Report Number: 41180
THE WORLD BANK
ARABREPUBLIC OF EGYPT
ANALYSIS OF HOUSING SUPPLY MECHANISMS
FINAL NOTE
February 2007
Sustainable Development Department
Middle East and North Africa
CURRENCY EQUIVALENTS
(Exchange Rate Effective February, 2006)
Currency Unit / = / Egyptian Pound (LE)Egyptian Pounds 5.71 / = / US$1
ABBREVIATIONS AND ACRONYMS
CAPMAS / Central Agency for Public Mobilization and StatisticsESW / Economic Sector Work
ECES / EgyptianCenter for Economic Studies
FY / Fiscal Year
GCR / Greater Cairo Region
GOE / Government of Egypt
GOHBC / General Organization for Housing and Building Cooperatives
GOPP / General Organization for Physical Planning
GSF / Guarantee and Subsidy Fund
HDB / Housing and Development Bank
HFF / Housing Finance Fund
ILD / Institute for Liberty and Democracy
IDSC / Information and DecisionSupportCenter
MENA / Middle East and North Africa Region
MHUUD / Ministry of Housing, Utilities and Urban Development
MOI / Ministry of Investment
MOLD / Ministry of Local Development
MOMDP / Ministry of Defense and Military Production
NAHP / National Affordable Housing Program
NAHPA / National Affordable Housing Program Agency
NIB / National Investment Bank
NUCA / New Urban Communities Authority
PPP / Public Private Partnership
TAPR II / Technical Assistance for Policy Reform II
USAID / Unites States Agency for International Development
WB / World Bank
Vice President: / Daniela Gressani
Country Manager/Director: / Emmanuel Mbi
Sector Director: / Inger Andersen
Sector Manager: / Hedi Larbi
Task Team Leader: / Ahmed A. R. Eiweida
Task Manager/Study Author: / Sameh Wahba
Table of Contents
Table of Contents
List of Figures
List of Tables
List of Boxes
Acknowledgments
Executive Summary
Chapter 1. Introduction
1.1 Objective and methodology
1.2 Contents
1.3 Limitations
Chapter 2. Evolution of Housing Policies in Egypt
2.1 Evolution of housing policies in Egypt in the past five decades and their effect on the housing market
2.2 New housing policies and programs in Egypt...... 7
Chapter Three. Formal housing supply and stock characteristics in urban areas in Egypt
3.1 Introduction
3.2 Formal housing Stock in urban areas in Egypt
3.3 Government entities responsible for housing supply
The New Urban Community Authority (NUCA)
The General Organization for Housing and Building Cooperatives
The Joint Projects Agency
The Housing Finance Fund
The Housing and Development Bank
Governorates
3.4 Government-built housing products and characteristics
Low-Cost/Economic Housing
Mubarak Youth Housing Project
Future Housing program
Sites-and-Services and similar approaches
Family Housing
Emergency Housing
Public-Private-Partnerships (Free Housing)
National Housing Program
3.5 Rental housing market: reforms after five decades of rent control
3.6 Vacant Housing Stock in the Formal Housing Market
3.7 Housing Investment
Overall Investment
Private Sector Investment in Housing Construction
3.8 Mechanisms for Housing Finance in Egypt
3.9 Assessing the formal housing supply system in Egypt
Chapter Four: Informal Housing Supply in Egypt: Typologies, Quantities and Qualities
4.1 Introduction
4.2 Informal Settlements Population In Egypt
4.3 Typologies and number of informal settlements in Egypt
4.4 Informal land acquisition and housing construction mechanisms and characteristics
Socio-economic conditions in three informal settlements in the Greater Cairo Region
Agricultural land conversion and informal housing development process
Financing the Construction of Informal Housing Units
Dealing with local authorities when building without permit
Land Prices within Informal Settlements
Construction Cost, Prices of Housing Units for Sale or for Rent
Selling Prices and Rental Values of Housing Units in Informal Settlements
Housing Supply and Demand in Informal Settlements
Access to infrastructure in informal settlements
Willingness to pay for formalization
4.5 Concluding Remarks: Formalization of the informal sector as an affordable housing supply alternative for the urban poor
Chapter Five: Regulatory framework governing urban planning and development in Egypt
Local administration system in Egypt
Urban Planning in Egypt: Existing situation and key challenges and issues
Evolution of Urban Planning in Egypt
Institutional and legislative framework governing urban planning in Egypt
Current problems facing the implementation of urban planning process
Recent government efforts to improve the urban planning process
Recent proposed changes in the urban planning legislation
Chapter Six. Concluding remarks: The need for a new affordable housing strategy
6.1 Summary of key findings
6.2 Next Steps
Bibliography
Annexes
Annex 1: Detailed statistics on publicly and privately-built formal housing
List of Figures
Figure 3.1 Formal housing units produced by the public and private sector, 1982-2005
Figure 3.2 Implementing agencies’ share of total public housing output, 1982-2005
Figure 3.3 Number of formal housing units built by sector and category, 1982-2005
Figure 3.4 Publicly-built housing units by implementing agency and category, 1982-2005
Figure 3.5 Unused housing units number and share of total stock by governorate, 1996
Figure 3.6 Total formal investment in the housing sector, 1982-2005
Figure 4.1 Investments in urban upgrading by sector, 1993-2004 (in million LE)
Figure 4.2 Owner occupation in three informal settlements in the Greater Cairo Region
Figure 4.3 Status of housing developers in three informal settlements in the Greater Cairo Region
Figure 4.4 Evolution of average land prices at time of purchase and construction in three Greater Cairo Region informal settlements, 1997-2003
Figure 5.1 Proposed institutional framework governing urban planning in Egypt
List of Tables
Table 2.1 Evolution of housing policies in Egypt and their impact on the housing market
Table 3.1 Total housing units in urban and rural areas in 1986 and 1996
Table 3.2 Comparison of annual growth rate of urban population and urban housing stock by Governorate, 1986-1996
Table 3.3 Total publicly-built housing units by implementing entity, 1982-2005
Table 3.4 Distribution of urban public housing by Governorate, 1982-2005
Table 3.5 Housing Units built by the private sector in New Urban Communities by type
Table 3.6 Total NUCA investment in New Urban Communities by sector, 1982-2004
Table 3.7 Housing units built by NUCA by new urban community, 1982-2004
Table 3.8 Housing Units built by the Housing and Development Bank by Governorate
Table 3.9 Cost of low-cost and economic housing units
Table 3.9 Analysis of economic housing unit cost including land and off-site infrastructure
Table 3.10 Construction cost overruns in an economic housing project in Banha city
Table 3.11 Mubarak Youth Housing Scheme implemented since 1996
Table 3.12 Cost of Mubarak Housing units implemented by the Ministry of Housing
Table 3.13 Emergency housing units by Governorate and national five-year plan, 1982-2005
Table 3.14 Total Number of rental and owned housing units, 1986-1996
Table 3.15 Difference between number of housing units and number of households, 1986-2005
Table 3.16 Vacant units in the Greater Cairo Region in 1986 and 1996
Table 3.17 Total formal investment in the housing sector by implementing entity, 1982-2005
Table 3.18 Private sector investments in housing construction in new Urban Communities
Table 3.19 Evolution of housing cooperative soft loan terms and conditions
Table 4.1 Informal settlements number and population in ten Governorates
Table 4.2 Contradictory informal settlement statistics for the Greater Cairo Region
Table 4.3 Population of informal settlements in urban areas, in 1996
Table 4.4 Informal housing in Greater Cairo, Alexandria and Tanta, ILD/ECES
Table 4.5 Stakeholders and roles in the informal/squatter development process
Table 4.6 Status of informal/squatter settlements according to the National Upgrading Program by Governorate, 2004
Table 4.7 Problems faced by informal developers and solutions devised to overcome them
Table 4.8 Evolution of construction costs in three Greater Cairo Region informal settlements
Table 4.9 Average house prices in three Greater Cairo Region informal settlements, 2001-2003
Table 4.10 Average rental values in three Greater Cairo Region informal settlements, 2003
Table 4.11 Housing tenure status and vacant housing stock in three Greater Cairo Region informal settlements, 2003
Table 4.12 Infrastructure problems in informal settlements
Table 5.1 Responsible Governmental Bodies for Planning or Approval of Plans
Table 5.2 Status of update of city and village official administrative boundaries, 02/2005
Table 6.1 Housing typologies in Egypt, 2000
Table A-1 Total housing units built by the public and private sector, 1982-2005
Table A-2 Total publicly-built housing units by implementing entity, 1982-2005
Table A-3 Formal housing units built by the public and private sector by type, 1982-2005
Table A-4 Housing units built by the public sector by housing type and five-year Plan, 1982-2005
Table A-5 Difference between number of households and number of housing units—vacant or unused units—by Governorate, 1986-1996
Table A-6 Total housing investment by the public and private sector, 1982-2005
Table A-7 Government soft loans provided by the different entities, 1982-2006 (in million LE)
Table A-8 Soft loans allocated to economic housing in Governorates, 2000-2005 (in LE million)
Table A-9 Comparison between planned and executed housing Units by the public and private sector, 1982-2005
Table A-10 Comparison between planned and executed housing Units by Governorate, 2000-2005
List of Boxes
Box 3.1 Madinaty, a new real estate development through partnership
Box 4.1 The Three Informal Settlements
Box 5.1 Egyptian Laws Governing Housing, Urban Planning and Development
Acknowledgements
This note, prepared under Phase II of the Urban Sector Update ESW which focuses on affordable housing policy in Egypt, was prepared by Sameh Wahba (Urban Specialist, Task Manager) based on significant inputsprovided by Mostafa Madbouly (Director of the Technical Office, General Organization for Physical Planning, Ministry of Housing, Utilities and Urban Development). The note benefited from detailed comments and insights fromLoic Chiquier (Lead Financial Officer, FPDSN),Ahmed Eiweida (Sr. Urban Management Specialist, Task Team Leader), and David Sims (Housing and Urban Consultant). Detailed comments were also received from members of the housing steering committee: Sherif Oteifa (Advisor to the Minister of Investment), Sahar El Tohamy (Advisor to the Minister of Housing), Tham Truong (Program Support ComponentTeam Leader, Technical Assistance for Policy Reform II project, USAID), Raymond Stuyk (Chief of Party, Egypt Financial Services project, USAID), and Sahar Nasr (Sr. Financial Economist, Task Team Leader of affordable housing subsidies ESW and mortgage market development project, MNSED).The team was ably assisted by Amira Fouad Zaky(MNCO3) and Natasha Hafez.
The team would especially like to express its debt of gratitude to the many senior government officials and members of the private sector who graciously provided their time, documentation, data, and expert feedback and guidance in the process of preparing this note.
Peer Reviewersincluding Maria Emilia Freire (Sr. Advisor, FEU), Lawrence Hannah (Lead Economist, FEU) and Abhas Jha (Sr. Infrastructure Specialist, LCSUW), provided valuable feedback to strengthen this note. Mustapha Rouis (Acting Country Director for Egypt, Yemen and Djibouti) chaired the Review Meeting and provided follow up guidance to the team. The Policy Note was issued under the guidance of MNSSD Management, including Hedi Larbi (Sector Manager, Urban and Transport) and Inger Andersen (Sector Director).
Executive Summary
Since the mid-1980s, the urban housing stock’s annual growth rate was almost double that of the urban population, with the result that the total urban housing stock far exceeds the number of urban households and a significant number of units is vacant. The average annual growth rate of the urban housing stock in Egypt(3.6%) far surpassed that of the urban population (1.9%) during the inter-census period (1986-1996). By mid-2005, the total number of housing units in urban areas in Egypt reached close to 9.49 million units. By contrast, in January 2005, the total number of urban households was estimated at 6.84 million units. The result is that in 1996 there were 1.4 housing units per urban household and 2.64 million housing units that were vacant or unused. Taking into account multiple unit ownership (10% of urban households owned/controlled 20% of the total housing stock), there still was in 1996 about 20% of the total urban housing stock that could be considered to be available on the market, whether units ready for occupancy, that are still under construction or which remain unfinished for a long time.
During the inter-census period (1986-1996), formal housing production covered 62.8% of the total urban stock produced, with the informal sector responsible for the remainder. During the inter-census period (1986-1996), the total urban housing stock grew by an annual average of 241,916 units, of which 151,896 units (62.8%) were formal and the remainder (90,021 or 37.2% of total) were informal. In the 1986-1996 period, the public sector built29.5% of all new(formal and informal) housing units built in urban areas during this decade and 47% of the formal housing stock, with the private sector responsible for 33.3% of total housing stock and 53% of formal housing stock. The largest producer of urban housing during this period was the informal sector, conservatively estimated to have delivered 37.2% of all new units (the ratio would be higher if we account for replacement units).
Over the past 25 years, the public sector has built as much as 36% of all formal housing units supplied in urban areas, which came at a significant cost of LE26.4 billion to the public coffers. A plethora of public agencies and programs for direct of supply of affordable housing exist in Egypt today. These include Governorates, housing and development companies, the Joint Projects Agency, the General Organization for Housing and Building Cooperatives, the Housing Finance Fund, the Housing and Development Bank, development agencies, and the New Urban Communities Authority. Together, these entities have delivered 1.26 million public housing units during the period 1982-2005 (36% of all formal housing units built during this period in urban areas) at a total cost of LE26 billion, excluding the cost of land and off-site infrastructure. By and large, the largest supplier of public housing was the Governorates, which were responsible for the supply of 44% of the total public sector-built stock in urban areas during this period and mostly targeting low and moderate income households. This shows the extent of local government contribution to public housing supply, an impact that could have been even greater had they not had limited local revenues and had their mandate evolved to enabling access to affordable land and housing within their jurisdiction instead of direct supply. The Housing Cooperative system delivered as much as 22% of the total public stock provided in the 1982-2005 period, although it is increasingly seen as out of favor with the General Organization for Housing and Building Cooperatives’ budget falling to less than one-fifth of its peak of over LE1 billion in the 1995-98 period. Finally, NUCA was responsible for 20% of the total public stock, but similarly its total investment has fallen to about 5% of its peak of about LE1.1 billion in the 1997-99 period.
The positive trend has been the steady increase of the private sector’s share of annual formal housing production over the past decade up to 90%. With respect to the formal sector, the private sector contributed 64% of all formal housing units built in urban areas between 1982 and 2005, with the total investment having exceeded LE60 billion. The 1992-99 period was the only trough observed in the private sector’s performance, where its share of the formal housing stock was less than half (ranging between 33-48%). Since then, a positive trend has been the steady and significant increase in the private sector’s contribution,which reached88-90% of all new formal units since 2002 with an average of 145,000 units per year. At the same time, the public sector’s annual average fell to a little over 18,000 units, which points to public sector withdrawal from direct supply and an invigorated private sector playing an increasingly important role in housing supply.
These statistics and findings reinforce the argument that the urban housing crisis in Egypt is not a quantitative/scarcityproblem but distortions to the housing market caused by an accumulation of ill-conceived and inadequate policies that led over time to creating a mismatch between supply and demand and to severely curtailing private sector investment in housing supply. The problem manifests itself among other things in a large share of the existing urban housing stock being kept vacant and under-utilized, and in private sector withdrawal from investing in the rental housing sector to focus instead on the upper segments of the market catering for homeownership (which is simply unaffordable even for middle-income groups in the absence of housing finance). It is also argued that there was, and still is, a mismatch between housing demand and supply, with on the one hand an oversupply of formal housing for upper-middle and high-income groups (at the same time as demand was dampening due to weakened purchase power), while on the other hand there is a shortage of supply for low, moderate and even middle-income groups, leaving the informal sector to meet their needs.
Limited income groups, unable to afford formal housing or adequately located and serviced land upon which to build especially in large cities, found that they had no option but to seek shelter in informal and squatter settlements. Construction costs in the informal sector, even with a 20-30% cost add-on in extra-legal payments to circumvent problems with local authorities and utilities and navigate the bureaucracy associated with informality,are still more affordable than formal housing supply. The end housing product is more suited to people’s needs and the progressive construction method is more adapted to their priorities and affordability level. What is interesting is that even in the informal sector, there is an oversupply of housing units, estimated in the GCR at 500,000 units and in a sample of three informal settlements at 15-20% of the total stock.