Contribution of the real estate sector and the housing needs
Tasmiah Nuhiya Ahmed, Law Research Officer, BILIA. Advocate, Supreme Court. : Urban Housing Markets are increasingly significant in shaping the economic and social well-being of many citizens. A substantial variation exists across neighborhoods in the type of housing available, the quality of public services, the level of tax burdens, and the quality of life generally. Consequently, households brazen out important tradeoffs between different types of housing, neighborhood characteristics, and accessibility to place of work. Since housing expenditures are a large component of every household’s budget, the availability of housing and its price assume considerable importance. Moreover, housing markets play a central role in the process of metropolitan development, both affecting and reflecting other forces at work in this sphere. Urban development patterns, in turn, are crucial to our future welfare in many ways (Straszheim, 1975). High population growth and rural-urban migration intensify the problems of urbanization in Bangladesh, as in all developing countries. For Bangladesh the problem is further aggravated by limited land supply in urban areas, lower land utilization and lack of proper policy and planning of land-use (Rahman, 2001).
Decline in household size combined with increase in population has pushed up housing demand. Presently families in urban area spend a high share of their income on housing but still obtain low-quality accommodations. With a rising population and increasing housing demand, apartment culture has grown up in Dhaka sharply. Apartments were first introduced by the formal private developers in early 80s to the housing history of Dhaka. It first appeared in Dhaka near Central Road and subsequently the city experienced a boom in apartment development in all residential areas including Paribagh, Maghbazar, Siddeshwari, Shantinagar, Dhanmondi, Mirpur, Banani, old DOHS, new DOHS, Gulshan and Baridhara, to name just a few (Kamruzzaman).
Existing housing supply has been characterized by a critical imbalance between housing cost to household income ratio that has been known to affect homeownership as well as rental housing. According to a 2007 survey conducted by the Consumers Association of Bangladesh (CAB), house rent in Dhaka increased by 250 percent between 1990-2007 despite presence of rent control laws and courts (Kamruzzaman). It must be emphasized that the economic costs of any failure in the housing markets can be enormous and severely harmful to prospects for economic growth. Inefficiencies in the housing markets can generate not only an inelastic supply of new dwellings but also insufficient market transactions with respect to housing demand and any future run-up of housing prices, which can further develop into asset bubbles. Such problems in the housing markets can easily affect the rest of the economy.
In particular, there are three broad consequences of housing market failures (Pidal, Lampe and Rosés, 2011). First, if housing transactions absorb too much capital because of overvalued house prices, then the growing demand for capital from the housing market can generate a crowding-out effect‘ that leads to increasing overall interest rates and absorbed savings (i.e., expanding foreign debt), which may reduce the economy‘s stock of productive capital (Weale, 2007). Second, the scarcity of housing, the low liquidity of housing assets and/or their excessive price can delay needed structural changes by imposing severe restrictions on labor migration (Muellbauer and Murphy, 2008). Finally, scholars have widely recognized that collapses of housing bubbles are commonly associated with significant disruptions to the domestic financial system and the real economy (Honohan and Klingebiel, 2003).