Affordable Housing

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Definition :
Affordable housing is housing that is reasonably adequate in standard and location for a
lower or middle-income household and does not cost so much that such a household is
unlikely to be able to meet other basic living costs on a sustainable basis (National
Summit on Housing Affordability, 2006).
There are different definitions of affordable housing in various countries all over the
world. (Bakhtyar et al.,2012)
The United Kingdom has a long time experience promoting affordable housing, such as
the council-owned public housing [1] . It has also shared the ownership with social
landlords and different plans for decreasing the housing price for owners. Since 1980, the
conservative government of UK has launched and strictly supported a new plan under the
name ‘Right to Buy’ for low-income people [1] .
Before the 1980s in the United States, subsidized housing (public and private) was
referred to as low-income housing and low- and moderate-income housing, with explicit
definitions of “low income” and “moderate income.” Although such terms and definitions
are still used in determining eligibility under various housing policies and programs in
this country, the term “affordable housing” came into vogue in the 1980s as part of the
retreat from public responsibility for the plight of the poor and as affordability challenges
moved up the income distribution.
Although it still lacks precise and consistent definition, the term has since achieved
international stature, and it typically encompasses not only social housing and lowincome housing, but also financially assisted housing for middle-income households that
find it difficult to purchase houses in the private speculative market.
Relative—changes in the relationship between summary measures of house prices or
costs and household incomes
Relative measures. The relative approach, used widely by the mortgage lending and real
estate industries to assess the affordability of the residential sales market, is based on
prototypical housing costs, primarily for potential home buyers. (Stone,2006).
In the United States, different affordable housing formulas and definitions are being
practiced in the country. One of the most common housing affordability calculations is
using the National Association Realtors (NAR). This formula can show the ability of
medium-income earners for the monthly payment of a house [9] . It states:
Monthly Payment = Median House Price x 0.8 x (R/12)/(1-(1/(1+R/12)^360))
Where R is the interest rate on loan, 0.8 is the conversion factor; assumption is the
income, % down payment and other constant factors.
According to the definition provided by the U.S. Department of Housing and Urban
Development (HUD), the housing costs that consume less than 30% of a household’s
budget is an affordable house [12]. It means that, each family has to allocate 70% of its
income to other needs, such as food, education, cultural needs, clothing and even leisure
time and entertainment. This definition of affordable housing assumes that a renter’s
household does not spend more than 30% of its income on housing costs, including
utilities. It means, if one family allocates less than 30% of its income including utilities
and taxes to the house rental, the house is affordable [13].

Australian Ministers of Housing, Planning and Local Government have agreed to adopt
the following definition of affordable housing to support state and local governments to
plan for and monitor the supply of affordable housing:
Affordable housing is housing that is appropriate for the needs of a range of low to
moderate income households and priced so that low and moderate incomes are able to
meet their other essential basic living costs .
PRWG (2006 in Milligan et al 2007, p26) state: “Housing is appropriate for a household
if it: Is appropriate for that household in terms of size, quality, accessibility and location;
Is integrated within a reasonably diverse local community ; Does not incur unreasonable
costs relating to maintenance, utilities and transport; (and) Provides security of tenure and
cost for a reasonable period. "
“Low to moderate income includes those households which have incomes below 120% of
the gross median income of all households.”
Affordable housing may refer, in this case, to all housing for which the cost to the tenant
is not regulated strictly by the market, but which is made cheaper through some form of
government intervention. However, the term has also gained a more specific meaning
arising in response to the shrinking role of public housing and associated tightening of the
target public housing to those households with high, very acute and/or complex needs.
Research on housing affordability has established the existence of an extensive need for
social housing in addition to that met through the provision of public housing.
Defining affordable housing in India is a difficult task given that at every square
kilometer of the country, the dynamics of the market are different. At KPMG and
CREDAI, they have therefore broadly defined affordable housing in India for Tier I, II
and III cities based on three key parameters: Affordable housing can be defined using
three key parameters viz. income level, size of dwelling unit and affordability. While the
first two parameters are independent of each other, the third parameter is correlated to
income and property price, and hence can be termed a dependent parameter. While the
above definition is a generic representation at an all India level, the actual definition of
affordable housing may vary with regions and income levels. Another point to note is that
the definition of affordable housing is not just restricted to the three categories mentioned
above, but applies to people across the country. (KPMG,2010).
Defining affordable housing in Vietnam in this study base on Resolution No. 02/NQ-CP :
affordable housing includes commercial housing and social housing which housing with
area less than 70m2 and price bellow VND15 million/m2.
Why should the country develop affordable housing ?
Affordable Housing gets defined purely in terms of what households in different income
ranges can afford and housing is provided by the market within that price range
irrespective of the quality of housing. (Wadhwa,2009 )
The reason for high (unaffordable) price of housing in the market lies in:
(i) high land prices,

(ii) cost of construction
(iii) transaction cost
(iv) taxes & legal charges, and
(v) profit margins of private operators.
Price of land is the single most expensive component in the cost of housing in urban
areas.
The cost of building materials, construction labor, outdated technologies, high capital
cost due to long-drawn construction process increases the cost of construction.
Status of affordable housing in Vietnam
Oveview of Vietnam :
Population: approximately 90 million people
Area : 331,698 km2
GDP per capital : USD 1,500
In 10 years (1999-2009): 706 million m2 of houses is added on the average 70 million
m2 per year.
Average housing area
In 1999: 9.68 m2 / person;
In 2009: 16.7m2/person;
Currently ~20 m2 / person;
Housing development results:
In 2009: The total housing stock of Vietnam is 1,415 million m2, of which 476 million
m2 in urban area and 938 million in rural areas. The housing area is 16.7 m2/person.
Now: The total housing stock of Vietnam is about 1,790 million m2, of which ~690
million m2 in urban areas and ~1,100 million in rural areas. The housing area is ~20
m2/person.
Housing Development Policies
In 2005, the National Assembly enacted the Housing Law, specifically defining forms of
housing development, including :
Development of commercial houses;
Development of individual houses;
Development of social houses;
Development of public houses
Policies providing support and favorable conditions for those entitled to social policies
(i.e. contributors to the revolution, poor households, particularly disadvantaged
households).
Mechanisms and policies have been adapted to housing needs of specific target groups:
For low-income people having housing difficulties can rent or lease social houses.
Most of social houses are apartment complexes with 30-70 m2 apartments, invested by
state budget with the maximum of 6 stories.
Tenants of social houses pay monthly
Current incentives for affordable housing /social houses:
Exemption from land use charge

Exemption from VAT - 5%; CIT - 10% (compared to the common VAT - 10%; CIT - 20%
to 25%)
Preferential loans or interest rate support: At present, social housing projects are
benefiting from the lending support package valued at VND 30,000 billion (Resolution
No. 02/NQ-CP)
6%/year in 10 years (secured at 1⁄2 commercial interest rate);
30% of the package is lent to businesses, 70% is lent to buyers;
Loans are provided to commercial house purchase with area less than 70 m2 and
price bellow VND15 million/m2
Support for 100% investment in infrastructure inside the barrier fence and a portion of
investment in infrastructure outside the fence.
20% of the land and house fund issued for business purposes
Houses formed in the future by the projects are used as collaterals for mortgage loans ;
housing costs are accounted as production costs.
The rent is sufficient for capital recovery, excluding land use charges, land rent and tax
incentives required by the State.
Consumers of social houses must pay 20% in advance and pay the remaining by
amortization in 15-20 years.
Officers and employees, who are transferred or circulated by work request, are entitled to
leasing public houses.
Contributors to the Revolution, poor households in rural and mountainous areas are
supported by the State, economic organizations, social organizations and community in
housing.
The development and management of affordable housing /social houses:
Form: low-rise apartment/townhouse complexes, in which apartment area/townhouse
area is less than 70 m2.
Those entitled to purchase, rent and lease belong to 8 groups
Preferential loans or interest rate support: At present, social housing projects are
benefiting from the lending support package valued at VND 30,000 billion (Resolution
No. 02/NQ-CP)
Interest rate is 6%/year in 10 years (secured at 1⁄2 commercial interest rate);
30% of the package is lent to businesses, 70% is lent to buyers;
Loans are provided to commercial house purchase with area less than 70m2 and price
bellow VND15 million/m2.
Support for 100% investment in infrastructure inside the barrier fence and a portion of
investment in infrastructure outside the fence.
20% of the land and house fund is used for business purposes
Houses formed in the future by the projects are used as collaterals for mortgage loans;
housing costs are accounted as production costs.
In 2011, the Prime Minister issued the National Housing Development Strategy up to
2020, with a vision to 2030 with fundamental substances as followed:
Define role of the State in housing.

Implement policies encouraging the development of commercial housing by
market mechanism;
Execute policies to support 8 groups having housing difficulties.
Encourage the development of apartment complexes in urban areas.
Increase the proportion of rental housing.
Improve housing quality and develop houses in association with the system of
technical and the social infrastructure.
Strategic objectives /Goal :
By 2015:
10 million m2 of social houses (mainly apartment complexes);
Satisfy housing needs of 60% of students;
Satisfy housing needs of 50% of workers;
Complete the support to 400,000 households (by new poverty standards) in rural
areas.
From 2016 - 2020:
12.5 million m2 of social houses ;
Satisfy housing needs of 80% of students;
Satisfy housing needs of 70% of workers;
Complete the support to 500,000 households (by new poverty standards) in rural
areas.
Performance of Programs
Social housing programs
Decision No. 1151/QD-TTg: Program to develop residential and housing clusters in
flooded areas of the Mekong River Delta supported over 200,000 households
Approximately 1.6 million m2 of public houses were provided to more than 129,000
teachers living in remote and extremely difficult areas.
Decision No. 167/2008/QĐ-TTg completed the support to 520,000 poor households in
rural areas of the country in housing.
Decision No. 65/2009/QD-TTg (2009-2015): 95 projects were constructed and completed
with a total investment of VND 18,000 billion meeting housing needs of 500,000
students. Currently, VND 12,500 billion was allocated to meet the housing needs of
330,000 students ;
Decision No. 66/2009/QD-TTg: 62 housing projects for workers were completed, which
built 13,000 apartments valued at VND 2,840 billion; 39 ongoing projects with total
capacity of 27,000 apartments valued at VND 6,850 billion;
Decision No. 67/2009/QD-TTg: 34 housing projects for low-income people were finished
with 18,850 apartments valued at VND 5,980 billion; 86 ongoing projects with total
capacity of 52,000 apartments valued at VND 23,900 billion.
Demand for Social Housing Development
Demand for social houses of low-income people
Presently 11.28 million m2, equivalent to 282,000 apartments;
In the 2013 – 2015 period, the demand increases by 2.64 million m2, equivalent
to 66,000 apartments;
In the 2016 – 2020 period, the demand increases by 3,36 million m2, equivalent
to 84,000 apartments.

As such, total demand from now to 2020 is about 17.28 million m2, equivalent to
432,000 apartments.

(4)
28,200,000

Increase
by
2013-2015
(5)
6,600,000

Increase
by
2016-2020
(6)
8,400,000

(7)
43,200,000

head

1,410,000

330,000

420,000

2,160,000

m2
apart
ment

11,280,000

2,640,000

3,360,000

17,280,000

282,000

66,000

84,000

432,000

No.

Social houses

Unit

By now

(1)

(2)
Urban population
People having
housing
difficulties

(3)
head

Housing demand

Total by
2020

Department of Housing Management
and Real Estate Market
Demand for social houses of workers
Presently 8.4 million m2, equivalent to 280,000 apartments;
In the 2013 – 2015 period, the demand increases by 1.89 million m2, equivalent to
63,000 apartments;
In the 2016 – 2020 period, the demand increases by 3.82 million m2, equivalent to
127,400 apartments.
As such, total demand of social houses for workers from now to 2020 is about
apartments.

No.

Social houses

Unit

By now

(1)

(2)
Number of workers
seeking for a
housing shelter

(3)

(4)

Increase
by
2013-2015
(5)

head

1,400,000

315,000

637,000

2,352,000

8,400,000

1,890,000

3,822,000

14,112,000

280,000

63,000

127.400

470.400

Housing demand

m2
Apart
ment

Increase
by
2016-2020
(6)

Total by
2020
(7)

Demand for houses of students in educational institutions .
Currently, there are about 3 million students
It is expected that this figure will be raised to 5 million by 2015.
Survey results show that 70% of students are in need of a living place.

No.

Social houses

Unit

By now

(1)

(2)
Number of workers
seeking for a
housing shelter

(3)

(4)

Increase
by
2013-2015
(5)

head

1,400,000

315,000

637,000

2,352,000

8,400,000

1,890,000

3,822,000

14,112,000

127.400

470.400

Housing demand

m2

Apart
280,000
63,000
ment
Department of Housing Management
and Real Estate Market

Increase
by
2016-2020
(6)

Total by
2020
(7)

Old apartment complexes in urban areas
Currently, there are over 3 million m2 floor of old apartment complexes, which were built
before 1991, with more than 100,000 households living in them.
Hanoi has 23 old apartment complexes with 4 or 5 floors, total floor area is about 1
million m2 with over 30,000 households living in 10 low-rise apartment complexes;
Ho Chi Minh City has 6 central apartment complexes and many small ones scattered in
12 districts, of which over 0.4 million m2 of old apartments were badly damaged with
10,000 households currently living in them.
Support is continued for 500,000 poor households (estimated by using 2011-2015 poverty
standards) in rural areas;
Support is given to 60,000 households, which are regularly flooded in the Central;
Support is given to 71,000 households of contributors to the Revolution.
Some existing difficulties
Budget constraints for affordable housing investment.
- No agency specializing in the construction of social housing.
- During the period of 2008 – 2011, housing market developed very " hot ", investors
only focused on building large-size apartment for high- income people, and not interested
in the construction of affordable housing due to low profit.
- Most developers participate in building affordable housing for sale, very few
developers build houses for lease, lease-purchase (home ownership accounts for over 92
% whereas housing lease accounts for less than 6.5%)
- Salary of low- income people is not enough for the price of social housing, therefore
low-income households have to borrow at high interest rates for mortgage payments
(interest rate period 2010-2012 was over 15 %/year).

- Developers had to borrow at interest rate of commercial loans which is very high for
the construction of houses (in the period of 2009-2012, interest rate was up to 20-25
%/year).
Housing price index /income in Vietnam in the last stage was 24.5 to 26.6 . This index is
much higher than other countries in the region and around the world (South Asian :6.25 ;
East Asia :4.14 ; Africa :2.21 ; Europe and the Middle East :6.25 ...)
- Housing speculation occurs leading to house prices being pushed up.
- Rate of public housing in urban areas across the country is still very low.
- Project housing development, new urban development areas are mostly small-scale
(less than 20 ha).
- Housing finance system lacks synchronization, medium and long term loans.
- The period from 2011 till now: The housing market has been less active, high- end
residential products and large-scale apartments are not sold which increase the level of
inventory.
- Lack of small sized houses that are suitable for low-income people’s demand.
In order to qualify for a housing subsidy, consumer needs to have the following:
Consumer has to be a Vietnamese citizen;
Consumer must be over 18 years of age;
Consumer must have a total household income of less than 450 USD per month;
(income without tax )
Priority for consumer who got married or lived with a partner or was single and
has dependents (children you are responsible for);
Consumer must never have owned a house or a property anywhere in Vietnam.
Consumer has never gotten housing subsidy before.
It is very important to warn people who want to apply for a housing subsidy of the
following:
They can only get one housing subsidy (except for consolidation subsidy) so they must
use it wisely;
The names of both partners go on the database. If you split up with your partner you will
not get another subsidy with your new partner.

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