An adequate supply of affordable housing will be essential for Vietnam to achieve its national development targets, given the country’s rapid and continuous urbanization, a World Bank report states.

Meeting demand for affordable housing will also enable Vietnam to maintain a high rate of growth, with cities contributing a growing share of jobs and GDP, the World Bank said on Thursday, citing its “Vietnam Affordable Housing - A Way Forward” report.

Vietnam’s population growth and new demand for housing in cities are expected to be driven by the structural shift out of rural areas and toward a higher-productivity manufacturing and service-based economy, according to the report.

The share of the urban population is expected to reach 50 percent by 2040, with an estimated 374,000 additional units needed in cities each year to cope with demand.

“Urbanization has been used as a tool to accelerate economic growth and poverty reduction in many countries around the world, and affordable housing will be instrumental to helping Vietnam achieve its goals for increasing productivity and inclusive urban growth,” the report states.

According to the report, despite economic growth, Vietnam still has a substantial deficit of quality housing, with almost 20 percent or approximately 4.8 million households in Vietnam still living in poor conditions.

Meanwhile, the majority of new demand for housing will be concentrated in only a few major cities and industrial zones.

The Red River Delta Region, surrounding Hanoi, and the South East Region around Ho Chi Minh City, will collectively account for around two-thirds of new housing demand, according to the report.

Vietnam has experienced several phases of housing development policy in the past.

Following liberalization of the sector, growth in the real estate sector spurred by direct foreign investment and speculation led to a significant increases in home prices and supply in the luxury market that eventually resulted in a real estate bubble from 2009-2012.

The recent VND30 trillion (US$1.44 billion) stimulus package, launched in 2012, has helped to reorient developers and lenders toward the affordable middle income market where there are real home ownership needs.

Taking effect on June 1, 2012, the home-buying stimulus package has allowed members of the public to take low-interest loans at a rate of 6 percent a year to purchase apartments from social housing projects. The credit package has also helped home developers build new houses or convert their current commercial projects into social housing projects.

As of the end of October 2015, more than VND21.51 trillion ($960.27 million) or 72 percent of the package had been disbursed, according to the housing department under the Ministry of Construction.

In the middle of this year, the Vietnamese government also passed a revised law on housing, providing a strong legal framework for reforms with a focus on supporting self-built housing.

Self-built housing is seen as phaving an important role in private sector housing provision and in addressing the shortage of affordable rentals, especially for workers in industrial zones and students, according to the World Bank report.

Recommendations for Vietnam’s affordable housing

The “Vietnam Affordable Housing - A Way Forward” report also includes a comprehensive sector assessment and roadmap for affordable housing in Vietnam, plus some recommendations from the World Bank.

It is recommended that Vietnam increase and reorient government spending to the housing sector, particularly by focusing on programs that support and target the lowest two income quintiles and high growth cities, where the need for housing is most urgent, the report says.

The Southeast Asian country should consider developing a National Affordable Housing Program, to act as a vehicle to implement the 2015 law on housing and structure the government’s interventions in the housing sector.

Such a program would include initiatives to improve access to housing finance, stimulate supply of affordable rental housing and enable delivery of core housing to support the self-built housing sector, the report elaborates.

It is also advised that Vietnam prioritize structural reforms to improve governance of the housing sector and urban land management, with specific priorities including a strengthening of an over-arching coordinating body that convenes all stakeholders and orchestrates implementation of selected housing initiatives, and to introduce reforms in the land taxation framework.

The country should also support market development by investing in the building blocks of a functioning housing sector, including regulatory reforms to incentivize greater private sector participation, improved real estate information systems, as well as monitoring and evaluation standards, according to the report.

“These key messages should be further elaborated into a concrete set of policy and program options, organized into six priority areas of action, to help inform and shape the government of Vietnam’s interventions in the housing sector moving forward,” the report says.

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