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This article presents a conceptual framework for understanding the relationships between housing and economic development in the urban context. Investment in housing was for many years a debatable issue both in policy and planning circles and in the academic arena and remains a controversial issue in many developing countries. Several interrelated issues defined this debate; among them are the following. One issue concerned the allocation of resources between housing and other investments and revolved around the question of what proportion of a country's limited resources should be invested in housing provision without compromising other equally important economic and social needs. Another issue related to the productivity of housing. It was the question of whether housing investment is productive and what role should be assigned to housing. Additionally, there was the issue of whether housing was part, or a by-product, of economic development. In terms of policy there was concern about what constituted the ‘appropriate' role of housing policy strategies to meet housing needs effectively. In developing this conceptual framework, the goal is to demonstrate that the relationship between housing and economic development is not one-dimensional; instead, the two interact in a number of ways, and housing is a central part of economic growth and development. Housing involves much more than shelter.
The market is driven by a series of interrelated dynamic factors - demand for housing, stages of economic development, the economic model, political and economic systems, macroeconomic variables, and institutions. However, once an investment is made in housing it has huge implications for national as well as regional and local economies, both positively and adversely. Housing is a huge capital stock. Investment in housing either through purchase or rent accounts for a share of private consumption. Housing is a major item in both individual and public budgets. The process of housing construction also creates a series of large economic multiplier effects and could be a tool for poverty reduction. However housing investment without appropriate policy measures could be inflationary and could put pressure on balance of payments. These implications cause changes in national economies (i.e. economic development and growth). Government macroeconomic policy measures may eventually address these problems, ultimately affecting housing policy and levels of investment. The relationship between housing markets and economic development is complex. It is a reciprocal relationship: housing affects economic development and it also experiences ‘feedback' effects.
The poor housing conditions in most developing and transition countries is the first starting point of the analysis of the relationships between housing and economic development. Housing is a critical component of economies. However, housing provision has been and remains an acute problem for most countries, a significant segment of the population residing in slums. According to the United Nations Human Settlements Programme (UN-Habitat) estimates, 1.1 billion people currently live in slums and about 100 million people worldwide are homeless. The total number of slum dwellers varies across countries and regions of the world. While 71.9 per cent of the Sub-Saharan African urban population resided in slums in 2001, the proportion is significantly less for the Oceania region (24.1 per cent). The corresponding figures for other regions are South-Central Asia, 58 per cent; Eastern Asia, 36.4 per cent; Western Asia, 33.1 per cent; Latin America and the Caribbean, 31.9 per cent; Northern Africa, 28.2 per cent; and Southeast Asia, 28 per cent. However, in absolute terms Asia had the largest number of slum dwellers (554 million), followed by Sub-Saharan Africa (187 million). The total population of slum dwellers has increased substantially over the past two decades, and it is further projected to increase to 2 billion in the next 30 years. The increase in urban slum dwellers is largely a result of enormous growth in urban populations and subsequent inability of the private and public sectors to produce sufficient housing. The total urban dwellers in 2005 were 3.2 billion people, representing 49 per cent of humankind. The figure was projected to rise to half of the world's population in 2008.
With an annual growth rate of 1.8 per cent, the world's urban population is projected to increase to 4.9 billion by 2030, roughly 60 per cent of the world's population. The increase in urban population is particularly pronounced in the less developed regions (LDRs), where urban population was estimated at 2.3 billion people in 2005, a figure that is about seven times larger than the 1950 estimate. The urban population in LDRs is projected to continue to increase fast, reaching 3.9 billion people by 2030. The key point here is that housing infrastructure is a critical part of the economic activities of urban economies; without adequate housing for workers, economic development can be hampered. Yet its provision is most often given a low priority, and public and private agencies have failed to provide sufficient units to meet the ever-growing demand. According to a recent study, 2.825 billion people will require housing and urban services by 2030. The dimension of the housing needs challenge, however, varies across countries and regions and, as a result, the amount of financial resources needed to finance its provision will vary accordingly. That is, the amount of funding devoted to housing should be a reflection of need. Overall, the current dimension of housing poverty, as evident in physically inadequate facilities and access services in several countries is a major policy issue. These challenges suggest not only that governments, private agencies and international development institutions have to coordinate their efforts, but that substantial financial resources will have to be allocated to the provision of new housing units.