The state of Housing: Trends and Challenges for the Future

The state of Housing: Trends
and Challenges for the Future
by Luiz de Mello, Director, Policy Studies, OECD Economics
Department

https://www.oecd.org/housing/policy-toolkit/
The OECD has just launched a Housing Policy Toolkit to help
policymakers deal with current and emerging challenges in the
area of housing, share their experience and identify good
practices. The Toolkit puts together evidence and analysis to
inform policy choices and, ultimately, deliver better housing
outcomes.

The Toolkit recognises that housing policies and regulations
need to be forward-looking and anticipate changes in people’s
needs, preferences and behaviour, as well as “megatrends” that
affect economies and societies. The COVID-19 crisis, along
with digitalisation, climate change and population ageing,
will most likely have durable, yet uncertain, effects on
housing demand and supply, including both the residential and
commercial market segments. Buildings, structures and
dwellings have a long life span, and as a result today’s
policy choices will affect performance for many years to come.
To the extent possible, poliymakers also need to foresee and
respond to technological changes that affect the construction,
use and maintenance of structures.

Starting with the COVID-19 crisis, the changes in preferences
and behaviour triggered by the pandemic are likely to
influence housing demand over the longer term. For example, if
teleworking becomes more prevalent, housing demand may shift
away from city centres towards peri-urban and rural areas, and
from apartments to single-family dwellings. An associated
relief on property prices in city centres would likely be
accompanied by pressure elsewhere with an uncertain net effect
on affordability, unless supply adjusts in tandem. And it is
not only the supply of homes that would need to adjust but
also that of urban amenities, transport infrastructure and
social services.

Teleworking will also have a bearing on the demand for office
space, putting downward pressure on commercial property prices
in central business districts. If the fear of infectious
diseases lingers, there could also be an increase in demand
for larger offices to allow for effective physical distancing.
This could somewhat offset the downward trend in demand due to
teleworking.

Where these shifting demand patterns lead to a hollowing-out
of city centres, there will be increased risk of urban decay
and a loss of dynamism in areas where productivity tends to be
highest. Alternatively, changing attitudes and work practices
may create new opportunities for social and economic
transformation in metropolitan areas that could become
increasingly polycentric. At the same time, as density gives
way to sprawl, the environmental footprint of cities will need
to be reassessed, with implications for policy aimed to
improve the environmental sustainability of the world’s
metropolitan areas.

Digitalisation, beyond its effects through teleworking, also
poses challenges. It affects the housing outlook in several
ways and has considerable further transformative potential.
For example, the expansion of digital platforms for short-time
accommodation has put pressure on rental markets in many

cities worldwide, a trend that may well continue when the
tourism and hospitality industries recover from the COVID-19
crisis. It is also possible that the decline in short-term
rentals during the pandemic turns out to be more durable than
anticipated, freeing up rental housing for residents and hence
making housing more affordable.

Moreover, digitalisation is re-shaping the “high street” with
attendant changes in commercial property demand as in-person
shopping is replaced by on-line retail trade. This phenomenon
adds to the downward pressure on demand for office space in
city centres associated with more widespread teleworking.
Where regulations allow it, flexibility to convert commercial
property and office space for residential use would facilitate
the reallocation of housing capital to evolving demand for
different uses, potentially making housing more affordable.
However, there is a risk that disaffection for city centres
gives rise to housing segregation as the better-off move away.
These trends would pose challenges for urban planning and the
design of land-use and zoning regulations.

At the same time, digitalisation offers several options for
technological change and innovation in construction and
“smart” management of buildings, not least through artificial
intelligence and the internet of things. Innovations in urban
planning and management are already taking place and can
improve the management of traffic, urban amenities and
infrastructure, as well as the energy efficiency of buildings
and cities at large. These developments can make cities more
attractive. Digitalisation could indeed improve the matching
of supply and demand for dwellings. The rise of digital
showings of properties during the COVID-19 crisis is likely to
remain at least in part permanent, allowing for a better
filtering of costly physical visits and ultimately more and
better matches.

Yet another aspect of digitalisation is the scope for
expanding fintech to offer a broader range of finance for

investment in real estate. To the extent that these activities
are regulated appropriately and financial stability is
safeguarded, the entry of new participants in real estate
markets can enhance competition, reduce borrowing costs and
facilitate access to finance for those who currently struggle
to do so. Investment in the energy efficiency of buildings can
lower housing costs further as it reduces household spending
on energy and improves their creditworthiness. Ultimately,
more flexible housing finance could facilitate the adjustment
of supply to changes in the demand for both residential and
commercial property after the crisis, facilitating housing
capital reallocation.

A final consideration is related to population ageing and
climate change, which will influencehousing policies in the
years to come.

Changes in demographics have highly asymmetric effects on
housing markets. Falling demand in remote areas puts downward
pressure on prices, at the same time as changing needs and
preferences elsewhere require the retrofitting of buildings, a
reconfiguration of living spaces and investment in adapted
urban infrastructure. The implications of population ageing
for policy go beyond housing and include urban planning and
regional development considerations.

Climate change raises the risk of natural disasters and
capital depletion in coastal areas exposed to rising sea
levels, just to cite a few. It influences construction
patterns and the use of materials in buildings, calling for
innovation to improve energy efficiency in response to
changing weather conditions. It also has a bearing on the
design, maintenance and upgrade of urban infrastructure. The
attendant economic (private and public) costs need to be taken
into account and pose challenges for urban planning and
regional development, as well as disaster risk management and
insurance.

Success on all these fronts will require appropriate policies,
building on solid evidence, good practices and mutual
learning. The OECD Housing Policy Toolkit can help.

References:

For further reading, see Brick by Brick: Building Better
Housing Policies