Challenge: Developing Cities

Over 1 billion people live in inadequate housing conditions in cities globally according to UN Habitat, most of these in the developing world. The consequences of these deficits are dire:

  • overcrowding into poorly built slum communities
  • poor sanitation from lack of toilets and waste management
  • high rates of water- and air-borne diseases
  • vulnerability to extreme climate and disasters
  • insecurity and violence, especially to women and children
  • lack of productive work space for home-based business
  • mental illnesses as a result of overcrowding and stress

These challenges all arise from lack of appropriate urban housing and infrastructure. They affect not only the poorest but also large proportions of the working lower and moderate income populations in most developing and rapid growth emerging markets cities.

Why does this happen?

Construction, property, community development, and real estate investment capital in developing country cities is aimed primarily at the top end of the pyramid. Land in city centers has become so expensive that only upper and middle income groups can afford to live in formal housing close to jobs and services.

With unrestrained growth, fragmented stakeholders, weak policy and poor information, cities, especially the low and moderate income dwellers within them, contend with sprawl, deteriorating city centers, widening gaps between rich and poor and miniscule supply of low-cost and affordable housing and other inclusive urban infrastructure. If a mainstream real estate investor or developer can earn upwards of 50% IRRs serving upper income customers, there is little incentive to invest in inclusive housing to achieve substantially less financial return but higher social and environmental returns.

In addition, throughout the developing world, new housing developments for lower and moderate income groups are being built farther away from central jobs and services, often with no or limited services, amenities, economic opportunities and transportation. Many become abandoned ghost towns or new slums. The peri-urban slum is also becoming a development challenge as those who cannot find affordable city center housing live in precarious, informal conditions, confronted by lack of basic services, infrastructure and sanitation, poor quality housing, legal disputes over land and high costs to find and commute to work. This phenomenon undermines the mobility out of poverty that growth might otherwise generate.

The need for inclusive urban infrastructure like housing is enormous. India has a housing deficit of at least 25 million homes, Brazil needs over 7 milion, South Africa over 2 million – jaw-dropping statistics that repeat in almost every urbanized or urbanizing developing country. Every minute, 30 rural inhabitants are expected to migrate to cities in India for the next 20 years. As a result of this kind of migration, 70% of the world’s population will live in cities by 2050, creating tremendous pressure on urban infrastructure.

City dwellers, especially those at the base of the pyramid, need more than just sanitary homes. They need communities with jobs and social infrastructure, security and open space with infrastructure built to minimize waste and burdens on the grid and water supply. Socially responsive, environmentally sustainable business models must be an integral part of these rapidly growing new communities. Governments must resolve land supply issues and incentivize inclusionary housing models. Visionary, progressive investors also have to lead by example – deploying capital responsibly, working in coordination with communities, building the communities that make up diverse, inclusive, dynamic cities.

Developing Smart Cities is working to bring together these fragmented stakeholders by highlighting knowledge and innovations from all over the world and increasing the visibility of professionals developing best practices.