Honorable Rector and Host Professor Adam Budnikowski,
Honorable Mariusz Handzlik, Undersecretary of State in the Chancellory of the President of Poland,
Honorable Olgierd Dziekomski, Undersecretary of State at the Ministry of Infrastructure,
Professor Marek Bryx, Vice-Rector,
Professor Andrzej Herman, Dean of Collegium of Business Administration,
Professor Andrzej Kowalski,
Distinguished Members of the Senate,
Ladies and Gentlemen,
It is a great honour and privilege for me to accept the Honorary Degree conferred upon me today by the prestigious Warsaw School of Economics. I must start by expressing my deep and humble appreciation to this School as well as the many others involved in initiating and supporting this highly significant gesture of recognition.
I also want to express my pleasure at having this opportunity to visit Warsaw and Poland again. A country which has from the beginning engaged actively in the promotion of the Habitat Agenda. Poland has been supporting UN-HABITAT not just with words but also with deeds, as witnessed by supporting one of our offices here in Warsaw. Just as importantly, Poland is a country which, has undergone a peaceful and successful transition which it can be proud of. It is a best practice in governance reforms.
Ladies and Gentlemen,
As you know by now, I am an economist by profession so I stand here amongst colleagues and fellow professionals. I also head the United Nations Human Settlements Programme (UN-HABITAT) which is mandated by the UN General Assembly to promote socially and environmentally sustainable towns and cities with the goal of providing adequate shelter for all.
As our towns and cities grow at unprecedented rates they are setting the social, political, cultural and environmental trends of the world. Sustainable urbanisation is one of the most pressing challenges facing the global community in the 21st century. In 1950, one-third of the world’s people lived in cities. Just 50 years later, this proportion has risen to one-half and will continue to grow to two-thirds, or 6 billion people, by 2050. Cities are now home to half of humankind. Homo sapien has transformed to Homo urbanus.
While, on the one hand, urban centres are the hubs for economic and social processes that generate wealth and opportunity, they have also become loci for poverty, inequality and vulnerability. Our common quest for a sustainable future therefore cannot be realised without taking into account the role of urbanization and its consequences, both positive and negative.
In cities of developed countries, social exclusion, urban segregation and persistent pockets of destitution and poverty are increasingly becoming common. In countries with economies in transition, income differentials within urban areas are rising, creating a mosaic of spatial inequality. In developing countries, slum dwellers number more than 50 per cent of the urban population and have little or no access to shelter, water, and sanitation. 1.2 billion people live in slums and could rise to 2 billion by 2030.
In addition, nations are facing their worst economic recession since World War II. Unemployment has risen to its highest level in recent times. According to UN estimates an additional 100 million people will join the ranks of the poor. A further compounding threat is climate change which exacerbates existing social, economic and environmental problems.
The world is now focused on forging an agreement to curb Climate Change in Copenhagen or allow future generations to perish, as was clearly shown at Poznan at the COP14 meeting you hosted last December.
UN-HABITAT’s work revolves around four key determinants of sustainable urbanisation namely land and housing for all, participatory planning and governance, environmentally sound infrastructure and services and innovative housing and urban infrastructure finance. Amongst the various determinants of sustainability, I now wish to focus specifically on housing for the following reason: over the years, I have come to realise the missing link between current economic development theory and practice and the role of housing as an engine of economic development. The leading sector economic theory of Rostow is familiar to this audience. Yet, the housing sector is hardly considered as a driver or leading sector in the transformation of economies.
Since my last visit at this distinguished institution (of 18 April 2008) when I gave a lecture on on “the crisis of scarcity in urban space”, I have increased my effort to raise awareness about the central role of housing in economic development ., I published a book on this subject. Permit me to share with you my thoughts on this matter through the rest of my address. I strongly feel that this remains a major gap within the subject matter of economics and economic development policy formulation that needs to be addressed.
For many years housing was treated as a social, non-productive consumption good. It was either treated as an adjunct to economic and industrial policy or at best as a marginal item in the economic planning process. After several decades of debate on what housing might contribute to economic growth, it is now a widely held view that housing is not just a peripheral activity but a central force of sound economic development, much in the same way as investments in transportation, power and communication. We now have clear empirical evidence that demonstrates the multifaceted ways in which housing impacts on the process of economic growth.
My book documents how the housing sector has typically played a leading role in the process of economic recovery from depression or recession. Evidence that one of the most effective ways of stimulating economic recovery - or avoiding a slide into economic recession - is public investment in housing and infrastructure is overwhelming.
I should like to mention here the case of China. China has been pursuing an aggressive housing and urban development policy for over two decades. This, according to many experts, has contributed to about a third of the impressive economic growth and gains in productivity we have all witnessed. Just as importantly, China was the first major economy to implement a stimulus package to ward off the worst consequences of the international financial crisis. Approximately one-third of this US$ 600 billion stimulus package was devoted to infrastructure and another third to affordable housing.
More importantly, housing has significant impacts on economic growth and capital formation. Whether in developed or developing countries, the share of value added by the construction sector is usually between 3 and 10 per cent of GDP. Typically, a third of this originates from housing. Furthermore, the housing sector contributes between 40 and 70 per cent to gross fixed capital formation in most countries. The importance of housing is even greater in developing countries where informal activities, which constitute about 80 per cent of residential construction, are not usually reported or are greatly undervalued. Clearly, these trends illustrate that the housing sector is at the centre stage of national economic well being and cannot be ignored by policy makers in any sphere of government.
The housing sector also plays an important role with regards to employment. Construction activities create jobs directly through on-site employment and indirectly through backward linkages with industries that produce building materials and related products. The income and employment effects of housing construction in the US, for example, clearly illustrate the economic significance of the sector. In 2005 the construction of an average single family unit generated as many as three jobs directly and indirectly. In developing countries, for every job created in residential construction, two are created elsewhere.
The provision of adequate housing is also critical for raising labour productivity. Decent and affordable housing improves the economic efficiency of all of the other productive sectors of the economy. The welfare and health dimensions of housing must be emphasised. Human welfare is the product of a complex web of interacting resource flows, and housing is one critical item of such flows. The extent to which people can live in safe, sound and well-equipped housing is not just a powerful indicator of wellbeing, it is critical to economic productivity.
The role of housing assumes even greater economic significance when savings are considered. Home ownership is one of the highest priorities in terms of asset acquisition for most people. They are prepared to make sacrifices in other areas in order to purchase a home. If effectively mobilized and properly channelled, these household funds can serve as a tool for the development of both a housing finance system and the domestic economy as a whole.
Indeed, it will be impossible to achieve the UN Millennium Development Goals (MDGs) without paying adequate attention to the provision of housing and related infrastructure. Put differently, housing is directly or indirectly related to these goals and can be a lead sector in achieving the objectives; it contributes to the reduction of social vices, enhances social harmony and improves health conditions, and contributes to sustainable environmental development.
Honourable Rector, Ladies and Gentlemen,
Despite the critical importance of housing, national development policies and programmes have, to a large extent, not given high priority to housing investments. This is partly due to stereotypical views of housing as being an ‘unproductive investment’, a ‘resource absorber’, a ‘consumer good’ and a ‘social overhead’. My book shows that the extent of this neglect of course varies according to economic development models, stages of economic development and the macro-economic variables at play. However, generally the housing sector is not given the attention it deserves as a productive sector.
In developing countries, housing accounts for only about 2 per cent of national government expenditure. The housing share of lending allocation by leading international financial institutions, in comparison with other sectors, was for a long time also negligible, to say the least. The first generation economic recovery programmes and poverty reduction strategies (PRSPs) mandated by the World Bank did not consider housing as a sector in which to invest. UN-HABITAT has been campaigning to change this.
A variety of policy and institutional frameworks are required to enhance the role of housing as a source of sustainable economic growth. A first step is the need to envision a larger role for housing investment in national economic development. Housing should not be seen as a ‘welfare’ issue but rather as a major source of economic growth. It needs to be included in national development programmes accordingly. National governments should then set annual targets and budgets for the housing sector in the same way that they do for sectors such as agriculture, industry and tourism.
Given that the functioning and contribution of housing to economic growth varies across economies, the need for context specific policies and interventions suited to the peculiar socio-cultural, economic and political circumstances is clear.
It is also critical for policymakers to very clearly link the economic effects of housing investment to macro-economic goals such as trade deficit reduction, employment generation, reducing inflation or increasing savings. The specific ways by which housing can influence poverty reduction and vice versa should be spelt out and promoted.
Without an effective institutional and regulatory framework, it will not be possible for housing to play a central role in economic development planning. Strong, dynamic and transparent institutions are required. Although created by government, such institutions need to be national in character and be equipped with extensive legislative powers.
In addition to these measures, a number of other policy and institutional frameworks are required with regards to housing finance. The perennial problem of affordable housing cannot be left to the market place alone. I need not remind this distinguished audience that at the at the core of the global and financial crisis we are living today, was the failure by the world’s biggest marketplace to establish affordable housing finance systems that were properly regulated by Government. The sub-prime mortgage crisis experienced first in the United States and its subsequent global contagion caught us by surprise. Needles to say, none of the traders of NO INCOME, NO JOBS and NO ASSETS (NINJA) mortgages could care less about the housing needs of the poor. We now know that reliance on people in private financial institutions far removed from the housing needs of the poor to provide them with mortgages does not work.
Even before this sub-prime mortgage crisis, UN-HABITAT has always advocated that Government must take the lead both in land-use planning and administration in support of affordable housing, and in promoting and supervising housing finance systems that are pro-poor and will cater for all income groups with a balanced gender perspective. Women and the children they support are a special category for priority not only for social and ethical reasons, but as an economic imperative.
For this reason, we are launching the World Urban Campaign at the 5th session of the World Urban Forum in Rio de Janeiro, 22-26 March 2010. This Campaign is designed to elevate the importance accorded to affordable housing and inclusive urban development in national policy. It is my sincere wish that the Government and the institutions of Poland will participate actively in this Campaign.
Given that the functioning and contribution of housing to economic growth varies across economies, the need for context specific policies and interventions suited to the peculiar socio-cultural, economic and political circumstances is clear. In this regard the book features a number of case studies including the evolution of housing policies in Poland from 1945 to present day
In closing, I wish to reiterate that housing can be a critical lever in economic development. Attempts at building long-term prosperity must include housing as a major contributor to national wealth creation efforts. For such a shift in thinking and approach, it is essential that housing becomes integral to the subject matter of economics and how it is taught. I am hopeful that this esteemed School, where we are gathered here today, its members and affiliates will share this perspective and lead the way. The honour bestowed on me today is a good sign in that direction.
Once again I thank you for your warm hospitality and kind attention.