It’s Time to Acknowledge That the Housing Crisis Is Global

A 2018 report
on European real estate trends by PwC and the Urban Land Institute
calls urbanization “perhaps the most significant influencer of real
estate strategies in recent years.” In the United States, not just tech
startups but established companies have been moving their headquarters
to downtown areas. Coca-Cola recently moved 2,000 of its suburban employees to a downtown Atlanta skyscraper; General Electric moved its headquarters from suburban Connecticut to downtown Boston; and McDonald’s is moving its headquarters from the suburbs to downtown Chicago.

While the advantaged members
of the knowledge, professional, and creative class have enough money
left over even after paying the cost of housing in these cities, it’s
the less-well-paid members of the service and working classes who get
the short of end of the stick, with not nearly enough left over to
afford the basic necessities of life. They are either pushed to the
periphery of these places or pushed out all together.  

Many
of the less advantaged are renters, not owners. Owners were essentially
able to lock in their housing costs at the time of purchase, and
thereby benefit from significant appreciation. And rents have increased
even faster than housing prices in many metropolitan areas. Indeed,
rents in the U.S. increased by 22 percent on average between 2006 and
2014, while average incomes decreased by 6 percent. This has meant
escalating rent burdens, which, again, fall heaviest on the least
advantaged. Nearly half of all renters across America are “cost burdened,”
spending more than 30 percent of their income on housing. And nearly
three-quarters of households earning less than $15,000 per year devote
more than half of their income to housing.  

Little wonder that homelessness is growing across the U.S. The
homeless encampments springing up in prosperous places like Orange
County, California, and Seattle are reminiscent of the all-too-common
informal settlements of the developing world.

The housing crisis in the developing world

The most severe aspect of the global housing crisis by far is the housing situation faced by some 850 million people—more than the populations of the U.S. and the European Union combined—who live in informal settlements. The map below from the Bloomberg Global City Housing Affordability Index
shows that as bad as the housing affordability crisis is in expensive
cities, it is even worse in the rapidly urbanizing cities of the Global
South, where rents as a share of income average 100 percent, 150
percent, 200 percent, or even higher. The most expensive and desirable
cities in North America and Europe are far more affordable by
comparison.

According
to this metric, the most unaffordable cities in the world are all in
the Global South—cities like Hanoi, Mumbai, Bogotá, Buenos Aires, and
Rio de Janeiro, where housing costs exceed 200 or 300 percent of
incomes. The most unaffordable city of all is Caracas, whose economy is
in a tailspin. There, average housing costs exceed incomes by more than
3,000 percent.

With
as many as 200,000 people pouring into the cities of the Global South
every day, it is projected that the number of people who live in
informal housing will exceed 1 billion by 2020. The housing crisis of
the Global South is compounded by the troubling rise of “urbanization without growth.”
In the past, urbanization supported the development of local industries
needed to support growth, like manufacturing, brick-making, and food
processing, which in turn supported the growth of a middle class. In
today’s globalized economy, these local connections have been sundered,
and those activities can and do take place virtually anywhere, leaving
cities split between affluent knowledge workers and the truly
disadvantaged.

It’s Time to Acknowledge That the Housing Crisis Is Global