Thursday, 18 August 2016

Beloved Cairo, here’s how we can fix you — together

Change is both a glacial process and an overnight phenomenon, as all of us have learned in the past decade. That’s the key thing to keep in mind as we draw our series to a close, asking in our fifth and final installment: When all is said and done, what can we do?

It starts with a change in mindset

It’s not enough to talk about capacity building, regulatory change and intra-agency coordination. If we’re going to make a dent in the average of four hours that each Cairene spends in transit each day and the number of homes needed for them, we need to change how we think about the housing and urban planning policies as well as governance at both the national and municipal levels.

A change in mindset starts with a clear-headed approach to policy, and as with anything, it’s less a case of coming up with a new solution as it is adapting proven strategies to our Egyptian reality. Charles Euchner, editor and writer at the Yale School of Management, is the man who coordinated Boston’s first citywide planning process back in 1965. As he sees it, the three tenets of a good urban plan are strong support from the central authority; a clear definition of the plan; and a rigorous process that involves broad engagement from all stakeholders, including the public and private sectors, civil society and professional organizations.

Boston isn’t Cairo, we all know that. But when it comes to housing policies that can have a transformative effect on cities, the rules of the game are largely universal.

Take Mexico, an example very similar to our own emerging-market reality, and you’ll see how transformation in the country’s housing sector began when the authorities took serious steps in 2012 with a new approach to housing and urban policy. How? They shifted from quantitative objectives for housing to the more qualitative goal of building more inclusive and sustainable cities that meet the needs of Mexicans from different income brackets.

That meant building homes that people can afford by working together with the private sector to come up with mutually rewarding business cases for addressing middle-income homeowners, providing adequate means to finance those homes and making sure the people will want to move into the new communities that are being developed — integrated communities, in other words, that allow people to live, work and play in a reasonably tight, focused geographic area.

Finding the “missing middle”

As this happens, the “missing middle” is key: Middle-income citizens (as we discussed in part 3 of this series) and small- and mid-sized businesses are the engines of national progress. Each is too often ignored by big business and government alike in favor of plans that focus on large-scale enterprises and low-income families. In doing so, we ignore perhaps 70% of the population — and, according to the Finance Ministry, the enterprises that account for perhaps 80% of the nation’s jobs (if you include very small and small enterprises in the SME definition).

It is, in other words, about integrated communities: Before we announce sweepingly-ambitious plans about new developments, let’s take a step back and look at who is going to live there, whether they’ll be able to afford to live there and whether they’ll actually want to live there.

As past experiences with Cairo’s satellite cities have shown, simply building units and expecting people to automatically move away from the city (the quantitative approach) is not a solution in and of itself. In some instances, this has created more of a problem because the new communities often lacked the proper infrastructure to support a resident population. Without public transportation, jobs and services in some of these areas, middle- and low-income families are unable to move. The result has been the row upon row of vacant middle-income homes we see in areas like Sheikh Zayed and Six October.

Pricing

Any plausible housing plan that can effectively address the gap between supply and demand must be government-led and regulated — with the involvement and support of a private sector that is ready and willing to jump in provided they are given the proper mechanisms to address various market segments. This will require availing well-priced land in the outskirts of Cairo that can allow us to offer units starting at EGP 350,000, bearing in mind that no private developer can bear a cost of more than EGP 3,500 per sqm. It will also require a streamlining of policies and procedures to facilitate the granting of permits as well as the registration of property so that, one day, mortgages can become more readily available to a larger segment of the population.

Financing

As we discussed last week, mortgage finance in its current incarnation is no magic solution to our housing crisis: Interest rates are simply too high. We need to price for market fit, yes. But we also have to provide middle-income earners with the means to finance their home purchases. The government will have to make a bold decision: That part of the savings from the curtailing of subsidies be invested in making subsidized capital available to banks to lend onward to qualified borrowers. In parallel, policy makers need to plan for the day when subsidized mortgages will become the exception rather than the norm — for a day when inflation is below 7%, let’s say, and interest rates are comfortably in the 5-6% range.

Incentives — for the informal sector, not just for “Big Business”

Policy makers have recently signaled that investment incentives for businesses are back on the table, as the recent discussion about bringing back free zones illustrates. Ideally, these incentives will benefit not just “Big Business,” but small- and medium-sized companies, too. But it can’t stop there. Solving our urban planning crisis means addressing the informal sector, and here incentives are less “tax breaks” and special perquisites and more “carrot and stick.”

Wildcat builders need to be given an incentive for playing ball: Respect setbacks and build to code, for example, and gain access to infrastructure, schools and health and fire services. For decades, we’ve plowed budget funds and international aid alike into informal settlements, but too often we’ve demanded nothing in return.

Embrace your inner Keynsian…

And while we’re on the subject of spending, we should (to an extent) embrace our inner Keynsian — the notion that government spending on infrastructure programs can not only stabilize economies, but help them grow out of downcycles. Infrastructure spending creates massive future wealth (cf: Dubai, which used “cheap money” in the early 2000s to build infrastructure that will last for generations). Infrastructure spending, incentives and incubators, as we’ve discussed, will help create not just a more livable and vibrant city, but also a viable tax base, ensuring the benefits are sustainable at the local level.

Yes, a tax base — at the local level

Local solutions to local problems demand local access to capital. And local governments obtain that capital by taxing (or receiving a portion of the tax proceeds) from businesses and residents that fall within their jurisdiction. It’s inarguable that Egypt is still moving through a period of significant political change. It’s equally inarguable that the constitution provides for local government representation. When the time is right, Egypt would benefit from an open discussion about the extent to which the budgets of local officials should be a function of their local tax base — and the extent to which they should be free to spend that funding on locally important initiatives, all while under effective national oversight at the policy and accountability levels.

Conclusion

Putting these new mechanisms into motion will not only benefit existing private sector developers, it will also open the door for new smaller players to enter the market — which will in turn bring us closer to bridging the housing deficit, creating thousands of new jobs and ultimately expanding the real estate sector and growing the economy as a whole.

Unless these issues are addressed, it will be difficult to move beyond the stage of ad hoc housing projects and on to a more successful and sustainable housing and urban policy that can provide decent homes for all Egyptians — something we argue should be at the heart of any long-term reform agenda.

It would be unfair to say the government is not aware of the dire need for action. Several promising initiatives have been announced lately such as the aforementioned Tahya Misr project to eradicate the ashwa’iyyat and the plan to build no less than four new cities and double Egypt’s urbanized land as part of Egypt’s Vision 2030 announced last March. The ambitious plan would mean building 7.5 mn new homes along with the corresponding infrastructure.

All these programs have merit. What they need is a cohesive plan that includes all stakeholders — and clear consensus and guidelines for implementation. A plan based on a real conversation between all of the stakeholders about a vision for Cairo in 2050 that will densify desert communities, de-densify informal neighborhoods, reimagine the suburbs and ensure Cairo’s urban center remains the core of our beloved capital city.

** This is part five of a five-part series by SODIC, a leading real estate developer and proud sponsor of Enterprise, in which the company shares its views on how business and government can work together to save Cairo — doing good for more than 20 mn people and making a reasonable profit at the same time. We hope you’ve enjoyed the series and would welcome comments and feedback on editorial@enterprise.press.

**  Read the full series:

 

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