THE TIMES KUWAIT REPORT
It is ironic that in Kuwait, which prides itself on being among the wealthiest countries in the world and where per capita income is among the highest, most citizens cannot afford to buy land or construct a home in their own country. An enormous demand for limited land has led to unrealistically high land prices that remain well beyond the reach of most people.
The lack of affordable land in desired locations and long wait times for public housing has also meant that owning a home remains a distant dream for many Kuwaitis. Unaffordable land prices have led to many citizens registering on the government roster for allocation of public housing. Under the public housing program, eligible citizens can apply for a government house built on a 400 sq meter plot of land or for an apartment larger than 200 sq meters. However, the wait times for allotment of public housing is 10 to 15 years, at the earliest.
The country’s public housing crisis is nothing new, it has been a persistent challenge over the past many decades, and is something that governments over the years have struggled to resolve. In a bid to alleviate the crisis and coordinate government housing responses, the Public Authority for Housing Welfare (PAHW) was established in 1993 and mandated to provide different housing welfare alternatives to eligible citizens.
In 2013, PAHW initiated plans to build six greenfield residential cities, along with all support infrastructure and facilities such as schools, mosques, health centers as well as shopping and recreation areas. The projects with estimated costs that run into multi-billion dinars, include the mega Al-Mutlaa South Residential City, located about 45 km north of Kuwait City and spread over an area of 104 sq km.
The Al-Mutlaa project, which will be among the largest residential areas in Kuwait when completed, involves the development of 12 suburbs enclosing 28,363 houses, scores of schools, mosques and other support infrastructure to cater for an estimated 400,000 people. The Al-Mutlaa project is characteristic of the slow pace of development projects in Kuwait, even urgent ones. As of 2023, work on this project is still reported to be progressing with infrastructure completed in some areas of the project, and work still underway in many of the city’s suburbs.
Others cities where groundwork has been initiated are the South Saad al-Abdullah City with an area of 59 sq km that was launched in 2017, and South Sabah al-Ahmad City located 80km to south of Kuwait City and spread over an area of 60 sq km, for which infrastructure work was announced only in 2022. Other cities for which development is still in planning or design stages include Khiran Residential project covering an area of 140 sq km; Nawaf al-Ahmad with an area of 80 sq km; and Sabriya spread over 80 sq km. Records show that since PAHW began developing housing units for citizens in 2013 until the end of 2021 the authority distributed a total of 67,102 housing units.
Meanwhile, as of the end of 2020, there were 91,542 applicants registered on the government’s waiting list for public housing. At an average allocation of around 8,300 units per annum, it would take more than 11 years for PAHW to provide homes to those currently on the waiting list, even as more people get added to the list each year.
To address the persistent housing shortage, amid the sluggish pace of house allotments and slow development of new residential projects, the government provides 400 square meters of land for young families willing to build their own homes. First-time home owners are also eligible for an interest-free loan of KD70,000 from Kuwait Credit Bank along with KD30,000 worth of building materials at a subsidized price. Or they can avail of an interest-free loan of KD70,000 to cover either the purchase of a home of at least 375 sq meters or the construction of a home in case the applicant already owns land.
However, the newly allocated land parcels are usually in outlying areas where new residential cities are being constructed. Without an efficient public transportation and road network, constructing homes and living in these distant locales becomes even more expensive, not to mention the long daily commute for new homeowners to reach Kuwait City, where most businesses and government offices are located.
The continuing crisis in Kuwait’s housing sector was once again brought to the limelight in a report published last year by Kuwait Financial Centre, or ‘Markaz’, the leading asset management and investment banking institution in the country. The report, titled, ‘Housing Problem in Kuwait and the Way Forward’ underscores the various challenges facing Kuwait’s residential real estate sector, and ways to mitigate the housing crisis.
Emphasizing the scarcity of land and high cost of building new homes in Kuwait, the report notes that in some locations of the country land price account for nearly 80 percent of the value of a house, significantly above the international standard of 30 percent, which makes it well beyond the reach of most young salaried citizens. The unrealistic rise in housing prices has led to a situation where the price-to-income ratio — median house price divided by median household income — is around 16, which is over five times higher than in neighboring Saudi Arabia, and higher than even in London or New York, said Markaz.
What this ratio implies is that, by paying monthly installments from their disposable income, it would take more than 16 years for a citizen of average means to repay the loan procured to purchase a residential apartment in Kuwait.. To put this figure in perspective, in Hong Kong, long considered the most expensive place to buy a home, the median cost of a family home is only a little higher at 18.
The Markaz report identified several shortcomings for causing and exacerbating the current housing impasse, including the absence of private sector participation, limited access to financing, low-density zoning in near-urban areas, high capital costs associated with developing infrastructure, and the high rate of urbanization.
In 2008, the government also passed laws aimed at preventing speculation in land prices that restrict private companies from buying and trading in residential property. Although well-intentioned, the restriction had the unintended consequence of cutting off private participation and investment in the public housing sector.
Without private sector involvement, the government-owned Kuwait Credit Bank (KCB) became the sole entity responsible for financing public housing in the country. In addition, the state owns 95 percent of land in Kuwait and regulates residential real estate developments through parceling and allocation of land plots.
Experts point out that the sole financing mode, along with government monopoly on land, has led to an over dominance of government in public housing, which has been detrimental to competition and growth of this sector. A report in June 2021 by the PAHW claimed the slow pace of housing projects were in part due to the diminishing funds available with KCB, with the bank able to finance only 12,000 more plots. Local banks, on the other hand, have been reluctant to lend money for residential housing, as Kuwaiti law does not allow foreclosure on homes, even if they are mortgaged with the bank.
Another factor adding to housing woes is the restrictive zoning, which incidentally began with the country’s first urban masterplan in 1952. In the wake of new-found oil wealth, and energized by Kuwait’s independence in 1961, a revived master plan aimed to translate the newly created state’s welfare provisions into physical reality. Strict land zoning that limited what could be built where, along with low levels of mixed-use zoning in residential areas were introduced. Although over time several new master plans were developed to accommodate the growing population, they all tended to follow the original format.
Over the years, restricting zoning, with Kuwait City, zoned exclusively for commercial development, resulted in near-urban areas developing around the capital. These suburban developments conformed to PAHW stipulations of 375 sq meter plot per residential dwelling and a residential density of 12 units per hectare. The PAHW stipulations, which were in line with citizens’ preference for individual homes and villas, resulted in an urban sprawl in areas close to the capital. Lack of more urban land within proximity of the capital, and social reluctance to live in more space efficient high-rise residential complexes contributed to exorbitant prices for available land.
Putting forward its recommendations to mitigate the housing crisis, the Markaz report called for increasing the supply of suburban land, relaxing zoning requirements by increasing the density of residential urban land, along with improving infrastructure and accessibility, revising the floor area ratio to stimulate the development of higher density residence, offer a differentiated housing program for high-income and lower-income households, legislate laws for co-ownership of properties, and increase affordability through private sector financing.
With the Constitution obligating the state to provide housing financing to citizens, the government recently drafted a new mortgage law for local banks. If and when passed by the National Assembly, the new law will enable local banks to provide a mortgage loan of up to KD140,000, with the government paying interest for the first KD70,000 on behalf of the citizen. The proposed mortgage law also stipulates that banks would be permitted to repossess the homes of customers who default on repayments, on the condition that the government rehouses evicted persons.
In a further move designed to address the housing shortage, in late December of last year, Parliament also approved a proposal to amend the Public Authority for Housing Welfare Law. The amendment mandated PAHW to establish public shareholding companies that will implement housing projects in partnership with private partners and large international companies.
Demand for public housing is only set to increase in the coming years, considering the country’s youthful demographic, where three-quarters of Kuwaitis are below 39 years of age, and given the relatively high population density of 266 people per sq. km of total land at the end of 2022 — this density is far higher when the limited urban space and 100 percent urbanization are factored in.
Until the authorities change the current path of urban development and adopt a more sustainable approach, and unless the government and parliament cooperate and coordinate to introduce laws and policies to mitigate the housing crisis, Kuwaitis would continue to remain cash-rich and homeless in their own country.