Rental Housing: Lessons from
International Experience
DEVELOPING AFFORDABLE HOUSING FOR RENT
Shelter Afrique and the Ministry of Water Resources, Works & Housing, Ghana
June 2nd 2015, Accra, Ghana
Housing and Slum Upgrading Branch
UN-Habitat Mandate

UN-Habitat is committed to supporting governments to
promote sustainable urbanization and adequate
housing for all
Piloting
innovative
housing
mechanisms
Normative
Operational
Knowledge
creation and
sharing
Advocacy
Technical
support and
policy advice
UN-Habitat promoting
Rental Housing
Repositioning ‘Housing at the Centre’
Habitat III
Habitat II
2012
2013
Review of Global
Shelter Strategy
Towards a new Global
Housing Strategy
•
•
•
•
•
•
Regional assessments
Global review
Roadmap
2016
Principles and Framework
Resolution
Govts. reassuming a leading role
POLICY
Housing at the
Centre – New Urban
Agenda of the 21st
century
CITIES
PEOPLE
Rental Housing: experiences & lessons
THREE KEY MESSAGES FROM THE OUTSET:
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Cultural preferences change
Rental Markets are diverse
Rental offers flexibility, wealth and affordability
FOCUS OF THE PRESENTATION
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The main players – landlords & tenants
Rental setting and regulation
Finance for rental housing
Tax issues and incentives
Subsidies
Case examples
Two main players - landlords
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Individuals and small scale owners: are the majority and often
operate informally; look for complementary income; need quick
procedures for resolving problems.
Institutional owners: have long-term profit purposes; closely monitor
risk and capital returns; tend to own a large number of units in
one building to benefit from economies of scale.
Nonprofit, including governments: often target low income groups;
have specific modes of allocation and maximum rents; have
various levels of government involvement.
Two main players - landlords
The common trends:
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A move toward a market-based approach, rather than an
approach where the government finances and manages
public housing
Establishment of housing association/management agency
that deal with stock allotment and management
Governments participating through:
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provision of the land free of cost for social housing
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incentives to private developers to create stock
Two main players - tenants
Tenants by choice:
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housing starters, young couples and singles who want to remain
mobile; students; empty nesters who want to downsize after their
children have grown; persons who, for work or personal reasons,
prefer a short-term residence.
Tenants by constraint (are the majority):
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low-income households; slum dwellers; workers who migrated for
employment reasons; immigrants; working families with no access
to credit (informal workers).
Trends:
• Increase of informality with positive and negative consequences
• Tenant’s main concerns: affordability, stability of tenure
Rent setting and regulation
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Improving the policy and legal framework is the first priority (timeconsuming, technic and political challenging)
Main regulated areas: RENTAL CONTRACTS - QUALITY OF THE
STOCK - RENTAL CONTROLS
Quick procedures for resolving problems and efficient arbitration
systems
Right balance between the core legislation, which needs to be
stable over time, and other rules, which need to be flexible and
adaptable (inflation)
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Right balance needed – can inhibit the sector
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Reforms and regulations need to be regularly reviewed
Rent setting and regulation
Risks and protection mechanisms:
 Landlords exposure: rent default, damage to the property,
repossession of the property
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Protection: Deposits (in some cases prohibitive in Africa), screening
(regular income and references - vulnerability), insurance (can be
provided by a company or third party’s guarantee – e.g. parents);
efficient arbitration systems.
Tenant’s exposure: tenure instability and the risk of being
displaced, lack of maintenance, and rent increase
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Protection: laws/regulations recognizing or ensuring legal security;
housing voucher and subsidies (in case of displacement); enforceable
contracts; minimum standards; rules for termination of contract.
Rent setting and regulation
Rent controls: is it an option?
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represent a genuine effort to help tenants
cost the state nothing, as they placed the financial burden on the
landlords
in recent years, rent controls have been discredited - negative
effects on the rental housing supply
However, governments to be careful when removing rent controls:
need systems in place to protect tenants from sharp increases
Example: Artificially low rents in Egypt to the disadvantage of
landlords and impacting on usage of stock - has one of the highest
rates of vacant houses in Africa.
Finance for rental housing
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Currently depending on high levels of equity (large-scale) and own
savings (individuals)
Different demands and priorities coming from different landlords
Small scale landlords - Short-term loans for construction or
renovation, but also long-term capital is also helpful to individual
owners who would like to purchase or renovate other units
Equity capital or long-term debt from banks or government rarely
available -- can be important in filling any financial gap
Long-term capital is essential:
 Capital markets can be tapped through bonds - still
underdeveloped in Africa
 Insurance products and credit enhancement can make investment in
residential rental housing more attractive and capital more readily
available to developers
Finance for rental housing
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Even when financing is available, some type of additional
subsidy is needed
Governments to step in:
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Enabling and guaranteeing loans to social housing institutions
With assistance or with supply-side subsidies. These could include:
 Bonds issued for multifamily development (United States)
 Housing development funds, to make financing available to developers
 Stimulation of rental income guarantee or insurance schemes
 Grants, land, or infrastructure provided free or at a reduced cost in
exchange for keeping rents affordable for certain income populations
Capacity - Lenders need the personnel, intellectual capital, and systems
needed in this type of investment.
Information on housing markets in general - and rental markets, in
particular is needed.
Tax issues
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From a tax perspective, investment in rental housing needs to be on
an even playing field with similar investments
Should not carry a higher tax burden than other real estate in such
elements as allowable deductions and depreciation periods
Tax codes are complex: overall rate + deductions, depreciation,
capital gains, and other factors
Good balance needed:
 If the tax burden is too heavy, investors will find alternative ways of
earning returns on capital
 Individual or small owners can find ways to keep their properties out
of the formal rental sector
Tax issues
Common tax codes affecting rental property ownership:
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Capital gain tax:
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when high may help reduce speculation, disinvestment or informality
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to limit speculation, short-term gains are taxed more heavily than longterm gains
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a middle ground: alleviate the capital gains tax after the first years to
improve the total return for long-term investors
Property taxes: due from the owner based on the assessed value of
the property or on its rental value
Depreciation allowance and accelerated depreciation: usually
available to companies (Germany)
Tax incentives
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Taxation is a tool that governments can use to encourage
investment in rental housing
Mortgage interest deduction: applicable not only to the purchase of
the main residence but also to other residential real estate, up to the
maximum loan amount
Tax incentives to formalization: policy to move properties from the
informal sector to the regulated sector must be careful not to be
punitive:
 providing temporary tax exemptions to properties in the informal
sector
 incentives to put the properties into safe, habitable condition
 financial incentives for property improvement
Governments can use taxation to encourage the development or of
insurance markets for both owners and tenants
Subsidies
Supply-side subsidies (SSS): tax abatements - subsidized loans direct grants - land /infrastructure - guarantees for loans for investors
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Subsidize the cost of loans, construction, building management and
maintenance
Grants have an immediate budget impact, whereas tax incentives can be
used over a long period
Direct up-front subsidies are probably the simplest and most transparent
ones – shorter-term commitments than loan guarantees
SSS shall be conditioned to social commitments – low-income target
groups, lower-than-market rents, good valuation of the subsidy cost in
relation to the social benefits that are achieved.
SSS hardly serve low-income groups - additional demand subsidies
needed
Subsidies
Demand-side subsidies (DSS): assistance payments and vouchers
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DSS provide direct financial support to the tenant
Shall be designed to be transparent, efficient, fair, and clearly targeted
to specific populations
Housing allowances or vouchers are an effective way to make rental
housing affordable to low-income households
Require information on beneficiaries: household income, rent levels, type
of household or the family size
Shall be carefully designed to avoid the creation of poverty traps,
inflationary effects
Shall be simple and transparent so that beneficiaries understand how
they are calculated
Have less effect on housing supply and should be combined with
supply-side subsidies
Promoting rental housing through Policy
1. Acknowledge and understand existing rental practices
2. Get rental housing on the larger urban policy agenda
3. Work out practical, flexible rental housing policies and regulations:
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Flexible to cover a wide range of target groups and rental housing types
Adjustable standards to produce a wide variety of rental options
Approving these adjustments should be kept as simple and
straightforward as possible (simple rental contract templates, cheap
arbitration and conciliation service for landlords and tenants)
4. Mobilize finance to improve and expand rental housing (subsidies or
tax incentives - credit facilities or subsidies for poor landlords)
5. Encourage large-scale and small-scale investment in rental housing (increase tenants’ “ownership” of a project: informal sector, participation,
get CBOs and NGOS on board)
Examples and case studies
Case India
Case Study-1: Rental Housing Scheme by MMRDA (Public-Private)
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Since 2008, under the new Housing Policy, Government of Maharashtra (GoM) with
private sector participation and Mumbai Metropolitan Regional Development
Authority (MMRADA) as Project Implementation Authority (PIA)
Pioneer in experimenting relaxation of floor space index (FSI) and offering
transferable development rights (TDRs) to make more space available in its highly
congested environment
Case Study-2: Rental Accommodation by Aarusha Homes (Private)
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Private company that provides rental housing solutions to low and middle income
group for short term stays
Emerged as an entrepreneur that runs the ‘retail model’ of rental housing, catering
to migrants from low to middle income groups on a first come first serve basis
Does not own any of its rental property stock and properties are acquired from
land owners on a lease period of 3-9 years
Case South Africa
Johannesburg Housing Company (JHC)
 Launched in 1995 - has led a pioneering path in the development of
social housing in the Johannesburg inner city – and at a national level
 Over the past 20 years has developed more than 4000 rental
housing units and today provides homes to more than 12 000 people
in low to middle income communities
 It has built up a portfolio of 35 buildings – across the inner city and,
most recently, reaching into Greater Johannesburg in response to the
continuing demand for housing from a fast growing urban population
 Financial investment of around R700 million to date
 Operates as a private sector, non-profit, social housing institution
Microfinance for rental housing supply
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Formalization of rental stock, support to small-scale landlords
Assisted incremental housing + microfinance
Improve quality of the stock
Provide affordable rental options
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IFC and Lafarge in several countries in Africa, India and LA
Kilamba, Luanda
Fernanda.Lonardoni@unhabitat.org