THE COST OF URBANISATION

Presently a social problem, the global housing crisis is gradually transforming into one of the key factors determining the pace of economic development in various countries and cities. Rising urbanisation, demographic pressure, increasing construction costs and limited financial resources are shaping a new reality in which affordable housing is becoming not only a matter of people's quality of life, but also a crucial element of economic competitiveness.

It is for this reason that financing housing and urban infrastructure was the focus of the 13th session of the World Urban Forum (WUF13), which was held for the first time in Baku.

The housing gap

In recent decades, housing affordability has become a universal problem, impacting both developed and developing countries. Furthermore, the issue at hand extends beyond the mere cost of housing; it also encompasses the capacity of public institutions to guarantee the requisite supply in the face of a rapidly escalating demand.

As Luis Ebrero Rodríguez, Head of the Housing, Cities and Regions Department at the European Investment Bank (EIB), has noted, one of the main problems remains the excessive regulation of the sector. In his words, "The pan-European housing plan is largely aimed at reducing the bureaucratic burden, which remains one of the key factors holding back the sector's development." Furthermore, the regulatory framework for housing in many countries requires significant improvement to facilitate effective project implementation.

It is noteworthy that the EIB, which has historically prioritised market-driven solutions, is now increasingly compelled to intervene when the market fails to resolve issues independently. Rodriguez stated that the organisation intervenes exclusively in cases where market failures are identified, particularly in the areas of social affordability, energy efficiency and emergency housing.

The World Bank (WB) presented a further alarming picture. Valery Levkov, the WB's Vice-President for Infrastructure, reported that "by 2030, around 3 billion people will face a housing affordability crisis, and to meet existing demand, around 500 million new housing units will need to be built".

These figures indicate that the world is facing a crisis of unprecedented scale. Furthermore, the problem is not limited to the construction sector. The housing sector is a major driver of economic growth, contributing an average of around 15% to global GDP. V. Levkov believes that the primary task is to engage the private sector by using public resources to create a favourable environment.

According to Ping Yean Cheah, a representative of the Asian Infrastructure Investment Bank, there are three main barriers hindering the financing of affordable housing: a shortage of projects that meet the requirements for obtaining financing, insufficient support during the development stage, and limited use of instruments for mobilising private capital – such as blended finance, guarantee mechanisms and credit enhancement tools.

Looking for funding

In the current global context, most municipalities are facing significant challenges in accessing long-term financial resources.

A panel discussion entitled 'Financially Attractive Municipalities, Liveable Cities. How can cities attract long-term financing on the necessary scale?" The session focused on the reforms and conditions required to enhance the investment attractiveness of municipalities and to attract private capital to finance sustainable urban infrastructure.

Srinivas Sampat, Director of the Urban Development Department at the Asian Development Bank, has stated that the main structural barrier to the development of affordable housing is the insufficient creditworthiness of city administrations.

The issue is that modern cities are required to address increasingly complex challenges. These include the construction of housing, transport networks, public infrastructure, digital services and sustainable development systems. However, their financial capacity is often extremely limited.

Sampat's assessment during a different forum session was particularly noteworthy. "Without ensuring sufficient inflow of funds into urban agglomerations, we will effectively be holding back the development of 50% of the world's population."

Another serious problem is the underdevelopment of the municipal financial market. As Roland White, Head of the World Bank's Global Municipal Finance Practice, noted, only around 24–25 developing countries have the conditions that allow municipalities to effectively access capital markets.

Meanwhile, the development of municipal bonds is regarded as one of the most promising instruments for financing urban infrastructure. In developed countries, this mechanism has long been standard practice, but in most developing countries such a market is still only in its infancy.

It is no coincidence that the World Bank is increasingly advocating the mobilisation of private capital. V. Levkov emphasised that ‘attracting private investment is no longer a matter of choice if we are striving for the systematic development of cities’.

A new architecture

A key feature of the current phase is a shift in the approach to housing policy. Srinivas Sampat, a representative of the Asian Development Bank (ADB), believes that "the time has come to move from implementing isolated projects to the comprehensive, programme-based development of an affordable housing ecosystem". This approach involves the coordinated development of transport infrastructure, land regulation, financial instruments and social support mechanisms.

In this regard, the experience of Azerbaijan is of particular interest. Nusrat Ibrahimov, Chairman of the Chamber of Appraisers of Azerbaijan, stated that "the main strategy for Azerbaijan should be the creation of a fairer property tax system through the integration of a transparent fiscal-cadastral model".

This involves a transition to a property management system that will enhance market transparency and the efficient use of urban resources.

Anar Kerimov, First Deputy Minister of Finance of Azerbaijan, emphasised the significance of sustainable financing mechanisms for the housing sector. He stated that a sustainable housing finance system has been established over the past 20 years. 58,000 mortgage agreements have been concluded."

The scale of state investment is also of particular significance. According to Mr. Kerimov, Azerbaijan has allocated over $10 billion to housing construction and the reconstruction of liberated territories. He emphasised, however, that "we view this not only as a social issue, but also as a development issue".

The discussions at WUF13 are of particular relevance to Azerbaijan: the country's rapid urban development, large-scale territorial restoration programmes and the further refinement of housing policy necessitate the adoption of best international practices. Consequently, the issue of affordable housing is gradually becoming not only a social challenge but also one of the key factors in the country's long-term economic development.