Why land matters in the fight for affordable housing

By Ore Fika, Senior Specialist in Urban Land and Housing Development, IHS

As housing prices continue to rise in both high and low-income countries, we observe the expansion of informal settlements, an increase in homelessness, gentrification, growing segregation and deepening socio-economic inequality.

These are not just policy buzzwords but harsh realities for millions of families and communities with limited options. As inequality widens, the demand for affordable housing for low- and middle-income groups is increasing and becoming more urgent than ever. Adequate housing is a fundamental human right, not a privilege, and no one should be deprived of a safe place to live.

Access to adequate housing is central to economic opportunity, healthcare, education, and other essential services, which are key to breaking poverty cycles, driving upward socio-economic mobility, and fostering a more equitable society. At IHS, we emphasise these principles in our Urban Housing & Land Justice Master track where students examine and evaluate land and housing socio-political economy and their complex process related to equity and social, gender and environmental justice.

Land is fundamental to all human activities, yet it is treated as a tradeable commodity used for profit-driven investments over social needs. Non-profitable land uses, which affordable housing sometimes falls under, are often not considered attractive investments as they do not generate high financial gains.

As a result, affordable housing provision, especially in areas with access to infrastructure and basic services, requires substantial subsidies as markets fail to provide below-market housing effectively. Access to land is fundamental to achieving all policy goals and at the centre of achieving sustainable development. Land is not just about the physical space. It is a necessity for all economic and social activities, making it a crucial factor for adequate housing.

Alongside capital and labour, land remains one of the fundamental factors of production. This makes land and its locational attributes a powerful economic asset whose value appreciates over time. It is a key source of wealth for those who own it and retain it over time, enabling them to benefit from rising land values.

The nature of land tends to be straightforward- with increasing demand, the longer it is held, the more the value increases, often without any labour or investment from the private landowner. This dynamic keeps land ownership attractive, providing landowners with exclusive advantages. It disproportionately benefits those with the financial means to acquire and retain it while excluding socio-economic groups that do not have the economic power to compete in land markets.

This scarce, highly sought, and immovable resource that is needed by all is even more problematic as it pertains to ‘well-located’ land, that is, areas with access to infrastructure and essential services, which are concentrated in the hands of a few, especially low- and middle-income countries. In urban and peri-urban areas, the dominant economic use of land is for housing development.

As demand for housing rises and land remains scarce, land prices surge, affecting housing affordability and providing a real estate market inaccessible to low and middle-income groups. Addressing this issue requires targeted, tailor-made interventions that include ensuring land tenure security for those who rely on affordable housing in informal settlements and providing multiple pathways to access affordable housing finance.

One of the effective pathways to finance affordable housing provision is land value capture (LVC). LVC is a financial mechanism that allows governments to leverage appreciating land values, driven by public investments such as urbanisation, infrastructure provision, land use changes and upzoning, etc., to fund affordable housing, infrastructure and provide essential services.

The value increments on land benefit private landowners and not society at large. Implementing LVC enables governments to claim parts of these gains and redistribute them to support the provision of affordable housing and related services.

LVC employs several instruments, many already in use in different countries, though not always used for capturing rising land values, while new instruments that fit legal and cultural contexts need to be introduced. Some examples of LVC instruments used around the world include: Inclusionary housing (USA and UK), land value taxations (USA and Taiwan), land leasing (China, Hong Kong, Singapore, Netherlands), development obligation (UK, Brazil, Colombia, and Netherlands), land readjustment (Japan, India and Colombia) and transfer of development rights (USA, Canada, Brazil, South Korea, the Philippines and India (for slum redevelopment).

While the use of LVC is promising, its adoption and implementation are often met with resistance from landowners who want to retain appreciating values. Success would only be possible with appropriate legal and institutional arrangements, political and public support, strengthening administrative and technical capacity, and financial transparency and accountability to build trust.

Land and its characteristics continue to play a role in driving up housing costs. It can also serve as an effective tool to finance and support the provision of affordable housing and key related services.