The state of Housing: Trends and Challenges for the Future


by Luiz de Mello, Director, Policy Studies, OECD Economics Department

The OECD has just launched a Housing Policy Toolkit to help policymakers deal with current and emerging challenges in the area of housing, share their experience and identify good practices. The Toolkit puts together evidence and analysis to inform policy choices and, ultimately, deliver better housing outcomes.

The Toolkit recognises that housing policies and regulations need to be forward-looking and anticipate changes in people’s needs, preferences and behaviour, as well as “megatrends” that affect economies and societies. The COVID-19 crisis, along with digitalisation, climate change and population ageing, will most likely have durable, yet uncertain, effects on housing demand and supply, including both the residential and commercial market segments. Buildings, structures and dwellings have a long life span, and as a result today’s policy choices will affect performance for many years to come. To the extent possible, poliymakers also need to foresee and respond to technological changes that affect the construction, use and maintenance of structures.

Starting with the COVID-19 crisis, the changes in preferences and behaviour triggered by the pandemic are likely to influence housing demand over the longer term. For example, if teleworking becomes more prevalent, housing demand may shift away from city centres towards peri-urban and rural areas, and from apartments to single-family dwellings. An associated relief on property prices in city centres would likely be accompanied by pressure elsewhere with an uncertain net effect on affordability, unless supply adjusts in tandem. And it is not only the supply of homes that would need to adjust but also that of urban amenities, transport infrastructure and social services.

Teleworking will also have a bearing on the demand for office space, putting downward pressure on commercial property prices in central business districts. If the fear of infectious diseases lingers, there could also be an increase in demand for larger offices to allow for effective physical distancing. This could somewhat offset the downward trend in demand due to teleworking.

Where these shifting demand patterns lead to a hollowing-out of city centres, there will be increased risk of urban decay and a loss of dynamism in areas where productivity tends to be highest. Alternatively, changing attitudes and work practices may create new opportunities for social and economic transformation in metropolitan areas that could become increasingly polycentric. At the same time, as density gives way to sprawl, the environmental footprint of cities will need to be reassessed, with implications for policy aimed to improve the environmental sustainability of the world’s metropolitan areas.

Digitalisation, beyond its effects through teleworking, also poses challenges. It affects the housing outlook in several ways and has considerable further transformative potential. For example, the expansion of digital platforms for short-time accommodation has put pressure on rental markets in many cities worldwide, a trend that may well continue when the tourism and hospitality industries recover from the COVID-19 crisis. It is also possible that the decline in short-term rentals during the pandemic turns out to be more durable than anticipated, freeing up rental housing for residents and hence making housing more affordable.

Moreover, digitalisation is re-shaping the “high street” with attendant changes in commercial property demand as in-person shopping is replaced by on-line retail trade. This phenomenon adds to the downward pressure on demand for office space in city centres associated with more widespread teleworking. Where regulations allow it, flexibility to convert commercial property and office space for residential use would facilitate the reallocation of housing capital to evolving demand for different uses, potentially making housing more affordable. However, there is a risk that disaffection for city centres gives rise to housing segregation as the better-off move away. These trends would pose challenges for urban planning and the design of land-use and zoning regulations.

At the same time, digitalisation offers several options for technological change and innovation in construction and “smart” management of buildings, not least through artificial intelligence and the internet of things. Innovations in urban planning and management are already taking place and can improve the management of traffic, urban amenities and infrastructure, as well as the energy efficiency of buildings and cities at large. These developments can make cities more attractive. Digitalisation could indeed improve the matching of supply and demand for dwellings. The rise of digital showings of properties during the COVID-19 crisis is likely to remain at least in part permanent, allowing for a better filtering of costly physical visits and ultimately more and better matches.

Yet another aspect of digitalisation is the scope for expanding fintech to offer a broader range of finance for investment in real estate. To the extent that these activities are regulated appropriately and financial stability is safeguarded, the entry of new participants in real estate markets can enhance competition, reduce borrowing costs and facilitate access to finance for those who currently struggle to do so. Investment in the energy efficiency of buildings can lower housing costs further as it reduces household spending on energy and improves their creditworthiness. Ultimately, more flexible housing finance could facilitate the adjustment of supply to changes in the demand for both residential and commercial property after the crisis, facilitating housing capital reallocation.

A final consideration is related to population ageing and climate change, which will influencehousing policies in the years to come.

Changes in demographics have highly asymmetric effects on housing markets. Falling demand in remote areas puts downward pressure on prices, at the same time as changing needs and preferences elsewhere require the retrofitting of buildings, a reconfiguration of living spaces and investment in adapted urban infrastructure. The implications of population ageing for policy go beyond housing and include urban planning and regional development considerations. 

Climate change raises the risk of natural disasters and capital depletion in coastal areas exposed to rising sea levels, just to cite a few. It influences construction patterns and the use of materials in buildings, calling for innovation to improve energy efficiency in response to changing weather conditions. It also has a bearing on the design, maintenance and upgrade of urban infrastructure. The attendant economic (private and public) costs need to be taken into account and pose challenges for urban planning and regional development, as well as disaster risk management and insurance.

Success on all these fronts will require appropriate policies, building on solid evidence, good practices and mutual learning. The OECD Housing Policy Toolkit can help.


For further reading, see Brick by Brick: Building Better Housing Policies

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