By Staff Reporter
Where you live affects everything in your life – from where you work, to who your friends are, to how many kids you can have and so on.
Housing can be traced back to most of the problems facing society, and where there are housing shortages, the problem of artificial scarcity rears its head in the form of higher prices. Which in turn affects things like birthrates and lower economic growth.
Counterintuitively, studies have shown that higher density actually reduces the problem of overcrowding, as a greater number of apartments allows for greater numbers of residents to stay in a desired locality rather than cramming into one apartment.
So, the silver bullet is greater supply, the one variable that can at least partially offset higher prices, especially in economies that are built more and more on intangible capital, a direction that Dubai and the UAE is moving towards.
More homes, higher productivity
This increased supply, apart from being a magnet for attracting capital and talent, serves another critical purpose: it increases productivity.
The more expensive housing gets, the more time people spend renting and move farther away from productive places. And thus spend more time commuting and less time they feel they can do other things (such as raising families).
Dubai, with its sights firmly on this, has unveiled a series of initiatives for first-time buyers, a measure that is likely to be emulated across the wider Gulf. We know from studies that productivity rises by an average of 2% every time a city doubles in size, and by more than that in downtown and clustered areas.
Yet, the high priests of capitalism (including sell-side analysts) would have you believe that not only is there not a supply issue that will affect prices, but that the only way is up. Prices, unlike trees, will grow to the sky.
Rent drops
There is no doubt that prices have risen far more than incomes, and if they are to fall towards replacement costs, the number of units have to rise substantially. The process that is now underway.
In a city like Dubai – where demand is subject to regulatory incentives always a funambulistic challenge, given geopolitical forces – developers can try and adjust “absorption” rates through delayed deliveries. But that is a consequence of other problems, and not part of any strategy that is being deployed.
Therefore, with rents (and prices) falling in certain areas, from areas such as Downtown Dubai to International City, the commentary has shifted towards the luxury end. No surprise there because that has been the tilt in supply from developers.
Rather than recognizing it as a welcome phenomena that increases the size and affordability of the marketplace, thereby allowing for other sectors of the economy to flourish. Mid-income areas like Arjan, Mayan and JVC similarly have seen their rents fall as well after a near tripling in the post-Covid period, clearly putting them out of reach of the median household. And contrary to the what the master community design was originally set out to accomplish.
Market forces, along with guided regulation, is part and parcel of what the Urban Plan 2040 is all about, where rising demand leads to greater supply rather than leading to the problem of artificial scarcity. (Which is what happened in cities like Tokyo Seoul, or New York before the 1920s.)
Indeed, what Dubai is aiming for is not only meant for the uber-luxury lifestyles, but rather a cohesive city where there is not only a menu of affordable options for housing through price smoothing and even corrections. Where through this process, people get better jobs, a better quality of life and more cohesive communities.
The recent initiative announced for first-time buyers is a step in that direction. It will certainly not be the last.
Source: Gulf News
