Back ground

Housing has become an important public issue in almost all societies of the world. Although,
housing is the basic necessity of people in many parts of the world, its affordability is a major
challenge for both city dwellers and municipalities (Nesru, 2007:1). With varying degrees, the
problem exists in both developed and developing countries (Ibid.). However, the problem is most
pronounced in the cities of the third world. While housing investments have generally increased
over time, access to housing remains a key challenge, especially in developing countries, where
relative to the developed world, investment has generally been low, resulting in inadequate
housing delivery and consumption (Tibaijuka, 2009:3). As a result, lower income households
that are unable to access affordable housing either because there is an inadequate total supply or
because the limited supply that does exist is rented to those with a higher capacity to pay, are
forced into housing stress by virtue of having to pay 30 percent or more of their income in rent
(Donald, 2009:99).

In most developing countries, condominium house has different meaning and purpose, and is
mostly constructed by public sector. According to Martha and Carol (2006) cited in Melaku
(2009:32); the prime objective of condominium housing is to provide affordable and low-cost
housing for low and middle income groups and with some common character of condominium
housing, such as sharing common elements; sidewalks, common no man's land, sewerage
system, membership of social association; while owing each housing unit individually. The
condominium project has multifaceted objectives, which includes social, economic, political and
environmental feature (Ibid.). And hence, this program in its socio-economic objectives, it opts
for improving the living standard of the people, especially low income citizens of the city in
developing countries, through the creation of employment opportunity and provision of
affordable housing (Ibid.).

The supply of urban housing in developing countries is severely constrained. Supplies expands
overtime but unevenly for the various components or attributes and supply and for different
consumer groups and often only at rising costs (Linn, 1983: 134). The low aggregate supply of
housing from new construction and renovation and without unchanging prices the demand for
housing is increasing by high rates (Ibid.). As a result, real housing prices will tend to rise in the
rapidly growing cities of the developing countries. This leads in turn to overcrowding, lower
quality shelter, poorer services, and worse access than would have been the case had housing
supply adjusted more rapidly (Ibid.).

Even though most African government responded to the urban housing question in ways that
were specific to their respective countries, there were certain general patterns and trends that
were common to many of them. Nesru, (2007:1) classified the government’s response in Africa
to housing question in three major phases: the state of housing phase, the aided self help housing
phase, and the phase of management and infrastructure. Comparatively, during the last two
housing phases, almost all African governments pursued a housing strategy aimed at maximizing
low and moderate income home ownership while neglecting the production of affordable rental
accommodation (Nesru, 2007:1).

Solomon (2004) cited in Nesru (2007:2) stated that, the aided self help housing program were in
principle intended to improve the housing conditions of Africa's urban poor, like many other
low-income housing programs elsewhere in the third world, they largely catered to the needs of
the middle and upper income households. This is mainly because, even under the recent more
relaxed building standards set by many African housing authorities, only a small of low income
households could qualify for housing finance (Boleat, 1985, Main, 1990 cited in Nesru,
2007:2).In addition, lower income households with extremely high housing cost ratios are more
likely to experience affordability problems than higher income households with similar housing
cost ratios because they have so little disposable income remaining after they pay for their
housing (Milligan &Yates, 2007:22).

Ethiopia is one of the developing countries, characterized by increasing intensity of urban growth
and population growing at an alarming rate. But this growth is not accompanied by a rise in
economic development. Therefore, the process of urban growth in Ethiopia has come to be
associated with tremendous socio-economic problems such as high value of unemployment, high
incidence of poverty, poor sanitation, homelessness etc (Shimelis, 2003 cited in Kebena,
2007:1). In addition to this, urban centers in Ethiopia are suffering from chronic housing
shortage.

The shortage of affordable standard housing problems in all towns in Ethiopia in generally and
Jimma town in particular is one of the pressing matters that call for immediate action. As a result
condominium housing projects currently undertaken in Jimma town that aimed to provide
affordable and standard housing for the low and middle income group of the town. But,
currently, as research done by Melaku, 2009; Tamiru, 2009 and Abadi, 2007 showed that, the
actual beneficiaries are not the targeted poor families (both male and female) rather the high
income groups. However, according to the housing development project document it is stated
that, 30percent of the condominium house shall be transferred to females and 60 percent to the
low and middle income groups as to the socio-economic objective of the project.

1.2. Statement of the Problem

Around the world over one billion urban residents live in inadequate housing where living
conditions are poor and services are insufficient. Thus, increasing the supply of homes is a key
priority for government through the later part of the 20thc. A growing population coupled with
an increasing tendency of people to live alone has resulted in continuous rising demand for
homes, but the supply of new housing feel dramatically over the same period. This gap between
supply and demand has resulted in problems of housing affordability, with rising prices creating
particular pressure for first time buyers (http://www.communities.gov.uk).
The reason why many people in the cities of developing countries live in housing and urban
settlements which ignore official planning regulations, standards, and administrative procedures
are because of opportunities for access to legal shelter are significantly influenced by the social
and economic costs of conforming to official requirements (Payne, 2002:48).Therefore, the
interaction of house prices, incomes and the cost of mortgage finance, together with personal
savings and deposit assistance, affect the ability of potential first home buyers to access home
ownership(Milligan& Yates ,2007:10). On the other hand, there are demand and supply side
which affecting housing affordability. Among the demand side; household growth, real incomes,
concession of first home buyers, cost and availability of finance for housing, real wealth, and the
supply side includes; the availability of land, land development process and polices,
infrastructure costs, the cost of construction, and property related taxes(Milligan&
Yates,2007:10).

Ethiopia is one of the poorly developed country which characterized by housing shortage and
poor housing infrastructure, especially for those living in urban areas. These problems are caused
by low per capita income, low investment in housing, rapid growth of population, massive
urbanization, rising cost of building materials, low income of urban dwellers to afford descent
and standard housing, low investment or scarcity of financial resources to increase housing
development & low supply of serviced residential plot (Bezawit,2007: 12).

In Ethiopia housing problem is seriously felt in many urban centers of the country both
quantitatively and qualitatively. As a result, attempts have been made to enable interested and
capable individuals to construct their own dwelling units through the provision of free plots of
land, credit facilities and technical services, opening the way for the real estate development etc
(Nesru, 2007:5). Another recently emerging strategy is provision of readymade collective
dwelling units (or condominium housing units) which aimed of to be affordable for low and
middle income groups. However, to what extent the affordability of the housing units to the
urban poor is still questionable.

The major objective of condominium housing project is minimizing disparities by viewing

governments concern and commitment to improve the main slum settlement, ensuring access to
decent and affordable housing for the poor urban dwellers, which are homeless or inadequately
sheltered and bringing fair distribution of wealth (Nesru, 2007:40). But Bezawit, 2007, Melaku,
2009 and Tamiru, 2009 argued that, the projects are designed irrespective of financial capacity of
the poor to afford. As a result, aggravating impoverishment level of the poor; and others view the
project as against the people's culture, values and norms.

Jimma is a town in Jimma zone, Oromia Region National State (ORNS), is not an exception to
this problem. This town has a substantial pool of both public and private sector workers due to
the fact that it house various institutions like Jimma teachers training college, Jimma University,
private colleges and different NGOs, that have opened their offices in the town. Because these
different factors the number of public and private sector of the town increased considerably.
However, it appears that the town is incapable of providing adequate affordable housing to its
fast growing population. In addition, the condominium housing projects undertaken in the town
does not expected to solve the housing problem of the urban poor, due to its high cost of down
payment and repayments of loans over arrange of specified time.

Studies that have been conducted so far on condominium housing concentrate on housing
conditions of condominium residents (Abay,2007), the role of condominium housing in
alleviating the housing problems of poor households (Bezawit, 2007) and the economic and
socio-cultural consequences of condominium housing (Melaku, 2009). Since condominium
housing project is a recent phenomenon in regional towns, it seems that there is no study, which
has been done on condominium housing in Jimma town in general and its supply and
affordability in particular. This is the research gap which will be addressed by the thesis. The
study will investigates the condominium housing supply and affordability in Jimma town. More
specifically, the question is, to what extent has the condominium housing program solve the
housing problem of the poor in terms of its supply and affordability.

1.3 Objective of the Study

1.3.1 General Objective

The general objective of the study is to examine the condominium housing supply and its
affordability in Jimma town.

1.3.2 Specific Objectives

The specific objectives of this study are:

1. To assess the household ability to afford for condominium housing in Jimma town;
2. To investigate whether the condominium housing supply solve the problem of urban housing
problems especially for the urban poor;
3. To examine the general characteristics and facilities of condominium housing in the study
area;
4. To assess factors affecting housing supply and affordability in the study area; and

1.4. Research Questions

Based on the objective of the study the following questions are raised to come up with some
solutions.

1. What are the factors affecting the capacity of local community to afford for condominium
housing?

2. What problems are solved/ expected to be solved as a result of condominium housing

construction?
3. Is condominium housing providing the necessary housing facilities?

4. Has it meet the needs of the target population?

5. What are the factors affecting affordable condominium housing supply in the study area?

1.5. Methodology

1.5.1. STUDY DESIGN

The researcher employed both qualitative and quantitative survey design for the study that is
realized through questionnaires, Focus group discussions, Key informant interviews and personal
observation. This helped to identify the economic and socio-cultural consequences of
condominium housing on people under study. Besides, findings were complemented with
literatures review and personal observation by the researcher. The subjects of this study were
those who are living in condominium and non condominium houses of the selected kebele’s
household respondents.

1.5.2. SOURCE OF DATA

In order to achieve the objective of the study, both quantitative and qualitative data was gathered
from primary and secondary sources. The primary data was obtained from Households and
officials of the town's condominium housing development office. This helps to get first hand
information from the residents and officials of housing development office. In addition,
secondary data were collected from housing development agency of the town, municipality of
the town, from the town's finance and economic development office, as well as statistical reports.

Therefore, primary and secondary sources are used to generate data for this research. The
primary data is collected with the help of structured questionnaires for self administered as:

a. To select household head residents of the condominium housing unit

b. To select household heads of selected kebele residents
c. Structured interview with condominium project officials and the municipality housing transfer
processing team officials.
d. Focus group discussion with selected condominium housing residents

Moreover, the secondary data collection constituted extensive survey of literature from different
sources including books, Journals, Magazines, documents of the municipality master plan and
topographic surveying of the town, official documents and reports from the town condominium
housing project office, and the municipality rental housing administration as well as the
municipality housing transfer processing team offices.

1.5.3. SAMPLING METHOD

In order to gather the required information from the residents of the town, three sample kebeles
were selected. This selection is purposive; because the kebeles in which condominium housing
project found were purposively selected. From the selected kebeles, populations registered for
condominium housing households were taken as sample frame. Finally, from the sample frames
sample households were randomly selected from each kebele’s proportionally which makes 15
percent of the study population.

Distribution of sample frame population and sample sizes

illustration not visible in this excerpt

Source: population size is from their respective kebeles administration offices, March, 2010

From each respective kebeles of the condominium housing project site, a total of 120 household
heads from the registered household residents were considered. This is because of they were the
kebeles where the construction of condominium housing is completed and distributed for the
beneficiaries (occupied by the residents)

In addition to sample taken from non condominium housing resident sample kebeles, another
sample is also taken from the respective kebeles condominium housing residents to compare
households’ ability to afford for the supplied condominium housing in the study area. As a result,
out of the total seven condominium project sites in the town, a total of three sites in three kebeles
were considered. From the total household head of 400 condominium housing residents of the
three sites, 60 respondents were randomly selected from each site. Proportionally, this makes 15
percent of the study population of condominium housing resident household heads

Accordingly, the study sites were categorized in to the following three sites. These were Bosa
Addis ketema site, Hostel site, and EDDC site for condominium housing resident respondent
households and their respective kebeles resident for non condominium housing resident sample
households(as shown in the table below).

Distribution of condominium housing resident household heads and sample size

illustration not visible in this excerpt

Source:number of household units is taken from Jimma tow condominium housing project
office, march,2010

1.5.4. METHOD OF DATA COLLECTION

The primary data, both qualitative and quantitative were collected through questionnaires,
discussion and interviews. Both open and close ended format questions were designed to obtain
information on the supply and affordability of condominium housing in the study area. In
addition, the primary data will be obtained through interview with the housing development
agency officials and FGD with the condominium housing residents. Generally, to gather the
required data from targeted household head respondents, both quantitative data and qualitative
information were gathered using primary and secondary data sources which are summarized as
follows:

Structured questionnaire: to gather information from selected condominium and non

condominium household head respondents, formal survey was conducted on the sample
population of 180 household heads by employing structured questionnaires with few open ended
questions undertaking the three kebeles and three condominium housing selected sites. The
structured questionnaires were organized in to three main sections. Section one basically looks at
the personal information of the respondents which includes sex and age composition, marital
status, educational level, religion, ethnicity of the household heads and the size of household
members.

The second section of the questionnaire focused on obtaining the socio-economic condition of
the sample households of selected kebele resident respondents and factors affecting the
respondents to afford for condominium housing. The third section of the questionnaire focused
on housing conditions and facilities provided by condominium housing for condominium
housing residents sample respondents. It also concerned with the problems of condominium
housing which includes socio cultural and economic conditions in terms of access to social
services and communal utilities and income level, housing situation, and the level of satisfaction
as well as their suggestion towards the housing conditions of condominium housing.

Key informant interview: The researcher employed a key informant interviews with the most
knowledgeable members of the condominium housing project officials and officials of the town
housing transfer processing team. Eleven purposively selected individuals(six from
condominium housing project and five from housing transfer processing team) had been
participated both from condominium housing project and from the housing transfer processing
team based on their knowledge, expertise, and practices on issues related to condominium
housing supply and affordability in the study area.

Focus group discussions: Focus group discussions were conducted to capture qualitative data
and to fill in the gap of information that were not covered by other methods of data collection
and to validate the findings. The discussion were conducted by giving special emphasis on the
condominium housing provision process, the services provided at the condominium site and their
views toward the services provided, and the views of them on the prices of condominium
housing, both down payment and monthly repayments. To this end, three separate sessions of
focus group discussions were conducted in the three condominium sites constituting people from
different types of housing units. The number of participants in the first FGDs in EDDC
condominium site contains six men and four women and the second FGDs in hostel site contains
four men and three women both men and women were seven. The third FGDs in Bosa site
contain three women and six men. Therefore, totally, twenty six women and men (ten women
and sixteen men) were participated in the condominium sites.
1.5.5. METHOD OF DATA ANALYSIS

To analyze the data collected from primary and secondary sources using various methods,
descriptive statistical method of analysis, such as frequencies and percentages were employed
and the findings were described and presented in a tabular, graphs and charts format. In addition,
SPSS 15 was used to determine whether there is statistically significance correlation between
households mean monthly income, expenditure, and savings of both condominium and non
condominium housing resident household respondents.

1.6. Significance of the Study

The shortage of affordable housing supply is a basic problem especially in developing countries
like Ethiopia. In Jimma town, the majority of the existing houses are inadequate and not
affordable for the low income group of the local people. Therefore, governments must undertake
measures to provide housing assistance targeted specifically to low and middle income peoples
who cannot afford market-housing. This might be accomplished by insuring an adequate supply
of social or public housings designated specifically for poor peoples. As the result, appropriate
policies, strategies and programs are needed to ensure housing supply and affordability.

This study will provide more information to the town's administrators that will facilitate the
formulation of operational plans and strategies based on the existing realities in order to facilitate
supplying of affordable housing to meet the needs of the majority low and middle income
people.

The study will also create awareness among housing supply agents especially for local
governments and public housing agencies about socio-economic impact of the condominium
housing for the affected groups. The study will create interests in researchers to undertake further
investigation on the issue.

1.7 Scope of the Study

Studying each and every aspects of urban housing in relation to socio-economic aspect of urban
population is quite complex, which is time taking and tiresome to study. Therefore, the broad
problem to be investigated in this thesis will be concerned with urban housing supply and
affordability in particular reference to condominium housing in Jimma town.

CHAPTER TWO LITERATURE REVIEW

Introduction

There are complex linkages among housing supply and affordability issues. Throughout the
developing countries cities, rapid population growth from high rate of natural increase and rapid
rural to urban migration together with low level of their income has resulted in high demand of
urban housing which resulting in housing affordability problems. However, housing problems
may not be the same in each city because of variations in physical conditions, economic
development and cultural preferences of the given society. Therefore, the function of the housing
unit and the service it gives varies from country to country and from place to place based on the
above mentioned factors.

As a result, unless there is adequate availability of housing input (such as land, finance,
construction materials, labor and basic infrastructure) to aid housing production it will neither be
possible to create a thriving housing market nor to provide adequate housing for the less well off.
The real challenge therefore is how to ensure adequate supply and access to these housing inputs
within a frame work that guarantees the supply of decent housing at costs affordable to all
households. If prices in the housing market increases faster than incomes, more low income
households will be in need of affordable housing. Conversely, if income increases faster than the
cost of housing, fewer households will be in need. Although this ratio is straight forwarded, it is
affected by a Varity of other underlying supply and demand factors like land and labor cost,
housing market, interest rate, population increase, an increase of income and the like.

Though, this chapter presents the review of related literature which is relevant to the study. First,
it concerned with the housing concept and definition, urbanization and urban housing supply in
both developed and developing countries, and an overview of urbanization and urban housing in
Ethiopia. Second, it deals with housing needs and housing demand and factors influencing
housing affordability with changing social and economic condition. Finally, this literature part is
dealt with general concept of urban housing policy in general and in Ethiopia case in particular
as well as urban housing finance and the concept of condominium housing.

2.1. Theoretical Framework

Housing is one of human kind's most essential materials needs, yet in no country in the world is
the need for housing in complete equilibrium with its supply (Balchin, et.al, 2000: 127). Housing
is a physical shelter fixed in a place and intended for human habitation including all services
desired for the physical health and social well-being of the family and the individual (Berhanu,
1986).

Affordable housing is a housing which adequately suits the needs of low and middle income
households at costs blow those generally found in the existing market. A much more effective
way to provide affordable housing is to reduce construction costs for moderately priced new
units. This increases housing affordability both directly by reducing the costs of new housing and
indirectly by increasing affordable housing supply (Litman, 2009:22).

In newly industrializing and developing countries, private financial institutions because of low
per capita incomes and job insecurity- are unwilling and unable to provide long-term credit to
facilitate the development of an urban owner-occupied sector, while governments usually lack
the resources to provide large-scale public-sector housing schemes to satisfy the needs of low-
income households (Balchin, et. al, 2000: 138).
According to kamete (2001), there are external and internal factors that affect housing
affordability. The external factors revolve around the cost of the housing. This is the sum of land
acquisition, infrastructure, both on and off site, planning, designing, administration and
community facilities, interest rates, amortization periods and subsidies (kamete, 2001:32). The
internal factors that affect affordability have to do mainly with the socio economic circumstances
of the target group. The first set of this is the economic character of the community which is
defined as employment opportunities, kinds of occupations and income, and expenditure
patterns. The other factors has to do with the target group’s social characters like household
sizes, family structures, needs, customs, aspirations and priorities(Ibid.)

The most popular measurement of housing affordability is focuses on income. Beyers (1958)
cited in kamete(2001:32) stresses the paramount importance of the family’s income from the
stand point of home buying and home maintenance. According to him, the importance of family
income is underlined by the fact that employment opportunities and kinds of occupations
mentioned above affect the ultimate household income. Household expenditure is also important
because it affects the resultant share of income available for housing (kamete, 2001). Measuring
housing affordability by using income of households gives more realistic picture of the ability of
households to pay than the crude measure of the rule of thumb.

Conceptual framework

Household monthly income and saving

Target subsidies and Housing supply & Affordability Access to housing

Household expenditure finance& the cost of

Construction materials

Social and economic impact on households’ income, non shelter

Expenditures and saving as well as households’ satisfaction of shelter & non shelter necessities

Source: Adopted from Donald (2008), national housing supply council, state of supply report,
Australia

Conceptual definitions of terms that will be utilized in the study include:

Housing: There is no general definition for the concept of housing. Therefore, its meaning also
varies among scholars depending up on their culture and socio-economic condition. Thus, for
this research housing could be taken as a living environment consisting of the dwelling units; the
infrastructure associated with the dwelling units such as roads, water supply system, sewage
system, electricity etc.
Housing unit: a separate and independent place of abode either intended for habitation or not
intended for habitation but is occupied as living quarter by a household (Meskerem: 2000:5).

Housing tenure: the proportion of households who as legally recognized owners or renters have
protection against sudden or arbitrary eviction (UN HABITAT, 1996:195).

Household: a group of persons who often live in the same housing unit or in connected premises
and have a common arrangements for cooking and eating food. A household consists of a
husband, his wife, their children, relatives and some other persons residing together in the
household (Meskerem, 2000:5).

Housing affordability: is the willingness and ability of households to pay to consume housing
services, which depends on the housing price, household income, and the terms and availability
of mortgage finance.

Housing supply: is the flow of houses into the market either that offered for sale or rent at any
one time with changing prices. It is mainly depends on the number of new housing units
constructed by the concerned bodies.

Condominium housing: are a housing complex containing units owned by individuals and

common areas owned jointly by all the unit owners (Bezawit, 2007:9).

Housing accessibility: the proportion of people able to buy, rent or in other ways obtain
adequate quality housing of special interest. In this is whether those with low incomes or those
unable to earn an income (for instance the elderly) are able to find adequate shelter (UN-
HABITAT, 1996:195).

Homelessness: The homeless are those who cannot afford shelter by themselves. With no access
to housing they sleep outside or in public spaces (Gottdiener and Budd, 2005:59).

Public housing: is housing supplied by government sponsored programs at all levels of society
from the local to the national by using public funds which can support the construction and or
subsidy of rental housing based on economic need ( Budd and Gottdiener 2005).

Head of households: A head of a household is a person who economically supports or manages

the household or for reasons of age or respect, is considered as head by members of the
household or declares himself as head of a household. Head of a household could be male or
female (CSA, 2007).

2.2. Housing: Concept and Definition

Housing is the basic and indispensable human need which determines health living conditions. It
encompasses and determines developmental, psychological, health, social and economic aspects
of human life (Wondimu, 2006; cited in Abadi, 2007:13). Moreover, there is a clear correlation
between housing quality and development status of a country. Decent housing is a pre condition
for productive and stable society. Auxiliary services and community facilities, social amenities,
and services, and residential accessibility are from an integral part of the housing concept
(Jurenson, 1977; cited in Abadi, 2007:13).

Even though, housing is the basic human need, it is difficult to give an all embracing concept to
define housing. The problem of defining Housing, difficult enough when a single country or the
economically advanced areas as a group or considered, is compounded in an international
context that includes poor as well as rich nations, world regions sharply differing in climate and
societies with highly diverse cultures (Burns & Grebler, 1977:15; Girma, 1982:1)

For this reason, different scholars give different definition of housing. Accordingly, Linn
(1983:130) defined housing as the shelter structure, the lot on which shelter stands, and the
services provided to the lot such as water and energy supply, waste disposal, drainage, and fire
and police protection. On the other hand, Mile, (1998:5) defined housing as an important
productive asset that can cushion households against sever poverty, and land market regulation
that can either create opportunities to diversity its use or for close them. Moreover, Matewos,
(2009:2) define housing as one of the basic human needs along with food and clothing. As a
result, mankind has been developing different kinds of shelter with the changing civilization and
time.

Further, Stone (1993:13) stated that, housing is more than physical shelter and the residential
environment consists of not only the dwelling units, but also the site and setting, neighbor and
community, municipality and public services habitability and accessibility, rights and
responsibilities, costs and benefits. Yet housing is even more than the residential environment,
for it is only in relation to those who inhabit and use it that housing has meaning and significance
not only physical & economic, but also emotional, symbolic and expensive (Ibid:13).

In general, as we understood from the above definitions, some argue that housing is a shelter that
gives protection against the hostile physical environment; the others said that housing is the sign
of prestige; some other groups also argue that housing comprises a number of facilities, services
and utilities which link the individual and his family to the community and community to the
region in which it grows & progress.

Housing is consumption as well as investment. The set of housing services consumed is surely
different in the rich compared to the poor countries. As it is stated by Burns & Grebler
(1977:24), shelter accounts for a large component of the total bundle of services in the poor
countries while luxury elements, and the utility and prestige they carry, are more important parts
of housing in the rich nations. Consequently, the good itself like many consumption goods, is
heterogeneous, yielding different mixes of services which vary with level of development (Ibid).

Even though, housing is considered as a basic good for both developed and developing countries,
a large proportion of town dwellers in all developing countries cannot afford housing at the
standards considered desirable and required by law in western industrial countries (Orman,
1979:43). As a result, many cannot afford to make any regular contribution to value when it
comes to spending their money (Ibid). Even the cost of bringing housing for ever expanding
urban populations to a modern standard by means of subsidies is beyond the capacity of
governments to meet especially in developing countries. In broad terms, housing affordability
problems exist when housing costs (whether for rent or home purchase) absorb too great
proportion of household income (Yates & Milligan, 2007:9)

2.3. Urbanization and Urban Housing Supply

Between 1800 and 1950, the population of the world living in cities with 20,000 or more
inhabitants increased from about 21.7 million to 502.2 million, expanding 23 times in 150 years,
while the total world population expanded about 2.6 times in the same period; 2.4 percent of the
world’s population lived in urban centers of 20000 or more in 1800, 20.9 percent in 1950
(Moore, 1966:14).

In 1900, only 233 million people (14 per cent of the world’s population) lived in cities and
towns. By 1950, 30 per cent of the world was urbanized; and in 1980, the figure was up to 39 per
cent (Mehta, 2000 cited in Majale2004:5). Currently, about 3 billion people or 48 per cent of
humankind lives in urban settlements (UN, 2003 cited in Majale2004:5). This rapid growth in
urban population has been accompanied by the 'urbanization of poverty’ –the fact that a rapidly
increasing proportion of the world’s poor are now living in urban centers.

Rapid urbanization in the developing world is the most unprecedented phenomena of the world’s
development in the past few decades (UN-Habitat, 2008:1). The pace of urbanization has
exceeded many developing countries capacity to absorb the needs of a growing population,
despite all innovation and efforts. One of the most pressing problems is to provide adequate
housing for all, particularly for the poor (Ibid.)

Even though Poor urban housing conditions are global problem, the conditions are worst in
developing countries. According to UN-Habitat (2008:1) that 1 billion people live in life-and
health threatening homes. This represents about one third of world’s total urban population,
while the developing world has a substantial proportion of the urban population living in
inadequate housing conditions (Ibid).

As a result, rapid urbanization leads to a crisis of unprecedented magnitude in urban housing

delivery. As it is stated by (Habitat, 2008) that every year the worlds’ urban population expands
by some 70 million, most of it in developing countries where economic capacities cannot cope in
terms of housing and urban service provision. Consequently, cities feature very high proportions
of informal dwellings, which either were constructed to standards that do not conform to
established legislation, or built on land for which the occupier has no proper title or both (Ibid:2).

Housing supply-the flow of houses into the market, those offered for sale or rent at any one time-
respond only slowly to changing prices. This is because the long lead-in times involved in the
production of new houses compared to shoes or loaves of bread (Harriott and Mathews,
1998:24). Therefore, increases in the supply of housing services depend largely on increases on
the stock of housing available, and thus on the investments taking place in the housing sector.
Mostafa et.al. (2003), categorize the different stalk holders which intervene in the housing
provision are state, market, and households.

2.3.1. A THEORY OF AN OVERVIEW OF URBAN HOUSING SUPPLY

An undersupply of adequate dwellings has existed ever since people begun to congregate in
towns and cities. It is only since the twentieth century, however, that the urban housing problem
has been recognized as truly universal (Burns & Grebler, 1977:1). Housing supply is a schedule
showing how much of housing a producer is willing and able to sell at various prices during a
given period of time, other things being constant (Chemerew, 2008:8).Therefore, an increase in
the number of households will create pressure for an expansion of the housing supply.

However, housing supply is directly related with the economic capacity of households.
Households with low level of income could not afford to produce their own housing. It is also
related with the housing policy that could affect the supply and demand through policy
instruments (Chemeraw, 2008:9). Performance of each of the key inputs to the housing
development process like land, infrastructure, building materials, finance and residential
construction are directly determinants of housing supply (Ibid.)

As demand for housing exceeds supply, housing deficit will exist. This in turn could further
reduce the quality of existing housing stock particularly in high-density living slum and squatter
settlement areas of cities of developing countries. As it is stated by Chemerew (2008:10), the
challenge is calling for improving the lives of at least 100 million slum and squatter settlers’
dwellers by 2020 in those countries. As a result, the provision of adequate shelter requires
involvement of supra local authorities in regard to needed building materials, organizational and
technical expertise, and financial resources.

This is because, transaction in the free market fails to provided vulnerable groups with proper
shelter. Since disadvantaged groups often make up the large proportion of the population and
contribute significantly to the reproduction of labor. Then there are pragmatic reasons for
governments at least to overcome inefficiencies of the market mechanism (Vliet & Fava,
1985:7).

2.3.2. HOUSING SUPPLY IN DEVELOPED WORLD

As it is stated before, housing is one of the human kind’s most essential material needs, yet in no
country in the world is the need for housing incomplete equilibrium with its supply. According to
(Burns & Grebler 1977; cited in Balchin, et.al., 2000:127), there are four principal forms of
disequilibria; first, Static disequilibrium: which refers to the overall disparity between the
number of dwellings in geographical units such as a country and the number of
households. Second, dynamic disequilibrium: this quantifies the extents to which shortages or
surpluses of supply in relation to need are changing over time. Third, spatial disequilibrium: this
indicates shortages or surpluses within different parts of a country, region or urban area. Forth,
qualitative disequilibrium: which denotes that some households may be living in accommodation
that falls short of a standard that would be acceptable to society at large (Barchin; et.al.
2000:127).

As a result, in all developed countries of the world, governments attempt to reduce or eliminate
disequilibria either by intervening in parts of the housing market for the first time home buyers
or by remedying the weaknesses of existing policies or both (Balchin, et.al. 2007:127). The same
author identified four main stages in the housing provision process in the developed world. First,
the development stage in which an individual, private firm, or public agencies initiates the
conditions that can support the construction stage. Second, the builders brings together the
factors of production in the construction process in order that housing is produced, and at the
next stage completed housing is allocated to public and private landlords and cooperatives, or to
prospective owner-occupiers. The final stage of the process involves repair and maintenance to
the dwelling over its life time (Belchin, et.al.2000:134).

There is a need at all four stages for an adequate supply of finance and, to a varying extent, for
an availability of subsides. Land and labor is also another requirement at all stages of the
process. These all; land; labor, finance, and housing subsidies are the necessary input in the
process of housing provision stages.

2.3.3. URBAN HOUSING SUPPLY IN THE DEVELOPING WORLD.

Urban space is highly differentiated by the quantitative and qualitative of housing condition such
as size, location, extent of provision of basic services and accessibility. Accessibility to adequate
housing is a critical issue for the urban poor. In most rapidly growing cities of the developing
countries housing is a critical problem precisely because there are too few units (Gottdiener and
Budd, 2005:57). The other problem stated by the author is the quality of existing and new
housing units such as sub standard housing and overcrowding (Ibid. 58).

This qualitative and quantitative deficiencies in housing supply in newly-industrializing and

developing countries are exacerbated by rapid population growth and rural-urban migration on
an enormous scale-resulting conditions that stagger the imagination (Balchin, et.al. 2000:127;
Gottdiener and Budd, 2005:58).

Although, in newly industrializing and developing countries, private financial institutions

because low per capital incomes and job-insecurity are unwilling and unable to provide long
term credit to facilitate the development of an urban owner occupied sector, while governments
usually lack the resource to provide large-scale public sector housing schemes to satisfy the
needs of low-income households (Balchin, et.al. 2000:138). Furthermore, in many countries of
the developing world, a large proportion of the urban poor would find such accommodation
beyond their means (Ibid.)

However, resources are sometimes available to assist those in need to help them-selves. Since the
1980s, international aid agencies, such as United States agency for international Aid (USAID)
and the World Bank, have provided the governments of over 50 newly industrializing and
developing countries with loans to facilitate the development of aided self-help housing (ASH).
The World Bank alone, participating in 116 projects from 1972 to 1990, involving an average of
US $ 26 million per project (Pugh, 1995: cited in Barchin, et.al. 2000:139).

Furthermore, there are housing programs in many parts of the developing world-all aimed at
providing new hosing as well as upgrading existing urban settlements (Balchin, et.al, 2000:140).
He suggested that, these programs should provide some solution to the housing problems that are
facing city governments, although housing need is escalating at faster rate than supply.

2.3.4. URBAN HOUSING SUPPLY FOR LOW INCOME GROUPS.

For low income housing the sub division of raw land is typically performed by developers,
squatters, or absentee landowners. Occasionally it is also done by local governments or public
housing agencies (Linn, 1983:130). On the other hand, the provision of onsite services to low
income housing is frequently left to the owner-occupants, squatters, absentee owners, or renters
especially where water and fire wood have to be hand carried to the house because of the
absence of public services (Ibid). According to the author, off-site services may be provided by
private agencies in the case of transport, health and education. But they are mainly the domain of
local authorities, particularly as regarded to the provision of roads and social services (Ibid.)

However, the responsibility for provision of security of tenure for low income housing rests
generally with the government, which determines the extent to which the insecure tenure of
illegal sub-divisions, or of squatters on public and private land, is translated in to secure free hold
tenure (Linn; 1983:130).

Experience with housing delivery in many developing countries highlights the difficulty in
effective targeting and subsidies to low income families. For example, (Linn 1983) suggest that,
the supply of new housing stock is limited by, fixed or highly inelastic cost in the short run,
rising cost in the long run, and also transaction costs that may impede the provision of necessary
inputs.

In general UN HABITAT (1996), point out five major factors influencing housing supply for
low income groups. These are:

- The price and availability of land for housing that in turn influenced by the demand for land
from other sectors and by the attitude of national, city and municipal authorities to different
kinds of illegal development;
- The scale and nature of road construction and public transport provision.
- The extent to which illegal or informal housing and land developments are tolerated.
- The availability of piped water provision for sanitation and drainage and other forms of
infrastructure and services needed by housing and residential neighborhoods.
- The efficiency of the official legal and regulatory framework within which those who supply
housing operate.

2.3.5. URBANIZATION AND URBAN HOUSING IN ETHIOPIA

Ethiopia’s urban centers are characterized by a poorly developed economic base, high levels of
unemployment and incidence of poverty and slum habitation. Urban unemployment is estimated
to be 16.7% - and up to 28.6% in Addis Ababa. Available data also indicate that nearly 40% of
the nation’s urban dwellers live below the poverty line (IHDP, 2008:2). An indicator of the
magnitude of urban poverty is the proportion of the urban population that lives in slums – about
70% of the urban population is estimated to live in slum areas. It should be noted however that
Ethiopian cities are not characterized by segregated settlement pattern and slums form an integral
part of the city (IHDP, 2008:2). Achieving Millennium Development Goal 7, Target 11 –
improving the quality of lives of slum dwellers – is a major challenge in Ethiopia. Studies made
in the last five years conclude that, there is currently a housing shortage of between 900,000-
1,000,000 in urban centers, and only 30% of the existing urban housing stock is in good or fair
condition(Ibid:2)

Ethiopia has identified housing problems as one of the key problems facing cities and towns. The
Urban Sector Millennium Development Goals Needs Assessment estimated that the additional
housing units needed due to population growth and formation of new households between 2005
and 2015 in order to achieve the MDGs in 2015 would be 2,250,831 units – approximately 1.125
million during the IHDP period. This entails the construction of the 225,000 housing units per
annum. Further, the studies conducted in different times shows that, the market mechanism has
failed so far to deliver affordable houses to the majority of urban dwellers over the past many
years in the country, and is not expected to respond to such huge housing needs in the
foreseeable future.

2.4. Housing Need and Housing Demand : Theories and concepts

Housing need and demand factors influence the affordability of rents and prices of housing. Even
though the term need and demand sometimes interchangeably used, scholars attached different
explanation for both.

Thus, the demand for housing reflects the willingness to pay for a set of attributes or services
provided by the physical components of lot and housing structure (Linn, 1983:120). The most
important of these attributes are access, space, tenure, onsite services, and shelter (Ibid). On the
other hand, housing need measures the extent to which existing accommodation falls short of
that required to provide each household with accommodation of a minimum specified standard
are irrespective of ability to pay (Harvey & Jowsey, 2004:334).

Although, Gebeyehu, et. Al. (2001) relates housing demand to the wish to own and the capacity
to pay the price; and the concept of need refers to the inherent duality of dwelling-that is, it is
both an economic good subject to the market laws as well as a good or social services whose
fulfillment depends on the support of the public operator and his resources (:20). According to
the author, housing demand is purely economic variable and determined by variable like
incomes, prices, rates of interests; while housing need is determined by population structure and
the goals to be pursued in terms of housing standards. That is, the number of rooms or some
amount of housing space per person and equipment of certain crucial facilities like running
water, indoor toilet, and electricity etc.(Gebeyehu et.al. 2001:20, Harvey & Jowsey, 2004:334).

The demand for housing is income-elastic when permanent income serves as a basis for
measurement. Demographic determinants are more important than income in the case of new
residential construction. This concept is explained by Burns & Grebler, (1977) that, the ratio of
rent (or its equivalent) to total consumption tends to increase not only with higher per-capital
income but also with the extent of urbanization (:13).

As a result, Linn (1983) suggested that, Estimates of housing needs not only have to be translated
in to global, national or city specific investment figures, but also must be linked with a detailed
housing supply strategy that makes allowance for the ability to pay of low-income households
and also gives explicit consideration to their preferences for the various attributes of housing
(Location, space, tenure, services and structure) (:142).

It is difficult to define housing objectively and to objectively determine how well housing
actually meets person’s needs. This is because society created a set of definitions of identity and
fulfillment most people have come to believe can be achieved only through housing.
Accordingly, stone, 1993 identified four major definitions based on person’s view of housing
needs in relation to its fulfillment of human need attached to it.

- First, housing as a place where child rearing occurs; it is the presence of children and the
activity of family life that make a house in to a home.
- Second, a house is seen as an indicator of personal status and success, both one’s own and
others’
- Third, the house…seemed to be a powerful, symbol of order, continuity, physical safety, and a
sense of place or physical belonging,
- Forth, the house is the common notion that the house was a refuge from the outside world or
even a bastion against that world…a desire to escape from other people and from social
involvement, the establishment of a place from which others, could be excluded, and where,
consequently one could truly be oneself, in control, more of an individual, capable of loving, and
fully human (stone, 1993:15).
According to this definitions housing is not only necessity of life; it has a pervasive impact on all
aspects of our existence. Housing-if it is adequate provides privacy and security against
intrusions, both physical and emotional. It is the principal locus of personal and family life.

2.4.1. THE URBAN HOUSING NEED IN DEVELOPING COUNTRIES.

The rapid growth of urban population has obvious implications for the infrastructure and services
needs of cities (Nesru, 2007:13). The failure to expand housing supply and basic services to
match the growth of population has been a prime cause of misery in the cities of the developing
world (Ibid.).

( HABITAT, 2001:197, UN Habitat,1996: 229) estimate that, there are more than 100 million
homeless people in the world. Worse still, there are almost a billion poor people in the world; of
this over 750,000 million live in urban areas without adequate shelter and basic services.

In the developing countries, a very high proportion of the urban housing stock is sub standard,
being built on illegally occupied land with temporary materials, no authorization, and no access
to basic infrastructure and services (Gottdiener & Budd, 2005:58). As a result, for households on
limited income, the possibility of owner occupation is diminishing and informal housing
including illegal sub division, and sharing becomes an important source of affordable, if not
adequate, accommodation (Ibid). Therefore, illegal sub divisions are the main source of housing
supply for the urban poor in many cities of the developing world, along with housing built in
squatter settlements.

Although, in the developing countries where access to legal shelter are significantly influenced
by the social and economic cost of the household to meet their need they seek other options. For
example, Payne,( 2002) stated that, for households to access legal shelter is constrained by social
and economic costs, they may construct affordable house on land they own, in an area officially
designated for residential development and inconformity with building regulations, but not in
conformity with administrative regulations (:48).

This is because, in the largest cities of the developing countries, the supply of affordable housing
has fallen short of the demand. This can be possible due to speculation and upwards trends of
real estate costs as a consequence of globalization (Gottdiener & Budd, 2005:51).

2.5. The Concepts and Theories of Housing Affordability

Due to variations in the level of development and per capita income across different regions, it is
impossible to achieve agreed definition of affordability. However, scholars recommended
housing affordability according to the socio-economic situation of the given area/or society.
Accordingly, Cope (1990:128) recommends affordable housing whose prices for newly provided
dwellings significantly below the free marked level. On the other hand, UN-HABITAT (1996)
indicated that, one of the most common measures for housing affordability is the house price to
income ratio i.e. how many years income is needed to purchase a house for individual
households. However, according to Edwards (2007:428), housing is affordable if housing
expenditure is not exceeding 30 percent of the households income signal.

However, stone (1993:66) suggests that, housing affordability depending up on the relationship
among incomes, housing costs and the cost of non shelter necessities. On the other hand, WB
(1982) stated indicators of Affordability in relation to household monthly income that a house
hold is willing and able to pay for shelter and related expenditures.

As it is stated in the above definitions the concept of affordability is measured by different

factors like household income, household expenditure, housing prices and the cost of non-shelter
necessities, etc. Thus, certain level of urban housing or services is affordable to a low-income
beneficiary household if the amount from monthly income that a household is willing and able to
pay for shelter related expenditure is sufficient to cover the monthly costs of providing these
services (WB, 1982:54). But if housing prices are in line with production costs, the term
affordability may well signal lack of enough income to afford a Standard home (Edwards,
2007:428).

Affordability is the measure of adequate housing assured to all as a matter of right to secure the
housing need and desire with the resources we have or can obtain (Stone, 1993:1). This shows
that, affordability expresses the linkage between the well being of individual families and the
mechanism of housing provision and income determination.

2.5.1. HUMAN NEEDS AND HOUSING AFFORDABILITY

The demand and supply factors influence the affordability of rents and prices of housing (UN
Habitat, 2009:3). On the demand side are the macro-economic environment, demographic
conditions, and access to housing finance, taxation and housing subsides especially targeted at
the poor and low income groups. Supply side factors comprise availability of developable land,
appropriate building construction technology and suitable construction materials, skilled labor
and reliable infrastructure (Ibid.)

Affordability becomes a big issue and that is why it calls government intervention as appropriate
policy intervention towards various housing issues is vital to guide real assets development.
Experience with housing delivery in many developing countries highlights the difficulty in
affective targeting and subsides to low income families (Melaku, 2009:21). The magnitude of
housing problem due to the increase in population and very poor condition of the existing stocks,
increases demands new housing units (Ibid.).

Moreover, Arnold and Skaburskis (1989:1) suggest that, moderate interventions in the housing
market are not enough to help low income households attain affordable housing. The problems
resolution may require a major effort to stimulate housing supply, and by direct government
involvement, adjustment in creating new methods and institutions for building and delivering
housing services (Ibid.).

As different literature stated, rent controls have not been adequate in reducing affordability
problems. Moderate interventions in the housing market are not enough to help low income
households attain affordable housing. The problems resolution may requires a major effort to
stimulate housing supply, and by direct government involvement, adjustment in creating new
methods and institutions for building and delivering housing services (Arnold and Skaburskis,
1989:501).

This is because housing is physically quite different from other consumption items. It is large,
durable, tied to location, and generally must be purchased as a complete dwelling unit, not as a
shopping basket of separately selected items (rooms, facilities, amenities, location) in the way
that food and clothing are purchased. Stone (1993:2) stated this idea as ‘housing is not literally
consumed as food is, and hence not purchased a new on a regular and frequent basis. Once a
household occupies a particular dwelling it is hard to alter the amount and type of housing
services consumed. The cost of housing is thus the biggest item in most families’ budgets and the
hardest to adjust.

2.5.2. HOUSING AFFORDABILITY AND DISCRIMINATION

Discrimination clearly has its own patterns and consequences for human needs, which exists a
part from questions of affordability. But in practice the two issues may intertwine to determine
how people are treated when they seek housing, the options they have as to where they can live,
and the physical and social quality of the housing environments they get for their money (Stone,
1993:26).

This is because adequate housing accommodations and related facilities are one of the essentials
of a good life, one of the fundamental requirements of an efficient, satisfied labor force, and one
of the foundations of satisfactory community life. Burns & Grebler (1997:100) suggested that,
better dwellings and neighborhoods are among the most effective and direct means of improving
the human condition. Therefore, the Houser assigns a high priority to housing for its own Sake.

However, discriminatory practices and traditions in the job market are factors in the lower
income of women and men. So that, households headed by members of these groups will, on
average, be more likely to have affordability problems and less able to afford desirable housing
that will households, headed by males with high income can afford even in the absence of
housing discrimination (Stone, 1993:26).

Consequently, lack of housing affordability can result in spread of homelessness which resulted
in social, economic and political problems of a given society. (Stone, 1993:16: Abrams,
1964:126) explain the problems as:
The deaths of homeless people, most particularly from exposure to the elements, but also from
violent assaults, powerfully demonstrate the threat posed by homelessness to survival itself. Even
short of this most extreme level, people who are without homes for more than relatively brief or
transitory periods suffer from a whole range of medical conditions. Hunger and imbalanced diet
are more likely. There are increased hazards to pregnancy, maternal health, and infant and child
development. Sexual relations are more likely to transmit venereal disease; mental health is
impaired. The homeless are especially subject to victimization and crime. They are all, but
adolescents especially at high risk of sexual abuse, gang violence, rape, early pregnancy,
venereal diseases, and recruitment in to prostitution, criminal activities, or a drug and alcohol
culture (Stone, 1993; Abrams, 1964).

On the other hand, properly planed residential projects foster the process of socializing people in
to communities and help to raise their aspiration, especially if home-ownership is offered as an
agent for developing pride of possession. In addition to its high social utility, housing suppliers
claim, improved shelter will contribute to political stability by moderating people’s impatience
with the slow tempo of betterment in their general living conditions (Burns & Grebler,
1997:101).

According to (Turner, 1976 cited in vliet & Fave (1985:5) many governments in the developing
countries have vacillated between using deep subsidies to provide very few units and truly low
cost and spreading available funds thinly over many houses, most of which would be beyond the
means of the great majority of the ill-housed. In addition, low cost Projects have tended to
become filled by people with connection to officialdom, without regard for actual need (Ibid.).

As a result, middle income groups eschew the poorer zones and live as near to their would be
peers as possible either in well serviced sub divisions or in housing recently vacated by the rich.
This is because, clearly, the greater the inequality of income and wealth, then the greater the
degree of residential segregation and the greater the exclusion of the poor people from access to
the better land or, at times, any land at all (Gibert & ward, 1998:129).

This residential segregation is common in most countries of the world due to the provision of
governmental permanent housing is not possible given the limited resources available. As it is
explained by Nientied and Linden (1998:147), when housing deficit is explained in market
terms, evidently, there is sufficient demand for housing, but numerous constraints make for
weakness on the supply side.

2.5.3. SHELTER POVERTY CONCEPT OF AFFORDABILITY

The shelter poverty concept of affordability suggests that, when households are paying more than
they can afford for housing, they are unable to meet their non shelter needs at a minimum level
of adequacy. Therefore, shelter poverty is a form of poverty that results from the burden of
housing costs rather than just limited incomes (stone, 1993:34).
Therefore, the shelter poverty concept of affordability challenges the conventional standard that
says every household can afford up to a certain fixed percentage of income for housing. Stone
(1993:32) explain this idea by giving hypothetical example as:

Some low-income households and large (three person or more) households pay less than 25
percent of their incomes but are nonetheless shelter poor. Because they still do not have enough
left over after paying for housing to obtain minimum level of non shelter necessities. By the same
token, high income households and many small households middle income can pay more than 25
or 30 percent of income for housing and still obtain adequate level of non shelter necessities,
and thus are not shelter poor (Stone, 1993).

Therefore, the conventional percentage of income measures thus understate the affordability
problem of families with children and other larger households in comparison with households of
one and two persons, as well as overstating the affordability burdens of higher income
households.

2.5.4. SUPPLY SIDE HOUSING AFFORDABILITY PROBLEMS

While homelessness and squatting do exist in the more developed countries, housing problems
are generally less related to the availability of housing and more to accessibility and quality
(Vliet and Fava, 1985:5). But in less developed countries, the sheer magnitude of the demand for
shelter overshadows qualitative aspects of housing need. In Africa the United nation (UN)
estimated that, on the average, for each housing unit built in a city ten new families migrate from
the rural areas (Ibid).

Therefore, housing supply is another factor that affects housing affordability. Donald (2009:82)
suggest that, one of the consequences of supply gaps is the responses from the market that
manifested in pressure on house prices and rent levels with resultant housing stress and housing
affordability problems concentrated among low income households.

However, the general upward in real house prices has been driven primarily by the interaction of
population growth, increased in household income, and more readily and cheaply available
credit, and unresponsive supply of land on which to build housing. As a result, the general
upward trend in house prices have significant effects on the affordability of housing both for
home buyers and for renters (Donald, 2009:83).

Although, supply constraints are among the many reasons why some households might postpone
entry in to home ownership or choose not to buy when they appear to be able to afford. For
example, Donald (2009:99) explain as, lower income households that are unable to access
affordable housing, either because there is an inadequate total supply or because the limited
supply that does exist is rented to those with a higher capacity to pay, are forced into housing
stress by Virtue of having to pay 30 percent or more of their income in rent.
On the other hand, the experience of some developed countries show that, government tried to
improve housing condition by reducing the price low income households have to pay for shelter,
improving the quality of the physical stock, and by helping households find the kind and amount
of housing that meets their basic needs. For instance it is explained by Arnold& Skaburskis
(1989:501) that in order to provide affordable housing during 1973 to 1978 the Canadian Federal
assisted home ownership program (CAHOP) helped over 134,000 lower income families by
modest priced housing to improve the low income households’ access to affordable housing.

2.6. Urban Housing policy

Housing policy can be defined in terms of measures designed to modify the quality, quantity,
price and ownership and control of housing (Murie, 1990:9). As a result, housing policy that
attempts to achieve greatest efficiency in the utilization of economic resources must respect the
preferences of the poor, by providing maximum flexibility and beneficiary participation in
project and program design. So, beneficiaries will have as much choices as possible between
alternative options for access, lot size, tenure, servicing, and shelter structure (Linn, 1983:127).

The unabated urban growth that has taken place in the developing countries since the turn of the
20th century has increasingly worsened their urban housing conditions (Chemerew, 2009:30).
One of the principal reasons behind the large scale appearance of slums and squatter settlement
is that the problem has not been meeting with timely and appropriate policy measures (Ibid.).

However, Chemerew (2008) further explain that, the last 60 years have seen major changes in
the ways that third world governments have tried to tackle housing problems in their major cities.
At one extreme, in initial stage, governments regarded public investment in housing as a waste of
scarce resources, believing that economic development will itself solve housing problems (Ibid.).
Therefore, nearly all countries of the developing world laid emphasis on investment in the
directly productive sectors such as agriculture, and manufacturing industries rather than on
housing and urban development. It appears that the same view was held in those days even by
the international organizations that gave assistance to development projects in third world
countries (Satterthwait and Hardoy. 1990; Solomon. 1985; cited in Chemerew (2008:30).

However, the traditional economic misconception that regarded investment in housing as a non-
productive investment could not last long since many writers seriously attacked it at least as of
the early 1960s (Chemerew, 2009:36). Later on, by the early 1970s, government acknowledged
the existence of housing problems: widely accepted that investment in the housing sector had a
positive and a far- reaching effect on the other development sectors. Then many third world
countries started provision or improvement of housing through different projects.

In the developing countries, derivers of housing policy in the immediate post 1945 period,
essentially paternalistic colonial and post colonial housing policy intervention, were cultivated
through the British colonial office and the USAID. More recently, the role of international
agencies has become more pronounced. For example, the WB began housing policy programs in
1972, and the UNCHS was established in 1978, following the UN- Habitat I in 1976 (Tibaijuka,
2009: 167). The global strategy for shelter followed at the second UN-Conference on human
settlements (HABITAT II) in 1996, which aimed to achieve decent housing for all by 2000-an
ambition that clearly failed (Ibid.). This was soon followed by the Millennium development
Goals (MDGs), with a slums target to achieve a significant improvement in the lives of at least
100 million slum dwellers by 2020 (Ibid.).

Although, housing related policy in developed countries was originally directed at improving
public health (HABITAT 2009:192). The failure of the market, supplemented by minimum
standards of building and occupancy, was a central driver in the development of housing policy
in today’s developed countries (Ibid.). The promotion of social rented housing is one of the most
direct expressions of housing as a social policy with the primary objective of removing large
housing shortage and removing sub standard housing (Ibid :193).

2.6.1. HOUSING POLICY OF ETHIOPIA

The national urban development policy is issued in 2005. Among other main issues housing
development policy direction is focusing on enhancing the saving culture, overcoming the
problems of decayed (demolished) urban areas through urban renewal and upgrading, increasing
the density of developed area, developing the construction industry, through the implementation
of IHDP. The government intervention in line with facilitating housing finance, land, capacity
building, bulk purchase of industrial product of construction material, organizing medium and
small scale enterprises, introducing new construction technology that minimize cost and time,
standardizing the housing could be mentioned. The policy also encourages real estate developers
through the facilitation of developed land, strengthen the system for ensuring property rights,
supporting the developers to utilize local materials, marketing and create forums of discussion
for sustainable solving problems and encourage the investors(Teshome, 2009:6). Similarly,
cooperatives have got attention through the facilitation of developed land, standard typologies,
etc. Protecting the construction of illegal houses or those does not confirm to the standard and
plan has got emphasis in the policy (Ibid.).

However, current though housing policy is not yet formulated at national and city level. The city
housing principle is following the free market economic policy adopted in 1991 that create
conducive atmosphere for private sector particularly the real estate developers to participate in
housing development. As a result, the federal government enacted proclamation on urban
development policy that gives high attention for alleviating housing problems of urban areas .In
connection with the housing development programs gives prior attention for alleviating housing
problem of low income households. It promotes high rise (up to G+4) condominium buildings
with a minimum built up area of 22m2 to minimize the constriction cost so as to benefit low
income families. However, the construction costs depending on the soil conditions, availability
of the building materials, availability of cheap labor force, and housing types of the construction
area.
2.7. Urban Housing Finance

The level of resources allocated to housing and the role assigned to it vary across various regions
and between countries. Experiences in housing finance around the world demonstrate that broad,
market based systems are the most effective vehicle through which to provide financial resources
for shelter development (Habitat, 1996:202). According to Habitat (1996:202), a fundamental
problem facing government, however, is that formal sector financial institutions seldom lend
down market to serve the needs and requirements of low income households. This is because the
mode of operation followed by formal financial institution is not compatible with their economic
characteristic and financing need (Ibid.).

Since house purchase represents a very large capital outlay for the consumer, which can rarely be
financed out of income, borrowing is necessary and the availability of long term credit is of
critical importance in making demand for owner occupation effective. Even though, some house
buyers may be able to obtain a long term loan from a friend or a relative, an effective housing
finance system is dependent up on institutions ability to broadly match people’s willingness to
save with people’s desire to borrow (Balchin et.al. 2000:142). Further it explained by the authors
that, this is achieved by means of a contractual system whereby potential buyers make regular
saving over an agreed period of time of a low rate of interest and then receive a loan equal to the
difference between the full purchase price of a house and the value of their savings. The other
way is a deposit taking system whereby institutions such as commercial banks, saving banks, and
specialist housing banks attract savings from one group of people and lend them to another group
of people who wish to buy. A mortgage bank system in which financial institutions sell bond on
a capital market (at the prevailing rate of interest) to insurance companies and pension funds and
use the money to lend to house buyers is the other way through they achieve an effective housing
finance system(Ibid.).

However, as different literatures show that, in most developing countries the unavailability of
housing finance for a large proportion of low and lower middle income groups who have
considerable capacity to save, invest in housing and repay loans is a major constraint on
improving their housing quality and housing quantity in the city over all. It also slows down
housing construction, especially where a high proportion of new housing units are constructed by
self help (HABITAT, 1996:203).

On the other hand, construction costs were considerably higher relative to incomes in the lowest
income countries, which suggest that the efficiency of the residential construction industry
generally increases, as country’s per-capital income increases (Habitat, 1996:204). Construction
costs were particularly high in cites in sub-Saharan Africa, relative to per capita income, which
could be partially explained by high building material prices, the scarcity of skilled labor, high
transport costs, and inappropriate standards and overvalued exchange rates

2.7.1. CONVENTIONAL MORTGAGE FINANCE

Conventional mortgage finance is typically a large loan that is extended for a term of 10 to 30
years, with a minimum and regular income requirement, and the provision of immovable
tangible assets and registered title deed as collateral (Tibaijuka, 2009:139). Usually provided by
formal sector financial organizations, mortgage finance is directed at the purchase of completed
housing units, borrowers are required to demonstrate saving ranging from 10 to 30 percent of the
units value and repayments should not exceed 25 percent of household income (Ibid.).
Repayments of loans are fixed with regular periodic payments which consist of both capital and
interest (Ibid.).

In developing countries, mortgage markets start first in the largest cities, usually the capital city,
where the commercial banking sector takes root, where there are enough potential borrowers to
launch mortgage lending on a cost-effective scale and where housing units usually have the
highest value ( Rabenhorst and Ignatova, 2009:2). Condominium housing often represents a
substantial portion of the potential market for mortgage lending in large cities; in many countries
it is the largest segment of the market (Ibid.). As a result, Condominium markets are expanding
all over the world, especially in large cities, as more people see owner-occupied apartment
housing as an attractive alternative to single family housing more affordable, secure, easily
serviced by urban infrastructure, energy and resource friendly(Ibid.).

2.7.2. HOUSING SUBSIDIES

Housing subsidies exist in many different forms, including direct interest rate reduction, capital
grant subsidies; subsidies which support the insurance of mortgages and secondary mortgage
markets high level of subsidization address the problems of affordability.

Substantial subsidies through the provision of heavily subsidized serviced land, building
materials, and technical assistance sometimes identified as supply side subsidies often operated
as blow market rate mortgages (Tibaijika; 2009:143).