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Dhaka Tribune

Why we need green affordable housing

Update : 06 Dec 2021, 07:47 PM

Dhaka is growing at an exponential rate. Bangladesh, with an estimated population of 166 million as reported in the 2020 Housing Report, is one of the most densely populated countries in South Asia. 

Population growth is skewed towards urban areas and urban population has doubled in less than two decades from 31 million in 2000 to 68.8 million in 2020. Currently, urban population comprises almost 39.4% of the total population. Half of the Bangladesh population are estimated to live in urban areas by 2030. 

Most will end up living in slums or in densely populated houses that pose a serious risk to urban planning, inefficient resource management and public health with bad hygiene. 

According to an assessment by IFC of the housing sector in Bangladesh, approximately 11.9 million urban households reside in informal housing. Existing demand for urban affordable housing is 6 million units, which is estimated to increase to 10.5 million units by 2030. In contrast, the supply was only 17,000 in 2019, thus indicating a supply gap of 93%. 

At the webinar last Thursday, Executive Director of PRI Ahsan H Mansur moderated the programme while Chief Industry Specialist of IFC’s Climate Business Department Prashant Kapoor presented a keynote on The Challenge of Unsustainable Construction and The Business Case for Green Affordable Housing for Bangladesh. 

Dr Mansur said that the banks can use green bond mechanisms to raise funds.

“They can also target an affordable housing market with new products, green mortgages, and green developer financing,” he added.

The government can recognise greater good to the economy, the society and the environment, and offer incentives in this regard, Dr Mansur further said.

In this regard, Khondokar Morshed Millat, general manager of the Sustainable Finance Department of Bangladesh Bank said: “Bangladesh Bank intends to get into the agenda on affordable green housing.”

“In the existing regulation issued by the Sustainable Finance Department of Bangladesh Bank, there are as many as 68 green products and categories. The 51st on the list talks about green featured buildings,” he added.

“However, when we talk about green featured buildings, cost becomes a concern. It surely looks fine from the perspective of sustainability. But with respect to affordability, it becomes a challenge for the middle income or middle-higher income groups of people.”



Aerial shot of the award winning architect Marina Tabassum's Khudi Bari project addressing green housing facing climate change Asif Salman


For minimizing the cost, under the low-cost funding arrangement by the Bangladesh Bank, it can offer a 4% interest rate towards the participating financial institutions. 

“They can, within the tenure period, offer a 6% rate of interest for the green building,” Millat said, adding that this is still a high cost for lower-income groups. 

There are multiple challenges constraining the development of the urban affordable housing sector in Bangladesh. The delivery of housing units by private sector developers is limited by i) rapidly increasing land prices in urban areas; ii) poor regulatory delivery for necessary clearances, registration, and approvals; iii) land ownership issues; and iv) lack of demand for smaller units, including in peripheral areas. Mortgage finance penetration in Bangladesh’s housing market is low at 3% (versus 10% in India and 50 to 70% in developed countries). The estimated existing financing requirement for 3.5 million affordable housing units is $58.8 billion or Tk4.9 Trillion.

Moreover, Bangladesh ranked 7th among most climate-affected countries in the world over the period 2000-2019, and the changing climate due to global warming is expected to sharply diminish living conditions for people in the country, forcing almost 20 million people to migrate by 2050. 

Globally, residential buildings now represent 18% of total global energy-related CO2 emissions, with an additional 10% of emissions coming from building construction. Residential construction sector has tremendous opportunities to avoid harmful emissions through energy efficiency, green materials, and improved design and construction that create affordable and healthy homes. 

The Government of Bangladesh has set its Nationally Determined Contributions (NDCs) economy-wide target of 15% relative greenhouse gas (GHG) emission reduction compared to business-as-usual (BAU) by 2030. 

Manager, Financial Institution Group International Finance Corporation Joon Young Park said: “Globally, 18% of energy-related greenhouse gas emissions are from residential buildings, and 10% of emissions are from building construction. Almost 80% of the economically viable energy savings in buildings is left untapped, and 15% of the disposable income of low income households is spent on utility bills.

“While South Asia region’s per capita greenhouse gas emissions are still low, they could increase significantly because of urbanization and rising middle-income standards. This is especially true for Bangladesh, where the choices made in the power sector and energy efficiency investments will largely determine whether development can be decoupled from increasing carbon emissions. 

“With the construction requirement of 10.5 million affordable housing units by 2030, if the right investment choices are not made today, we will be locking into high-energy urban infrastructure for decades. Green construction offers a chance to secure emission cuts at a low cost and lock in energy and water savings for decades; and will contribute to Bangladesh’s Nationally Determined Contributions (NDCs) economy-wide target of 15% relative greenhouse gas (GHG) emission reduction compared to business-as-usual (BAU) by 2030.

“IFC estimates a total climate-smart investment opportunity of $172 billion in Bangladesh from 2018 to 2030, which also includes climate resilient housing.

“The current estimated financing requirement in affordable housing in Bangladesh is $58.8 billion,” according to International Finance Corporation (IFC) data.

Bangladesh Bank has been proactive in introducing green financing in the country and offering these facilities in green investments. 

However, these do not extend to the housing sector as of now.

Principal Investment Officer of IFC Ehsanul Azim said: “There is a strong business case for green and affordable housing for all stakeholders in Bangladesh.

“There is an incentive for both banks and developers because this is a space where they can get better access to financing as there is keen interest from investors, local and international, for green projects and green bonds,” he said, adding that IFC has considerable expertise in the housing sector and the organisation will definitely help and support such agenda. 

“The urban affordable housing market is largely untapped and is full of business potential,” he further said.

With the help of the global fund for green climate, Bangladesh wants to cut 15% emissions by the year 2030. 5% of this reduction has been targeted as unconditional. 

What is green housing and why is it necessary? 

Green homes are basically houses that are built with energy-saving features. Heating and cooling loads in these housing are lowered by using high-efficiency equipment, higher levels of insulation, reduced air leakage, high-performance windows and energy-efficient lighting. 

Green homes are generally equipped with a rainwater harvesting mechanism that helps to collect rainwater for future use. The materials used in building these are also eco-friendly, which promotes a healthier indoor and outdoor environment.

Moreover, the resale value of green housing is expected to increase in the near future.

Residential buildings account for 18% of global energy-related CO2 emissions. Meanwhile, brick kilns and construction industries emit 10% CO2 gas.

Joon Young Park, manager of the Financial Institution Group of IFC said climate change may push over 130 million into poverty by 2030 and cause over 200 million people to migrate by 2050. It will disproportionately affect the poorest and most vulnerable populations, especially in low- and middle-income countries. 

Climate-related disasters such as severe floods, droughts, and storms will affect food prices and food security, health, and labor productivity. 

Natural disasters cost about $18 billion a year in low- and middle-income countries through damage to power generation and transport infrastructure alone, in addition to triggering wider disruptions for households and firms costing at least $390 billion a year. 

The cost of not addressing climate change is already immense and will only get more expensive. 

The South Asia region is particularly susceptible to climate change, including temperature increase, precipitation variations, extreme weather events, and sea level rise, Park said. 

Flood damage across cities in the South Asia region could reach as high as $143 billion each year by 2030, with potential GDP losses four times that amount. 

“Bangladesh is particularly vulnerable to coastal floods and coastal extreme events, which impact all infrastructure necessary for economic activity.  Sea level rise of 1 meter is expected to affect 13 million people in Bangladesh,” Park further said. 

By 2050, Bangladesh is expected to have up to 20 million internal climate migrants, almost half the projected internal climate migrants for the entire South Asia region.

Diving right into the keynote presentation, Kapoor highlighted different best practices of green housing across the globe.

He said that the use of the software-based measurement tool EDGE (Excellence in Design for Greater Efficiencies) has widened amid the Covid pandemic, indicating that the demand for such housing is on the rise. 

EDGE is free to use and it makes building green faster, easier and affordable. Its achievable standard is a 20% reduction in energy and water use in operation. The software also contains third-party verified labels administered by the largest network of green building certification providers in the world. 

Kapoor further said that there are certain drivers of profitability when it comes to green and affordable housing. 

These sorts of housing get access to international green finance flows for better financing terms. All the main stakeholders, including the government, lender, developer and homebuyer get benefit from this. 

The government can attract better finances and increase access while the lender and developer can attract better finances. The homebuyer also receives pass-through better financing terms.



View from within Marina Tabassum's Khudi Bari Al-Amin Shawon


According to Kapoor, the incremental cost also becomes minimized through early planning. It comes in handy for the government since it minimises costs for socialized housing. It helps developers due to its minimising costs for a differentiated product. 

When it comes to sales, these houses often sell faster through market differentiation and the owners and renters often save on utility bills. 

The faster sales part helps the developer reduce the total cost of financing while the utility bill savings help all the stakeholders. 

The government has a lower burden on utilities, lender leads to lower default rates, the developer gets to market for the differentiated products and the homebuyer witnesses an increase in disposable income. 

The housing also gets government incentives and it lowers default rates and superior collateral value for the green mortgages. 

During the programme, the State Minister of the Ministry of Planning Shamsul Alam said that the government will incorporate environment-friendly concepts like green housing in its future documents. 

He also said that the government has been working on sustainable strategies and already incorporated those in its documents. 

Challenges

Governments across the world are under pressure to accelerate the provision of affordable housing due to significant market demand and the fact that housing has a big environmental and economic impact. 

By 2030, three billion people, or about 40% of the world’s population, will need access to adequate housing. 

Meanwhile, 96,000 homes per day are needed to address the affordable housing gap by 2030. 

When it comes to environmental and economic impact, residential buildings currently account for 18% of global energy-related CO2 emissions, and low-income families can only spend 25% of their income on housing and utility costs. 

“If the right investment choices are not made today, we will lock into a high-energy urban infrastructure for decades,” Prashant Kapoor said in his keynote speech. 

There is also a major perception gap when it comes to design and construction costs. To put things straight, the majority of the population only sees the rise in the building cost and overlooks the financial and environmental benefits it will bring in the future. 

Solutions

To start with, green housing is not complicated. Most of the technologies used in green housing are already widely available. 

For example, a green home requires roof and wall insulation, passive design, smart meters, solar hot water, water-efficient fittings, water recycling, low carbon materials and solar PV electricity, all of which are technologies that are currently available and widely used. 

The increment cost in shifting towards green housing is also minimum. 

IFC found out that in South Africa, the increment cost is only 1% of the total cost of the building. In Mexico, it’s 1.7%, in Vietnam 1%, and in Indonesia, it is 4.7%. 

Meanwhile, in South Africa, this 1% increment cost results in annual utility savings worth one month’s rent. In Mexico, it saves 57% energy, 37% water and 63% embodied energy in materials. 

In Vietnam, the 1% incremental cost saves 25% energy, 36% water and 32% embodied energy in materials, and in Indonesia, the 4.7% incremental cost saves 30% energy, 26% water and 60% embodied energy in materials. 

Embodied energy is the energy associated with the manufacturing of a product or service.

To account for the incremented building cost, lowered default rates on mortgages are given to green homes and homeowners use the utility savings towards mortgage repayment.

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