Can Iraq Solve Its Housing Crisis?

 

Due to wars and international sanctions Iraq is in need of many essential services. One of those is housing. With an increasing population and migration from rural areas to urban ones there is a severe housing crunch. The government has promised to solve this problem, but due to an archaic land ownership system, Baghdad’s infamous bureaucracy, and a failure to fund programs little progress has been made.

Housing unit being built by a foreign company in Najaf (Copperchase)

In the last two years the Iraqi government has pledge to solve the country’s housing crisis. In 2012, the Housing Ministry said that it would start spending $4 billion on building new housing units across the country. That same year the authorities stated that they would raise the budget of the two main state-run banks, Rafidain and Rasheed, so that they could provide a new series of housing loans. In September 2013, it was announced that the two would increase their capital holdings from $23 million to $360 million by 2014 to assist with this program. As a result, by next year the two are supposed to offer 75 million dinar loans to public employees and 40 million dinar loans to regular citizens. The problem as ever with the Iraqi government is fulfilling these promises. First, Housing Minister Mohammed Sahib Darraji recently remarked that his office would only be able to complete around 130,000 houses by 2016. That would be around 5% of the 2.5 million units the country needs. The government would build approximately 30,000 of those with the remaining 100,000 by private businesses. That’s because the Ministry’s budget was cut in 2013. It was supposed to be giving out 0% interest loans to contractors to build houses, but it now doesn’t have the money to continue that program. Second, the cabinet did not include increasing the Rafidain and Rasheed banks’ reserves this year either. That means those two institutions will not be able to follow through with the new loan program. Like too many things the Iraqi government has been talking about providing housing to the public with little to show for it. Not only has the Housing Ministry brought it up, which is controlled by the Sadrists, but so has Prime Minister Nouri al-Maliki. That may be because parliamentary elections are just around the corner in 2014. That’s usually when politicians start talking about solving the country’s pressing needs.

Iraq’s housing situation has been a long time problem. One major cause is the fast growing population. That has led to rents doubling in some places, and real estate prices to go up as well. Many houses are overcrowded too. According to one survey, 13% of urban households have 10 or more occupants, while 37% have 3 or more persons per room. Second, there is a large and on-going migration from Iraq’s rural areas to cities, which is making the housing crisis worse. That’s driven by the high poverty rates out in the countryside, which are more than double the urban areas, 39% compared to 16%, and the hope for opportunity. Finally, the last time the nation saw a large increase in housing stock was from 2000-2004 when around 200,000 units were added, hardly enough to meet demand. Those together are the causes. The growing and moving population is putting increasing pressure upon the almost stagnant housing stock. Iraq has one of the highest birth rates and youngest populations in the region as well, and that’s not going to end any time soon.

To add to that the government’s notorious red tape is holding up development plans. Many investment projects are stalled due to land use issues. Iraq’s land titles and registry system follows the Ottoman one, and most of them are held by the state. There are a huge amount of lost, destroyed, or forged land titles to complicate things. The state has promised to reform the system several times, but failed. In 2006 for example, the Investment Law No. 13 was passed, which allowed investors to acquire state land for private home development. Unfortunately, the government has not followed through with the act, and getting land remains one of the main complaints of homebuilders. In 2010, the investment law was amended allowing foreigners to own land. That has not changed the situation much either. Many construction deals that have been announced are stalled, because they cannot get the proper approval to begin work. That’s due to the byzantine bureaucracy. A business has to go to the provincial investment commission for a project under $250 million to work out a deal for a piece of land. The commission then has to get the land title, but that’s difficult, because the commissions lack real power, and the ministries that own the land often don’t agree to private businesses developing them. Companies then have to go through various government offices such as the Finance Ministry, the General Commission of Taxes, the provincial government, the Land Registry, and sometimes the secretariat of the cabinet, before they can even start on the financing. That doesn’t even include the payoffs and bribes that are usually required to make it through all these steps. All together that’s the reason why the pace of issuing licenses to build houses has been so slow. In Kurdistan, the hurdles are not as high, and the regional government has been more successful at attracting foreign investment as a result. That hasn’t alleviated the problem there however, as most of the development has been upper income leading to a huge need for lower and middle income housing units. That means that even if the Housing Ministry was given its required budget, and state-run banks had the money to hand out all the loans that are needed, the supply of houses would still drag far behind demand since there are so many barriers to building anything in Iraq. This is a classic example of the difficult business environment that is not only holding up the delivery of essential services, but handicapping the entire economy.

For the last several years various Iraqi officials have talked about addressing the country’s pressing housing needs with little to show for it. Each year a new plan is rolled out whether that’s government housing projects, public loans or attracting foreign investment. That leads to a lot of announcements, but very little actual work. As the Housing Minister admitted recently only a small fraction of demand is going to be met in the next few years. The government doesn’t support many of the policies it comes up with. More importantly the bureaucracy is not set up to facilitate these types of projects, and many get put on hold as a result. The structural problems with the government is the real issue, and there is no real effort to resolve it. That means there will be no resolution to the housing issue any time soon.

SOURCES

Ministry of Housing, Iraq Directory, “A Home For Every Citizen In Five Years,” Iraq Business News, 12/28/11

Al Rafidayn, “The launch of housing loans,” 9/25/13

Reuters, “Iraq faces chronic housing shortage, needs foreign investment – minister,” 9/16/13

Al-Shaher, Omar, “Iraq to Raise Bank Capital To Address Housing Crisis,” Al-Monitor, 9/18/13

- “Iraq’s Housing Crisis Worsens Amid High Population Growth,” Al-Monitor, 5/5/13

- “Iraqi Housing Initiatives Fails to Deliver,” Al-Monitor, 2/1/13

- “New Iraqi Budget Deepens Housing Crisis,” Al-Monitor, 3/20/13

Walid, Tamra, “Iraq Plans to Spend $9.8 Billion on Roads, Housing by 2016,” Bloomberg, 5/21/12