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In the face of COVID-19, informal housing markets can make or break a recovery

by Jessan Catre | Habitat for Humanity’s Terwilliger Center for Innovation in Shelter
Monday, 25 May 2020 10:23 GMT

* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.

Taking action now will help ensure the survival of informal housing markets that are so crucial to economic recovery

Jessan Catre is the Philippines Country Manager at Habitat for Humanity’s Terwilliger Center for Innovation in Shelter

The COVID-19 pandemic has completely upended the life that Arfel Aljohon, a carpenter, worked so hard to build for his family in the heart of the Philippines.

In late March, all of Cebu island was put under "enhanced community quarantine," an almost total lockdown, including the temporary closure of non-essential shops and businesses. These restrictions, while necessary to minimize spread of the deadly virus, meant the pipeline of work he had lined up came to an abrupt halt, and with it the $8 to $10 he expected to earn daily. One of his daughters was a teacher at a private school, and she also contributed to the family purse. When the school closed, her salary stopped too.

Overnight, Aljohon and his family went from feeling comfortable to wondering how they were going to survive, let alone support their four aging parents and other relatives near their home in Bogo City, Cebu Province.  To make matters worse, Aljohon was about to complete repairs on their house but now can’t afford to, so the family feels particularly vulnerable to COVID-19.

Aljohon’s ordeal is tragically common, not only across the Philippines but also in the other middle-income countries. So as governments and development organizations around the world consider how to prevent an economic and social catastrophe, it’s extremely important that they understand how local building and local housing markets really work.

Many of the 1.6 billion people who lack adequate housing make do by building and repairing their homes incrementally as family finances allow. Houses built in this way comprise from 20 to 70 percent of housing stock in the Global South. The informal housing markets that cater to these builders are massive as well.

Shocks to the housing sector produce far-reaching ripple effects, starting with informal businesses like Aljohon’s. They are some of the most vulnerable to the effects of COVID-19. We are already seeing low-income families worldwide postponing construction projects and using the money for even more basic needs, such as food and medicine.

As a result, masons and carpenters stop working. Demand for materials decreases, hitting local building material retailers. Upstream, this affects construction materials manufacturers, with paralyzed supply chains disrupting the flow of raw materials. The disruption spans the entire construction supply chain. With manufacturing halted in many countries, critical building materials are unavailable to households. So even if and when families are ready to improve their homes, they are unable to do so.

Similarly, the financial sector also is in lockdown. Banks are deemed essential businesses but the microfinance institutions that most low-income homebuilders turn to for external funding are not. Without regular repayments, their survival is in jeopardy.

Fortunately, there is an upside to this complicated web of interdependence. A well-functioning housing market can serve as the foundation to the economic recovery needed to create prosperous and resilient societies. Under normal circumstances, the construction sector, of which housing is an important segment, is one of the largest in the global economy, representing $10 trillion in spending annually and employing millions of people such as Aljohon. Many governments, from the Philippines and Peru, realize this. They are already using investments in the construction sector, of which housing is a part of, as a driver for economic recovery from COVID-19.

But the devil is in the details. Incorporating housing into relief packages will mean little if those plans overlook the needs of low-income homebuilders and households. Three actions, in particular, will keep them at the center and truly protect housing markets for all:

First, as governments begin to invest in the housing sector in order to spur economic recovery, they must design bailouts with the informal sector in mind. In addition to working with large or mid-size developers focusing on new construction, they must ensure that funds flow to small-scale developers and businesses or microfinance institutions that can channel capital to people seeking to upgrade or expand existing homes.

Second, it is crucial that aid does not displace local market actors—including construction material companies, hardware stores, training providers, media entities and financial institutions—who will be irreplaceable in providing those services and products into the future. Financial relief should be channeled through these local housing market actors and when possible, through cash-based programming to make their homes safer during the pandemic.

Finally, as governments take steps to designate construction and housing as essential services, we must focus on the safety of the people who will be building back our communities and our economies. Construction laborers need access to personal protective equipment and training in how to use it. They also must be familiar with appropriate physical distancing guidelines and good hygiene habits to keep themselves, their clients and their own families safe.

Taking action now will help ensure the survival of informal housing markets that are so crucial to economic recovery. More importantly, they can help reverse the fortunes of families such as Aljohon’s who can once again feel secure in their own homes. That will allow them to begin building back their neighborhoods and, along with it, the hope that everyone in their community can house themselves safely, securely and sustainably.