder would like to stay inside Cairo, mainly because of proximity to work.
3.4.5 CHARACTERISTICS OF THE FINANCIAL ARRANGEMENTS ACCEPTABLE TO SURVEY RESPONDENTS • Down payment: the mean value of the highest down payment survey respondents said they could afford to make was LE 6,642, with a standard deviation of LE 3916 • Installments: The mean value of the installments that survey applicants were prepared to pay was LE 111.76, with a standard deviation of LE 68.33 and a maximum of LE 400.
• Loan agreements: 68.1 percent are willing to take loans with only their monthly salary as collateral. They would like to take these loans in order to purchase fully built subsidized residences rather for the purpose of building or purchasing land and infrastructure. 31.9 percent refuse to take loans, citing an unwillingness to go into debt, a refusal to pay interest and/or fear they will be unable to repay the loan.
3.5 CHOICES AND RESIDENTIAL STRATEGIES CURRENTLY AVAILABLE TO YOUNG HOUSEHOLDS At present there are two modes of housing provision in Egypt: public; and private, which includes informal housing and cooperatives.
3.5.1 THE PRIVATE SECTOR Formal and informal housing within the private sector should be separately considered.
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The formal private sector relies on self-financed projects. There are no restrictions placed in terms of the size of the housing unit or the level of finishing. The sector depends on private housing and construction companies that seek to maximize profit and therefore are not interested in construction projects to benefit low-income groups. The formal private sector also includes cooperative associations for housing and construction, that is, non-governmental organizations that aim to provide appropriate shelter for their members at a price equivalent to the actual cost. They rely on self- finance through members' savings and low-interest state-subsidized loans. Those associations have been playing an important role in middle-income families housing. As of mid-2003, the private sector had established about 568,158 residential units in the new cities. Both public and private sector supply remained almost constant from 1995 to 1998 (public sector supply being higher) but then started to increase. The private sector became a larger supplier of housing than the public sector supply beginning in the period 2000-2001. (See Figure 3.3.)
Fig. 3.3: Public vs private housing supply during 1995-2003
200000
150000 public sector 100000 private sector
supplied 50000 total
number of units 0
1 96 03 998 1995 19 1997 1 1999 2000 200 2002 20
years
The informal private sector consists of individuals who can construct their own houses on illegally acquired land that does not meet zoning codes and construction standards. It is significantly less well supplied with infrastructure. The government’s policy is to develop and upgrade informal areas, where possible. 86
3.5.2 THE PUBLIC SECTOR Overall, during the period1995 to 2003 the public sector contributed with 706,486 units (or 56.2 percent of a total of 1,257,729 units). 87 Public sector housing is financed by small for-profit loans from the National Investment Bank (NIB). The public sector carries out the construction of different types of housing units with a particular interest in low-income housing. A number of institutions of varying ages participate in public sector housing activities, including
86 Madbouly and Lashin (2003), Informal Housing in Greater Cairo: case study Boulaq El-Dakrour area. 87 CAPMAS (2005), Statistical Year Book
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construction agencies, New Urban Communities Authority, Housing and Construction Bank, General Organization for Housing and Building Cooperatives, Housing Financing Fund, housing directorates within each governorate, and housing and construction enterprises. Of the total number of formal housing units built by the public sector between1995- 2003 in Egypt, 568,158 units (or 80.4 percent) constituted low-cost units, in keeping with the government’s emphasis on lower and lower-middle income groups. The government offered citizens in these income brackets loans at below market interest rates.
Fig. 3.4: The Percentage of Low-Income Housing in the Public Sector Supply, 1995-2003
Supply of public sector by housing level 1995-2003
138328; 20%
middle and high
low -income
568158; 80%
Beginning in 1996, a citizen who requested a government loan in order to pay for a housing unit was granted a loan of LE 15,000 at a 5 percent interest, with a 40-year term. The 1996 stipulations regarding loans were intended to enable the purchase of low costs units with areas of 70m 2 or less; monthly installments were not to exceed LE 73. Not long ago, the government undertook an important new subsidized housing initiative, the Mubarak National Project for Youth Housing. 70,000 units were built at a cost of LE 1 billion. A young adult interested in purchasing such a unit bears 60 percent of the cost, with the state bearing the remainder.
Another new program, referred to as the Future Housing Project, has been launched under the auspices of Egypt's First Lady Suzanne Mubarak. Under this initiative the state provides land with the necessary infrastructure and loans of LE 14,000 per unit. The Nasser Social Bank is another option for low-income households, granting loans to citizens who wish to purchase low cost units.
3.6 FURTHER DEMAND-RELATED CONSIDERATIONS FOR EGYPTIAN HOUSING POLICY This chapter has attempted to provide a descriptive overview of projected demand, primarily quantitative in nature, using the available data for forecasting. However, these numerical estimates and extrapolations cannot capture the whole story. There may be other phenomena, both quantitative and qualitative, worthy of consideration
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as the Government of Egypt attempts to refine its understanding of the demand for low-income housing. These include: 1. Trends in population movement to the new cities show that higher income groups are moving to them first, followed later by the poor, suggesting the possibility that richer households find the new cities more desirable than do the poor. This should be of interest to policy-makers, given that new cities were initially created as settlements for low-income groups. 88 2. Industry leaders such as Ceramica Cleopatra, Oriental Weavers for Carpets, Geneidy for Appliances, Saoudy for Cars, Juhayna for Foodstuff and Ahmed Bahgat for Electronics have been investing in urban development in the new cities, seeming to perceive such investment as less risky than industrial development during recessions in financial markets, and in particular during a period of market liberalization. 89
3. Theoretically, the large number of units built during the past decades should have resolved the housing problem. In fact it did not, because housing units must not only be available, they must also be affordable to the segment of society that requires housing. The data presented in this study show that this has not been the case. The result has been a phenomenon whereby closed (surplus) apartments have reached 3.6 million apartments, creating a peculiar housing situation that can be described as "dwellers without dwellings, and dwelling without dwellers.” 90 4. Because government-provided housing is not affordable by the target poor and low-income groups, it usually ends up in the hands of economically better off groups. 5. One of the goals of economic policy reforms enacted since July 2004 has been reducing the deficit by such means as State expenditure reduction. This has led to reductions in the funds designated for subsidized housing loans and to increases in the interest for those subsidized loans from 4 percent to 6 and 7 percent in current housing programs under the auspices of the Ministry of Housing. 6. The private capital that has poured into the market has led to a substantial increase in land prices that, in turn, has led to the exclusion of the urban poor. The informal market has provided the only affordable alternative for those people of low- income brackets. 7. The old rent control laws were conceived of as a means to reduce the cost of housing for lower income groups, but they resulted in a significant reduction in the amount of low and lower-middle income housing built. The 1996 rent control law which regulates new rental housing tied the rent to the Civil Code, i.e. freedom of contract between landlord and tenant according to the principles of supply and demand. For most part, landlords set the contract period at one year so that rents can be changed according to the market.
8. Limited surveys conducted by the Information and Decision Making Center of the Cabinet proved that a large segment of the low-income urban population has low
88 Manal El-Batran (2004), “Profitability Versus Responsibility: Sustainable Housing in Focus.” The 48 th IFHP World Congress. 89 ibid 90 Ibid
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chance of participating in the currently offered formal housing programs conducted by the Ministry of Housing .91 The down payments necessary (LE 5,000) to obtain one of the housing units in a new city exceed the capacity of many of young and low- income households. This statement is supported by the very small number of applicants for a unit in the new National Housing Project of 2006 (according to the Ministry of Housing).
9. The government is currently focusing on the provision of rental housing while developers are neglecting rentals for more profitable ventures. The government’s plan is to attract private developers to invest in low-cost housing by taking these steps: • Selling land to developers willing to build rental houses for low-income households and youth with a low price of LE 70/m 2. • Subsidizing rents to help low-income households and give property owners a guarantee that they will be able to collect a reasonable income from renting. • Ending rental contracts in ten years time, thus leaving landlord-tenant relationships to the open market.
3.7 CONCLUSIONS This chapter has made a comprehensive study at the national level in order to forecast housing needs for urban areas in each governorate to 2017. In the interest of generating preliminary indicators of housing needs by geographical distribution, several assumptions were made to compensate for lack of data (such as the supply and characteristics of informal stock and current rates of vacancies) or the availability of old data only (1996 Census on population and housing stock, 1999 data on income). The study estimates that 2.1 million units will be needed between now and 2017 to meet the need for new households and replacement housing. Of this total, 1.6 million units are required to house low-income households.
Based on secondary data and previous studies we also conclude in this chapter that:
• The housing market in Egypt is in pronounced disequilibrium. There is an excess supply of housing for medium and high-income households at the same time the supply for low-income households is inadequate. The market is “supply driven” as suppliers build more luxury-oriented housing in hopes of higher profits, rather than responding to the type of housing actually demanded by consumers.
• Since 2000 or 2001, the private sector has been the main supplier of new formal stock (providing about 60 percent). Annual rates of supply since 2000 have fluctuated between 130,000 units and 150,000 units per year.
• The public sector is the main supplier of formal low-income housing. Over the past few years supply has sharply declined, from 52,211 units in 2001 to 28,378 units (in 2002), 17,423 units (2003) and 12,328 units (2004). This trend highlights the important role of the informal sector in providing housing to low-income families.
91 IDSC (2006), Study of inhabitants' preferences on housing prototypes proposed by the government in Mubarak National Housing Project.
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Combining this study’s estimates with other available data, we conclude that the gap between the current government's low-cost housing supply and future needs is approximately 148,000 units per year.
To characterize housing demand by housing type, location and affordability, the study relied on the findings of the limited housing survey conducted by TAPR II in Greater Cairo in March-April (see Appendix 3.5). Results of the TAPR II survey are suggestive rather than definitive.
Survey analysis gives an indication of the reasons that households are expressing a demand for housing. Forty percent of the demand for low-income housing can be characterized as “highest priority”: 30 percent are establishing new households, and 10 percent need to replace living quarters in an advanced state of disrepair. Sixty percent of the demand for low-income housing can be characterized as “lower priority”: respondents simply wish to upgrade their living conditions, citing a desire for more independence, reduced overcrowding, or better housing quality.
3.8 RECOMMENDATIONS The findings of this chapter suggest first of all a need for better data and analysis of that data:
• Thoroughly study the financial mechanisms related to the supply of informal housing by the private sector, with a goal of determining appropriate policies to formalize these mechanisms and enhance the participation of the private sector in low-income housing provision.
• As soon as the needed data can be made available, update the findings of this chapter on the basis of 2006 Census data and the 2004-2005 Income and Expenditure Survey conducted by CAPMAS.
• Using the modest TAPRII survey that was conducted as a guide, survey larger and more representative samples in various geographical locations in order to determine demand profiles in major urban areas. Because the housing market is essentially local and the characteristics of supply and demand can differ greatly from one area to the other, further surveys should study market forces and equilibrium for each geographical location individually.
With the understanding that such further study may lead to modifications and additional recommendations, this chapter also leads to a clear policy recommendation:
• The public sector should focus its limited resources where they are needed most, i.e. on the forty percent of demand based on new housing formation and replacement of housing that has become uninhabitable. The remaining 60 percent (needed to upgrade living conditions) can be left to the private sector and market forces.
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CHAPTER 4: AFFORDABILITY ANALYSIS
4.1 INTRODUCTION
4.1.1 PREFACE The post-World War II era was characterized by government housing policies — both nationally and internationally — that sought to perform consistently in meeting this essential human need. Since then, there has been much progress and innovation in production, maintenance and development strategies. Since the 1960s, the concept of a “public partnership” for housing has held sway, and has been developed through various intellectual and practical approaches. Central to this approach are mechanisms for public involvement in home building, for housing finance, and so on.
The "John Turner" school, which called for authority, economy and housing production decentralization, 92 is a prominent example of approaches to public participation in housing. It also stressed the housing utilization value, which tends to value the user-product relationship more than the market value, and to expand the "housing as commodity" notion. Such ideas gave birth to a number of housing strategies which were tested and refined in the last three decades. Meanwhile, an approach championed by Rod Burgs (essentially a backlash to Turner) analyzed the impact of Turner's ideology on the housing issue, and called for a more practical approach towards housing that would be in keeping with the values and mechanisms of capitalist societies. 93,94, 95,96 Adherents of both the Turner and Burgs schools focused on the housing finance process and stressed public participation in actual housing production, maintenance and development as vital elements to improving the societal housing situation.
Concurrent with those approaches was a focus by governments on housing policy planning at the macro level, mainly by classifying population into strata for the purpose of addressing their needs appropriately. 97 The criteria used for these classifications varied; in the early sixties (with the beginning of Egypt’s housing crisis) the focus was strictly on income. Hence, households were mainly classified into head-of-household income brackets, on which the State's five-year plans for housing were based. 98 Next the occupations of housing beneficiaries were taken into
92 The Egyptian government has recently recognized the importance of needs-oriented and decentralized provision of services within the housing sector. United Nations Development Program (UNDP) and National Planning Institute, Egypt Human Development Report 2004, Choosing Decentralization for Good Governance, (Cairo, 2004). 93 Hany Serageldin, “Improving the Designing and Implementing Performance of Housing Programs” (Ph.D. dissertation, Al-Azhar University, Cairo, 1995). 94 John F. C. Turner, "From Central Provision to Local Enablement, new directions for housing policies" in Glaeser, B., Learning from China: Development and Environment in Third World Countries, (London: Allen and Unwin, 1983). 95 John F. C. Turner, Housing by People: Towards Autonomy in Building Environments (New York: Pantheon Books, 1977). 96 Burgess, Rod “Some Misconceptions about Self-help Housing Policies in Less Developed Countries,” African Urban Affairs Quarterly X (4), (1987). 97 Samy Serageldin, “Stating, Analysis and Evaluation of Housing for Low Income Groups in Egypt. Definition of priorities of users needs due to developed classifications of users groups” (Ph.D. dissertation, Cairo University, Giza, 1993) 98 Abdel-Mohsen Barrada, “Housing Systems: An Approach for Housing Policies,” I Proceedings of Housing International Conference: Housing Policies and Systems of Low Income Brackets, Housing, Building and Physical Planning Research Center, Cairo, February 1992.
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consideration in joint Ministry of Housing and USAID studies in the mid-1970s. 99 Later classification concepts included social criteria, which considered such factors as income continuity and household resources in addition to income levels, along with the demographic structure of beneficiary households. These concepts results in a unique approach to planning new urban communities such as El-Amirya, New Damietta, El-Obour, and others, 100 featuring architectural designs for housing units that could be developed gradually (in size and finishing) to keep pace with growth in users’ needs and resources. 101 Hence, the need for a detailed study of the various characteristics of the target population is projected.
4.1.2 OBJECTIVES This chapter attempts an “affordability analysis” — in other words, to analyze what households in Egypt’s lower-income brackets can afford to pay for housing. There are various methods to examine and measure this. In broad terms, housing affordability relates housing costs to household income. 102 Hence, this study aims to investigate both sides of this equation, through studying housing costs (the prices and rents of available and occupied housing units for the target population, in both the formal and informal sectors) and relating these to household income and savings. The study also aims to investigate in detail the characteristics of various categories that fall within the low income group (in order to correlate their social characteristics with their ability to afford housing) and housing finance mechanisms and the government’s role in providing required housing. Thus, the study methodology, content and conclusions are designed to assist policy-makers to make informed decisions regarding housing policy and levels of public participation in housing provision.
4.1.3 METHODOLOGY As shown by previous studies, the housing problem is not one of a shortage of overall supply. An analysis of the housing sector in Egypt shows that housing affordability rather than availability of the stock is the central problem, given high housing prices and the low income of the wide majority. 103, 104 The affordability problem does not appear to be driven by scarcity as a whole, but it is more likely that scarcity exists for certain segments of the housing market (e.g., low-income housing). Further detailed analysis of qualitative data and information confirm that there is an oversupply for upper and upper-middle income groups and
99 Joint Housing Team, Egypt. Ministry of Housing and Reconstruction (MOHR) and USAID. Bur. For Program and Management Services. Ofc. Of Housing, Immediate Action Proposals for Housing in Egypt (June 1976). 100 Nassamat Abdel-Kader, Housing Studies: New Damietta City, Second Report (Cairo: Arab Architectural Design & Engineering Consultancy, 1979). 101 Ministry of Reconstruction, New Communities, Housing and Utilities, Housing in Egypt (Cairo, 1989). 102 Reserve Bank of Australia, HIA Submission to the Productivity Commission Inquiry into First Home Ownership (October 2003), p.7. 103 Deniz Baharoglu et al. The Macroeconomic and Sectoral Performance of Housing Supply Policies in Selected MENA Countries: A Comparative Analysis, April 2005, p. 9-10. 104 “Egypt: Overview of the Housing Sector,” Issues Paper 1, 2005, Overseas Private Investment Corporation, Office of Economic Development, July 2005, p.3.
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an undersupply for lower income segments in Egypt. 105 This is largely the result of a variety of housing and land market policies which constrain the functioning of the housing market. When these constraints are combined with the inexorable demographic demands for housing, the result has largely been an increase in housing prices rather than an increase in production. Table 4.1 indicates a high surplus housing rate throughout the country. It appears that price, rather than quantity, is the most important problem in the functioning of the housing market. 106 Table 4.1 Percent of Surplus Units* in 1996 107 Governorate Percent Governorate Percent Governorate Percent
Cairo 15.1 Gharbia 14.3 Sohag 14.9
Alexandria 15.1 Menoufia 14.5 Qena 14.1
Port Said 20.9 El-Beheira 10.6 Aswan 17.2
Suez 13.7 Ismailia 10.9 Luxor 19.7
Damietta 20.8 Giza 18.8 Red Sea 27.4
Dakahlia 14.5 Beni Suef 5.1 New Valley 15.2
Sharkia 15.4 Fayoum 9.2 Matrouh 26.2
Qalyubia 16.7 Minya 10.6 North Sinai 16.3
Kafr El-Sheikh 10.5 Assiut 13.6 South Sinai 21.7
* not including precarious housing ( gawazia )
The study’s first two sections investigate prices and rents of available and occupied housing units in the formal and informal sectors, then the third section considers income and saving rates, and the relation between income level and characteristics and tenure status. The last section is concerned with housing affordability. Affordability is frequently interpreted as the relationship between household income and housing expenditure; housing is affordable if expenditure relative to income is reasonable or moderate. Affordability is commonly measured in terms of the ratio of housing costs to income (also known as rent burden or owner cost burden). The rest of this section addresses particular elements of the housing process, including target population, needs and housing aspirations. The analysis is done in multiple steps, estimating the needed
105 Baharoglu et al. The Macroeconomic and Sectoral Performance of Housing Supply Policies in Selected MENA Countries. Op. Cit., p.10. 106 The number of vacant housing units is related to factors other than unit price, including community culture within certain population brackets. Vacant units are either leased for some nominal fee, yet not physically occupied by the tenant, who keeps the premises for his/her children, or being held off the market by the owners for the same reason, and units that cannot be sold because of high prices. 107 Egyptian Cabinet, Information and Decision Support Center (IDSC) Citizens' Preferences for Government-Proposed Housing Models, January 2006.
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elements when necessary by relating income levels to other characteristics of this population, and combining all information in a computerized analysis. Figure 4.1 Components of Affordability
The main elements the methodology used for this study are: 1. An analysis to infer the relationship between income and demonstrated ability to pay for housing. The three-stage analysis, as shown in Figure 4.1, includes determining available and occupied housing prices and rents, determining the income and saving brackets of the occupants, and creating affordability indicators by calculating the income-to-rent (RTI) or payment-to-income (PTI) ratios.
2. Classification of survey respondents into categories based on broad lines of the study, in accordance with the study’s objective of testing the interrelation between the characteristics of each category. 3. A comparative analysis of the characteristics of survey group according to the categories used. 4. Deducing the relationship among various study elements to form an understanding of how they interact, in order to guide housing policy makers at different stages of the decision-making process. This chapter was able to draw on data and information provided by primary and secondary sources for Greater Cairo and the nation, as well as on the TAPRII survey, and the availability of such data affected the depth of the study.
The methodology for the affordability analysis in section 4.5 been affected by constraints in available data, time and sample size. This should be taken into consideration when assessing the strength of correlations according to the analysis performed. This study offers a methodology and performs an analysis based on the
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sample size available as a preliminary step that suggests further avenues for analysis. Accordingly, it is recommended to enlarge the study sample, to acquire a comprehensive data base of population classes, and to apply a variety of statistical methods to analyze the data.
4.2 PRICES OF HOUSING UNITS
4.2.1 CURRENT HOUSING PRICES
4.2.1.1 FORMAL PUBLIC HOUSING To help improve access to home ownership, especially by lower income households, the government has provided a range of subsidies. Public housing programs have focused on delivering finished housing units, mainly in the new and satellite cities and at the fringe of existing cities. 108 In most cases, housing was made available for purchase. 109
Prices of and payment methods for government housing units have varied. In December 2005, MHUUD has, within the National Housing Project (part of President Mubarak's platform), made available 63m 2 housing units in new cities, 110 with a view to providing adequate shelter for low income people. Table 4.2 shows unit prices and payment methods. Table 4.2 Prices and Financing Arrangements for Housing Units (63m 2) for Low Income Brackets in New Cities 111 Total unit price LE 50,000
Cooperative loan (to be repaid in 40 years) LE 20,000
Cooperative loan interest 5%
Complementary loan (to be repaid in 30 years) LE 21,500
Complementary loan interest 10%
Up-front down payment LE 5,000
Payment upon acquisition LE 3,500
Monthly installment LE 160
Monthly installment annual increase rate 5%
108 World Bank, Mortgage Finance Project Draft , 2006. 109 There are no data available on the provision of rental housing units since the Mubarak administration. Currently the government is providing 2,268 Units for rental in Al-Obour City and 6 th of October City in Egypt. 110 New cities include: El-Sherouk, Obour, Badr, 10 th of Ramadan, 15 th of May, 6 th of October, El-Sheikh Zayed, Sadat, New Nobaria, New Borg El-Arab, New Damietta, New Beni Suef, New Minya, New Assiut, New Thebes. 111 National Housing Project Advertisement- President Mubarak's Project for providing suitable housing to low income brackets – in Al-Ahram and El-Akhbar newspapers, December 9-10, 2005.
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The Government of Egypt has recently, and concurrently with the National Housing Project, performed a detailed study on three housing models suggested to suit citizens' different needs. The price and payment pattern are variable in these three models as displayed in Table 4.3. Table 4.3 Prices of Housing Units Suggested by the Government 112
Payment Monthly Annual Monthly Unit Down Model Area upon installment rate of installment price payment acquisition in year one increase in year 30
First 63 m2 55,000 5,000 2,000 160 7.5% 1300
Second 90 m2 95,000 24,000 4,000 260 10% 2120
Third 115 m2 155,000 39,000 6,000 590 10% 3550
In March 2006, MHUUD made available 63m 2 housing units, within the National Housing Project, to provide youth with housing in new cities and governorates. 113 Table 4.4 displays unit prices and financing arrangements. Table 4.4 Prices and Financing Arrangements for the Youth Housing Units in New Cities and Governorates 114 Down payment LE 5,000 Monthly installment LE 160 Annual rate of increase 7.5 % Installment duration 20 years Present value of payments 115 LE 32,500 State subsidy per unit 116 LE 15,000 Unit price LE 47,500
Meanwhile, MHUUD has provided prices per square meter based only on the housing project location, as shown in Table 4.5.
112 Egyptian Cabinet, Information and Decision Support Center (IDSC), Citizens' Preferences for Government Provided Housing Models, January 2006. 113 Including the following governorates (Alexandria, Port Said, Sharkia, Dakahlia, Menoufia, Damietta, Kafr El-Sheikh, Gharbia, El-Beheira, Giza, Fayoum, Beni Suef - Minya, Assiut, Sohag, Qena, Luxor, Aswan, New Valley, North of Sinai, South of Sinai) and new cities (6 th October, Al-Sheikh Said, Al- Obour, El-Sherouk, 10 th of Ramadan, 15 th of May, New Noubaria, Al-Sadat, New Borg Al-Arab, New Damietta, New Beni Suef, New Minya, New Assiut, New Teba). 114 National Housing Project Advertisement- President Mubarak's Project for providing suitable housing for youth in governorates and new cities – in Al-Ahram and El-Akhbar newspapers, March 24-25, 2006. 115 The current unit value is calculated based on the first installment, the annual installment increase rate (7.5 percent,) the median overnight Cairo Interbank Offered Rate on Egypt's pound – CAIBOR (8.49 percent) 116 New Urban Communities Authority, National Housing Project (President Mubarak Project).
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Table 4.5 Prices of Public Housing Units by District 117
Location Lowest price per sq. m. Highest price per sq. m.
Popular districts LE 600 LE 700
Moderate districts LE 800 LE 1000
Above-moderate districts LE 1100 LE 1600
Luxury and top-scoring districts More than LE 1600
On the other hand, the developed economic housing project (the fourth stage of the Mubarak National Housing Project) aims to provide housing of 50-57m 2 (including two bedrooms, reception, kitchen, and bathroom) for low-income youth. Each housing unit is eligible for two loans: a LE 15,000 cooperative loan at 5 percent interest to be repaid in 40 years, and a LE 10,000 complementary interest-free loan to be repaid in 44 years (the overall monthly installment is roughly LE 80). 118
Prices are quoted on the national scale. Housing unit prices in Greater Cairo, therefore, are not distinct from those in other governorates. It is remarkable that no public housing projects have been implemented within the governorate of Cairo for a very long time. As for the Giza and Qalyubia governorates, new housing projects are to be implemented within the National Housing Project.
Respondents who acquired housing for ownership under 15- to 40- year installment plans through governmental projects constituted 4.3 percent of the whole TAPRII research sample.
4.2.1.2 FORMAL PRIVATE HOUSING Egypt is characterized by low home ownership rates, high numbers of households occupying public housing, and a high proportion of the population in informal housing. 119 Those indicators all point to the fact that available housing units in the private formal housing sector are limited when compared to the housing stock as a whole. 120
This limited amount of housing is usually directed to high and middle class households, not to the poor and low-middle income ones, in contradiction to official data shown in Figure 4.2.
117 MHUUD, Minister’s Office, March 2006. 118 New Urban Communities Authority, Developed Economy Housing (Fourth Phase of Mubarak National Youth Housing Project). 119 Egypt: Overview of the Housing Sector, Op. Cit., p.5 120 The housing stock in the informal sector ranges from 30 – 60 percent of the total housing stock in Egypt according to different sources, while the remained rate represents the formal sector; including formal governmental sector and formal private sector.
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121 Figure 4.2 Number of Formal Housing Units Established From 1982 – 2003
Legislation prior to 1996 on stating classifications for private sector housing was manipulated to classify upper middle and luxurious housing as economic housing, to decrease duties. Subsequently, Law no. 101 of 1996, which was designed to reform Law no. 106 of 1976, repealed the requirement for classifying housing to housing production licenses. Hence, any classification of formal private housing would be inaccurate, not a true reflection of the insufficient amount of housing for low and middle income households. 122 Tracking prices of housing units directed to low and middle-income brackets in the private formal sector is not an easy process. It should depend on an accurate survey of these units in Greater Cairo and on the national scale, and should be based on experience in categorizing these units, given the scarcity of information on the housing market in Cairo and urban Egypt in general.123,124 Targeted data collection on these housing unit prices has been conducted in greater Cairo and its satellite cities, based on information derived from real estate agencies and advertisements in Al-Ahram and Al-Waseet newspapers. 125 Experience has been the guide in determining housing patterns, and a “low-middle income” price was defined as having a ceiling of LE 1,000 per square meter. Some regular statistical
121 Egypt Human Development Report 2004, the United Nations Development Program and the National Planning Institute. 122 United Nations Development Program (UNDP) and National Planning Institute, Egypt Human Development Report 2004, Op. Cit, p. 101-105. 123 David Sims, “Housing Market Assessment Report for El-Maadi, Madinet Nasr, and Sixth of October,” Egypt Financial Services. USAID. Final Draft, January 2006, p. 13. 124 Ziad Bahaa Eldin, Mahmoud Mohieldin and Sahar Nasr. Prospects of Mortgage Markets in MENA Countries: An Analysis of financial, legal and institutional aspects with emphasis on the Egyptian case study. ERF 11 th Annual Conference. September 2004. 125 The referenced targeted data collection was carried out by Maha Samy Kamel.
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indicators have been used to give a comprehensive image of the prices in the housing market. They included lowest price per square meter, highest price per square meter, median price per square meter, and average price per square meter, all included in tables 4.6 and 4.7. The lowest housing price in the formal private sector has been specified at LE 38,000, given the price per square meter and available area. Table 4.6 Prices of Housing Units in Formal Private Housing Sector in Selected Greater Cairo Areas 126
Price per square meter Location Lowest price Highest price Median price Average price per square per square per square per square meter meter meter meter El-Haram 420 1000 673 616 Feisal 462 1000 659 609 Maadi – Helwan 655 1000 857 903 Mokattam 515 903 797 830 Nasr City 400 1000 701 725 Ain Shams 600 900 500 600 Zeitoun 622 1000 768 818
Table 4.7 Prices of Housing Units in the Formal Private Housing Sector in Selected Satellite Cities of Greater Cairo 127
Price per square meter Location Lowest price Highest price Median price Average price per square per square per square per square meter meter meter meter New Cairo 345 1000 496 778 6th of October 300 714 547 558 El-Sherouk 537 722 637 653
4.2.1.3 INFORMAL HOUSING Informal (unauthorized) housing is defined as the housing stock which is not in compliance with current regulations. 128,129 It is, in other words, unlicensed housing is
126 Limited survey of housing unit prices in greater Cairo and its satellite cities, Housing Team, TAPRII, April, 2006 127 Ibid. 128 The Macroeconomic and Sectoral Performance of Housing Supply Policies in Selected MENA Countries: A Comparative Analysis, Op. Cit., p. 11.
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usually in areas where public utilities, basic facilities and trash collection services are not available (as was the case in Manshiet Nasr, for example). There are various forms of informal housing; they tend to form on city fringes first, and then encroach on suburbs and through to the heart of the city. The General Organization for Physical Planning (GOPP) made a field survey of informal housing in Greater Cairo in 1992, included in a January 1993 report. The targeted data collection conducted by TAPRII for this study made use of the GOPP categorizations of informal housing in its examination of informal housing prices (see Table 4.8). It should be noted that areas included in the report (such as El-Haram) include both formal and informal housing types. Table 4.8 Prices of Housing Units in the Informal Housing Sector in Selected Greater Cairo Areas 130
Price per square meter Location Lowest price Highest price Median price Average price per square per square per square per square meter meter meter meter El-Haram 350 667 464 436 Feisal 284 719 440 429 Maadi – Helwan 300 643 492 533 Ain Shams 409 706 540 564
4.2.2 EVOLUTION OF FORMAL HOUSING PRICES IN THE LAST DECADE
4.2.2.1 FORMAL PUBLIC HOUSING Prices and payment patterns of public housing have varied over the period 1996- 2005, due to differences in the target populations and the promulgation of laws and legislation intended to allow market forces to operate. The float of the Egyptian pound in 2003 and the privatization of several building materials companies, which caused the prices of building materials to escalate, have also had an impact, causing increases in housing cost and price.
Table 4.9 displays prices of housing units offered within Mubarak Youth Housing Project starting in January 1996.
129 See also Appendix B of this study, which discusses the definition of informal housing and its role in Egypt in greater detail. 130 Targeted data collection of housing unit prices in greater Cairo and its satellite cities, Housing Team, TAPRII, April, 2006 .
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Table 4.9 Prices of Housing Units - President Mubarak's Youth Project 131
State Monthly Phase Area Unit Cost Unit Price Cooperative loan Subsidy installment LE 14,000 First 100 m2 LE 51.500 LE 20,000 LE 31,500 6% interest repaid LE 73 in 40 years LE 15,000 Second 70 m2 LE 40,000 LE 15,000 LE 25,000 5% interest repaid LE 73 in 40 years LE 15,000 Third 63 m2 LE 28,500 LE 10,000 LE 18,000 5% interest repaid LE 73 in 40 years
A comparison between the Mubarak Youth Housing Project’s price for a 63m 2 housing unit and the price for the a unit of the same size shown in Table 4.3 suggests that the price of a housing unit has doubled over the last ten years, increasing the financial burden on low-income households.
4.2.2.2 PRIVATE FORMAL HOUSING Accurately tracking the prices of housing in the private formal sector over the last ten years, in particular for low and middle income groups, is a formidable undertaking. Impediments include: • Lack of databases for housing prices in the Egyptian market, primarily due to the limited role that the private formal sector has played, particularly in the provision of low and middle income housing, and to the limited number of companies from which data could potentially be obtained. • Scarcity of housing studies in general, and of studies recording formal housing prices in Egypt in particular. • The promulgation of Law no. 101 of 1996, which repealed the provisions of Law no. 106 of 1976 that required the inclusion of housing classifications (i.e. low-income, economic, luxury, etc.) for the granting of housing licenses. • Numerous and overlapping variables regulating housing unit prices, as indicated in Table 4.10. • Even if one knows the cost of developing a housing unit, it is not possible to accurately determine the unit price, as the relationship between the original development cost and the purchasing price weakens over the long term. 132
Despite these difficulties, prices of the same housing area can be said to have doubled in the last ten years, assuming that both governmental and private housing have been subject to the same impacts (for example, increases in the prices of building materials).
131 MHUUD, Housing and Utilities Sector, Housing Data Summary until June 30, 2005. 132 Bahaa Eldin et al. Prospects of Mortgage Markets in MENA Countries: An Analysis of financial, legal and institutional aspects with emphasis on the Egyptian case study, p.16.
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Table 4.10 Variables Regulating and Determining Housing Unit Prices 133 Planning & urban variables: Environmental variables: Neighborhood planning pattern Neighborhood organization Project size Neighborhood noise Project alternatives Uses within the same building Financing variables: Proximity to main street Financing sources Width of streets next to building Subsidies Availability of services Payment pattern Quality of services Sale controller Maintenance availability Project owner Maintenance type Social variables Land variables: Target social class Project location No. of rooms Number of floors No. of persons per Building density housing unit Land price No. of units/floor Construction cost Unit area Finishing cost Housing price variables Unit price per m 2 Unit m 2 price Regulatory variables brackets Violation of regulations Reorganizing spaces Closing a balcony Relocating windows Heights Using garages for other purposes Building in intermediate areas Building density Acquiring licenses
4.2.2.3 INFORMAL HOUSING There is a remarkable lack of studies examining informal sector housing unit prices over the last ten years. However, it can be postulated that prices for formal and informal units within the same housing areas have increased at similar rates, again assuming that both types of housing have been subject to the same impacts (for example, increases in the prices of construction materials).
133 Heba-t-Allah T. Noureldin, “Towards a Scientific Approach to Redefine Housing Mechanisms in Egypt: Greater Cairo Real Estate Case Study” (Ph.D. dissertation, Cairo University, Giza, 2005).
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4.2.3 HOUSING UNIT COST
4.2.3.1 FORMAL PUBLIC HOUSING MHUUD has related housing unit square meter cost to housing standard (area, finishing) as indicated in table 4.11. Table 4.11 Level-Based Estimated Cost of Housing (Excluding Land Cost and Utilities)134
Lowest price per square Highest price per square Housing Level meter meter Economy LE 500 LE 600 Moderate LE 600 LE 700 Above-moderate LE 750 LE 900 Luxurious More than LE 1000
4.2.3.2 FORMAL PRIVATE HOUSING The cost of government-built housing units is higher than the cost of the same unit if built by the private sector or by the individual owner by at least an estimated 30 percent. Administrative overheads and cost of bureaucratic procedures are said to be the reason for this large difference. 135 Accordingly, if a government produced housing unit’s average cost is LE 800 per square meter, 136 the cost of a comparable formal private sector housing unit will be approximately LE 615.
4.2.3.3 INFORMAL HOUSING The cost of a housing unit in the informal sector is significantly lower than formal housing for several reasons. Because its construction is outside regulatory and permit processes, there are savings in the areas of registration fees that are not paid, higher density construction than would be permitted, non-adherence to requirements such as the inclusion of skylights, and the absence of height restrictions. In some cases, the land is occupied by squatters and thus is obtained at no cost. All these factors contribute to reducing costs drastically, and necessary bribes to monitoring officials are made to ensure that the savings are maintained. A study tracked housing production costs in Safat El-Laban, Boulaq El-Dakrour district, over the period prior to 1997 to 2003, as indicated in Figure 4.3.
134 MHUUD, Minister’s Office, March, 2006. 135 Egypt Human Development Report 2005, Choosing our Future: Towards a New Social Contract , United Nations Development Program (UNDP) and Institute of National Planning, Egypt, 2005, p. 145. 136 Ibid., p. 145.
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Figure 4.3 Cost Per Housing Square Meter in Safat El-Laban, Boulaq El-Dakrour, Prior to 1997, Through 2003 137
EGP 500 450 450
400 390 360 350 300 300 300 250 200 230 200 160 150
100
50
0 Prior to 1997 1998 1999 2000 2001 2002 2003 1997 Year
4.3 HOUSING RENTS
4.3.1 FORMAL PUBLIC HOUSING
4.3.1.1 UNITS AVAILABLE FOR RENT As part of the National Housing Project, 2,268 housing units will soon be made available for rental in El-Obour and Sixth of October cities, 138 a policy unprecedented since the beginning of President Mubarak's rule. 139 Eight tenders were solicited from urban development companies, under which companies submits a bid for a 7- or 10- year fixed rental value, and companies with the lowest bids are chosen. The selected companies then enter into contracts with housing beneficiaries for a rent determined by the government, which pays the difference between the rental value in the bid and the value in the contract. At the end of the seven or ten year period the relationship between the company and beneficiary is no longer subject to controls.
4.3.1.2 OCCUPIED UNITS Table 4.12 displays number of housing units owned by some governorates and rented to citizens, and some rental values of these units. 140
137 Mostafa Madbouly and Amr Lasheen, Informal settlements in greater Cairo, Case Study, Boulaq El- Dakrour, 2003. 138 Ahmed El-Maghrabi, Housing Minister, speaking of the rental housing system about one of the proposed solutions to settle housing problems. Housing Committee, People’s Assembly. Akbar Al-Youm newspaper, 11 February 2006. 139 The state has adopted ownership schemes since the middle seventies. Hany Serageldin, “Improving Designing and Implementing Performance of Housing Programs, op. cit., p. 47. 140 Monthly rental values vary greatly between LE 1.5 and LE 90.
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Table 4.12 Rental Values of Housing Units Owned by Governorates and Rented to Citizens 141 Governorate Number of Rented Units Comments Cairo None Alexandria None • El-Zehour – El-Monakh – Suburbs • Renters could not pay the monthly Port Said 8719 rental or the maintenance expenses and they sued the governorate to reduce the rental value. • The 60 rented units in El-Kasakes village are distributed as following: 20 units with 3 bedrooms and reception, 40 Ismailia 60 units with 2 bedrooms and reception. • Other locations inside the governorate follow the ownership system. • The number of units established during the period of 1981 – 2005 is 20,982. • Suez 1000 1,000 rental units were established using funds from the governorate housing fund. Units are 55m 2 with a monthly rent of LE 90. 142 2849 Industrial Housing Units • In Khanka and Shobra El-Khema, the 143 rental value ranges from LE 1.5 to LE 9. 1161 • The rental value is less than LE 20. Qalyubia • The rental value ranges between LE 20 1927 and LE 50. 26 • The rental value is more than LE 50. Total 5963 • The rental value of a 2 room and a reception unit is LE 40. Sharkia 128 • The rental value of a 3 room and a reception unit is LE 50. • The existing unit tenants are paying Dakahlia None monthly installments. Damietta None Menoufia None • The department ( muddyria ) is collecting Gharbia data from local offices. Kafr El-Sheikh None El-Beheira None • The department ( muddyria) is collecting Giza data from the local offices. Fayoum None • Number of available units is 20. Beni Suef 315 • Number of occupied units is 7,178 (6,863 owned & 315 rented)
141 Ministry of Housing, Utilities and Urban Development, 2006. Allِ vacant units followed the ownership system: LE 1,000 as down payment plus LE 50 as 142 administrative expenses plus LE 500 semiannual installments for two years (four installments total) plus a LE 90 monthly installment for 50 years, to be paid to a housing fund that will repay the investment fund installment in 40 years. 143 Housing Units funded by companies that desire to allocate a portion of their profits to support their employees’ housing.
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Governorate Number of Rented Units Comments Minya 23 • Samalout City Manfalout ...... 20 units Al-Badary...... 83 units Al-Fatah ...... 102 units Dayrout ...... 64 units El-Ghanayim ...... 94 units Assiut 984 Abu Teeg ...... 57 units Sedfa ...... 67 units Assiut City...... 202 units El-Sahel ...... 86 units Al-Kousyia...... 83 units Abnoub ...... 86 units Sohag None • 13 units are located in Armant with annual rental value ranges from LE30 – LE 33 (since 1982). • 30 units in Isna City with LE14.80 annual rental value (since 1983). Qena 77 Units • 34 units in Dishna with annual rental value ranges between LE 235 and LE 500. • The governorate has adopted the ownership system recently. Aswan None Grand Total: 17,269
4.3.2 FORMAL PRIVATE HOUSING
4.3.2.1 UNITS AVAILABLE FOR RENT Old Law Rent Despite Law no. 4 of 1996, which applied certain civil law provisions to real estate that was unoccupied or being rented for the first time, the real estate agents often use the term “old law rent.” This term refers to two legally different arrangements, though they have similar payment patterns. In the first case, a tenant assigns a rent contract, concluded before 1996, to a new tenant with the property owner’s approval, in consideration of key money paid to the old tenant and the property owner. In the second case, a new rental contract for an unoccupied unit is signed, according to the civil law provisions, for an unlimited 144 or a 10 or 20 year period. 145 The rent is fixed, in consideration of a large down payment. Table 4.13 shows housing unit rental values under the old law, and the down payment/key money, in selected areas in Greater Cairo.
144 Article 563 of the civil code stipulated that in case of lease contract conclusion with no rent duration stated, or for an unlimited duration, also in cases of difficulty proving alleged duration, lease duration shall be valid until no consideration is submitted. 145 Jurisprudence stipulated that death shall be admitted as lease limit, in cases of lease agreements limited by tenant or landlord life. In such cases lease shall be terminated on the death of either parties, and shall not be assigned to heirs thereof.
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Table 4.13 Rents of Available Old Law Rental Units, and Down Payment/Key Money in Sample Areas of Greater Cairo (in LE) 146
Median Average Median rent/ m2 Average rent/ m2 Location down down payment/ payment/ Monthly Annual Monthly Annual key money key money Haram 20,000 18,692.31 0.23 2.76 0.69 8.28 Feisal 17,000 18,105.26 0.18 2.16 0.56 6.72 Zeitoun 50,000 43,333.33 0.23 2.76 0.47 5.64
New Law Rent The “new law rent” is a term referring to housing units rented under the provisions of Law no. 4 of 1996. Under this law, the monthly rent is often high, the advance payment is only equal to one or two month’s rent, and the guaranty payment is often estimated at one or two month’s rent. (See Table 4.14.) The contract usually includes a clause specifying an annual rent increase of approximately 10 percent. In other words, the tenant-property owner relation is uncontrolled and contract-based. Table 4.14 Rents of Available New Law Rental Units (in LE) 147
Median rent/ m2 Average rent/ m2 Location Monthly Annual Monthly Annual Haram 4.09 49.09 4.43 53.16 Feisal 3.85 46.2 3.76 45.12 Zeitoun 5.91 70.92 6.01 72.12
4.3.2.2 OCCUPIED UNITS Rental values of occupied units for selected districts within Greater Cairo are mentioned in the unpublished CAPMAS Household Income, Expenditure and Consumption Survey (HIECS) 2004/2005, as shown in Table 4.14. Table 4.15 Rental Values of the Occupied Housing Units in Selected Districts in Greater Cairo (in LE) 148 No. of No. of Actual Rental Computed District Families Individuals Values Rental Values El-Sayeda 155 493 177.9 420.0 Zeinab El-Azbakia 40 119 469.8 211.8 Ain Shams 430 1791 354.3 1305.7
146 Limited survey of housing unit prices in greater Cairo and its satellite cities, Housing Team, TAPRII, April, 2006 147 Ibid. 148 CAPMAS, Household Income, Expenditure and Consumption Survey (HIECS), 2004/2005.
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The TAPRII questionnaire included a question on the rental value of the respondent's rented housing. Thus, rental values in selected regions in Cairo, Giza, Qalyubia, and Sharkia have been quantified, as displayed in Table 4.16. Table 4.16 Rental Values of Occupied Housing Units in Locations Within Cairo, Giza, Qalyubia and Sharkia Governorates (in LE) 149
No. of Rental Value District Respon- 150 Annual Monthly Annual Monthly dents Median Median Average Average Cairo Governorate Shobra (Al- 10 150 12.0 841.2 70.1 Sahel) Rod El-Farag 7 120 10 154.3 12.9 Al-Sharabya 5 144 12 609.6 50.8 Al-Salam City 16 1800 150 1458.0 121.5 El-Sayeda 4 510 42.5 540.0 45 Zeinab El-Zawya El- 5 600 50 640.8 53.4 Hamra El-Darb El- 4 300 25 615.0 51.3 Ahmar El-Wayli 3 180 15 288.0 24.0 El-Amirya 6 336 28 436.0 26.3 Hadayek El- 12 180 15 418.0 34.8 Qoba
Zeitoun 8 174 14.5 678 56.5 Ain Shams 13 720 60 1041.2 86.8 Giza Governorate 6 October 28 2400 200 2449.5 204.1 Al-Haram 6 720 60 710.0 59.2 Qalyubia Governorate Al-Khanka 11 1800 150 1575.27 131.3 Al-Obour 9 2100 175 1633.3 136.1 Sharkia Governorate 10 th Ramadan 17 2100 175 2188.2 182.4
149 Survey, TAPRII, April 2006. 150 Locations that include number of respondents less than 3 have been excluded based on sample research standards, in order to reach reasonable and significant results.
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4.3.3 INFORMAL HOUSING A survey in 2003 covered some informal areas within Greater Cairo, and the rental values of available housing units of different areas are presented in Table 4.16 below.
Table 4.17 Rental Values and Down Payments for Different Units in Selected Informal Settlements Within Greater Cairo 151 Total area of unit Up-front down payment Monthly rent (m 2) (LE) (LE) 50 3,000 – 5,000 75 65 7,000 – 9,000 75 - 175 75 10,000 150 - 200 90 10,000 – 12,000 150 - 250 120 10,000 – 15,000 More than 250
4.4 INCOME AND SAVINGS
4.4.1 INCOME BRACKETS An objective of the CAPMAS Household Income, Expenditure and Consumption Survey is, among others, to classify the household survey sample into income brackets. The 1999/2000 HIECS is the latest published study, with a 48,000- household survey sample from all governorates (at the time this study was completed, HIECS 2004/05 had not been published). Raw data from its classifications of income brackets cannot be directly compared with current figures, due to the adoption of floating exchange rates on January 29, 2003. Subsequent to this, inflation 152 and prices increased, depreciating actual wage values. 153 Some data on households classified by income bracket for certain areas of Greater Cairo is available for 2004/2005 from the unpublished HIECS, as shown in Table 4.18. The aim of analyzing the data in this table is to identify the percentage of households out of the total in each area that are low-income. Households earning an annual income lower than LE 17,000 are classified into the low income bracket, in
151 Egypt Human Development Report 2005, Choosing our Future: Towards a New Social Contract, United Nations Development Program (UNDP) and Institute of National Planning, Egypt, 2005, p. 145. 152 Egyptian Cabinet, Information and Decision Support Center (IDSC), Economic Analysis Sector, The Impact of Exchange Rate Changes on Inflation Rates in Egypt: The Pass-Through Effect (January, 2004). 153 Changing the description of low income bracket (item 6, of the executive statute of the real estate financing law) from "Any individual whose his/her annual income does not exceed LE 9,000 or LE 12,000 for family supporters " in 2001 to "Any individual whose annual income is less than LE 12,000 or 18,000 for the whole nuclear household" in March 2005 indicates a 33.3 percent drop in the real value of money.
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accordance with CAPMAS brackets and the real estate mortgage law definition of a low-income household. 154 Table 4.18 indicates that 63.2 percent of households in El-Sayeda Zeinab have annual incomes less than LE 17,000, and thus are low-income. In El-Azbakia, 62.5 percent of households were low-income. In Ain Shams the percentage of low income households is assessed at 55.8 percent. Higher proportions of low income households were found in Manshiet Nasr (85.6 percent), Dar El-Salam (73.9 percent), and Boulaq El-Dakrour (70 percent).
154 As mentioned before, low income brackets are identified as the families whose income is less than LE 18,000. The Prime Minister’s Decree no. 465 of 2005, concerning the modification for some articles of the executive statute of the real estate financing law. Al-waka’ae Al-Massrya, 22 March, 2005.
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Table 4.18 Distribution of the Number of Families Based on Income Brackets in Selected Districts 155
LE LE LE LE LE LE LE LE LE LE LE LE LE LE LE LE LE >LE LE 11,500- Districts 2000- 3000- 4000- 5000- 6000- 7000- 8000- 9000- 10,000- 13,000- 15,000- 17,000- 20,000- 25,000- 30,000- 50,000- 75,000- 100,000+ Total 2000 12,999 2999 3999 4999 5999 6999 7999 8999 10,000 11,499 14,999 16,999 19,999 24,999 29,999 49,999 74,999 99,999
El-Sayeda 1 2 3 3 6 9 4 10 8 13 14 11 14 23 14 15 4 1 - - 155 Zeinab
Al- - - 1 3 1 1 3 4 1 4 2 4 1 5 1 1 6 1 1 - 40 Azbakia
Ain 1 1 3 2 7 9 14 20 28 35 27 42 51 59 43 28 44 10 4 2 430 Shams
Manshiet - 1 -4 4 9 13 9 15 8 14 5 12 7 4 9 2 2 - - - 118 Nasr
Dar El- - - -1 2 6 3 2 8 6 7 7 9 3 8 5 3 3 - - - 73 Salam
Boulaq El- 1 - 2 8 15 13 28 28 22 37 51 46 23 40 39 15 22 1 1 - 392 Dakrour
Total 3 4 14 22 44 48 60 85 73 110 106 124 99 139 111 64 81 13 6 2 1208
155 CAPMAS, Household Income, Expenditure and Consumption Survey (HIECS), 2004/2005.
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In the HIECS sample (1,208 households), 65.6 percent of households were earning less than LE 17,000 annually. The high percentage of low-income households in informal housing areas (Manshiet Nasr, Dar El-Salam, and Boulaq El-Dakrour) suggests a relationship between the informal housing sector and low income. This supports the assumption that the increasing housing demand by low-income households is only reflected in informal housing growth, as well as lending credence to the idea that informal housing could represent a solution to housing demand by lower income groups rather than being considered a problem, as long as access to social and infrastructure services is assured. 156,157 The TAPRII survey sample has been categorized into income brackets according to the CAPMAS classifications, as shown in Table 4.19. Table 4.19 Distribution of the Number of Households Based on Income Brackets 158
Income Brackets No. of Cases Percent Income Brackets No. of Cases Percent (LE)
Less than 2,000 13 4.03 % 10,000-11,499 14 4.33 %
2,000-2,999 2 0.62 % 11,500-12,999 19 5.88 %
3,000-3,999 25 7.74 % 13,000-14,999 10 3.10 %
4,000-4,999 42 13.00 % 15,000-16,999 8 2.48 %
5,000-5,999 18 5.57 % 17,000-19,999 11 3.41 %
6,000-6,999 51 15.79 % 2,0000-24,999 10 3.10 %
7,000-7,999 48 14.86 % 25,000-29,999 5 1.55 %
8,000-8,999 20 6.19 % 3,0000-74,999 2 0.62 %
9,000-,9999 24 7.43 % 75,000 and up 1 0.31 %
TOTAL 323 100%
The above-shown income data have been grouped into fewer categories for use in studying housing affordability. Table 4.20 shows the aggregated data.
156 Baharoglu et al. The Macroeconomic and Sectoral Performance of Housing Supply Policies in Selected MENA Countries. Op. Cit., p.11. 157 Along with various attempts to assimilate the phenomena within previously designed project frameworks (sites and services, etc.) 158 Survey, TAPRII, April, 2006.
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Table 4.20 Distribution of the Number of Households Based on Merged Income Brackets 159
Income brackets (LE) No. of Cases Percent Less than 6000 100 30.96% 6,000-8,999 119 36.84% 9,000-11,999 39 12.07% 12,000-17,999 40 12.38% 18,000 and up 25 7.74%
The above table indicates that 92.3 percent of the sample total households earn annual incomes less than LE 18,000, and thus fall into the low income bracket. Sample bias is likely a factor in this high percentage, since the sample consists of households applying for governmental housing. Despite the earlier observed relationship between low income and informal housing, the low-income households of the TAPRII survey sample preferred to apply for government housing, probably because the sample was concentrated in formal housing areas. This implies that the present housing sub-sector (in formal vs. informal areas) of low income groups can be correlated with their housing aspirations .
4.4.2 INCOME CHARACTERISTICS No data are available on income characteristics at national or Greater Cairo area scales. Hence, the analysis of this section will rely on data about income from the TAPRII research sample.
4.4.2.1 INCOME FROM PRIMARY JOBS Analyzing the working status of the TAPRII sample indicates that the majority (83.1 percent) have employment in various forms, while people not working composed 16.1 percent of the sample, divided into two subcategories (not in the workforce, and jobless desiring to work). A majority of the working individuals (72.35 percent) have a salaried permanent job (60.7 percent of the whole sample), while daily-wage laborers (skilled and unskilled) represented 20.7 percent out of working total (17.4 percent of the whole sample). Self-employed individuals comprised 7 percent of the working total (5.9 percent of the whole sample).
The individual monthly median basic job income was LE 500, the monthly average income was LE 568.1 (std. dev. = 550.7), and the monthly minimum income was LE 80. Taken together the standard deviation and minimum indicate that (depending on the shape of the distribution), perhaps 66.8 percent of the sample is concentrated within the LE 80 to LE 1118.8 monthly income bracket, and perhaps 95 percent of the sample is within the more general LE 80 to LE 1670 basic job monthly income bracket. The median annual increase rate in basic job income was 11.15 percent.
159 ibid.
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4.4.2.2 SECONDARY WORK INCOME The majority of the working group (87.8 percent) in the TAPRII sample do not have a secondary job, while 12.2 percent do. Of those with secondary jobs, 66.7 percent of were temporary secondary jobs, and the other third were stable secondary jobs.
The monthly median income from a second job was LE 200, the average income was LE 275.8 (std. dev. = 200.8).
4.4.2.3 OTHER SOURCES OF INCOME A review of other income sources for the TAPRII sample show that property revenues and remittances 160 are insignificant. Interest on savings is an income resource for 5.3 percent, pension or social security is an income resource for 4.6 percent, and 5.9 percent have other income resources (parents pension/parents financial assistance/charity).
The sum of the percentages for interest, pension/social security and other income is 15.8 percent, which is approximately same as the percent of unemployed individuals in the sample. This suggests these individuals probably depend on other resources of income. This indicator has been statistically tested as shown in Table 4.21, from which it is deduced that only 8.36 percent of the total sample (27 out of 323) do not have jobs but have other sources of income. About half of the respondents who had other sources of income were unemployed (49.1 percent, or 27 out of 55). Twenty of the 27 (74.1 percent) unemployed individuals who had other sources of income are females.
The monthly median of income from these other resources is LE 256, the average monthly income is LE 342.3, and the minimum income is LE 50, which indicates that potentially 66.8 percent of those who have income from other sources receive between LE 50 and LE 731.2 from those other sources.
160 Hany Serageldin, “Improving the Designing and Implementing Performance of Housing Programs,” op. cit. p. 46-48.
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Table 4.21 Distribution of the Respondents Based on Gender, Employment, and Other Income Sources 161
Male Interviewees (244 total) Female Interviewees (79 total)
Employed Unemployed Employed Unemployed Other income source: (231) (13) (40) (39) Property proceeds, 1 1 - - incomings Savings interest 7 1 4 5 External transfer - 1 1 - Pension/social security - 4 2 9 Other sources 10 - 3 6 Total 18 7 10 20
4.4.2.4 INCOME OF HOUSEHOLD MEMBERS (WIFE/OFFSPRING) 70.6 percent of survey respondents (including single persons) had no other household members receiving an income. 27.2 percent had one member receiving an income, and very few — 1.2 percent and 0.9 percent — had two or three members, respectively, receiving monthly income. The limited extent to which other family members contributed income may be due to the ages of the survey participants: 66.8 percent were within the 25-43 age bracket, a time of life during which respondents are likely to either be single or to have children younger than 15. A quick overview of the age of sample respondents’ children confirms that assumption, as 66.8 percent of offspring are between one and 18 years of age, with an average of 8 years. Hence, the household member receiving an income, beside the respondent, is usually the spouse.
The monthly median income of household members, other than the respondent, is LE 150, the average income is LE 315.3 (std. dev. = 454.6).
4.4.2.5 TOTAL HOUSEHOLD INCOME All the above-mentioned facts sum up to suggest that most individuals depend on a primary job for the bulk of their income, rather than a secondary job, non-employment sources of income, or other household members’ income. That primary work is usually a fixed job with a regular salary. The total household monthly median income was LE 600, of which the average was LE 731.9 (std. dev. = 628.1). A review of income brackets shown in Table 4.19 indicates that an actual 92.3 percent of the total sample households have incomes less than LE 18,000 annually, and thus can be classified into the low income category.
161 Survey, TAPRII, April, 2006.
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4.4.3 INCOME AND TENURE STATUS This section aims to investigate the relationship between income and tenure status, to study the extent to which increased financial resources can help in the transformation from renter to homeowner. It also aims to explore the notion that the housing can be a type of savings or a tool for investment generating revenues, in order to assist in the development of appropriate public policy for housing provision and financing mechanisms. The TAPRII research sample will be the primary source of statistics considered here. Most participants in the TAPRII survey sample (73.7 percent) reside in different types of rented housing (old law rent, new law rent, rent of governmental housing), with 25.7 percent residing in owned housing (real estate or apartment ownership), and 0.6 percent having other status. These figures are consistent with data for tenure status on the national scale, where only 32 percent of households own their residence. 162
From the total sample, 43 percent were renting under agreements based on the old rental law and 27 percent on the new law. Just 2.2 percent were renting in government housing projects, an indicator of how limited government housing projects are compared to total housing requirements. Even during their peak in the 1960s, these governmental housing projects did not reach more than 15 percent of the total housing volume. It has been noticed recently that laws enabling renting households to turn to ownership have drastically curtailed the extent of public rental housing. 163 Considering tenancy only, 59 percent of all renters were renting under the old law, 37 percent under the new, and 2.9 were in governmental rental housing.
Taking into account the ownership type solely, 41.5 percent (10.5 percent of the sample) own the entire piece of real estate while 13.4 percent (3.4 percent of the whole sample) are joint owners of the real estate. 24.4 percent (6.2 percent of the sample) own just their unit, and 20.75 percent (5.3 percent of the total sample) purchased their unit from the government.
Looking at the correlation between tenure status and income level, there may be a relationship between renting and low income: the most prevalent tenure status in the sample group is some form of rental, and the per capita monthly median income from basic work is LE 500.
This has been statistically examined as shown in Table 4.22. When the two main types of tenure status (ownership and rent) are analyzed together with income levels, rent is noted to be the prevalent tenure status regardless of income (above 70 percent for each of the income groups specified). As previously mentioned, low ownership levels nationally and in the TAPRII research sample are probably due to low incomes and inability to purchase housing on the one hand, and the aged housing stock that is subject to rent control laws on the other. Table 4.23 looks at the relationship between the age of housing and the tenure status of occupants.
162 Egypt: Overview of the Housing Sector, Op. Cit., p.10 163 Hany Serageldin, “Improving the Designing and Implementing Performance of Housing Programs,” op. cit. p. 46-48.
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Meanwhile, household living in housing rented under the old law have less incentive to attempt to purchase housing, due to the very low rent they pay (an arrangement they may be understandably reluctant to surrender). However, the older generation benefiting from this pattern of rent should be differentiated from the younger generation demanding housing, which should prove more willing to consider ownership and possibly to have savings to invest.
Table 4.22 Distribution of Households Based on Income Brackets and Tenure Status 164 Income brackets Tenure Status (LE) Ownership Rental Other Less than 6000 26 74 - 6000- 32 85 2 9000- 10 29 - 12000- 8 31 1 18000 and more 6 19 -
Table 4.23 Relation Between the Chronological Age of the Building and Rental Scheme 165 Year of uniden- 1940- 1970- 1996- Total Establishment tified No. of Cases 65 51 3 22 141 Annual Median 180 660 900 234 300
Old Rental Rental value No. of Cases 7 46 8 29 90 Annual Median 1800 2160 3900 2040 2160
New New Rental Rental value No. of Cases - 7 - - 7 Annual Median - 252 - - 252 Rental mental Govern- Rental value Rental Scheme Rental Scheme Total 72 104 11 51 238
164 Survey, TAPRII, April, 2006. 165 ibid.
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4.4.4 INCOME, EMPLOYMENT TYPE, AND EMPLOYMENT REGULARITY The relation between income and the type and regularity of employment is studied in the TAPRII research sample. Households are classified into income brackets, and data on the household supporter's employment type (full-time vs. day labor) and work regularity are provided. The percent of each profession within each income bracket is compared to the percent in each profession in the whole sample. High percentages of those employed full- time with a fixed salary are found in the LE 9,000, 12,000 and LE 18,000 categories (79.5 percent, 70 percent, and 68 percent respectively). Relatively high percents (19 percent, 25.2 percent) of daily wage laborers are found in lower income brackets (less than LE 6,000 and LE 6,000 to 9,000). Far fewer daily wage laborers are found in the higher income brackets. Twenty-five percent of those in the under LE 6,000 income category were unemployed, being less well represented in the higher income brackets. Most of the respondents with private sector jobs were in the higher than LE 6,000 and less than LE 9,000 annual income category.
A relationship can be inferred between high income brackets and full time employment with a stable monthly salary, and between lower income brackets and daily wage employment or unemployment where income is unstable.
4.4.5 SAVINGS The local saving to GDP ratio is 18 percent (2001) 166 . This ratio is similar to local saving ratios in countries where low-middle income brackets are prevalent.
Data are available on the average saving potentiality of households in selected administrative quarters in Greater Cairo, from the Income Spending and Consumption research 2004/2005, not yet published. Table 4.24 displays the method of calculating saving value and saving potentiality for select areas within Greater Cairo. Table 4.24 Average Family Savings Capacity in Selected Districts 167
(A) (B) (C) Savings Average Average Savings No. of No. of District capacity expenditures income in LE Families Individuals (C/B) In LE In LE (B-A) Sayeda Zeinab 13,513.0 15229.8 1716.8 11.3 155 493 Al-Azbakia 15,128.0 19331.5 4203.5 21.7 40 119 Ain Shams 16,494.5 19473.4 2978.9 15.3 430 1791 Manshiet Nasr 10,354.6 11329.2 974.7 8.6 118 494 Dar El-Salam 11,417.6 13330.8 1913.1 14.4 73 302 Boulaq El- Dakrour 13,326.9 14896.4 1569.5 10.5 392 1616 Analyzing the above table indicates that the highest saving average is found in areas of Al- Azbakia followed by Ain Shams, Dar El-Salam, El-Sayeda Zeinab, then Boulaq El-Dakrour and Manshiet Nasr. It is worth mentioning that Dar El-Salam, Manshiet Nasr, and Boulaq El-
166 Baharoglu et al. The Macroeconomic and Sectoral Performance of Housing Supply Policies in Selected MENA Countries. Op. Cit., p.59. 167 CAPMAS, Household Income, Expenditure and Consumption Survey (HIECS), 2004/2005.
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Dakrour (areas characterized by informal housing), and El-Sayeda Zeinab (an old formal housing area, or old deteriorating area) are areas where the lowest incomes are found. This potentially indicates a relationship between low income and saving on one hand and residing in informal housing or deteriorating areas on the other. These indicators can also be related to other characteristics such as cultural attributes, savings awareness, and income stability and resources.
Analysis of savings from income in the TAPRII sample indicates that the median monthly saving is LE 200, the average saving is LE 254.8 (std. dev. = 159).
4.4.6 SAVINGS AND TENURE STATUS Housing tenure status can be assumed to affect the average monthly savings. Those renting under the old law or at very low rates in government housing may be expected to have different savings patterns from those renting under the new law, given how low average rents are in the former cases (the median monthly rent under the old law is LE 25, and rent in government housing units is LE 21). Market mechanisms and rational behavior by landlords have a real impact on rent under the new rental law: the monthly median rent is LE 180 – over seven times as much as under the old law. Interestingly, out of the respondents who rent and are willing to apply for a governmental housing program leading to ownership, 45.9 percent live in old law or governmental rent housing, and 27.9 percent in new law housing. This suggests a relationship between the monthly rent paid and monthly average savings, whereby lower rents translate into higher savings and thereby greater resources available for making a down payment. In the TAPRII sample, savings increase under the old law and governmental rent, and decrease under the new law.
As for respondents who own their housing, average monthly saving is affected by the type of ownership arrangement (purchase/inheritance/other), and the payment method (cash/installment), as paying housing installments can reasonably be assumed to have a significant impact on monthly cash savings rates.
Analysis of the TAPRII sample data show that 25.7 percent of the whole sample fall into the ownership category in some form, with 13 percent owning their housing, and 7.7 percent in the process of purchasing through installments (the other 5 percent inherited the housing they own). The median installment duration is 27 years, and the average duration is 26.6 years, which indicates that these respondents have acquired housing through governmental programs, where installment periods are 25-40 years. This is affirmed by the fact that median monthly installment value is LE 75 – a low value not found except in governmental housing programs. Generally, installment purchase arrangements will have the most significant negative effect on the monthly cash savings rate, even when current monthly installments are low. However, the percent of housing purchased by installment is low. Again, the new law rent is expected to have the strongest negative effect on monthly cash savings, followed by installment payments for housing. Rent under the old law or governmental rent do not significantly decrease monthly cash savings, while property has no negative impact on the monthly savings rate at all.
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Again, the new law rent is expected to have the strongest negative effect on monthly cash savings, followed by installment payments for housing. Rent under the old law or governmental rent do not significantly decrease monthly cash savings, while property has no negative impact on the monthly savings rate at all. The sample households are mainly concentrated in the less than LE 1,200 savings bracket, then in the LE 1,200 to 3,600 bracket. Few households are found in the LE 3,600 to 6,000 saving bracket, and even fewer in the over LE 6,000 bracket, for both households that rent and households that own. Table 4.25 Distribution of Families Based on Income Brackets, Savings of Both Owners and Renters (in LE) 168
Value of Annual Savings Income Less 1,200- 3,600- More Brackets than than 1,200 6,000 Less Than 6,000 14 11 1 - 6,000- 9 11 11 1 9,000- 3 2 4 1 12,000- 3 1 1 3
Ownership Ownership 18,000 and more 2 3 - 1 Total 31 28 17 6 Less Than 6,000 45 24 5 - 6,000- 36 36 10 3 9,000- 11 7 7 4 Pattern of PossessionPattern of 12,000- 7 8 11 5 Rental 18,000 and more 2 5 4 8 Total 101 80 37 20
4.5 AFFORDABILITY ANALYSIS
4.5.1 RENT-TO-INCOME RATIO In a responsive and efficient housing market, the range of housing rents have to be such that they correspond to all sections of the population, including the lowest segments. The rent-to- income ratio provides a good measure of housing affordability at the city level. It also conveys the greatest amount of information on the overall performance of housing markets. The rent-to-income ratio is the ratio of median annual rents of dwellings to the median annual household incomes of renters. This indicator should be measured annually.
In Egypt, rent control was recently (1996) cancelled for new leases, but is still relevant for the old stock. The rent-to-income ratio for Cairo was low by international standards at 6 percent in 1993, though it was estimated at 20 percent in 1999 when new leases are
168 Survey, TAPRII, April, 2006.
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counted. 169 For the TAPRII sample, household median total annual income is LE 7200, while median annual rent is LE 800, which means that rent is about 11 percent of the total household income. Commonly, households will not spend more than 15 percent on shelter without some assurance regarding security of occupancy as owners or renters. As renters, families rarely allocate more than 20 percent of their income to expenditures on housing, despite assurances regarding long-term tenancy rights. 170 The mentioned 11 percent fits well then with the worldwide expenditure on housing standards. This low percent is probably due to the high percent of sample respondents who rent under the old law. A more in-depth look will reveal the following facts: The rent-to-income ratio for available formal private housing units, according to the new law, exceeds the desirable 20 percent (achieving 40-60 percent) but rental according to the old law, along with considerable down payment/key money returns a rent-to-income ratio of 5 percent which is very low and favorable. Informal housing rentals are mid-way between the two mentioned cases.
4.5.2 PAYMENT-TO-INCOME RATIO The payment-to-income ratio is a ratio used commonly in mortgages, also known as housing ratio or front-end ratio. It is the ratio of the monthly housing payment to total gross monthly income. No available data are available on the national scale regarding payment-to-income ratio. On the TAPRII sample scale, the payment-to-income ratio for public housing units, based on median monthly household income, is 26.7 percent, which is reasonable for home ownership. As property owners, households are willing to invest over 30 percent to acquire land and build and improve their houses. 171
However, households earning less than LE 530 cannot afford this kind of housing. Note that payment of a monthly installment is not the total expenditure on housing. Services and maintenance should be considered as well. Concerning the formal private housing units, the payment-to-income ratio is commonly higher due to the higher monthly installment, thus no low income households can afford them. Demand by low-income groups is left to the informal sector.
4.5.3 GENERAL PROPERTIES OF THE RESEARCH SAMPLE
4.5.3.1 EDUCATION 37.1 percent of the sample, the largest single group, have a technical school education, similar to the percentage (38.1) that are daily wage laborers, and probably overlapping substantially with this group. The next largest category is those with a university/postgraduate education, 28.8 percent of the sample. 11 percent have a medium education level.
169 Baharoglu et al. The Macroeconomic and Sectoral Performance of Housing Supply Policies in Selected MENA Countries: A Comparative Analysis, Op. Cit, p. 15-16. 170 Mona Serageldin et al., Housing Microfinance Initiatives, the Center for Urban Development Studies, Harvard University Graduate School of Design. USAID MicroEnterprise Best Practices. May 2000, s.1, p.2. 171 Serageldin et al., Housing Microfinance Initiatives, Op. Cit., s.1, p.2.
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Other education levels (illiterate, semi-literate, elementary school, middle school, high school) are poorly represented in the sample (4.3 percent, 3.4 percent, 4.6 percent, 7.1 percent, and 3.7 percent respectively).
4.5.3.2 OCCUPATION Most respondents (60.7 percent of the sample) fall within the fixed-job-with-fixed salary classifications (high technical/administrative employees, middle technical/administrative employees, and junior technical/administrative employees). The next highest category, at 17.4 percent, is daily wage laborers (skilled and unskilled). Self-employed respondents are only 5.9 percent, and unemployed individuals are 16 percent, which is higher than Egypt’s overall unemployment rate (currently estimated at about 12 percent). 172
4.5.3.3 TOTAL HOUSEHOLD INCOME Total household income is defined as the primary and secondary employment earnings of the head of household, plus revenues from other sources, and earnings of other family members. As earlier noted, respondents mainly depend on primary income, which is consistent with the fact that a majority of respondents are employed in permanent jobs with stable monthly salaries (high/middle/junior technical or administrative employees).
Analysis of total household income in the sample shows that median total household monthly income is LE 600, average total household monthly income is LE 731.9 (std. dev. = 628.1).
The true distribution can be drawn from the income brackets. In annual terms, 67.8 percent fall in the under LE 9,000/year income bracket, 17.6 percent in are in the LE 9,000 to LE 13,000 range, 5.6 percent have annual incomes of LE 13,000 to LE 17,000, 6.5 percent of LE 17,000 to LE 25,000, and 2.2 percent have annual incomes of more than LE 25,000.
4.5.3.4 NUMBER OF HOUSEHOLD MEMBERS 63.5 percent of households in the whole sample are composed of 3 or more members, and 36.5 percent have fewer than 3.
4.5.4 AFFORDABILITY ANALYSIS The extent to which respondents to the TAPRII survey can afford to pay for housing was studied using more than one approach, as detailed below.
4.5.4.1 PREFERENCES FOR HOUSING PRICES, RENTS AND PAYMENT ARRANGEMENTS Some of the questions in the TAPRII survey investigated respondents’ preferred housing unit price, the highest down payment they felt they could make, and the highest monthly payment they can afford as rent or installment.
172 Baharoglu et al. The Macroeconomic and Sectoral Performance of Housing Supply Policies in Selected MENA Countries. Op. Cit., p.59.
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The median of respondents’ desired median housing unit price was LE 45,000, with an average of LE 45,180. The preferred median down payment was LE 5,000, with an average of LE 6,641.6. Median monthly payment or rent is LE 150, with a LE 157.27 average.
4.5.4.2 RELATION BETWEEN DOWN PAYMENT, MONTHLY PAYMENT, AND INCOME With reference to the income levels of the sample (67.8 percent of whom are in the under LE 9,000 annual/LE 750 monthly income bracket), and taking into account the guidelines of no more than 25 percent of income to be allocated for housing expenses, it seems that average housing expenses for the sample group should not exceed LE 187.5/month. Housing expenses consist not only of rent or installment payments, but include maintenance and services expenses (estimated at about LE 30 to LE 40 month) also. Hence, the rent or installment suitable for 67.8 percent of the sample should not exceed LE 150/month. The smallest government-provided housing unit (63m 2.) in the Mubarak National Housing Project requires a down payment of LE 5,000. The majority of respondents in the sample group should be able to save this amount over 25-30 months when depending on their identified income sources, and given the housing expense rate and monthly savings rate.
4.5.5 CURRENT FUNDING CONDITIONS
4.5.5.1 ACQUIRING LOANS A high percent (68.1 percent) of respondents refused to consider the possibility of taking loans to cover the required housing cost. 46.4 percent of the respondents who refused attributed their refusal to a reluctance to be indebted. 35.5 percent who refused said they were concerned about increases in required monthly installments and 34.1 percent said they were worried about their ability to repay the loan. 10.9 percent said loans were sinful (reba) and 8.2 percent said they did not have the collateral for a loan guarantee. The preferred interest rate for respondents who were willing to consider taking loans was 5 to 7 percent. 74.8 percent of these willing respondents think that they have sufficient collateral to guarantee a loan, while the rest (25.2 percent) believe they do not.
78.9 percent of the sample said they would use their monthly salaries as loan guarantees. 11.8 percent said a relative would provide a guarantee for them; the same percentage said a syndicate would. Horticultural land, real estate, or other collateral were proposed by 1.3 percent, 2.6 percent, and 7.9 percent respectively. The above information can be summarized in three crucial points: First , the respondents desire to acquire housing through Mubarak National Housing Project mainly because of the length of the installment period – amounting to 30 years – which usually qualifies them to obtain government-provided loans to finance housing units. The majority of housing applicants prefer not to take direct bank loans to fund required housing, because loans through government programs are more secure, especially in cases of default, because households can continue to reside in housing units despite the default, given the slowness of eviction procedures. Real estate financing companies are facing the same problem too. Foreclosure and repossession of property is one of the main
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impediments to the development of the mortgage market. The repossession of real estate in case of borrowers’ default is not an easy task, and even in cases where there is a court order, in practice it takes a very long time if not almost impossible to get the loan defaulter out of the real estate. 173 Second, 76.4 percent of respondents either do not want to or are incapable of taking on loans. This suggests that real estate financing law does not provide mechanisms that function well for low income groups, a suggestion borne out by recent studies. The real estate finance law deals with mortgage lending and financing of low-income housing, although these should be two separate issues. They require different skills and different institutional arrangements. The functions of mortgage finance should be separated from funding low-income housing. The administration of low income housing should be the responsibility of the Ministry of Housing. 174 Third, 78.9 percent of respondents desiring to take housing loans consider monthly income a sufficient guarantee, which represents only 18.6 percent of the whole sample.
Hence, it is suggested that policy makers consider enhancing low-income households’ options for obtaining loan guarantees through labor associations. It is further proposed that the next phase of this study look more closely at how such options could be created.
4.5.5.2 OTHER FUNDING CHANNELS Due to the apparent lack of financing channels, low monthly saving rates averaging around LE 200, and the low percentage (23.6) who are willing or able to obtain loans, respondents in the research identified means besides taking loans by which they might finance a housing down payment. Those means included parents' help (27.7 percent of the total sample), contributions by siblings (13.9 percent), by spouse (11.1 percent), or by other relatives (8.4 percent);2.8 percent said they could turn to friends. At the same time, 45.8 percent of the sample said they did not expect a contribution from family or friends. Contributions that respondents said family and friends could be asked to make included granting a part of the required housing payment (65.1 percent of those surveyed), providing interest free loans (38.9 percent), guaranteeing a loan (6.9 percent), and covering part of the household expenses (4.6 percent).
Increasing contributions from family, friends, or other bodies will undoubtedly depend on developing property registration mechanisms that allow collective ownership and can take into account the portion contributed.
173 Bahaa Eldin, et al. Prospects of Mortgage Markets in MENA Countries: An Analysis of financial, legal and institutional aspects with emphasis on the Egyptian case study. Op. Cit., p. 14-15 174 Bahaa Eldin, et al. Prospects of Mortgage Markets in MENA Countries: An Analysis of financial, legal and institutional aspects with emphasis on the Egyptian case study. Op. Cit., p. 11.
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Box 4.1 Funding Methods in Informal Housing Areas
A study in 2003 investigated sources of housing finance in Safat El-Laban, Boulaq El- Dakrour (taken as a representative area where informal settlements were developed on agricultural lands). The study concluded that most real estate developers resorted to participating in informal savings cooperatives (gamiya) or borrowing in case where they were unable to generate sufficient funds, while a very low percent resorted to obtaining loans using the land as collateral, or constructing the real estate jointly. Those facts indicate a lack of public awareness of the role of mortgage finance, due to the circumstances of both individuals and institutions: individuals are experiencing a period of transition from centralized to decentralized systems, and the government has created an ineffective regulatory environment. Most developers who independently develop housing earn income less than LE 750 monthly, so they potentially depend on inheritance for required funds. 175
4.5.6 EVALUATION OF GOVERNMENTAL HOUSING PROGRAMS Out of the four housing unit designs made available from time to time by the government, respondents to the survey expressed a definite preference (59.1 percent) for the 63m 2 design. The two reasons were that the size was appropriate to the family composition and the payment arrangements were in keeping with family income. Significantly, 21.7 percent found none of the designs appropriate. Meanwhile, 12.7 percent preferred the 77m 2 design, 4.6 percent preferred the 90m 2 design, and 1.9 percent preferred the 115m 2 design. The main reason that respondents rejected all of the models was inability to pay the advance payment (60 percent), followed by concerns over installment increases (22.9 percent), high monthly installments (12.9 percent), and other reasons (4.3 percent).
Box 4.2 A Study of Citizens’ Preferences for Government-Proposed Housing Models
The Information and Decision Support Center published a study in January 2006 on appropriate housing for Egyptian citizens. The study was conducted on a multi-stage stratified random sample of 2280 households from five different governorates: Cairo representing urban governorates, Menoufia and Gharbia representing Delta governorates, and Fayoum and Sohag representing Upper Egypt governorates. The study’s first conclusion was that the three housing models (63m 2, 90m 2, and 115m 2) are inadequate for 73.1 percent of the whole sample, and only one model is suitable for 26.9 percent. Of the three models, the first (63m 2) was popularly approved by 76 percent, the second (90m 2) was approved by 18 percent, then the third (115m 2) only by 6 percent of the sample. Disapproval of the models by survey respondents was, in order of frequency cited, due to the installment value, the advance payment value, the installment increase rate, and the payment duration.
175 Madbouly, Mostafa and Amr Lashin. Informal Settlements in Greater Cairo: The Case Study of Boulaq El- Dakrour , 2003.
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4.5.7 ANALYZING SOCIAL STRATA Social strata are analyzed by categories to investigate the relationship between these categories and the classifications chosen for the affordability analysis. The sample was broken down into two categories each for total household annual income (above or below LE 9,000 annually), head-of-household occupation (employee or other) and head-of-household education (university graduates or lower education levels). These classifications yield eight categories as displayed in Figure 4.4. The affordability analysis looked at three key areas: household’s ability to pay for housing, the government role in providing housing, and mortgage financing. These areas were refined as follows: Households’ ability to pay for housing: • Maximum affordable down payment (defined as under LE 5,000; LE 5,000 to under LE 15,000, or LE 15,000 and above)
• Maximum affordable monthly installment/rent (defined as under LE 160/month, or LE 160/month and higher) The government role in providing housing: • Providing construction loans • Providing site and services • Providing site, services, and construction loans
• Providing site, services, and core housing • Providing subsidized finished housing unit along with housing finance loans Mortgage financing: • Acceptance/refusal to acquire loans
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Figure 4.4 Components of the Affordability Analysis
4.5.8 RESULTS OF THE ANALYSIS: HOUSEHOLDS’ ABILITY TO PAY FOR HOUSING
4.5.8.1 MAXIMUM AFFORDABLE DOWN PAYMENT The sample categories shown in Figure 4.4 have similar maximum affordable down payments, except for categories 4 and 7. The majority of responses in each of the other categories (from 75 to 83.3 percent) said their maximum affordable down payment was in
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the LE 5,000 to less than LE 15,000 range. This seems logical as the sample is composed of applicants for government-provided housing, for which the down payment is LE 5,000. In sample category 4, the maximum affordable down payment ranges between LE 15,000 to 30,000, which indicates a relationship between self-employment (other occupation/university education), total household annual income (more than LE9,000), and ability to afford a higher down payment. The situation is different for sample category 7. Here, the maximum affordable down payment for 64.5 percent of respondents was still in the LE 5,000 to less than 15,000 bracket. But for 33.3 percent the maximum affordable down payment is less than LE 5,000, indicating a relationship between low household income (less than LE 5,000), unstable employment (self-employment, daily wage employment, unemployed) and non-academic education.
4.5.8.2 MAXIMUM AFFORDABLE MONTHLY INSTALLMENT/RENT The eight sample categories can be classified into three groups according to the monthly installment/rents they are prepared to pay. The first group, in which a large majority is prepared to pay less than LE 160/month, includes sample categories 5 and 7, where 75.3 percent and 80.6 percent respectively chose this response. The two categories have common characteristics (non-academic education and household income below LE 9,000/year), but they differ in the head-of-household occupation. This suggests a relationship among a low installment/rent, weak income, and non-academic education, regardless of the employment description. Commonly in this case, the employment is a full time job with a fixed salary (usually junior technical/administrative position) or other occupational pattern (skilled/unskilled labor or limited self-employment). The second group consists of sample categories 1, 2, 6, and 8. Respondents in these groups still tended to identify the acceptable monthly installment as being less than LE 160, but by smaller majorities of 53.1 to 66.7 percent. Significant fractions of these groups (33.3 percent - 43.8 percent) were also prepared to pay from LE 160 to LE 500.
The third group includes sample categories 3 and 4, where high percentages (66.7 percent and 71.4 percent) are willing to pay from LE 160 to LE 500 in monthly installments. When compared, the two categories are found to have common characteristics: university education and not having stable employment (other occupational patterns, usually self- employed as a professional), but different incomes. The choice of a higher acceptable monthly installment/rent, despite low income (total household income less than LE 9,000) is probably due to optimistic assessment of future income stream based on having a university degree.
This suggests a relationship among high maximum monthly installment/rent, university education, and not having stable employment, regardless of income level.
4.5.8.3 CROSS ANALYSIS OF DOWN PAYMENT AND INSTALLMENT/RENTS The cross analysis of sample categories by both down payment and monthly installment/rent shows that three of the sample categories (categories 4, 5, and 7) stand out from the others.
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In sample category 4 (income above LE 9,000/yr, other occupation, university graduate) 71.4 percent or respondents said that they would be willing to make a down payment of LE 15,000 to 30,000 and would make monthly payments of LE 160 to LE 500.
In sample category 7 (income less than LE 9,000/yr, other occupation, non-academic) 33.3 percent of its respondents prefer the down payment value to be less than LE 5,000, but 64.5 percent are willing to make a down payment between LE 5,000 to 15,000. Yet 75.3 percent prefer the monthly installment/rent to be less than LE 160. These statistics suggest a potential relationship between affordability and the characteristics of low income, unstable employment, and non-academic education. While a down payment of LE 5,000 to 15,000 is suitable for a relatively high percent of this category, a significant percentage preferred a down payment of less than LE 5,000, suggesting a limited ability to save and a lack of other channels for obtaining the funds for a down payment. Sample category 5 (less than LE 9,000/yr income, employee, non-academic) stands out because 79.2 percent of its respondents choose a down payment value of LE 5,000 to 15,000, and 80.6 percent prefer a monthly installment/rent of under LE 160.
This category includes junior technical/administrative employees and possibly factory laborers, for whom down payments of LE 5,000 up to 15,000 can be managed through family assistance or participation in cooperative funds (gamiya), while monthly installments/rents of more than LE 160 are not affordable.
Sample category 4 was 2.2 percent of the total sample, category 5 was 22.3 percent, and category 7 was 28.8 percent. Thus the results for the sample categories 5 and 7 may be more statistically significant than for category 4.
4.5.9 RESULTS OF THE ANALYSIS: THE GOVERNMENT’S ROLE IN PROVIDING HOUSING
4.5.9.1 THE GOVERNMENT’S ROLE: PROVIDING A CONSTRUCTION LOAN Over 90 percent of respondents in all sample categories, with the exception of category 4, refused government-provided construction loans. Even in category 4, only 14.3 percent were interested in obtaining a government-provided construction loan.
4.5.9.2 THE GOVERNMENT’S ROLE: PROVIDING SITE AND SERVICES The sample categories can be divided into two groups with reference to government- provided site and services. The first group consists of categories 1, 2, 3, 4 5, and 7. In this group a high percentage of respondents (from 87.5 to 100 percent) refused government- provided site and services. Slightly lower percentages of the second group (categories 6 and 8) refused: 16.7 percent to 19 percent respectively desire being provided site and services by the government. However, the number of respondents falling into category 3 was for valid results. Category 8 consists of respondents with income more than LE 9,000/yr, other occupation (mostly skilled laborer/self-employed), and non-academic education.
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4.5.9.3 THE GOVERNMENT’S ROLE: PROVIDING SITE, SERVICES, AND CONSTRUCTION LOANS There was little interest in government provision of site, services, and construction loans. In sample categories 1, 2, 5, 6, 7 and 8, between 75 and 78.5 percent of respondents refused government-provided site, services, and construction loans. The highest rate of willingness to accept these were in categories 3 and 4. Fifty percent of category 3 respondents would accept government-provided site, services, and construction loans, and 100 percent of category 4 would do so. The two categories have common characteristics: they lack stable employment and have other occupation patterns (mostly self-employment), and they have a university education. But category 3 respondents have household income below LE 9,000/yr and category 4 have incomes above.
4.5.9.4 THE GOVERNMENT’S ROLE: PROVIDING SITE, SERVICES, AND CORE HOUSING With respect to willingness to accept government-provide site, services, and core housing, the sample categories can be divided into three groups. The first group includes categories 1, 4, 5, and 6. Very high percentages of this group (88.6 to 100 percent) would refuse the government’s provision of these services.
The second group comprises sample categories 2, 7, and 8. In this group high levels (75 to 83.9 percent) would refuse the government’s provision of site, services, and core housing. Group 3 consists of sample category 3, where an equal number accepted and refused these services.
4.5.9.5 THE GOVERNMENT’S ROLE: PROVIDING SUBSIDIZED FINISHED HOUSING UNITS ALONG WITH HOUSING FINANCE LOANS Respondents fell into two groups. The first group includes sample categories 4 and 5, where high majorities (100 percent and 84.7 percent respectively) desire provision by the government of a subsidized finished housing unit along with housing finance loans. The second group consists of the remaining categories, where there was a slightly lower willingness (75 to 66.7 percent) to accept subsidized finished housing and loans.
4.5.9.6 CROSS ANALYSIS OF ALTERNATIVES FOR THE PUBLIC ROLE IN PROVIDING HOUSING Most respondents in all categories expected to be provided with subsidized finished housing along with housing finance loans, indicating that respondents do not expect to participate in housing provision to any extent. Sample categories 5 and 8 stood out from the others. Category 5 had the least willingness of all to participate in the housing production or even the development of a core house. The majority of respondents within this category expected to obtain a subsidized finished unit along with loans to finance the purchase of the unit. This category is characterized by income of less than LE 9,000/yr, full time employment with a fixed salary, and a non- academic education (respondents in this category are mostly factory laborers). This indicates a relationship between these characteristics and expectations of being provided finished housing by the government. Evidence of such a relationship is shown by the high
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demand for public housing by factory laborers and company employees, especially in new cities, where city councils have been urged to address these demands as shown in Appendix 4.1.
In category 8, low percentages (varying between 19 and 23.8 percent) – but higher than in other categories – were willing to participate in housing production or to develop of a core house. Category 8 is characterized by income above LE 9,000/yr, other occupation (mostly skilled labor, or limited self-employment), and non-academic education. The figures suggest that this category has the potential for participating in housing development, given proper planning.
4.5.10 RESULTS OF THE ANALYSIS: EFFECTIVENESS OF MORTGAGE FINANCING This part of the analysis considers the willingness of survey respondents to obtain loans. Respondents fall into two groups. The first group consists of sample categories 2, 3, 4, 5, and 7. A large percentage of this group (from 65.6 to 78.5 percent) refuse to obtain loans. In the second group (categories 1, 6 and 8) about half the respondents refuse to obtain loans. Categories 1 and 6 are similar occupationally (full time employment with a fixed salary that can be used to guarantee a loan). In category 8 the annual income is LE 9,000 or higher, which may be an incentive to obtain a loan as they have the means to repay it.
4.6 CONCLUSIONS • The TAPRII survey shows a high percentage of respondents lacking permanent employment (falling into the self-employed, daily wage, or unemployed categories) whose education levels are non-academic and who receive household incomes less than LE 9,000/yr. It also found high numbers of junior technical/administrative employees whose education levels are non-academic and who have annual household incomes less than LE 9,000. This not only tells us about the nature of the survey respondents, but also suggests approaches for further research.
• More important than the preliminary identification of affordable total payments, down payments or installments, is to set forth two categories of affordability based on educational and occupational characteristics of the targeted beneficiaries. This is crucial because true affordability must take into account both financial ability and head-of-household management of priorities . One-third of the category in which respondents are not permanently employed, whose education is non-academic and who have household incomes less than LE 9,000 annually , have chosen less than LE 5,000 as a housing down payment. The rest chose a down payment in the range of LE 5,000 to less than LE 15,000. Three quarters of the first category (no permanent employment/non-academic/annual income below LE 9,000) preferred a monthly installment/rent less than LE 160, which suggests a relationship between the category’s weak income, unstable employment and non-academic education on one hand, and their ability to pay on the other. While the majority of respondents prefer from LE 5,000 to less than LE 15,000 as a down payment, a remarkable number of respondents demand a down payment under LE 5,000. This clearly indicates a low savings capacity and lack of contribution channels.
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• On the other hand, four fifths of the second category — junior technical/administrative employees who are not academic and have household incomes less than LE 9,000 annually — find a down payment in the range of LE 5,000 to less than 15,000 and the monthly installment/rent of under LE160 acceptable. This category mostly includes factory workers in new cities who can manage to provide the said down payment through participating in cooperative funds or by obtaining contributions from family or relatives, but cannot afford more than a LE 160 monthly installment.
• It may be worthwhile as well to scrutinize the third largest category of survey respondents. These respondents have permanent employment (commonly as junior administrative employees), are university graduates and have household income less than LE 9,000/yr . In this category, 83.3 percent preferred a down payment in the range of LE 5,000 to under LE 15,000. Just over 60 percent of the same category has chosen a monthly installment/rent less than LE 160. Thus, they differ from the two categories mentioned above, reaffirming the proposition that affordability can be expressed as a function of target groups’ characteristics.
• There have been housing programs in Egypt designed for groups that were culturally, socially and economically homogenous, such as housing areas for engineers, media workers, teachers, police and army officers, or laborers in industrial areas. The lessons learned from these programs (for example the National Party Vocational Secretariat’s housing for young citizens with vocations) can suggest further research consistent with actual circumstances in new cities of an industrial nature. 176
• The research should be expanded to better determine location-specific housing patterns, with particular attention to the geographic distribution and preferences of beneficiaries whose only collateral is their salary. The location and nature of their employment can suggest suitable locations for housing programs.
• Most respondents stated their dependence on their employer and family members for financing and as sources of loan collateral. Thus, the roles of both these parties should be developed, primarily through flexible legislation that would encourage participation and preserve all participants' rights — for example, considering the employer an intermediate owner after the government and before the individual, or allowing joint housing ownership with spouses. Such issues should be further explored.
4.7 RECOMMENDATIONS Further research is essential in order to refine and expand on policy recommendations. The following steps are necessary to improve our understanding of housing affordability:
• Annually update indicators of the Egyptian housing market to enable longitudinal study of housing affordability. Market studies must be conducted on the city, national, and urban/rural levels, and should include all housing, both new and old, and both
176 The appearance of several reports in the media on the subject of housing particular groups, and a recent declaration by the Minister of Manpower and Immigration about the importance of housing industrial workers, suggest that interest in this topic is currently gaining momentum.
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formal and informal. As well as giving insight into the financial burden of housing payments, housing indicators should explore the ability of the housing market to provide adequate shelter for all sections of society, regardless of income.
• Expand on the efforts of this housing study to further critically assess the key issues of housing supply, demand, affordability and subsidies, in order to recommend which types of interventions are appropriate.
• Using the TAPRII survey already conducted as a basis for the design, conduct a survey with a larger sample size, focusing on obtaining an unbiased sample of various sample categories and enlarging the scope to encompass various geographic locations.
• Survey employers and different categories of employees (from entry-level laborers to managers) to provide a comprehensive assessment of their needs and potential with respect to developing suitable schemes for worker housing. Careful attention should be paid to both current and planned geographic locations of employers, so that results can be coordinated with the geographic distribution of housing supply.
• Collect appropriate data concerning the technical aspects of housing demand, i.e. flat area, finishing level, etc.
• Utilize the application procedures for the President Mubarak housing program as a means to collect valuable statistical data that can be used to design and refine future housing programs. The present application form could be revised so that it is an effective data-gathering tool for measuring the characteristics of housing demand by low income groups. When analyzed, this data could provide powerful support for revising the strategies of the housing program to better address concerns such as determining appropriate environments (geographic locations versus work locations, such as factories in the new cities, for example), the needs of beneficiaries, and so on. An effort to revise the application, collect and analyze data, and prepare appropriate recommendations based on that analysis would be an appropriate activity for a second phase of the housing demand study.
• Use micro-finance initiatives to address the problem of an underdeveloped mortgage finance system. Housing microfinance programs can follow two distinct approaches that differ with respect to their vision, objectives, focus, service package, and loan terms and conditions. One approach is micro-credit finance targeted to small and micro-enterprises. Microfinance institutions (MFIs) can broaden their lending portfolio to offer specialized housing finance products for new housing construction and/or home improvement projects. For this to succeed, MFIs need to be made aware that there is an explicit connection between suitable housing and income generation within their customer base. A second approach to micro-finance for housing, shelter advocacy, affirms the right of the poor to have equitable access to resources, particularly land and shelter, as well as adequate infrastructure and services. The underlying belief of this approach is that shelter is a basic human right, and its overarching vision is the empowerment of disenfranchised community members, particularly the homeless. Further research is needed in order to recommend effective programs targeted at this group (which includes the first category of respondents to the TAPRII sample — those who are not permanently employed,
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whose education is non-academic and who have household incomes less than LE 9,000 annually).
Policy recommendations that follow from the study of housing affordability, and which might be modified if better data is collected and analyzed, are as follows:
• Design a new housing program to take into account not only income levels of beneficiaries but social attributes as well. Some program parameters should also be geographically differentiated.
• Split the new program into several distinct components. Each component can address a distinct category of beneficiaries, with differences in the housing provided, tenure types and financing options. For instance, one component may address home ownership for young university graduates. Another component may be concerned with rental housing for young laborers and the self-employed. A third one may be oriented toward "financing leases" for factory workers, with ownership transferring to the "lessee" at the conclusion of the lease for a nominal or minimal payment, if the worker continues working for the same employer for a certain number of years. 177
• Ensure that private, co-operative and public enterprises play appropriate roles in home building. For example, businesses can be involved in housing investment for workers, in order to increase employee morale, productivity and longevity.
• Examine, and take lessons from, past self-help experiments in housing provision. Although supposedly promoting decentralization, the current public housing program is based on centralized direct provision and subsidy of finished housing units. This has usually been justified by citing target population expectations to be provided with subsidized finished housing along with housing finance loans. However, simply acceding to these expectations is not the only possible response: Instead, the government can turn to self-help programs and educate the public accordingly.
• Build public-private partnerships for land development and housing provision. Reliance on public housing agencies to develop land and housing for lower income groups exposes governments to significant financial risks, allows inefficiencies to drain resources from the governments’ overall development efforts, undermines the potential role of the private sector, and often results in excessive service provision. The responsibilities of public housing agencies should be refocused on policy analyses and strategic planning. Land development and housing provision should be carried out by the private sector.
• Develop and simplify property rights regulations and titling systems, and allow joint housing ownership to encourage participation by employers or family members. A component of the new program could be specifically designed for joint housing ownership.
177 This vision overlaps with the recent policies of the government including the provision of workers' housing through business owners and the provision of affordable rental housing. These two strategies require in-depth study to lead the best design of corresponding schemes.
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• Rationalize and promote mortgage finance programs for all income brackets, not only high and upper-middle income groups. The new housing program can include mortgage finance schemes such as buy-to-let and shared ownership.
• Address the reluctance of households to take a more active role in housing construction. Two approaches are needed: In the short run, develop programs that acknowledge households’ preferences. The second, longer-term strategy is to encourage higher participation levels, at the same time the government works to redefine the national roles of government, households, and the private sector in providing financing. To accomplish this longer-term goal, the government can organize public education campaigns that promote public participation in housing construction.
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CHAPTER 5: CURRENT HOUSING SUBSIDIES BY MARKET SEGMENT
5.1 INTRODUCTION AND METHODOLOGY The purpose of this section is to provide a clear understanding of the system of housing subsidies in Egypt, both implicit and explicit, in terms of scale, targeting, coverage, and efficiency. This will provide a baseline statement or “benchmark” of housing subsidies which will assist the government in the design of new housing approaches which are relevant to the conditions found in housing in Egypt. Housing subsidies are defined as financial or in-kind support from the government in housing production which results in housing prices or rents that are below what would need to be charged to fully recover costs. Subsidies are considered to exist in housing inputs if the cost of inputs (land, materials, etc.) is below full market values. The degree of subsidy in a housing program is defined as the percentage of the total cost of a unit on offer (both direct and indirect costs) which is not covered by down payment(s) and installment payments (using net present value) made by the beneficiary. The methodology used in analyzing current housing subsidies was as follows: • All possible direct and indirect subsidies operating in the housing sector were identified; • Since practically all housing subsidies are found in the government’s public housing programs, this became the focus of the analysis; • The scale and trends in the provision of government housing were reviewed, using secondary data provided by MHUUD; • The specific government housing programs and the associated agencies operating in Egypt were reviewed, including mechanisms for targeting and distribution, financial costs to beneficiaries, and sources of funds; • Estimates were made of the subsidy element in particular government housing programs; • Particular issues pertaining to government housing were underscored, such as sources of land and location, designs and layouts, quality, costs and budgeting, contracts and titling, repayments and sale to third parties, etc.; and • Finally, an overall assessment was made of the effectiveness of government housing programs and their coverage of market segments.
5.2 GENERAL TYPES OF CURRENT HOUSING SUBSIDIES In Egypt, overwhelmingly the predominant form of housing subsidies are found in the various government-financed and government-implemented housing programs which are aimed mainly at lower-income households. The size of government expenditures needed to support these subsidies far overshadows any other types of subsidies related to housing production. Overall, the breakdown of types of subsidies related to housing in Egypt are as follows:
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5.2.1 GOVERNMENT-FINANCED AND PRODUCED HOUSING These government programs are under different authorities, and housing models and payment conditions vary. Government-provided, subsided public and cooperative housing in Egypt has a long history, starting in the early 1950s. The serviced land upon which this housing has been built is, almost without exception, provided at no cost by the State and thus represents a subsidy element in addition to the construction cost which is subsidized through low rents or low installment payments (often based on subsidized interest rates on government bank loans). Since this government housing represents the main forms of subsidies in the housing market in Egypt, and because it is the reference point to which new housing systems will be compared, it will be described and analyzed in detail in this chapter. Other forms of housing subsidies in Egypt are not considerable in value or coverage, especially compared to those operating within government housing programs. However, it is important to identify these other kinds of housing subsidies, as is done in the following paragraphs.
5.2.2 SUBSIDIZED LAND FOR HOUSING In some cases State land (usually desert land) has been and continues to be sold to private developers and/or individuals at prices which are below the costs of servicing these lands with infrastructure. In other situations land is “assigned” at little or no cost to State and para- Statal authorities who in turn allocate such land (or the housing units built upon them) to employees and members. These mechanisms represent a direct financial subsidy, although recently government agencies controlling State land have been imposing acquisition prices which tend to cover most infrastructure costs. In addition, many such land subdivision schemes would, if sold on the open market, generate returns which are even higher than the “infrastructure-per-square-meter” price . This means there is an additional lost “opportunity cost” which should be considered as an indirect subsidy. In the new cities it is said that the lower cost of land for low-cost housing is made possible by charging market prices for other land, a form of internal cross-subsidization. Unfortunately there is no available information which would allow an estimate of the magnitude of this process of subsidizing land, but it cannot be significant compared to direct subsidized housing programs of the government mentioned above.
There is at least one example of private sector low cost housing built on subsidized land. In Ismailia the Egyco Company has been assigned serviced State land at no cost in Madinet El-Mustaqbal, on the condition that the Company sell units at fixed prices. 178
5.2.3 SUBSIDIZED BUILDING MATERIALS AND CONSTRUCTION METHODS In the 1970s and 1980s, through the building permit regime, key building materials such as cement and steel rebar were sold at official prices which were considerably lower than prices
178 Egyco units of 2 bedrooms plus reception have a down payment of LE 5000 and monthly installments of LE 160 for thirty years.
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on the open market. However, this practice has been discontinued for roughly 20 years. There are currently no known subsidies operating in housing construction.
5.2.4 SUBSIDIZED INFRASTRUCTURE SERVICES Practically no one in Egypt pays the full cost of water and wastewater services. The sunk capital costs for these systems comes from the central State budget (however, connection costs are paid by beneficiaries), and the user charges for these systems (based on metered or bulk water tariffs) hardly cover operating costs in most cases. The water and wastewater sectors are currently being reformed in Egypt and there is movement towards greater cost recovery, but the subsidy element still exists. However, it tends to be a neutral subsidy enjoyed by all property owners and tenants throughout Egypt.
5.2.5 IMPLICIT HOUSING SUBSIDIES IN TAX REGIMES The implicit subsidies which housing can enjoy through tax holidays are few, simply because in Egypt housing is little exposed to tax regimes. The following points are in order: 1. The property tax imposed by the Ministry of Finance is universal on all residential properties (even that of squatters!) and is thus neutral, except for the fact that it is always behind in evaluation and in geographical application. In any event the annual property tax rates are incredibly low.
2. Corporate income tax is imposed on housing developer companies as on all private commercial enterprises, theoretically on annual book profits but in fact through a much more opaque estimation process. This corporate tax is universal. Whereas in the New cities productive investments (commercial and industrial) enjoy significant corporate income tax holidays, it is understood that housing investments do not enjoy these benefits. 3. Individuals are exposed to straightforward income taxes under the new unified tax code. However, this income tax regime is very new, and the vast majority of individuals still pay no income tax. Rental income from properties should be reported in income tax declarations but often is not. All housing is subject to capital gains taxes as part of the unified income tax. 4. There are stiff property registration and transfer fees, but most housing is never registered, and in any event the registration fees are in the process of being drastically reduced.
5.3 HISTORY OF GOVERNMENT HOUSING PROGRAMS Government-provided housing in Egypt has a considerable history. The first project to address the needs of the lower and working classes was the Workers City (Madinet El- Umaal) which began in 1952 in Imbaba, which was then a suburb of Cairo. Under the socialist government during the 1953-1967 period there was an increasing volume of public housing built in the capital and in other main cities. This housing, almost all of it 3- to 5-floor walk-up housing blocks with small flats, was distributed through the governorates, the Ministry of Housing, and specific government authorities to newlywed couples, government
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employees including the armed forces, and relocation and welfare cases. In appearance, many would say these housing estates displayed “a Soviet style.” In all cases nominal rents were charged, and the rental contracts gave the tenants and their heirs absolute and perpetual rights against eviction as long as rents were paid. Madinet Nasr, a large town extension scheme northeast of Cairo’s center in the desert fringe which began in 1965, was to be the government’s socialist showcase with thousands of government-built apartment units mostly for various government employees, along with large government office buildings and monumental recreation complexes.
In the 1967 through 1973 period all government-sponsored housing activities were halted due to the country’s need to maintain a war economy.
Starting in 1974, Egypt saw a resurgence of government housing programs throughout Egypt but especially in the Suez Canal Zone as part of post-war reconstruction. Financing came mostly from the State budget through the Ministry of Housing and Reconstruction, but there were also large housing estates which were funded directly by Gulf donor countries.
This led to an increasing pace of public housing production, and by 1980 the new cities policy had been firmly launched. Also in the 1980s a number of very large public housing estates were established (Madinet El-Salam and El-Nahda northeast of Cairo off the Ismailia Desert Road, for example).
Starting in 1981, a major policy shift was introduced which resulted in a conversion of the tenure of existing public housing units from rent to monthly installment payments leading to eventual ownership ( tamlik ). This new policy also began to be applied to new units, and currently practically all public housing produced is sold to beneficiaries under monthly installments over 30 to 40 years. An exception to this shift was that certain administrative housing for officials in remote areas remained under rental arrangements.
Throughout the 1990s and into the new millennium the government has continued to support a policy of direct housing provision, with an increasing share of new government housing being sited in the new cities.
It is interesting to note that Egypt has maintained its commitment and allocation of resources to public housing programs throughout the 1980s and 1990s, based on the policy that the State must provide housing for those who are unable to house themselves. This policy, while laudable, is increasingly out of sync with the global consensus on “enabling” housing strategies for developing countries which began to coalesce in the 1980s and became enshrined during the 1996 United Nations Habitat Conference in Istanbul. “Enabling” means that the proper role of the State is to provide access to land and finance and construction technologies (with minimum regulation and easy standards) but to leave it to individuals (owner-builders) and the private sector to produce the housing.
5.4 PUBLIC HOUSING PRODUCTION VOLUMES BY AUTHORITY Over the period 1952-1982, MHUUD records show that a total of 1,118,000 units of government housing were built, at an average annual rate of 37,790 units. Subsequently, the production of public housing by government authorities has been considerable. The 1982- 2005 period has detailed information available from MHUUD, and most of the following discussion relates to this period.
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Data presented in Table 5.1 show that total annual production over the whole 23 years ranged from 14,000 to 100,000 units, with an annual average production of 54,700 units. 179 In the 1987-1994 period and again in 1998-2000, annual production significantly exceeded the average. Conversely, in the 1982-1986 period production was considerably less than the average. And most recently, in the 2001-2005 period, annual production has been far below the average (only 15,000 to 35,000 units).
Table 5.1 Annual Government Sector Housing Production (Urban) 1982 - 2005 by Executing Agencies (in housing units) 180 Total by Fiscal Governor- Housing Joint Coop Housing Housing Taameer New TOTAL 5yr Year ates Companies Projects Housing Fund Bank Agencies Cities Plan
1982/83 20,428 987 238 3,140 0 1,018 3,882 2,952 32,645 1983/84 22,660 350 0 2,561 0 696 2,091 4,633 32,991 1984/85 22,536 2,146 0 14,533 0 0 2,432 2,410 44,057 197,647 1985/86 21,258 1,876 0 8,942 0 0 1,652 4,624 38,352 1986/87 17,563 2,283 0 21,818 0 0 1,824 6,114 49,602 1987/88 29,807 2,745 3,500 5,540 0 7,270 2,041 11,922 62,825 1988/89 35,953 1,569 4,105 9,271 0 6,156 1,884 8,369 67,307 1989/90 46,221 4,104 1,739 8,012 5,970 1,312 752 8,370 76,480 386,880 1990/91 47,812 5,433 0 21,779 1,313 6,767 1,243 11,527 95,874 1991/92 42,972 3,469 0 24,603 327 5,034 410 7,579 84,394 1992/93 49,228 3,067 0 30,659 406 2,142 198 13,750 99,450 1993/94 23,938 2,184 1,289 16,037 458 6,556 1,602 12,369 64,433 1994/95 17,599 3,528 277 21,865 0 3,589 3,994 7,174 58,026 331,417 1995/96 25,467 1,852 856 19,888 360 2,899 1,104 3,471 55,897 1996/97 21,507 399 601 20,104 304 1,602 0 9,094 53,611 1997/98 12,109 639 339 12,250 4,136 8,209 0 20,852 58,534 1998/99 16,854 1,154 441 12,741 2,240 950 0 31,545 65,925 1999/2000 14,882 540 1,176 6,364 5,192 2,613 804 38,804 70,375 288,157 2000/01 14,424 416 1,186 6,151 0 2,022 1,892 31,886 57,977 2001/02 15,279 652 304 7,747 480 1,878 299 8,707 35,346 2002/03 12,719 1,448 364 1,477 750 2,213 12 2,805 21,788 2003/04 11,165 1,245 432 0 160 647 113 1,183 14,945 54,173 2004/05 11,397 1,032 805 2,795 72 100 118 1,121 17,440 [90288] TOTAL 553,778.00 43,118.00 17,652.00 278,277.00 22,168.00 63,673.00 28,347.00 251,261.00 1,258,274.00 % share 44.01% 3.43% 1.40% 22.12% 1.76% 5.06% 2.25% 19.97% 100.0% of total
179 Note that Table 5.1 figures and those presented in Tables 5.2 and 5.3 only refer to housing in “urban” areas, although there is practically no government housing produced in rural areas (except model villages in land reclamation schemes). Also, these figures do not include housing produced by government or para-statal authorities for their employees (police, army, railways, the petroleum sector, etc.), nor housing of the Future Foundation. Information on such housing production by most of these entities is not readily available. These figures also exclude government “emergency housing.” 180 General Administration for Planning and Follow Up, Housing and Utilities Sector, MHUUD, no date.
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Fiscal Governor- Housing Joint Coop Housing Housing Taameer New TOTAL Year ates Companies Projects Housing Fund Bank Agencies Cities
1982/87 104445 7642 238 50994 0 1714 11881 20733 197647 % share 52.8% 3.9% 0.1% 25.8% 0.0% 0.9% 6.0% 10.5% 100.0% 87/92 202765 17320 9344 69205 7610 26539 6330 47767 386880 % share 52.4% 4.5% 2.4% 17.9% 2.0% 6.9% 1.6% 12.3% 100.0% 1992/97 137739 11030 3023 108553 1528 16788 6898 45858 331417 % share 41.6% 3.3% 0.9% 32.8% 0.5% 5.1% 2.1% 13.8% 100.0% 1997/02 73548 3401 3446 45253 12048 15672 2995 131794 288157 % share 25.5% 1.2% 1.2% 15.7% 4.2% 5.4% 1.0% 45.7% 100.0% 2002/05 35281 3725 1601 4272 982 2960 243 5109 54173 % share 65.1% 6.9% 3.0% 7.9% 1.8% 5.5% 0.4% 9.4% 100.0%
The largest portion of total government housing was produced by local government, i.e. governorates, (44 percent of the total for the 1982-2005 period). However, from a high annual production rate of almost 50,000 in 1992-93, governorate housing production has declined fairly steadily, and from 2002-2005 such production averaged only 12,000 units per year.
The second most important type of government housing production was by housing cooperatives, with 22 percent of total production over the 1982-2005 period. However, after experiencing high production rates until 1997, cooperative housing has declined dramatically, so that in the 2002-2005 period the annual rate was less than 3,000 units.
The third most important type of government housing production was in the new cities, with 20 percent over the 1982-2005 period. In the 1997-2002 Five Year Plan period annual new city housing production averaged 25,000 units or 45 percent of the government total, but in the 2002-2005 period production fell dramatically to less than 2000 units annually (9.4 percent of the government total for that period).
Other forms of housing production (by government housing companies, the joint projects agency, the housing fund, the housing bank, and taameer agencies) represent only small contributions to the total production of government housing (less than 14 percent over the whole 1982-2005 period).
The modalities and mechanisms of housing production carried out by different government agencies are described in detail in Section 5.7 below.
5.5 PUBLIC HOUSING PRODUCTION VOLUMES BY TYPE Public housing in Egypt is classified into five categories, each with different sizes (m 2 of built space), amenities and finishing. Most of these categories have been in place since the 1960s and defined in Law 106; the “low cost” category was added in the 1980s. The categories are as follows (note that the surface areas include the unit’s share of the stairwell): • Low cost housing ( munkhafid El-taklifa ) -- average area 45m 2 • Economic housing (iktisadi ) – average area 60m 2, five sub-types • Average housing ( mutawassit ) – average area 90m 2 • Above average ( foq El-mutawassit ) – three subtypes, 75m 2, 100m 2, and 125m 2
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• Luxurious ( fakhr ), above 125m 2 with larger rooms and much more expensive finishings As can be seen from Table 5.2, over the 1982-2005 period “low cost” units represented 49 percent of total government production, and “economic” units represented 32 percent. Together these two types, which are very similar, represented 82 percent of all government housing production. This proportion has remained fairly constant over the 1982-2005 period, rising slightly to 84 percent in the most recent period of 2002-2005.
181 Table 5.2: Government Housing Production by Type (Urban) 1982-2005 by Five Year Period (in housing units) Period 1982- 1987- 1992- 1997- 2002 Total Classification of Unit 1987 1992 1997 2002 to end 05
Low-cost & economic total * 145,791 317,991 273,927 245,879 48,968 1,032,556 Low-cost & economic annual rate 29,158 63,598 54,785 49,176 9,794 206,511 Low-cost & economic % share of total 73.8% 82.2% 82.7% 85.4% 84.1% 81.8%
Average total 44,615 64,224 55,493 37,469 4,826 206,627 Average annual rate 8,923 12,845 11,099 7,494 965 41,325 Average % share of total 22.6% 16.6% 16.7% 13.0% 8.3% 16.4%
Above Average total 6,016 4,284 1,684 4,609 4,371 20,964 Above Average Annual Rate 1,203 857 337 922 874 4,193 Above Average % share of total 3.0% 1.1% 0.5% 1.6% 7.5% 1.7%
Luxurious total 1,225 380 313 0 94 2,012 Luxurious annual rate 245 76 63 0 19 402 Luxurious % share of total 0.6% 0.1% 0.1% 0.0% 0.2% 0.2%
TOTAL 197,647 386,879 331,417 287,957 58,259 1,262,159 Total annual rate 39,529 77,376 66,283 57,591 11,652 - Total % share of total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% * Over the total period 621,624 "low-cost" units and 4109,32 "economic" units were produced.
“Average” housing units represented 16 percent of total government production over the 1982-2005 period. However, their share has declined from a high of 23 percent in the 1982- 87 period to 8 percent in the 2002-2005 period. “Above average” units represented only 1.7 percent of government production over the period, and “luxury” housing units represented an insignificant 0.2 percent of the total.
5.6 PUBLIC HOUSING PRODUCTION VOLUMES BY LOCATION Table 5.3 lists government housing production by governorate over the 1982-2003 period as reported by MHUUD. As would be expected, Cairo Governorate captured the largest share, almost one third of all government housing over the period. When the Greater Cairo governorates of Giza (ranked second with a total of 104,546 units) and Qalyubia (with a total
181 ibid.
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of 58,462 units) are added to Cairo, it can be concluded that Greater Cairo has benefited from just over 50 percent of all government housing production from 1982 to 2005. 182 Alexandria, Egypt’s second city with a population of 4 million, only received 100,000 units or 8 percent of the total. Of secondary towns in Egypt, Port Said and Suez, both in the Canal Zone, received higher than average shares of government housing.
Table 5.3 Government Housing Production (Urban) by Governorate 1982-2003 183 by housing units
Period Units Urban built 1982- 1987- 1992- 1997- 2002- HH 1996 * per HH Governorate 1987 1992 1997 2002 2003 Total Cairo 90,456 134,561 128,278 106,267 3,680 463,242 1,657,081 0.280 Alexandria 10,886 50,319 26,192 12,884 531 100,812 799,755 0.126 Port Said 5,295 22,299 22,567 15,925 4,256 70,342 112,348 0.626 Ismailia 7,783 10,109 6,196 5,587 174 29,849 82,352 0.362 Suez 8,060 13,518 21,148 14,216 1,520 58,462 97,101 0.602 Qalyubia 5,862 10,582 17,227 19,924 202 53,797 298,222 0.180 Sharkia 7,912 18,651 14,701 10,397 713 52,374 219,408 0.239 Dakahlia 5,090 10,476 3,330 952 0 19,848 277,578 0.072 Damietta 2,276 9,357 1,669 10,919 120 24,341 61,376 0.397 Menoufia 4,891 6,625 2,442 6,844 30 20,832 119,759 0.174 Gharbia 1,455 3,235 3,584 1,011 321 9,606 248,921 0.039 Kafr El-Sheikh 2,970 6,231 1,895 1,492 204 12,792 111,459 0.115 El-Beheira 2,090 15,652 8,469 3,719 713 30,643 195,467 0.157 Giza 8,445 16,722 35,483 41,130 2,766 104,546 613,245 0.170 Fayoum 3,416 5,148 2,458 1,682 50 12,754 95,390 0.134 Beni Suef 1,950 6,352 3,504 3,750 40 15,596 93,371 0.167 Minya 2,952 4,219 336 5,073 224 12,804 140,282 0.091 Assiut 2,343 7,716 4,599 4,852 288 19,798 155,583 0.127 Sohag 3,301 7,894 1,618 1,480 18 14,311 140,022 0.102 Qena + Luxor 1,308 5,044 3,850 5,632 412 16,246 142,259 0.114 Aswan 2,097 3,652 3,946 1,951 831 12,477 85,159 0.147 Red Sea 2,026 2,536 6,783 5,260 192 16,797 22,590 0.744 New Valley 1,312 2,873 1,805 1,249 32 7,271 13,154 0.553 Matrouh 1,990 2,724 1,961 802 0 7,477 22,844 0.327 North Sinai 9,885 7,295 4,634 3,032 800 25,646 30,034 0.854 South Sinai 1,596 3,089 2,742 1,928 608 9,963 5,117 1.947 TOTAL 197,647 386,879 331,417 287,958 18,725 1,222,626 5,839,877 0.209 * Households living in housing units (excludes population living in public institutions in urban areas)
Also shown in Table 5.3 are the number of urban households in each governorate (from the 1996 Census), and this allows the construction of a rough indicator of government housing coverage as expressed by the number of units built over the period per 1996 household. For
182 It should be noted that the new cities of New Cairo, El-Obour, and El-Sherouk are considered part of Cairo Governorate, and that the new cities of Six October and Sheikh Zayed are considered part of Giza Governorate. 183 Source for population: CAPMAS Census of Population 1996; source for housing units: General Administration for Planning and Follow Up, Housing and Utilities Sector, MHUUD, no date.
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urban Egypt as a whole this indicator is 0.21. Cairo Governorate registered a value of 0.28. Governorates with significantly higher values were mostly frontier governorates, with South Sinai far in the lead with an astonishing 1.9 government housing units built per 1996 household! Yet also with significantly higher values were the governorates of Port Said and Suez.
Conversely, governorates with values significantly below the national average were mostly found in the middle of the Delta (Gharbia had by far the lowest value at 0.039, followed by Dakahlia at 0.072). Upper Egyptian governorates were also all considerably below the national average (with values from 0.091 to 0.167). What is clear from Table 5.3 is that the availability of large amounts of vacant State land (mainly desert) within proximity to urban centers is a major factor in explaining the concentration of government housing in particular governorates. Prime examples include the frontier governorates and Port Said and Suez. Conversely, the almost total lack of such State land in the inner Delta governorates (Gharbia, Dakahlia, Kafr El-Sheikh for example), goes a long way towards explaining why little government housing has been built in these areas.
5.7 GOVERNMENT AUTHORITIES WHICH PRODUCE HOUSING AND CURRENT PROGRAMS Described below are the main types of government housing programs which are currently operating and which have a significantly subsidy element. These are organized by the authority which implements the program.
5.7.1 THE MUBARAK YOUTH HOUSING PROJECT This is currently the main housing program for new government housing in Egypt. Since its inception in 1995 over 80,000 units have been built by the Mubarak Youth Housing Project, almost all in the new cities (which are managed by new city agencies, also under the MHUUD). The program is distinguishable by the “attractive facade” treatment and the low monthly installments (LE 73 for all units). The MHUUD is said to finance the units through a mix of State grants and cooperative housing loans (at 5 and 6 percent). It is understood that this program is winding down: that is, that current construction is being finished and units allocated to beneficiaries, but that there are no new schemes and sites being prepared. 184 Instead, this program will be soon replaced by the President’s National Housing Project.
For Mubarak Youth Housing a point allocation system has been developed (see Section 5.8 below). However, for schemes which are remote or otherwise unattractive, distribution is on a simple first-come first-served basis after applications are screened to ensure that basic qualifying conditions are met.
Details on Mubarak Youth Housing are found in Table 5.4.
184 According to the MHUUD’s website, the Mubarak Youth Housing Project has a fourth phase called “Enhanced Economic Housing” which was launched at the end of 2004. This program is currently constructing 10,000 units of between 50 and 57 m2 in the new cities. Average monthly installment payments are said to be LE 80. (source: www.urban-comm.gov.eg)
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Table 5.4 Mubarak Youth Housing Profile 185
2 Monthly Model/Phase Total no. of units Area of unit (m ) Cost of a unit * (LE) installments (LE) First 25,818 100 51,500 73 Second 31,627 70 40,000 73 Third 17,904 63 28,500 73 *construction cost only.
5.7.2 COOPERATIVE HOUSING There are approximately 4000 registered housing cooperatives in Egypt which are set up under cooperative housing legislation (each cooperative is usually formed among co- workers, professionals, etc.) and under the supervision and control of the General Authority for Building and Housing Cooperatives (GABHC). A cooperative wishing to build units for its members must acquire a parcel of land (usually by assignment from a governorate or new city with minimal payment), prepare designs and drawings, and collect down payments from members. The cooperative then approaches the GABHC for a loan, which was until recently at a very attractive 4 - 7 percent simple interest. GABHC also directly builds housing estates and allocates them to citizens as part of the government’s housing plan (about one quarter of the total volume). In this latter case the process is indistinguishable from governorate housing for new households. Whereas in the past it was possible for housing cooperatives to construct detached villa estates, it is understood that only multi-story apartment blocks are now allowed. Only around 1,500 units of cooperative housing are currently being built per year — a significant reduction in volume of production from the 1990s — due to lower funding from central government and less attractive terms (interest rates).
5.7.3 GOVERNORATE HOUSING – FOR NEW HOUSEHOLDS Governorate housing for new households is funded through the National Investment Bank and repayments are usually handled by HDB. MHUUD only supervises technically. In general, housing terms are similar to those of Mubarak Youth Housing. Table 5.5 gives examples of recent terms in selected governorates.
Table 5.5 Governorate Housing Examples 186 Reservation Monthly Payment Area of Total unit Governorate 2 Down- Installments on delivery Other conditions unit (m ) cost (LE) Payment (LE) (LE) (LE) 10,000 on Qalyubia 60 – 70 40,000 3 – 4,000 97.5 6,000 “assignment”
185 Housing and Utilities Sector, MHUUD, no date. 186 Ibid.
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Reservation Monthly Payment Area of Total unit Governorate 2 Down- Installments on delivery Other conditions unit (m ) cost (LE) Payment (LE) (LE) (LE) Dakahlia 55 – 70 30,000 7,000 88 3,000
5,000 over 5 first Menoufia 70 38,500 20,000 97.5 0 yrs
8,000 over 3 yrs at Beni Suef 63 35,000 6,000 85-96 0 bank rate
Assiut 66 33,000 5,000 105 0
Fayoum 68 – 70 36,000 6 – 8,000 155-179 0
Ismailia 63 – 70 50,000 5,000 160 0
Port Said 52 – 82 39,271 15,000 92.5 0
The criteria for selection and assignment of units varies from one governorate to another. Financing for new and resettlement housing in governorates comes partly from the National Investment Bank ( bank El-qaumi lil istismar, usually nominal loans at LE 20,000 per unit) and partly from governorate housing funds ( sandouq El-iskan ). These governorate funds are in turn funded through a number of local sources, including the sale of State land. In some governorates these funds are quite strong but in others very feeble.
5.7.4 GOVERNORATE HOUSING – FOR RESETTLEMENT AND WELFARE In addition to producing housing for newly forming households, governorates also build units which are allocated to families who need to be resettled due to urban renewal projects, because their existing dwellings have been declared “liable to collapse,” or because of dire family crises (the last is usually at the discretion of the governor). In the major cities this resettlement housing has come to eclipse housing described above for new households and in fact is becoming the main role of governorate housing nationwide.
Units built for such resettlement are in most cases either the classic apartment of 63 to 70m 2 (two bedrooms plus reception) or are smaller, at 45 – 50m 2 (one bedroom plus reception). Two examples of such resettlement housing can be given: 1. In Ismailia, there are small one bedroom units in Madinet El-Mustaqbal which are reserved for either: (1) families living in buildings for which a demolition order has been issued, or (2) head of family widows. A down payment of LE 2500 is required and installment payments are fixed at LE 90 per month for 30 years.
2. In Cairo a large housing project of 12,000+ units is being constructed in Duweika (part of Manshiet Nasr) with funding partly from the Abu Dhabi Fund. Most units are 63m 2 in size (two bedrooms plus reception). Families living in Duweika, which is being redeveloped and all existing housing of which is scheduled for demolition, are being offered new units at LE 1,200 down payment and LE 73 per month installment payments for 40 years. Units in the project have also been allocated to families from various parts of Cairo whose buildings are dangerous or scheduled for removal.
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5.7.5 PUBLIC SECTOR HOUSING COMPANY HOUSING – MAADI, MADINET NASR, ETC. Some 40,000 units of public housing have been constructed since 1982 by public sector housing companies, most of which are located in Cairo and enjoy concessions on State land. Most prominent among them are the Madinet Nasr, Heliopolis, and Maadi companies. In the past these companies could access subsidized housing loans at 7 percent to finance construction on their own lands, but now they use their own equity or borrow from banks at commercial rates. Consequently they no longer produce “economic” or “low-cost” units and subsidized financing of construction is no longer apparent.
5.7.6 HOUSING AND DEVELOPMENT BANK (HDB) The Housing and Development Bank ( bank Al-taameer wa Al-iskan ) is a public sector bank which was set up in 1979 and was aimed at financing both low-cost and tourist housing projects. HDB gains most of its financing from the State budget. To date it has constructed 67,000 housing units, mostly in new cities throughout Egypt, with 80 percent of such units being either “low-cost” or “economic.” Some economic housing units built by governorates (Sohag, Minya, Qalyubia, Port Said, Damietta, and Sharkia) have been HDB financed. Also, some economic units built by the MHUUD’s Economic Housing Fund have been financed by HDB (for example syndicate housing in Kattameya).
An example of a current project of HDB is “Opera City” in the new city of Sheikh Zayed, which offers a wide range of units with floor areas ranging from 61 to 78m 2, 75 to 87m 2, and 122 to 131m 2.
5.7.7 FUTURE FOUNDATION HOUSING The Future Foundation was set up in 1998 by Egypt’s First Lady, with the aim of mobilizing contributions to build low-cost housing (at a size of 63m 2 per unit) for the disadvantaged. In its first phase 15,000 units were built, mostly in the new cities. In its second and third phases it aims to build an additional 55,000 units. 187 Contributions are sought from prominent private businesses. In addition, units are subsidized by cooperative housing loans of LE 14,000 per unit at 5 percent interest over 40 years.
5.7.8 TAAMEER AGENCY HOUSING Taameer agencies are affiliated with the MHUUD and have regional responsibilities for the implementation of large State projects. For example, there is a Taameer Agency for Greater Cairo, another for Sinai, and another for the North Coast. These agencies have in the past 24 years constructed 28,000 units of public housing, mostly in remote areas to lodge government officials, although some units have been allocated to citizens at very subsidized prices for rental or sale.
187 However, according to the MHUUD’ website the Future Foundation Program only aims at a total of 15,636 units. (source: www.urban-comm.gov.eg).
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5.7.9 SPECIAL AUTHORITIES EMPLOYEE HOUSING (POLICE, ARMY, ETC.) There are a large number of mostly low-cost housing estates built by the Ministry of Interior and the Ministry of Defense for its officers and staff. In addition, certain State economic authorities such as the Suez Canal, the railways and the petroleum sector construct housing for their employees. Unfortunately, there is no available secondary information on the scale and distribution of this housing. It is understood that purchase or rental conditions for this housing is heavily subsidized. In most cases such housing can easily be transferred to third parities at market rates. (See also Section 5.13 below.)
5.7.10 HOUSING PROGRAMS IN THE PIPELINE – THE NATIONAL HOUSING PROJECT OF THE PRESIDENT In 2005 the government announced a new national housing program which aims at providing 500,000 affordable housing units over six years, to be located mostly in the new cities and administered by MHUUD. It is also sometimes referred to as the “President’s election program.” Although the parameters of the program are not yet confirmed, it appears that there may be a significant departure from previous programs in at least three ways:
• Units for sale will have, for the first time, an annual escalator clause (percent) on monthly installments;
• The private sector will finance and construct units on land provided by the State at no cost; and
• Recourse will be made by beneficiaries to mortgage finance under new laws and institutions set up since 2001.
Many different schemes are being considered, including a rent option. The most prominent scheme is 63m 2 per unit, LE 5000 deposit, and monthly installment payments of LE 160 which rise by 7.5 percent each year for 20 years. The stated subsidy from the government is LE 15,000 per unit. 188
5.7.11 OTHER HOUSING PROGRAMS IN THE PIPELINE Two other smaller housing programs are underway or being considered. The first is called the “Free Housing” program for which 3,500 units are under construction in the new cities, with units areas between 63 and 70m 2. The second is called the “Family House Scheme.” It started in 2003 and aims to provide 20,000 serviced land parcels ranging in size from 150- 350m 2 in the new cities. Families are supposed to build out themselves, following one of eleven model plans provided. 189
5.8 TARGET BENEFICIARIES, QUALIFYING CRITERIA, AND DISTRIBUTION MECHANISMS Although theoretically new government housing is aimed at households with limited income, as far as is known there have been no attempts to target beneficiaries based on income or wealth thresholds or means tests. In fact, in most government housing programs the
188 www.urban-comm.gov.eg. 189 Ibid.
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required qualifications are of the most rudimentary, with available units being distributed by lottery if demand exceeds supply.
5.8.1 GOVERNORATE HOUSING (OTHER THAN RESETTLEMENT) Although targeting and distribution of units varies from one governorate to another and even within a governorate from one year to the next, the following can generally be said to apply: Citizens wishing to acquire government housing units purchase applications from the Housing Directorate (usually at a cost of LE 5 to LE 20). It is usually required that an applicant be living in the governorate (as recorded on the ID card) and that he/she be married. Other criteria might apply, such as a statement that the applicant has no residential property. In any event the submitted application is screened and if considered accepted it is put on the waiting list. When a number of units (usually a phase of 250 to 1000 units in a particular site) are completed, either: (1) the oldest applications are picked by their date of submittal; or (2) all qualifying applications are submitted to a lottery and applicants are picked randomly until the required number is reached. Then the applicant must pay the stated down payment to acquire the unit physically.
5.8.2 GOVERNORATE HOUSING (RESETTLEMENT) Qualification for resettlement housing is straightforward. Families in buildings needing demolition or those living in renewal zones are inventoried by local government authorities. Lists are then drawn up and once a family pays the usually nominal down payment, they are allocated relocation units. The rule is one independent family per new unit, regardless of the size of the family. Defining “a family” can be problematic however, and beneficiaries logically try to claim that they are split into as many families as possible.
5.8.3 MHUUD HOUSING PROJECTS (MOSTLY MUBARAK YOUTH HOUSING) The MHUUD has developed a basic point system under which beneficiaries qualify and units are allocated. Table 5.6 shows an example of such a point system. Table 5.6 Example of Point System for Phase II of the Mubarak Youth Housing Project 190 (maximum 100 points) Category Applicant’s situation Assigned points Married with two or more jobs 20 Civil and work status Married with one job 15 Married and no job 10 Bachelor 5 From 36 to 40 years age 15 Age From 32 to 36 years age 12 From 28 to 32 years age 8
190 instructions from the Youth Housing Agency, dated 24/4/2001.
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Category Applicant’s situation Assigned points From 25 to 28 years age 4 7 years or more 5 Length of marriage 5 to 7 years 20 Less than 7 years 10 Employment in new cities Working in new cities 30 Not working in new cities 0 Education qualifications University level 15 Above middle level 12 Middle level 10 None 5
It is understood that this point system is applied for housing estates which are relatively well located and are otherwise attractive. However, much MHUUD housing is in very remote desert locations where there is little urban life, and for these areas the point system is not applied and practically anyone can qualify for the purchase of units.
5.9 ESTIMATING THE SUBSIDY ELEMENT IN GOVERNMENT HOUSING PROGRAMS In order to estimate the subsidy element in government housing programs, it is necessary to establish discount rates which allow calculations of the present value of future repayment streams. In Egypt there are a number of alternative rates which could be used. To keep the analysis simple, two different rates have been used: 1. The overnight bank lending rate, which is close to what would be the central bank’s prime rate, is currently at an annualized rate of about 9.0 percent; or
2. Medium term commercial bank loans backed by collateral are currently lent at annualized rates of about 14.0 percent. The next step in calculating the subsidy element is to take a real program as the base case. The 63m 2 unit of the recent Mubarak Youth Project has been chosen. Then base case conditions are varied to assess the impact (sensitivity) of different scenarios on the base case subsidy element. This exercise is presented in Table 7. 191 In Table 7 the base case is Case A, assuming the discount rate (cost of capital) at 9 percent per annum, currently the overnight bank lending rate. As can be seen, the implied direct subsidy element is LE 31,520 per unit, representing 68.1 percent of the total direct cost (construction cost, overheads, and infrastructure). The implied direct plus indirect subsidy element is LE 43,449 per unit, representing 74.7 percent of the total direct and indirect costs (construction cost, overheads, infrastructure costs, plus the opportunity cost of land ). These results show that the smallest unit in the Mubarak Youth Housing Project has an
191 Note that in Table 7 the following have been assumed for all cases: Size of housing unit is 63m2; Associated land per unit is 50m2; Infrastructure cost is LE 150 per m2 of associated land; Overhead administrative costs is 5 percent of construction cost.
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extremely high subsidy cost in terms of the State budget. In other words, 68 percent of every pound directly invested by the State in such housing is never recovered. There is also a loss of potential land revenues, which raises the total subsidy to almost 75 percent of full cost per unit. In the other cases from Table 7, the impact of varying assumptions is set forth:
• For Case B in Table 7 a discount rate of 14 percent (average bank commercial lending rate) is used. This raises the total subsidy element by 6 percent to 81 percent of total unit costs. • For Case C in Table 7, it is assumed there is no opportunity cost for land (i.e. that indirect subsidies are not included). This lowers the total subsidy element by 4 percent to 71 percent. • For Case D in Table 7, it is assumed that real construction costs increase by 30 percent. This raises the total subsidy element for the unit by a little over 6 percent to 80 percent.
• For Case E in Table 7, the repayment period is reduced from 30 to 15 years. This raises the total subsidy element by almost 5 percent to 79 percent.
• For Case F in Table 7, the monthly installment repayment is doubled from LE 73 to LE 146 (more in line with current governorate housing repayments). This lowers the total subsidy element by 16 percent to 58 percent. • For Case G in Table 7, the down payment required is doubled from LE 5,000 to LE 10,000 (as is required in some governorate programs). This lowers the total subsidy element by 8 percent to 66 percent.
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Table 5.7 Calculating the Subsidy Element in Government Housing Under Different Assumptions 192 Case A B C D E F G new* 2 1 Unit Area ( m ) 63.00 63.00 63.00 63.00 63.00 63.00 63.00 63.00 2 2 M Construction Cost (LE) 615.00 615.00 615.00 799.50 615.00 615.00 615.00 615.00 3 Total Construction Cost (LE) (1x2) 38,745.00 38,745.00 38,745.00 50,368.50 38,745.00 38,745.00 38,745.00 38,745.00 2 4 Associated Land Area ( m ) 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 2 5 Infrastructure Cost per m of land (LE) 150.00 150.00 150.00 150.00 150.00 150.00 150.00 150.00 6 Opportunity Cost per m2 of land (LE) 200.00 200.00 0.00 200.00 200.00 200.00 200.00 200.00 Total Associated Land Cost (LE) (4x5 + 7 4x6) 17,500.00 17,500.00 7,500.00 17,500.00 17,500.00 17,500.00 17,500.00 17,500.00 Overhead Costs per Unit (LE) (5% of 8 3) 1,937.25 1,937.25 1,937.25 2,518.43 1,937.25 1,937.25 1,937.25 1,937.25 9 Total Direct Cost of Unit (3+4x5+8) 46,253.00 46,253.00 46,253.00 57,876.50 46,253.00 46,253.00 46,253.00 46,253.00 Total Direct Plus Indirect Cost per Unit 10 (LE) (3+7+8) 58,182.25 58,182.25 48,182.25 70,386.93 58,182.25 58,182.25 58,182.25 58,182.25 11 Down payment (LE) 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 10,000.00 5,000.00 12 Annual Repayment (LE) (monthly x 12) 876.00 876.00 876.00 876.00 876.00 1,752.00 876.00 876.00 13 Years of Repayment (years) 30.00 30.00 30.00 30.00 15.00 30.00 30.00 20.00 14 Discount Rate (%) 0.09 0.14 0.09 0.09 0.09 0.09 0.09 0.09 Present Value of Installments (LE) (PV 15 of 12 at 14 for period 13) 9,733.33 6,134.33 8,999.72 8,999.72 7,061.16 19,466.67 9,733.33 30,983.00 Real Beneficiary Contribution to Cost 16 (LE) (11+15) 14,733.33 11,134.33 13,999.72 13,999.72 12,061.16 24,466.67 19,733.33 35,983.00 Inferred Direct Subsidy Element per 17 Unit (LE) (9-16) 31,519.67 35,118.67 32,253.28 43,876.78 34,191.84 21,786.33 26,519.67 10,270.00 Inferred Direct Plus Indirect Subsidy 18 Element per Unit (LE) (10-16) 43,448.92 47,047.92 34,182.53 56,387.20 46,121.09 33,715.58 38,448.92 22,199.25 Percentage Direct Subsidy Element 19 per Unit (%) 68.1% 75.9% 69.7% 75.8% 73.9% 47.1% 57.3% 22.2% Percentage Direct Plus Indirect 20 Subsidy Element per Unit (%) 74.7% 80.9% 70.9% 80.1% 79.3% 57.9% 66.1% 38.2% * In this case the monthly repayments are increased by 7.5 percent per year over 20 years
192 Note: The difference between direct subsidy and indirect subsidy is the opportunity cost of land.
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It should be apparent that even with optimistic assumptions as to increased down payments or monthly installments, the true subsidies in government housing programs are still very high, never descending below 50 percent of full direct and indirect unit costs.
Practically, the true subsidy element is probably higher. It should be pointed out that the scenarios presented in Table 7 all assume perfect repayment (no arrears and no defaults), a very unrealistic assumption. Also, it assumes perfect timely allocation, that is, that units are immediately allocated and repayment commences upon unit completion. Given that in Egypt public housing units may stand vacant and undistributed for years, such an assumption is also very unrealistic. 193 What about the subsidy element of new housing programs which are in the pipeline? Although many different schemes are being discussed, the most likely parameters seem to be: 63m 2 per unit, LE 5000 deposit, and monthly installment payments of LE 160 which rise by 7.5 percent each year for 20 years. The stated subsidy from the government is LE 15,000 per unit. It is assumed that a unit will cost LE 615 per m 2 and that land and infrastructure costs are similar to those in Table 7. The present value of the installment payment stream is much improved, yielding LE 30,983. (NPV discounted at 9 percent, as shown as the “new” case in Table 7). This implies that the direct subsidy element is only 22.2 percent of unit cost, rising to 38.2 percent if indirect subsidies are included. This represents a much lighter subsidy burden on the State than all other scenarios (cases A through G). However, under this scheme within only ten years a beneficiary will be looking at monthly repayments of LE 330 per month, which many will not want to face.
5.10 GOVERNMENT BUDGETING FOR HOUSING SUBSIDIES Although access to the annual national budget is severely restricted, it is understood that there is no line item or other indication of the subsidy portion of funds allocated to housing and associated services. This makes housing subsidies unique since commodity subsidies (fuel, bread, etc.) are identified in the budget, newspapers publish these figures, and they are the subject of public debate. One possible reason for the lack of information on housing subsidies is that a portion of the subsidy element for housing is “hidden” in the very low interest rates on loans from both the Authority for Cooperative Housing Associations and from the National Investment Bank. Another possible reason is that beneficiaries are perceived to pay for the housing through installments. 194 Still, some direct cash subsidies do flow to government housing programs and these should at least be so identified in the State budget. Are the heavy government housing investments implied by its housing programs over the last few years reflected in the State’s investment budget? The Ministry of Planning has issued a table showing “public” and “private” implemented investments by economic sector for the fiscal years 1997/98 through January 2002. One sector is called “housing and property ownership.” The “public” investment for this sector for the period is LE 785 million (at current prices), which produces an annual average investment of LE 157 million. This
193 This last factor may be somewhat mitigated by the fact that down payments to “reserve” units are frequently made well ahead of the completion of the unit. 194 The author has observed that the use of present values in calculating true costs and revenues is practically unknown in government housing agencies.
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amount cannot relate to the government’s housing programs, since the MHUUD figures show that 288,000 government housing units were produced (see Table 5.1) over the same five-year period. Even assuming an extremely low construction cost per unit of LE 20,000, such production would require an investment of LE 5,760 million, or over seven times what is reported by the Ministry of Planning. 195
5.11 LAND FOR GOVERNMENT HOUSING AND MAIN LOCATIONS Land for government housing must exhibit one key attribute: it must be State land . There is no budgeting for land acquisition (whether for purchase on the market or through eminent domain) in government housing. Thus planners of any government housing scheme must seek locations where the land is owned by the State and whose acquisition is costless. In the new cities, where there are vast tracts of State-owned desert land, locations for housing estates are easy to find. However, in governorates land may be a constraining factor. It is no coincidence that government housing programs have been much more concentrated in frontier governorates and in those with ample nearby desert areas, as shown in Table 5.3. In land-constrained governorates, forty years of land allocations for public housing as well as for schools, health centers, and youth clubs has left precious little accessible State land, and as a result new housing schemes may be located in awkward, remote, or otherwise undesirable locations. Experience has shown that government housing estates which are remote and badly located (in terms of access from major towns and transport corridors and in terms of proximity to popular and dense urban areas) tend to remain largely vacant and depressed for years, regardless of the success in distributing units. However, as Cairo’s experiences in Madinet El-Salaam and Madinet El-Nahda show (and also in Masakin El-Zilzal in Mokattam), large government housing estates will, over time, fill up and mature, with both government and private sector services eventually migrating to the area. In these cases it has been a matter of a critical and expanding mass of population which generates its own dynamic, much as occurs in the vast informal areas of Egyptian towns.
5.12 TYPICAL GOVERNMENT HOUSING DESIGNS, LAYOUTS AND DENSITIES As mentioned above, typical public housing in Egypt is now 5- to 10-story housing blocks, usually with between 2 and 4 units per floor. Housing blocks are arranged in geometric patterns within the site. Different layouts and architectural combinations have been tried throughout the years, but in all cases an essential design feature is that all light and air for a unit comes through windows and balconies in the building facades — that is, there are no internal light and ventilation shafts. While such a system allows economies in the building design (less walls and less unusable space in a building), it demands wide spaces between buildings which require landscaping and maintenance, and which in turn requires larger land per unit ratios.
195 One possible explanation is that government housing investment is also found under the economic sector called “construction”, which also appears in Ministry of Planning tables.
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In terms of land needed for typical public housing estates, a review has been carried out of a number of housing projects found in Cairo. 196 Looking at six different housing estates in Maadi and Madinet Nasr, it was found that the average land required per unit ranged from 54m 2 to 123m 2. (Land was the total area bounded by the perimeter streets which defined the estate. It does not normally include recreational open spaces or services such as schools.) These averages are higher than those used by the MHUUD in calculating global land needs, which are 24m 2/unit for land needed for the building footprint and another 24m 2/m 2 for associated land, yielding a total of 48m 2. It would seem that the best average to use is 50m 2/unit for “economic” housing units of between 60 to 70m 2 net built area (two bedrooms plus living room, kitchen, and bath). This average should be decreasing, especially in the large cities, as more and more floors are being added to standard designs.
Using the above land ratios would yield net residential densities of about 400 persons per feddan assuming full unit occupancy by a family of four. For a large housing area, the addition of land for schools, other services, open space, and major roads would reduce this residential density to 200 - 250 persons per feddan. However, the declared target density for Mubarak Youth Housing is 120 inhabitants per feddan.
Over the last 25 years there have been remarkably few attempts by planners to introduce housing designs which deviate from the “apartment block” norm. As far as is known there have been no core housing schemes, no attached duplex or townhouse units, no purpose built infill blocks, and no sites and services. 197 However, in the 1980s the concept of “ harafi ” housing was introduced, notably in Madinet El-Salam and El-Duweika. Standard apartment blocks were built, but with the ground floors devoted to workshops, the owners of which were to live in the apartments above. This concept had only limited success and has not been repeated on a wide scale.
5.13 QUALITY OF GOVERNMENT HOUSING Most observers would agree that government housing is, in general, of good structural quality. Of course, there are the embarrassing cases of soil problems, bad foundations or cheating contractors, but these are exceptions.
Finishing of units in government housing is usually quite basic (cement wall rendering, cement tiles, basic internal water and power lines, simple wood doors and windows). Under the Mubarak Youth Housing Project, finishing quality improved noticeably (but then so did the comparable cost per unit).
The same simple approach could be said to apply to on-site services and landscaping in housing estates. Minimal sidewalks and curbs, some paved parking, and street lighting have normally been provided. But under the Mubarak Youth Housing Project and with some
196 Sims, D., “Guide to Field Work for First Registration in Madinet Nasr, Six of October, and El-Maadi”, Egypt Financial Services Project, Ministry of Justice and USAID, January 2006. 197 Donor-supported pilot housing schemes have introduced some innovative designs (e.g. the Helwan New Communities project of USAID), but these have never been adopted and generalized. Similarly, sites and services targeted at low income households have only been piloted by donor-supported efforts. By far the largest and most successful of such schemes were developed in the late 1970s and 1980s in Ismailia, with UNDP and British Aid support. Unfortunately such an approach (small sites and eventually services) has never been adopted in government housing schemes, with the recent exceptions in some new cities where plots of residential land 150-200m2 are said to be available to small investors.
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recent governorate examples, much greater effort is being made to landscape the estate areas. The main problem with the quality of government housing is not in the finished product but in the deplorable level of operations and maintenance (O&M) which follow. Civic responsibility and pride is rare, and O&M is perceived to be the responsibility of the local authorities (themselves practically without any O&M budgets). The result is plain to see in the areas around the buildings, in the stairwells, and along the facades where pipes run. There are numerous and laudable examples of inhabitants banding together to improve public areas associated with government housing estates, but these are still in a minority. Also, governorates periodically launch city beautification campaigns which may include the facade painting of public housing blocks.
5.14 CONTRACTS AND TITLING In almost all new government housing units the beneficiary is given a formal preliminary contract “ aqd ibtida’i .” This specifies the period and amount of repayment for the unit and lays out the conditions and penalties for non-payment. It states that, upon completion of installment payments (in 30 or 40 years) a final ownership contract will be issued. A prominent part of most contracts is the stipulation that the beneficiary cannot sell, sub-let or otherwise transfer the unit to a third party without approval of the first party until the final contract is issued. As will be seen in Section 5.15 below, such a stipulation is frequently ignored. Given the 30-40 year lead time there are few original owners (second party of the preliminary contract) of government housing units who have obtained the right to be issued the final contract. In fact, it is extremely rare that such contracts exist. Since practically all government housing is built on State land through administrative assignment ( takhsis ), the land remains nominally in the State domain and is not registered under the property registration system ( shahr El-aqari of the Ministry of Justice), either as a single project or as individual housing units. 198 Thus it is safe to say that practically all of the government housing stock of over two million units is unregistered and thus cannot be used as collateral for loans or become objects in the new mortgage finance system. As far as is known the same un-registerability applies to government housing units current being built for allocation to beneficiaries.
5.15 REPAYMENT, EVICTION, AND POST-PROJECT ACCOUNTING Arrears in monthly installment repayments are common, although the extent of arrears varies from housing program to program and from location to location, and there are no available data on this. From discussions with officials and experts it is apparent that the very common repayment arrears are due to two main factors: (1) an accumulated history of 40 years of government housing where the collection of rents or monthly installment payments has been haphazard and where the occupant knows he/she will never be evicted, and (2)
198 It is understood that in some rare cases housing cooperatives have been successful in registering their land and properties.
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with the illegal transfer of units to third parties, the third, fourth, or subsequent occupier sees little benefit to paying monthly charges since officially the flat is still in the name of the first occupier.
It must be stressed that the security of tenure of whoever is living in government housing units is excellent, and the possibility of eviction for whatever reason is extremely remote.
In general, it seems that neither central or local authorities responsible for government housing take much interest in a housing estate and its financial viability once it is built and the units are distributed. It is extremely rare to find year by year consolidated or detailed accounting of repayments, attempts to enforce the ban on transfer to third parties, or any serious monitoring or evaluation of individual housing project success, let alone generating “lessons learned.” 199
5.16 SELLING OR TRANSFERRING UNITS TO A THIRD PARTY As mentioned in Section 5.13 above, although it is illegal, the transfer of a government unit by the original beneficiaries to a third party is common and easily accomplished. As with most private residential property in urban Egypt, there are commonly accepted means (court sanction and power of attorney) to effect sale and transfer which are, for all intents, quite secure. Readers should refer to a recent report of the USAID Egyptian Financial Services Project for a description of the various common means of gaining quasi-official and official sanction for property transfers in the Egyptian housing market which are outside the property registration process and outside executive government control. 200 As with other post-project data on government housing, there are no known statistics on how common is the transfer of government housing units to third (and fourth and fifth) parties. Anecdotal information indicates that it is very widespread. In the new cities it is said to be somewhat dampened by better control by authorities.
5.17 COVERAGE OF THE HOUSING SUBSIDY SYSTEM
5.17.1 COVERAGE IN GENERAL In volume terms, the housing subsidy system in Egypt (which for all practical purposes means the government’s longstanding public housing programs) does not begin to address the housing needs of lower income families. In the last 25 years the government has been producing an average of 50,000 subsidized units per year, and recent trends show that this volume is decreasing. Compared to the annual national need for new low cost housing units, (see Chapter 3), such direct provision of housing can at best only meet a fraction of gross need. And, whereas the annual need for low income housing is increasing every year, historically the supply of subsidized housing units is decreasing.
199 There is the impression that post-project monitoring of government housing in the new cities and that under MHUUD and HDB is slightly better than that developed by the governorates. 200 See Sims, D., “Housing Market Assessment Report for El-Maadi, Madinet Nasr, and Sixth of October, Final Draft, January 2006.
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5.17.2 COVERAGE BY MARKET SEGMENTS It is extremely difficult to assess the actual coverage of government subsidized housing by market or demand segments. This is because the targeting/assignment system is rather random, depending on an “application regime” (which already excludes significant segments of the real target population) which is executed partially on a point system, partly on a lottery basis, and partly “rationed” by the unattractiveness of certain locations. And this randomness of allocation pales in comparison to the randomness of subsequent market-driven resale or rent. Certainly a portion of those gaining new government units will turn around and sell them, thus enjoying a one-off windfall financial gain, which if they are truly poor could be seen as a kind of unintended income transfer.
Thus it is virtually impossible to say what demand segments are actually being addressed by government housing programs. 201 There is no information on the incomes of beneficiaries (and no attempt to distribute units on a means-tested basis). Anecdotal information points to government housing units being sought primarily by newlyweds and (if allowed) bachelors wishing to marry, as well as young families.
Paradoxically, it seems that resettlement housing undertaken by governorates may actually better target the urban poor and needy than other government housing distribution systems. This is simply because old and dilapidated buildings and neighborhoods tend to be occupied by the poor and disadvantaged. And if the families who receive resettlement housing chose to sell their new units, at least this could be considered a one-off welfare transfer.
5.17.3 COVERAGE BY LOCATION As can be seen in the analysis carried out in Table 5.3 above, significantly higher than average concentrations of government housing (as expressed in units built per 1996 resident household) are found in the frontier governorates and in Port Said, Ismailia, Suez, and Damietta. Significantly lower than average concentrations are found in Alexandria, Kafr El- Sheikh, Gharbia, Dakahlia, Fayoum, Minya, Assiut, Sohag, Qena, Luxor, and Aswan.
5.18 CONCLUSIONS Public or government housing in urban Egypt represents by far the main form of subsidy in the housing sector. The subsidy element is large – in all cases well over 50 percent of the total cost of the typical housing unit once indirect as well as direct subsidies are calculated. Throughout the last 25 years the government’s various housing programs have been remarkably consistent in volumes, types, targets, subsidies and locations. There has been little new thinking and little innovation.
As the urban population and consequently the need for new units among those of limited income continues to swell, the gross production of public housing (currently below 35,000 units annually) is becoming less and less relevant as the “solver” of even a small fraction of the housing problem. If this is true, then perhaps the funds now aimed at heavily subsidizing
201 The point system used by MHUUD’s Youth Housing Agency is specific to new cities and awards those who work there. Otherwise this point system (see Table 6) seems to award those with higher education levels and seems to aim at mature nuclear families who are gainfully employed. But this point system is not extensively used.
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direct housing production for the very few could be better utilized in ways that stimulate better and more affordable production by the private and “owner-builder” sectors.
There is still a role for subsidized housing production in Egypt. In particular, there are continuing and even increasing needs for resettlement of urban families and housing welfare cases. Innovations are needed as to design of this housing (infill, mixed use, core, etc.) But even so, new modes of “enabling” the development of suitable and affordable housing are needed.
Of course a shift in the use of funds now dedicated to traditional public housing will not be well received. Over the decades the distribution of public housing units, over which authorities have a certain discretion, has become a powerful means of political patronage, one which will not be voluntarily relinquished.
5.19 RECOMMENDATIONS In light of these conclusions, it is possible to advance a few preliminary recommendations — intended to stimulate debate — which would improve the present system of direct housing subsidies, should the government continue with the policy of massive direct housing provision for newly-forming low income households. In order to improve on these preliminary recommendations, a package of more detailed investigations are required which would lead to effective reform of government housing subsidy policy.
There are five major weaknesses in the present housing subsidy system. Action should be taken to address each one individually:
1. The total subsidy element and how it is financed is not clear in current programs.
• Calculate all direct costs, including infrastructure and administrative costs, for each project and program.
• Calculate indirect costs, mainly the opportunity cost of land.
• Discount future payments for housing using net present value formulas.
• Require that the cooperative housing authority and the National Investment Bank provide clear information on the “loans” that are used to finance government housing; the subsidy inherent in their low interest rates must be clear in present value terms.
• Discourage repayment periods of longer than 20 years.
• Separate out and clearly state the direct and indirect subsidies associated with government housing in the national budget.
2. Targeting and selection of beneficiaries is confused and inconsistent across programs and projects.
• Clearly identify and separate resettlement/welfare housing from housing for newly forming families when targeting of housing units.
• For each housing project, include location sensitivity in selection criteria.
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• Investigate the appropriate use of point systems and means tests for criteria.
• Make the screening and results of allocations more transparent.
3. Current housing projects are not well monitored and post-project accountability is thin.
• Establish separate accounting (actual capital costs, cash inflows and outflows, including recurrent costs) and periodic reviews of repayment success for each housing project.
• Conduct periodic reviews to control unauthorized resale or rent to third parties.
• Create and apply a system that rewards authorized resale or rent.
• Regularly monitor the maintenance of buildings.
4. Locations of public housing projects are frequently inappropriate because they must be situated on no-cost available State land.
• Include a small line item in the budget for land acquisition for government housing.
• Ensure that sites for government housing are convenient for low-income families (e.g. near urban centers, transport corridors, or existing popular “ shaabi ” areas).
• Whenever possible in cases of resettlement, make new housing adjacent to old areas (e.g. infill housing).
• Distinguish government housing programs from the new cities policy: the primary goal of housing programs is to address housing demand, not to support the success of specific new cities.
• Encourage cross-subsidy mechanisms within housing projects on the same site.
5. As a result of current practices, government housing units have confusing legal and tenure status, which makes subsequent transfer sub-optimal.
• Register blocks of land in cooperation with the Egyptian Survey Authority and the Shahr Aqari in preparation for housing projects.
• Create cadastre ( sigil aini ) for each block, and when land mutates to housing units ensure that each unit is part of the register.
• Ensure that beneficiaries receive registered title upon final disposal of land.
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APPENDIX A ARAB REPUBLIC OF EGYPT EGYPT HOUSING DEMAND STUDY TERMS OF REFERENCE
1. Introduction / Motivations
The Government of Egypt is preparing reforms in the housing sector including the implementation of a large scale social housing program for the lower income groups. A critical element in the process of preparation of this program and the design of related subsidies is an in-depth nation-wide study on the housing demand. The Ministry of Investment plans to contract Consultants in order to perform an assessment of the demand for housing in Egypt.
The proposed terms of reference provide background information, an outline of the objectives, methodology and tasks of the proposed assignment, and a description of topics to be included in the final report of the study produced by the Consultant.
2. Background on the Demand Study
The Government of Egypt had pledged, over a six-year period, to create an Affordable Home Production Program (Social Housing Program) that will build 500,000 new housing units for low- income Egyptian families. Such a large increase in affordable housing production will not only consume significant public financial resources, it will stimulate growth in the nation's housing infrastructure including the construction and financial services sector. The affordable home production program is going to be financed through down payments provided by the customers, cash subsidy from the government of Egypt, and Mortgage finance loans.
The Program will be a multi-year task that will involve numerous ministries (including without implied limitation Finance, Housing, Investment, and Justice) and agencies (including the MFA and GSF), new innovations such as the proposed Liquidity Facility (involving participation from the World Bank and Central Bank of Egypt), and perhaps other new and changing institutions, both public and private. 3. Scope and Objective of the Study
The study will examine the key issues and challenges facing the housing sector from the demand point of view, with a special focus on housing demand from the poor and middle income strata in Egypt. Focusing on housing markets in major cities and urban areas, the demand study will analyze: • The overall housing demand dynamics (demographics), • The current market segments (ownership / rental in both the formal/informal markets), relating the housing stock in each segment to the characteristics of resident households, • Market prices and affordability in both the formal and informal markets, • Access to housing finance by households and mode of financing of owner-occupied dwellings, • The factors contributing to the distortion of housing markets and having an impact on affordability and/or access to credit by households
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• The current framework of government intervention and subsidies towards the different segments of the income distribution in terms of housing. • Recommend geographic locations for the Program with detailed justifications.
The Demand Study must verify that eligible consumers exist in sufficient number to use the Program, and provide a profile of eligible consumers, including their:
(a) geographic location (where supply should be built), (b) demographic profile, (c) buying preferences (as to home type), and (d) affordable economic capacity, meaning ability and willingness to do the following: (i) fund deposits or reservation escrow payments to secure a contract on an Affordable Home, (ii) pay a down payment of 10% of the purchase price (subject to change), (iii) have income and assets to qualify for Affordable Home financing, (iv) borrow funds under a loan compliant with applicable law, and (v) make monthly payments on loans to fund 60% of the purchase price (subject to change).
The study will result in a synthetic view of the different segments of the housing market in terms of housing stock, households’ demand, affordability and affordability gaps, modes of financing for housing and existing Government policy actions towards those segments. All segments will be tied directly to recommended geographic locations. The study will also include a detailed affordability analysis, which will constitute the basis for the subsequent work of design and parameterization of the social housing schemes by the Government.
4. Specific Description of the Work
The selected consultant will have to perform the following tasks: 1) Stocktaking review of existing information and studies on housing demand, especially for the poor and middle income groups, from different Ministries, organizations and donor agencies in Egypt; 2) Managing and supervising data collection and report writing by local consultants on subjects on which statistical information is lacking; 3) Writing a methodology report and a study report.
5. The Topics to be covered by the Study
The Demand Study should identify the type and shape of Demand, the blockages that may exist to delivering affordable housing units meeting that demand and recommended locations for the program. It should identify all available data sources and then analyze and address the following topics:
I) Macro Linkages of the Housing Sector
• system of credit allocation (Government and banks) to the housing sector; • importance of formal / informal housing production in GDP and GFCF; • other types of investments available to local and foreign investors; • lending interest rates, conditions, and volumes (developers and households).
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II) Quantitative and Qualitative Overview of Housing Supply and the Housing Markets
Although this study is focused on the demand side, an analysis of the main trends in terms of housing supply and market conditions is necessary because : • some features of the Egyptian housing market also reflect supply constraints, which affect prices and affordability, as well as access to housing finance; • informal housing not only represents a major part of the housing stock, but remains a very dynamic sector in terms of new housing. This not only affects housing conditions in the country, but also has a direct impact on the design of policies aimed at improving the affordability of housing products.
The second chapter of the study will focus on providing an overview of housing conditions and market conditions in urban areas of Egypt. The consultant will distinguish between the different segments of the market whenever appropriate. As a general rule, Cairo/ Greater Cairo and the main cities should be singled out in the analysis whenever they exhibit special trends with respect to smaller cities / metropolitan areas. The following topics will be examined:
Composition of the housing stock: • primary and secondary units, vacant units; • informal/formal units; • break down of the stock by tenure status, • average floor space or number of rooms of existing housing units.
Those data could be obtained from the 2004 Census, if available.
A Quality of the formal and informal housing stocks, especially for the poor and middle income groups: • materials for walls and roof; • area/person and overcrowding; • access to main utilities and amenities, • age of the dwellings; • maintenance status and mechanisms to pay (e.g. condominium/owners association), etc.
Transactions in the formal and informal housing markets : • yearly number of transactions by formality level (registered – power of attorney – others). • Financial arrangements adopted between buyers and sellers. • Tax and fees regime applying in each type of arrangement.
Rental market :
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• Review stock of units under rent control, outside rent control. • Characteristics of the beneficiaries of rent control. • Average rents (per square meter) for rent controlled units / non controlled units. • Depreciation of the controlled stock • Flow of formal and informal rental units put annually on the market. • Average rents per square meter for new rental units in the main cities.
Stock of vacant housing units : • Evolution through time, especially since the new rental law. • Reasons for vacancy (secondary homes – for rent – for sale – kept vacant)
III) Current and Forecast Housing Demand by Income Segment
The consultant will examine the current match between supply and demand. In particular, the following issues will have to be analyzed:
• Segments of the housing market for current demand (For the formal and informal housing stocks : ownership, private renter under old rent control, private renter outside old rent control, public renter, free dwelling, other status) • Annual new demand for housing (increase in the number of households as measured by Census or households surveys; demand for maintenance / upgrading / replacement of the existing stock) • Current choices and residential strategies for young households • Breakdown of annual new demand by income bracket • Access to finance by new demand for the different income groups (including mortgage credit and micro-finance)
The Consultant will then proceed to estimating future flows of new housing demand for the next 10 years, broken down by income group and distinguishing between demand for new units and demand for maintenance / upgrading of existing units. The Consultant will provide a detailed methodology for this projection exercise in the methodology report.
IV) Affordability Analysis
This part of the study is crucial and will need to be treated in great detail. In particular, location- related issues have to be analysed. Its objective is to determine the ability of low income Egyptians to save funds before buying a flat, make down payments, and make monthly payments on a home loan. Housing prices and costs will be examined in view of available income of different household groups, in order to analyse the need for policy intervention to widen access to housing for the lower income groups. This part of the study will necessitate mobilization of data on rents, prices and incomes by the Consultant, either from existing surveys (e.g. Income and Expenditure Survey) or by specific surveys undertaken for the purpose of this study.
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- Housing prices : • Average prices by sub-sector (formal/informal) for Cairo and the main cities • Prices per square meters in main cities. For Cairo, distinction between New Communities and neighborhoods within Cairo. • Evolution of new formal housing prices in the last 10 years. • current production cost of housing units for different cities and housing products (including assessment of the “lowest quality formal unit” available on the market)
- Housing rents : • Average rents and prices by sub-sector (formal/informal) for Cairo and the main cities • Rents per square meters in main cities, for old (rent-controlled) units and new dwellings. • Evolution of new formal housing rents in the last 10 years.
- Incomes and savings : Distribution of income in urban Egypt and in the main cities. By income bracket: • Tenure status, • Level and regularity of household’s incomes (employment type, documented incomes?) • Average saving rates for owners and renters (given households’ other expenditures) • Average rents and prices by sub-sector (formal/informal) for Cairo and the main cities • Average rent-to-income (RTI) ratio and payment-to-income (PTI) ratio.
Depending on the size of the available samples, the above topics would benefit from an analysis by family type (small surveys in targeted groups and areas).
- Affordability of Ownership : By income bracket: • Analysis of maximum value of dwelling affordable in current financing conditions (including access to finance). • Alternative scenarios with increased term, lower/higher interest rates, increased access to mortgage credit. • Measure of gaps between maximum value affordable and prices in Cairo and main cities, including lowest price of formal unit available on the market.
V) Analysis of Current Subsidies by Market Segments
The aim of this section is to provide a clear view of the actual system of housing subsidies, either explicit or implicit (e.g. Public housing programs, land grants to developers, tax breaks, etc.), in terms of efficiency and coverage of the (middle and) low-income populations. This will provide a benchmark for the design of the new system contemplated by the Government.
The consultant will start from a census of current housing subsidies. For each type of subsidy, the consultant will provide an assessment of the following issues: • primary beneficiary (public/private developer / households); • administrative procedures for allocation; • modes of financing and institutional arrangements for budget allocation
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• average cost per beneficiary, amount available and distributed yearly; • characteristics of beneficiaries (family size, income, professional status) and (if any) differences between intended and actual beneficiaries; • economic evaluation (impact on recipients; impact on land use; -impact on commuting patterns; impact on the construction industry).
In a second stage, the consultant will provide an overall picture of the coverage of the housing subsidy system as a whole, with a particular emphasis on the segments of the low-income population which do not currently benefit from Government intervention for housing.
The consultant will also compare the size of current individual subsidies with the affordability gaps produced in chapter IV, in order to assess the adequacy of the current schemes in regard of the income distribution of recipients.
VI) Income Distribution Among Low-Income Egyptians
Distribution of income in urban Egypt and its main cities is considered key data. Income brackets should be subdivided by (i) tenure status, (ii) level and regularity of household income, (iii) average current savings rates for owners and renters, (iv) rents and prices by sub-sector (formal/ informal), and (v) average payment-to-income (PTI) and rent-to-income (RTI) ratios.
VII) Available Sources of Supply for the Target Population .
The Demand Study should address the alternatives available to low-income and moderate-income Egyptian households, including average prices by sub-sector (formal/ informal) in major markets, evolution of new formal housing prices and market rents over the last decade, and estimated new production costs for conventional housing.
6. Study Methodology Information Information on the housing sector in Egypt exists to a certain degree, but is partial and scattered. Each Ministry or organization having a stake in the housing sector collects information on its own programs. Moreover, there is no regularly updated information on or monitoring of the informal housing sector (which represents the fastest growing component of the stock) or of the slum population. There are no publicly available data on housing rents or prices, nor is there rent or price indexes for housing. Information related to the construction industry (price of building materials, land prices in different urban areas, construction costs) seem also difficult to mobilize from public sources. Detailed data on New Communities and their residents could potentially be mobilized from the relevant agencies, but have not been published. As a result, it is difficult to get ready-made information either on the housing stock or on the housing flows.
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On the other hand, some useful material may be found from various sources: local pilot projects undertaken by donors (GTZ); Investment Climate Assessment (World Bank) and follow up study on housing markets by a local consultant appointed by the World Bank (on going work, useful outcome for the Section II of this study); Development Report (UN); urban profiles for Alexandria, Suez, and at the national level (UN-Habitat); academic literature (PHD theses); Housing Finance Study by Monitor (for IFC) etc. This material will be a primary source for the study. In addition, a framework for consolidating and disseminating information on the housing sector as a whole and developing a methodology to produce housing surveys is being put in place by the Government, with the assistance of CHMC.
For certain topics among those listed above, information is not readily available and has to be collected. In other domains, the information exists but is scattered in different places. On all these topics specific surveys/reports are needed to provide adequate input to the study. In case specific surveys of households have to be put in place, the short delays for the consultancy would have to be extended by the time needed to prepare the survey, collect the data and analyze them. The consultant will be responsible for: • devising the adequate means of collecting the information (e.g. small survey of key stakeholders, sample survey of households). • supervising the technical content of reports produced by local researchers /surveyors • incorporating findings into the overall deliverables committed under this TOR.
Organizing Consultation Meetings and Workshop At the initial stage of the study, the service provider will hold consultation meetings with the Ministry of Investment to define and agree on the indicators needed that will help in better informing the Government. At a later stage, when sub-reports are concluded, a workshop may be organized in Cairo to discuss the findings. 7. Expected outputs The Egypt Housing Demand Study is intended to produce the following outputs within 6 months period: • a methodology report including a review of methodologies used in other studies and their applicability to the demand study. • a draft final report • a final report, after validation by the Ministry of Investment. • an audio-visual support documentation which will be the basis of the workshop presentation to be organized upon completion of the final report. • Data compilations and analysis in active electronic form accessible via a password – protected website to be established by the consultant. • A brief discussion of how the Government of Egypt can set up ongoing information collection /coordination sources to build a national data network.
Upon final payment for the Consultant’s services, all of the above deliverables shall become the sole property of the GOE. The methodology report must address:
• Data sources identified and data collected. • the result of the stocktaking undertaken by the consultant on existing information on housing demand
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• the methods devised by the consultant to collect missing information, including surveys to be conducted with detailed methodology • the methodology used for demand assessment and demand projections • Reasons underlying data collection and surveys proposed for selected geographical locations.
The final report of the study will include five inter-related chapters on the topics mentioned in the above section, as well as a conclusion section which will synthesize the main findings. The reports will have an executive summary, and will be issued in [ both the Arabic and ] English language
8. Government of Egypt (GOE) Selection of Consultant .
The GOE will select the Consultant which offers the best value, determined by the GOE as best combining (a) timeliness including performance penalties, (b) quantity and reliability of demand data collected, (c) demonstrated knowledge of the Egyptian housing market, including use of knowledgeable local contractors, (d) rigor and accuracy of analysis and findings, and (e) price. The GOE will score each proposal using these four criteria, each of which may receive a maximum of 20 points, and will select the highest-scoring proposal. After receiving initial proposals, the GOE also reserves the right to interview prospective Consultants, to ask specific written questions inviting supplements or amendments to proposals, to call for Best and Final Offers (BAFO), and to enter into negotiations with one or more offerors.
9. Contract and Interface with GOE After review and negotiations, the GOE may withdraw this TOR or may elect to enter into a written agreement (the “Contract”) with the Consultant. The Contract will be a fixed-fee agreement (subject to change orders) pursuant to a six month timetable, with interim milestones and penalties for late delivery. The Contract will designate a Government Technical Representative (GTR) who will be the principal point of contact (POC) between the Consultant and the GOE. The Consultant will be expected to report progress weekly to the GTR, in writing, and to solicit commentary from the GTR concerning the Consultant's proposed work methodology, selection of locations, compilation and interpretation.
10. Post-Delivery Follow up After the Demand Study is delivered, the GOE may contract for a further analysis or technical evaluation. The Consultant will therefore retain all work papers and data bases (including electronic) and provide electronic copies thereof to the GOE (see prior paragraph regarding property rights).
11. Consultant Qualifications
The Consultant's proposals should address qualifications in at least the following areas:
a. Work experience specializing in urban and housing studies, economics, finance, or other related development fields. b. Extensive knowledge of housing studies and housing finance is essential. c. Strong skills in gathering and reviewing data, doing quantitative and qualitative analysis and preparing reports detailing strategy option against specified criteria.
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d. Excellent communication and organizational skills. e. Creative but rigorous approaches to extracting useful action conclusions from incomplete or secondary information. f. Experience in the Middle East region, and familiarity with Egypt. Consultants are urged to team with local Egyptian partners for research and data extraction. g. International experience with completed assignments similar to the Demand Study.
12. References
References required for similar assignments completed within the past twelve months.
GoeHousingDemandStudyTor
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APPENDIX B A REVIEW OF WHAT IS KNOWN ABOUT INFORMAL HOUSING IN EGYPT
B.1 INTRODUCTION This section offers a background brief on Egypt’s informal housing sector and what is known (and not known) about it. It has been added to the core of the Egypt Housing Demand Study because of the considerable importance of informal housing both as a component of the housing stock and as a contributor to the production of new housing. The subject is all the more important because informal housing represents the main housing solution for most poor and moderate urban Egyptian families.
B.2 DEFINITIONS: WHAT IS INFORMAL HOUSING IN EGYPT? Informal housing has become an important part of the lexicon of for urban development in developing countries. Sometimes called “spontaneous settlements” and often confused with the more pejorative “slums,” “shantytowns,” or “bidonvilles,” it is generally meant to apply to housing which is constructed outside legal processes. It may mean an area squatted and built upon or simply areas which are subdivided without approved plans and housing which is built without licenses or permits.
In Egypt informal housing settlements (called aashwai’i [random] zones in Arabic) are ubiquitous in both urban and rural areas. They are illegal or extra-legal, in that they contravene one or more laws regulating planning, subdivision, construction, registration of property, and preservation of agriculture resources.
As far as is known there is no official government definition of informal areas or informal housing, and what different observers consider a correct definition often depends on perceptions and even prejudices. 202
B.3 INFORMATION ON INFORMAL HOUSING IN EGYPT Overall the state of knowledge of informal housing is poor, and this has implications for attempts to look at the informal sector as a component or segment of national housing systems, processes, and markets. As will become clear in this section, it is extremely difficult to quantify the phenomenon both in terms of contribution to the housing stock or to annual housing production.
However, there is a considerable and growing amount of knowledge of informality on the micro-scale, which allows a relatively detailed view of conditions and informal housing processes, in particular informal areas. Unfortunately such knowledge — in the form of studies, reports, and articles — is not easily accessible or even particularly widely known. Some of theses micro-level studies have been used and referred to in this appendix. A particularly useful flow of information on various aspects of informality is coming from
202 See for example Kamel, Mohamed, and Makari, Samir, “Definitions of Informal Areas”, Participatory Urban Management Program, Ministry of Planning and GTZ, 2000, in Arabic.
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aashwai’i upgrading projects such as those supported by German Cooperation (Nasriya, Manshiet Nasser, Boulaq El-Dakrour) and, most recently, those supported by the World Bank (three informal areas of Alexandria). GOPP (1993-95) and the Ministry of Planning (2000-2002) are some of the government organizations which have studied aspects of aashwai’i areas. Over the years academic work has led to articles with particular interest (e.g. Oldham, L., El-Seoufi, M., Suleiman, A., etc.). Also, important information on informal housing, tenure, and extra-legality in Greater Cairo has resulted from the work of Hernando DeSoto (ILD, ECES, and USAID, 2000-2002). Even with this growing body of knowledge about informal housing and aashwai’i areas, public and media perceptions of the phenomenon remain largely negative. In particular, many Egyptian journalists and academics still tend to see informal areas — in spite of the considerable body of knowledge about the phenomenon and its ubiquitous presence all over Egypt — as haphazard, run-down, marginal areas of substandard housing where crime, deviant behavior, and despair dominate.
In the following sections, existing secondary data and the opinions of informed professionals have been used to paint as accurate and extensive a picture of informal housing as is possible, even to the point of over-generalization. It must constantly be kept in mind that there remain tremendous gaps in the understanding of informal housing.
B.4 MORPHOLOGY OF INFORMAL AREAS AND INFORMAL HOUSING TYPOLOGIES The nature and characteristics of informal housing can be best understood by reference to the history of the phenomenon, which also helps explain the different sub-types and sub- areas. The phenomenon of informal housing in Egyptian cities began to appear in the 1960’s, and there are two main types: 1. informal settlements on subdivided former agricultural land where the builder has purchased land informally from other owners. 2. informal squatter settlements on formerly state (desert) land, where the builder has only a “hand claim” (wadaa’ yed). In Greater Cairo the vast majority (81 percent) of informal settlements are on agricultural land, with informal development on desert (State) lands limited to about 10 percent of the total, and the remainder of informal settlements are on agricultural land nominally controlled by the State. 203 These figures for Greater Cairo reflect more or less the situation in other towns. In some cities on the desert fringes of the Nile Valley the portion of informal areas on desert lands is significantly higher. In some places, such as Alexandria, informal areas have extended over large tracts of agricultural land whose tenure is a mixture of private, land reclamation authority, and religious endowment (awqaf) holdings.
203 Sims, D., “Residential Informality in Greater Cairo: Typologies, Representative Areas, Quantification, Valuation, and Causal Factors, Institute for Liberty and Democracy, Lima, and the Egyptian Center for Economic Studies, 2000, unpublished .
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The main characteristics of informal areas are a product of their extra-legality, i.e. the complete lack of physical planning or control. There are few if any organized street patterns, 204 no public space reserves and little or no land for public services such as schools. Most streets are commonly very narrow (2-4 meters wide), except where canal and road right-of-ways allow for arterial streets. Land parcels are generally small, averaging 80- 120m 2. Buildings have no set-backs, and the whole parcel of land is built upon (except for narrow light wells). Since there is no construction licensing, there is no restriction on building heights and this results, over time, in extremely high population densities. Although there is a risk of overgeneralization, it is possible to construct a list of informal housing types or categories:
OLDER “VILLAGE” STYLE INFORMAL HOUSING: Prominent in the 1960s and 1970s, buildings of 2-4 floors were constructed with load- bearing masonry walls and either slab concrete or wood floors. This type is often found in what had been villages on the fringes of towns which have either (1) expanded into large informal areas or (2) were engulfed by horizontal urban expansion. Housing units were generally small apartments, although some individual houses were built.
“CLASSIC” INFORMAL HOUSING: From the 1970s and up to today this type dominates. Buildings are built with RC foundations, frames, and floor slabs, with masonry (usually red brick) wall infill. Rule of thumb construction norms always allow for ground plus five (G + 5) floors. Building footprints are normally 75-125m 2, with one or two small apartments per floor (usually ranging from 40 to 80m 2 per unit). Usually construction is progressive, with floors being added as finances permit. Some owners continue to add floors above the standard G + 5.
“EXTENDED CLASSIC” INFORMAL HOUSING This type is similar to the “classic” type described above, but will ultimately aim to have ten or more floors. This type is becoming more common in urban areas under intense development pressure, such as inner-fringe areas of Alexandria and Cairo and also in Delta towns.
Speculative “one-off” towers This phenomenon began to appear in the late 1990s, especially in informal areas in inner fringe areas of Cairo and Alexandria. These buildings tend to have larger footprints (300 to 500m 2), larger apartments, and more apartments per floor. Heights can reach 15 floors. What makes this type unique is that the whole building is built in one stage and vacant apartment units are then put on the market. It is understood that groups of relatives or
204 Interestingly, interpretation of satellite images shows that when informal settlements first began to appear in the 1960s on agricultural land, there seemed to be some attempt to lay out street grids. But this early organized parceling soon gave way to truly random subdivisions of agricultural parcels. Using satellite images it is possible to discern the old farm field patterns in the present day urban fabric of these later and more common subdivisions.
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neighbors, mostly from Upper Egypt, pool their financial resources to rapidly construct and rapidly realize a profitable investment.
B.5 INFORMAL HOUSING CONSTRUCTION AND THE QUALITY OF INFORMAL HOUSING Contrary to common perceptions, generally the quality of most construction in informal areas in Egypt is good, with the most common type being 4- to 7-story apartment blocks of reinforced concrete frame and slab construction with brick infill walls. Progressive, floor by floor construction has been the norm, but recently “one-off” tall apartment blocks are becoming more common. Quality tends to be slightly better in informal areas on agricultural land than those on desert land. Only in small pockets (usually on public rights-of-way and in just-squatted desert areas) where tenure is insecure does one find precarious construction which begins to evoke the images of informal settlements that are standard in many parts of the developing world. There is a misconception held among many Egyptian professionals that informal housing is haphazardly constructed and liable to collapse. Since informal housing is overwhelmingly “owner-built,” without contractors, it is in the owner’s own interest to ensure that care is taken in construction. It is worth noting that in the 1992 earthquake in Cairo practically all building collapses and the resulting fatalities occurred not in informal areas, but in “formal” areas such as Heliopolis and Nasr City, where apartment blocks were constructed by (sometimes) unscrupulous contractors, or in dilapidated historic parts of the city.
It should be added that in most informal areas, especially the more mature settlements, water and wastewater networks cover over 90 percent of households. Even so newer and fringe areas may have neither sewers nor water supplies, but it is generally accepted that government authorities will supply such networks at some point in time. It should be added that metered electricity to individual housing units is practically universal in informal areas (as it is in all of Egypt).
B.6 WHO ARE THE RESIDENTS OF INFORMAL HOUSING? Another common misconception is that informal settlements are zones of unrelieved poverty and misery. Census statistics and a number of socio-economic studies show that most informal areas of Cairo contain households with a wide range of incomes and whose aggregate livelihood indicators are not much lower than the urban average. In addition, most of the micro-, small- and even medium-sized enterprises in Egypt, a vast sector which generates most of Egypt’s employment opportunities, are found in informal areas. In other words, any single informal area is likely to contain a heterogeneous mix of inhabitants. Even in Manshiet Nasr, the largest and one of the poorest squatter areas in Egypt, one finds a mix of average bread winners, lower ranking government employees, professionals, tradesmen, etc. alongside some extreme hardship cases. This heterogeneity is due to largely to an area’s development over time. Many families built or acquired their units in the 1970s with money from Gulf remittances, but circumstances did not improve and they now live in a kind of gentile poverty. Many others are sitting tenants
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who enjoy near-perpetual fixed rent contracts (those renting before 1996). Others are building owners who make little off of existing tenants and try to add more floors to improve their own family finances. In other words, every informal area exhibits both heterogeneity and a certain uniqueness due to history.
B.7 WHAT IS THE EXTENT OF INFORMAL HOUSING AS A SHARE OF THE HOUSING STOCK? It is only a slight exaggeration to say that informality is the defining characteristic of the modern Egyptian built landscape. Starting in the 1950s and 1960s, significant desert areas on the urban fringes began to be squatted on, and at the same time even larger areas of private agricultural holdings on city and village fringes began to be subdivided and built upon in contravention of planning regulations. By the late 1970s the phenomenon had outstripped formal urban expansion. By 1996, in spite of increasingly strict legislation proscribing illegal construction, in many cities informal areas represented more than half of all residential areas.
As far as is known there has been no systematic attempt to quantify informal housing’s share of the nation’s total housing stock. Partly in response to the perception that informal areas bred religious extremism, in the 1990s the Ministry of Planning and Ministry of Local Development generated lists of the names of aashwai’i areas by governorate and classified them as to whether they could be upgraded or needed removal. These lists exhibited little consistency, included both classical aashwai’i areas as well as slum pockets and even run- down historic areas, and seemed to rely mostly on the subjective perceptions of local officials.
In 1993 the General Organization for Physical Planning (GOPP, part of MHUUD) produced a study entitled “Development of Informal Areas in the Greater Cairo Region” which represents the government’s best material to date on the phenomenon. In this study not only were aashwai’i areas named, they were categorized as to origin (on agricultural, on desert, on reclaimed desert, or on hills), mapped, and populations were assigned to them. GOPP estimated that 45.6 percent of the Greater Cairo Region’s population (then at 12.9 million inhabitants) lived in informal areas. These results are a bit dated since they were based on the 1986 Census.
A study carried out in 2000 which relied on maps, satellite images, and ground checks estimated that in Greater Cairo 52 percent of residential districts are informal (as measured by net surface area), and that over 60 percent of the metropolitan population lived in these areas. 205 The definition of informal areas used was all residential areas appearing in images and maps to have no planned layouts (no street grid or hierarchy and no public areas and dedicated public services) and which developed starting after 1950.
B.8 MAGNITUDE OF THE PRODUCTION OF INFORMAL HOUSING How much informal housing is produced annually? And how much does informal housing contribute to national housing production?
205 Sims, op cit.
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Answering this question is not easy, mainly because of the lack of commonly agreed definitions (see above) and also because informal housing units are not recorded in any systematic way when they are built. In addition, there is the confusion relating to “urban” versus “rural” housing. Even so, we have information which allows a preliminary if incomplete understanding of the magnitude of production.
INFORMAL HOUSING CONTRIBUTIONS TO URBAN HOUSING PRODUCTION: ESTIMATION BY THE RESIDUAL METHOD In 1986 the Census recorded a total of 5.85 million housing units in urban areas at the national level and in 1996 this number rose to 8.45 million (including housing units which were being used for non-residential purposes). This implied that over the 10-year period 2.60 million new units had been built. The MHUUD’s Housing and Utilities Sector keeps figures on the production of “government” and “private” sector housing units in urban areas for five- year periods (see Chapter 5), including for the Five Year Plans 1987/92 and 1992/97, as Table B.1 shows: 206
Table B.1 Number of Urban Housing Units Built by Five-Year Period by Sector 207 Sector 1987/92 Period 1992/97 Period Total 1987-1997 Period
Government 386,879 331,417 718,296
Private* 517,107 189,440 706,547
Total 903,986 520,857 1,424,843
* “Private” numbers are derived from building licenses issued. Therefore the residual, after subtracting these formal housing units from the inferred total units built over the period, should equal the number of informal units built, as shown in Table B.2.
Table B.2 Distribution by Sector of Urban Housing Units Built Over the 1987 – 1997 Period Sector Inferred Units Built Percentage Share Government 718,300 27.6%
Private 706,500 27.2%
Informal 1,175,200 45.2% Total 2,600,000 100.0%
206 The periods 1986-1996 and 1987-1997 are not a perfect fit, but they are close enough, especially given that the Census takes place in November of a particular year. 207 MHUUD, Housing and Utilities Sector.
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In effect, almost half of urban housing units during the period were produced by the informal sector, quite an impressive share. But this is probably an underestimation of the weight of informality in Egypt’s housing for a number of reasons.
First, these are net housing stock figures, which do not count houses which were demolished or collapsed over the ten-year period, all of which would, by the residual method, be considered informal. Second, these figures ignore rural areas, where in the 1986-96 period it can be inferred from the Census that over 2.0 million housing units were built. These rural areas (as classified by the Census) actually contain very significant urban agglomerations which in other countries would be considered as urban. 208
Third, a review of MHUUD figures show that over the 1987-1997 period the government sector produced much more housing on an annual basis than it did either before or after (whereas for private housing the annual rates were typical for the larger 1982-2003 period). Thus it could be said that the residual results derived here for informal housing underestimates the phenomenon of informality.
PRODUCTION OF INFORMAL HOUSING AND ITS EXPANSION IN GREATER CAIRO Two studies of Greater Cairo which took place at different times allow a closer look at the contribution which informal housing production makes to the urban housing stock: In 1982 a USAID-supported study of informal housing concluded that in the late 1970s as much of 84 percent of new housing units in Greater Cairo were being produced by the informal sector (Abt Associates Inc. with Dames and Moore Inc, Informal Housing in Egypt, USAID, January 1982). This study was able to arrive at such a conclusion because integral to it was a large, representative sample household survey carried out in Greater Cairo. As far as is known, in the 25 succeeding years no similar study has been conducted in Greater Cairo or elsewhere in Egypt for that matter.
A study which compares satellite images of Greater Cairo records that between 1991 and 1998 the net surface area of informal areas increased by an annual rate of 3.4 percent and it was calculated that the population of informal areas increased by 3.2 percent per year, representing an additional 200,000 persons or 42,000 families each year. In comparison, the annual population growth in formal, planned areas of Cairo was only 0.8 percent. (“Formal areas” excluded new cities and satellite cities). 209
INFORMAL HOUSING PRODUCTION AND LOW INCOME HOUSING Although there are no systematic numbers, it can be assumed that informal housing produced is on average less expensive and more suitable for families of limited income than that produced by the private sector. This assumption is supported by MHUUD figures which
208 The official and Census definition of urban areas in Egypt is purely administrative and thus is problematic. Urban areas are either (1) urban governorates (2) agglomerations which have been declared “cities” and have a city council, or (3) the capitals of all rural districts. This definition has no relation to the size of the agglomeration’s population. As a result, the urban population of Egypt is undercounted and fringe urban growth is considered rural. In fact, in the intercensal period 1986-96 official figures show that the population of rural areas in Egypt grew at a faster rate than that of urban areas! 209 CEDEJ, Information System for Informal Settlements, 2002.
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show that over the 1987-1997 reference period only 326,000 units produced by the private sector (46 percent of total private sector production) could be classified as “low cost” or “economic.” And over the whole 1982-2003 period, of a total of 1.83 million private units produced, only 37 percent were considered “low cost” or “economic.” Thus the informal sector’s share of the production of low-cost housing units must be considerably larger than figures relating to the total urban housing stock would suggest.
INFORMAL HOUSING AND CONSUMPTION OF CONSTRUCTION MATERIALS There are no known statistics kept on the kinds and quantities of materials consumed in the construction of informal housing (or for that matter, the housing sector in general). However, it is worth pointing out that Ahmed Ezz, the largest steel manufacturer in Egypt and a member of Parliament, has been quoted more than once as saying that at least 60 percent of his reinforcing bar production is purchased by small suppliers who focus solely on feeding informal construction activities.
B.9 MEANS OF FINANCING INFORMAL HOUSING Because of its very informality, very little is known about how the production of informal housing units is financed. Much more work, especially through case studies, needs to be done in this regard. The following comments rely mostly on anecdotal information. As stressed above, the production of “classical” informal housing is a progressive and quite long affair, the pace of which normally relies on an extended family’s ability to save and otherwise mobilize financial resources. The first step is to purchase vacant land. With modest parcels easily fetching LE 350 per m 2 today, an upfront payment will require marshalling, say, LE 30,000 to LE 40,000. This is a very large sum which may take years to accumulate. Then construction begins, usually with just the ground floor, which will require accumulating as much as LE 20-30,000, again a struggle which can take years. The additional floors (and rooms) similarly require further savings and conversion of other assets over years.
What are understood to be the main sources of such finance? Many observers consider the single most important source to be savings, especially savings generated by Egyptians working abroad. (At least in the 1970s and 1980s these remittances were the main sources of finance fueling the informal sector.) Other important sources include the conversion of other family assets (selling agricultural land, animals, jewelry, etc.) and borrowing from relatives. A third method, perhaps becoming more and more important, is the sale of parts of a property to finance its further vertical expansion. This last point is helps explain how it is possible for simple families to produce over time multi-story structures which represent hundreds of thousands of pounds in investment. As far as is known, there is no recourse to formal financial services in the informal housing sector. Informal property cannot be used as collateral (and in any event there is no real functioning mortgage system in Egypt), and personal loans carry high interest rates and require onerous personal guarantees.
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B.10 INFORMAL HOUSING MARKET DYNAMICS Although informal housing is produced in clearly different ways and in clearly different locations from either formal private or government housing, once units are finished they are just as exchangeable as any other units. They can be rented or sold or inherited, and there are even means to sanction and document such exchanges through perfectly legal means. (For a description of how this is done, see the description in Chapter Five. Although this describes how public housing units can change hands, the processes are identical in informal areas.) In other words, market mechanisms of property exchange are very prevalent in informal areas. Market information is mostly through word of mouth, friendship and kinship networks, and also local brokers. Since the introduction of the new rental contracts in 1996, renting has become very common. (In a typical informal area there will normally be a rough balance between rental units and those which are owned). The housing market of course always is very sensitive to location, and there are “better” and “worse” informal areas. The market puts a premium on modern, planned neighborhoods over those which are called aashwai’i.
Recent anecdotal information shows that informal housing markets are quite sophisticated in the kinds of tenure and prices offered. For example, one finds a mix of rent/ownership options, where a buyer will pay a significant down payment and make installment payments for a set number of years. Also, up-front payments for renting are very commonly demanded, but with subsequent monthly rents quite moderate and supportable by most families.
B.11 THE CAUSES OF INFORMAL HOUSING The standard explanation for such a vast phenomenon of informal housing in Egypt is straightforward: the formal housing sectors have been unable to provide an appropriate alternative. Egypt has a large and heavily subsidized public housing program which has produced an average of 40,000 urban units per year over the last two decades, and most of these units are built for families of limited income. In addition, the formal private sector has added even more urban units. Even so, these units have been insufficient in number, are wrongly located, or are too expensive for the mass of urban families. Without a legal alternative, these families have been forced into illegality. Such a logic only partly explains the phenomenon. A true explanation must go beyond this. Why do people invest massively and build in informal areas, with all of their “illegality”? One recent study asked this question and found that the most common response was “to be near family/relatives” followed closely by “close to work” and “attractive land price”. 210 In other words, the answer lies in the advantages of the owner-builder process of housing creation. It is technically well understood in Egypt, is inexpensive, and it allows progressive construction according to family financial capacities. In addition, a big plus is that the process avoids government bureaucracy both in construction and in the acquisition of land. Key to the process is that the owner-builder and his family are the main actors (performing the roles of developer, site manager, and sometimes contractor), and every step of the
210 Madbuli, M., and Lashin, A., “Informal Areas of Greater Cairo: Study of Conditions in Boulaq El-Dakrour”, 2003, in Arabic, no page numbers.
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process is sanctioned, not by formal contracts, but by personal acquaintance and trust. Needless to say, the informal housing process is extremely local in nature. Formal sector land developments and subdivisions have proven totally unable to attract the dynamics of the informal sector. The main obstacles are embodied in the high subdivision and building standards and regulations which preclude both the smaller scale and efficient layouts used in informal processes and add significant costs as well as bureaucratic hassles. Also, most private sector housing developers are unabashedly selling images of modern, Western life. And most government subdivision schemes are also in remote locations far from the existing urban fabric and the all-important informal economy.
B.12 GOVERNMENT POLICIES TOWARDS INFORMAL HOUSING When informal areas began to appear in the 1960s and expand in the 1970s there was little interest in what was at first a very marginal and not very visible phenomenon, neither from government nor academics. In the late 1970s uncontrolled urban expansion on the Nile Valley’s limited agricultural land became an issue, and this provoked a series of decrees and laws aimed at prohibiting further encroachments by informal housing. These had little effect, and in the 1980s and 1990s further attempts were made to legislate away the informal phenomenon, culminating in 1996 with the promulgation of two presidential decrees which stipulated that any new construction on agricultural land and any urban construction without a valid building permit would be severely punished through military courts. These had a temporary dampening effect, but the vertical and horizontal expansion of informal settlements soon resumed, albeit with higher extra-legal costs.
Over the same period, it came to be recognized in some circles that simple prohibition of the phenomenon was insufficient and that the State should offer alternatives to informal housing expansion on agricultural land. A small number of pilot desert subdivision schemes were proposed that aimed at attracting the informal housing dynamic, but with one exception none of these were successful. (See Box B.1 below).
In effect, the State has only begun to address the issue of informal settlements after the fact. In 1992, after some mature informal areas were perceived as breeding grounds for Islamic fundamentalism, the government launched a national program for improving existing informal (aashwai’i) settlements. All such settlements were inventoried and most were earmarked for infrastructure upgrading, although some smaller ones were scheduled for removal. In 2000 the Institute for National Planning carried out an evaluation of the fund and noted that allocations were not always spent and that there were a number of other problems. Thus, “area upgrading” is now the cornerstone of the government’s approach to informal areas. On the other hand, the State has been totally unsuccessful in harnessing and directing the informal housing dynamic. The subdivision and building standards applied to the new cities, plus the remote locations of most of these new cities, have totally precluded the attraction of the kinds of investors and actors who are so common in Egypt’s informal settlements. And in only very rare cases can it be said that the private sector subdivisions even begin to attract the same actors.
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Over the last 25 years a handful of innovative attempts have been made to “formalize” the informal housing processes on State land. One such example, the Hay es Salaam Project in El-Ismailia, is briefly described in Box B.1.
Box B.1: The Hay El-Salaam Project: Formalizing Informal Housing Processes
In 1979 the Governorate of Ismailia launched the Hay El-Salaam Project on 240 feddans of desert land adjoining the city of Ismailia. With technical assistance from British aid and later UNDP, an independent Governorate agency was created, based on interpretations of recent local government legislation. The agency undertook the upgrading and land titling of some 4,000 existing squatter families, and in addition subdivided adjacent vacant desert land into small plots (60-135m 2) and sold these parcels at nominal prices to vetted Ismailia residents. Basic infrastructure was provided, as were approved building plans which allowed a maximum of five floors. A key feature was that infrastructure and amenities were financed from the proceeds of land sales, in particular about 10 percent of the land which was sold at market prices. Build-out on the plots exceeded all expectations even though no loan financing was available. The agency was dissolved in 1985 and the area became part of normal city government. By 1996 the population of Hay El-Salaam exceeded 96,000 inhabitants. Even though the project was largely auto-financed and showed how to capture the informal housing dynamic and legally redirect it on to desert land, it had little impact on national government policy and, except in other parts of Ismailia, was never replicated at any significant scale.
B.13 CONCLUDING REMARKS Informal housing in Egypt and the many extra-legal processes underlying it has, especially in the period 1970-1990, greatly benefited poor and modest families, both in producing a massive amount of housing which offered a range of choices affordable to most if not all, and in allowing those of the poor with at least some equity to participate in the process and enjoy its rewards. It is sobering to think what Egypt’s housing crisis would be today without this.
It is no exaggeration to say that informal settlements currently house the large majority of Egypt’s lower-income urban families and still provide them with the main option for new housing. But there is a feeling that the opportunities which the poor could seize in the in past are becoming fewer and fewer (and more expensive), with the supply of affordable housing units drying up while demand increases inexorably, and as a result the housing problems for the urban poor and those with moderate incomes are becoming much more severe, with no alternative solutions on the horizon. Thus it could be said that, more than ever, it is imperative to create conditions which build on and encourage the dynamic of informal housing practiced by the mass of Egyptians, a phenomenon which until now the government has either ignored or tried, totally unsuccessfully, to proscribe.
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To do this means better understanding informality. As should be apparent from this section, conjecture and reliance on anecdotal information predominates any discussion of informal housing. And even properly-researched secondary information is thin on the ground. Informal housing in Egypt deserves better treatment and this can best be addressed through the following techniques:
• Large representative sample household survey(s) of selected representative cities, using CAPMAS study frames, capturing for example characteristics, prices, coverage, etc. which are statistically relevant.
• Time series and comparative analysis using and interpreting satellite images (an opportunity only recently made possible through inexpensive high-resolution images).
• Case studies of the owner-builder and other main actors in the informal housing process.
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APPENDIX 3.1: PROJECTION OF URBAN POPULATION UNTIL 2017 urban urban urban urban population population growth population population Governorates 1986* 1996* rate 86-96 2002 2017 2002/2007 2007/2012 2012/2017
Cairo 6,007,280 6,800,992 1.32 7,344,000 9,119,000 1.38 1.46 1.49 Alexandria 2,896,459 3,339,076 1.53 3,636,000 4,604,000 1.55 1.61 1.56 Port Said 393,841 472,335 1.99 534,000 716,000 2.09 2 1.76 Suez 324,852 417,527 2.85 471,000 631,000 2.01 1.87 1.61 Damietta 185,830 250,578 3.48 282,000 371,000 1.75 1.67 1.51 Dakahlia 909,388 1,174,466 2.91 1,300,000 1,664,000 1.9 1.78 1.51 Sharkia 713,159 964,731 3.53 1,083,000 1,404,000 2.18 2.1 1.65 Qalyubia 1,092,966 1,340,815 2.27 1,556,000 2,093,000 1.82 1.7 1.47 Kafr Sheikh 406,745 509,790 2.53 569,000 731,000 1.56 1.54 1.46 Gharbia 931,676 1,058,615 1.36 1,159,000 1,456,000 1.85 1.62 1.44 Menoufia 443,779 548,013 2.35 610,000 780,000 1.83 1.68 1.41 El-Beheira 761,914 910,276 1.95 1,017,000 1,300,000 1.34 2.05 1.71 Ismailia 262,882 359,645 3.68 418,000 569,000 2.09 2.1 1.74 Giza 2,109,157 2,589,807 2.28 2,983,000 4,039,000 2.31 2.05 1.78 Beni Suef 358,241 437,671 2.22 493,000 630,000 1.87 1.68 1.35 Fayoum 357,082 446,773 2.51 506,000 656,000 2 1.77 1.41 Minya 542,521 643,059 1.85 718,000 908,000 1.77 1.53 1.39 Assiut 603,659 764,206 2.66 866,000 1,603,000 1.86 1.63 1.35 Sohag 530,324 678,657 2.80 762,000 977,000 1.87 1.71 1.38 Qena 517,960 517,649 -0.01 666,000 675,000 1.87 1.67 1.4 Aswan 312,501 415,130 3.28 464,000 594,000 1.82 1.76 1.34 Luxor 0 166,308 182,000 207,170 Red Sea 69,359 117,499 6.94 156,000 363,000 5.61 5.64 5.61 New Valley 48,318 68,408 4.16 78,000 108,000 2.23 2.22 2.15 Matrouh 80,870 117,762 4.56 137,000 205,000 2.74 2.74 2.66 North Sinai 104,160 149,147 4.32 183,000 326,000 3.9 3.86 3.8 South Sinai 9,383 27,400 19.20 3,800 101,000 6.5 6.49 6.42 Total 20,974,306 25,286,335 2.06 28,176,800 37,630,170 1.87 1.75 1.55 *Sources: • Central Agency for Public Mobilization and Statistics • Census 1986 (Population, Housing and Buildings) for Egypt • Central Agency for Public Mobilization and Statistics • Census 1996 (Population, Housing and Buildings) for Egypt • Table A2: Average Family Size 1986-2004 in urban areas by governorates.
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APPENDIX 3.2 AVERAGE FAMILY SIZE IN URBAN AREAS, 1986, 1996 AND 2004, AND PERSONS/ROOM
Average 211 Average family Crowding Average family family size size (urban areas) Governorate size 1986 1996 2004 Persons/room (urban areas) (urban areas) (urban areas) 1986 1996 Cairo 4.41 4.1 3.9 1.5 1.14 Alexandria 4.1 4.18 3.9 1.5 1.21 Port Said 4.1 4.2 4.1 2.1 1.31 Suez 4.1 4.3 4.1 1.7 1.24 Damietta 4.46 4.08 3.8 1.3 1.06 Dakahlia 4.51 4.23 4.1 1.3 1.07 Sharkia 4.68 4.4 4.1 1.3 1.13 Qalyubia 4.71 4.5 4.3 1.7 1.31 Kafr Sheikh 4.8 4.57 4.1 1.4 1.16 Gharbia 4.46 4.25 3.9 1.4 1.17 Menoufia 4.84 4.58 4.2 1.5 1.13 El-Beheira 4.88 4.66 4.3 1.6 1.19 Ismailia 4.6 4.37 4.1 1.4 1.22 Giza 4.45 4.22 4 1.4 1.21 Beni Suef 4.9 4.69 4.7 1.5 1.24 Fayoum 5.01 4.68 4.4 1.5 1.33 Minya 4.61 4.58 4.4 1.5 1.26 Assiut 4.77 4.91 4.7 1.5 1.26 Sohag 4.9 4.85 4.5 1.6 1.37 Qena 4.84 4.94 4.8 1.6 1.31 Aswan 5.07 4.87 4.6 1.7 1.38 Luxor 0 4.45 4.2 1.2 Red Sea 4.89 5.2 4.4 1.5 1.33 New Valley 5.6 5.2 4.1 1.3 1.19 Matrouh 5.32 5.16 4.8 1.8 1.3 North Sinai 5.42 4.97 4.4 1.9 1.44 South Sinai 4.14 5.35 3.9 1.6 1.31 Total 4.57 4.33 4.1 1.49 1.2 Sources: • Central Agency for Public Mobilization and Statistics Census 1986 (Population, Housing and Buildings) for Egypt • Central Agency for Public Mobilization and Statistics Census 1996 (Population, Housing and Buildings) for Egypt • CAPMAS "Income, Expenditure and consumption survey, 2003-2004 .
211 Available data include rooms in vacant units when calculating overcrowding, which means that actual crowding is higher than official statistics imply. The extent of overcrowding is consistent with results of the TAPRII survey that shows that over 39 percent of respondents applied for new units in order to upgrade living conditions.
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APPENDIX 3.3 SURPLUS UNITS IN URBAN AREAS, 1986 AND 1996 number of surplus units number of surplus units Governorates in urban areas in 1986* Percentage of total units in urban areas in 1996** Percentage of total units Cairo 331,384 19.57 630,534 29.56 Alexandria 144,184 18.32 360,647 33.08 Port Said 3,363 3.67 37,919 32.23 Suez 15,393 18.07 31,781 26.66 Damietta 22,235 34.79 38,242 38.39 Dakahlia 61,111 23.27 108,730 30.15 Sharkia 48,737 24.23 97,531 30.77 Qalyubia 52,266 18.4 114,998 27.83 Kafr Sheikh 25,253 22.96 38,211 25.53 Gharbia 44,979 17.7 88,802 26.29 Menoufia 10,170 9.98 52,761 32.58 El-Beheira 30,248 16.24 49,151 20.09 Ismailia 12,724 18.21 24,123 22.66 Giza 165,613 25.92 314,654 33.91 Beni Suef 15,639 17.62 29,258 26.86 Fayoum 17,575 19.79 27,682 22.49 Minya 31,913 21.33 44,103 23.92 Assiut 46,241 26.77 57,952 32.14 Sohag 18,394 14.53 60,555 30.19 Qena 20,431 16.03 29,996 22.25 Aswan 8,928 12.65 21,237 19.96 Luxor 0 0 7,001 15.76 Red Sea 6,631 31.87 10,253 31.22 New Valley 2,758 24.23 4,476 25.39 Matrouh 7,232 32.22 21,365 48.33 North Sinai 5,375 21.85 11,442 27.59 South Sinai 2,318 50.53 3,854 42.96 Total 1,151,095 20.06 2,317,258 28.41 Source: *Central Agency for Public Mobilization and Statistics Census 1986 (Population, Housing and Buildings) for Egypt **Central Agency for Public Mobilization and Statistics Census 1996 (Population, Housing and Buildings) for Egypt
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APPENDIX 3.4 DISTRIBUTION OF HOUSEHOLDS ACCORDING TO ANNUAL EXPENDITURE CATEGORIES, BY GOVERNORATE IN 1999/2000
No. of households in each annual expenditure category, in 000s 5,999 5,999 to 5,000 6,999 to 6,000 7,999 to 7,000 8,999 to 8,000 11,999 to 1,0000 13,999 to 12,000 15,999 to 14,000 17,999 to 16,000 19,999 to 18,000 29,999 to 20,000 39,999 to 30,000 49,999 to 40,000 69,999 50,000to 99,999 70,000to up and 100,000 1,000 1,000 thanLess 1,999 1,000to 2,999 to 2,000 3,999 3,000to 4,999 to 4,000
Total
Cairo 0 21 69 180 220 476 578 616 1296 1115 810 593 440 343 844 333 173 184 52 18 8361
Alexandria 1 20 94 114 191 292 330 351 751 602 429 306 226 145 314 78 30 25 9 0 4308
Port Said 0 2 4 6 12 11 29 22 53 61 61 42 51 44 145 50 20 19 5 3 640
Suez 0 1 2 4 6 12 25 26 65 76 95 69 62 45 111 26 5 8 1 0 639
Damietta 0 0 13 10 20 19 26 35 96 71 41 33 12 5 19 0 0 0 0 0 400
Dakahlia 0 19 43 58 93 121 124 117 194 123 53 29 12 26 17 4 2 1 0 1 1037
Sharkia 1 15 39 76 171 186 170 158 211 81 38 21 18 5 6 1 0 2 0 0 1199
Qalyubia 0 7 19 43 64 69 99 115 188 126 87 53 26 20 33 6 4 3 0 0 962
Kafr Sheikh 0 1 5 17 33 54 69 71 149 118 49 30 12 8 17 6 1 0 0 0 640
Gharbia 0 6 26 21 63 83 116 131 217 150 88 68 33 35 59 9 2 3 1 0 1111
Menoufia 0 7 12 22 37 60 75 65 133 61 34 18 11 5 16 2 0 0 0 0 558
El-Beheira 0 3 13 26 68 83 118 120 212 137 76 48 14 21 25 3 2 2 0 0 971
Ismailia 0 0 3 4 7 21 26 29 84 74 56 37 21 15 18 1 3 0 1 0 400
Giza 0 29 65 112 203 289 298 329 442 280 161 115 8 2 65 162 64 38 33 25 7 2799
Beni Suef 2 9 25 45 48 65 42 50 75 47 26 22 6 6 5 6 1 0 0 0 480
Fayoum 0 7 13 30 46 53 61 52 65 29 20 6 6 6 3 3 0 0 0 0 400
Minya 0 10 18 26 44 63 55 70 113 86 53 31 19 15 23 8 2 4 0 0 640
Assiut 0 22 36 100 128 153 119 74 81 50 20 6 5 0 3 2 0 0 0 0 799
Sohag 0 17 30 51 73 98 90 90 99 40 19 9 8 1 8 3 1 1 0 0 638
Qena 0 5 10 19 37 65 68 81 126 61 45 15 11 5 8 1 1 0 1 0 559
Aswan 0 5 14 21 44 56 54 46 79 64 51 23 10 8 5 0 0 0 0 0 480
Luxor 0 11 20 35 29 20 22 11 22 25 32 8 1 4 0 0 0 0 0 0 240
Red Sea 0 0 0 0 0 4 4 5 16 11 16 9 7 2 5 1 0 0 0 0 80
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1,000 thanLess 1,999 1,000to 2,999 to 2,000 3,999 3,000to 4,999 to 4,000 5,999 to 5,000 6,999 to 6,000 7,999 to 7,000 8,999 to 8,000 11,999 to 1,0000 13,999 to 12,000 15,999 to 14,000 17,999 to 16,000 19,999 to 18,000 29,999 to 20,000 39,999 to 30,000 49,999 to 40,000 69,999 50,000to 99,999 70,000to up and 100,000
Total
New Valley 0 0 0 1 0 4 5 9 17 12 16 5 3 3 3 2 0 0 0 0 80
Matrouh 0 0 0 2 2 3 4 7 16 16 11 7 4 2 5 0 0 0 0 0 79
North Sinai 0 0 1 0 1 5 5 6 13 15 16 6 5 2 4 0 0 1 0 0 80
South Sinai 0 0 0 0 0 1 2 3 6 14 6 8 16 3 12 7 1 1 0 0 80 28,66 Total 4 217 574 1,023 1,640 2,366 2,614 2,689 4,819 3,545 2,409 1,617 1,121 839 1,870 616 286 287 95 29 0 % of total 0 0.8 2 3.6 5.7 8.3 9.1 9.4 16.8 12.4 8.4 5.6 3.9 2.9 6.5 2.1 1 1 0.3 0.1 100
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APPENDIX 3.5: TAPR II MARCH-APRIL 2006 HOUSING DEMAND SURVEY
PURPOSE OF SURVEY To fill critical data gaps and complete the end-of-May study, a small, time-sensitive, in-depth sample-based assessment survey was carried out in late March and completed by the end of April 2006. The survey’s purpose was to collect data from primary sources from a sample of individuals/households representing the current demand side of housing in selected urban areas of Egypt. The data collection process was conducted through structured interviews controlled by a questionnaire. The questionnaire comprises all the questions needed to draw a profile of housing demand among low and middle-income classes of population. Assessment of housing needs, affordability, and financial preferences are among the main topics that are covered in the questionnaire.
Focusing on housing markets in major cities and urban areas, the survey assesses: • The demographic profile of eligible consumers, and their house buying/renting preferences. • Consumers’ opinions on housing prices, their abilities to pay, and their preferences concerning modes of financing for housing and existing government policy actions towards the housing demand in both the formal and the informal markets. • Affordability (or ability-to-pay) analysis including the current access to housing finance by households and the mode of financing for owner-occupied dwellings.
• Factors that contribute to the distortion of housing markets and the impact on affordability and/or access to credit by households. • Opinions on the current framework of the government’s housing-related intervention and subsidies towards different segments of the income distribution.
• Demand-side preferences of geographic locations for the government’s new housing program, with detailed justifications.
SAMPLE DESIGN AND SELECTION A purposeful quota sample of 323 households was selected from a frame of applicants/households who officially applied to the government’s housing program that was announced on the 9th and 10th of December 2005. This GOE announcement came within the framework of President Mubarak’s election program, which stated a goal of building 500,000 subsidized housing units over the coming six years in urban areas of Egypt. The sample was selected so that it reflected, to the greatest extent possible, the demand for housing in geographical locations that are targeted by the new program. The majority of these locations are found in Greater Cairo. Frame-listings were provided by the Ministry of Housing. Based on the information contained in these listings, the sample selection process tried to capture both financially eligible and
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ineligible applicants according to the Ministry’s eligibility criteria. Conditions other than the financial criteria, such as geographical location, were also considered in the sample selection process. A systematic random sampling procedure was followed to select survey participants who would be representative of the applicant lists as a whole. The original sample size was increased by 25 percent to provide replacement data points if needed, to guarantee total interviews at least equals to 300 applicants.
INTERPRETATION OF SURVEY RESULTS Given the sample size and the nature of the group from which the sample was selected, survey results cannot be assumed to be either directly applicable to the broader population or statistically representative of the segment of the population from which the sample was drawn.
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APPENDIX 4.1 LETTER (IN ARABIC) FROM EL- OBOUR CITY COUNCIL REGARDING THE AVAILABILTY OF LOW-COST HOUSING UNITS
Technical Assistance for Policy Reform II BearingPoint, Inc, 18 El Sad El Aali Street, 18 th Floor, Dokki, Giza Egypt Country Code: 12311 TECHNICAL ASSISTANCE FOR POLICYPhone: REFORM +2 II 02 335 5507 168 Fax: +2 02 337 7684 Web address: www.usaideconomic.org.eg