Global investments fall far short of the needs of those living in vulnerable housing. Current calculations predict 3-4 trillion dollars are needed annually on a global scale Achieving adequate housing for all will be especially important for the 1 billion people living in informal housing.
Those who live in informal housing – that is housing built outside the processes known as formal constructionfor example, without the involvement of a licensed engineer or designer, or without a building permit – is at higher risk for a number of hazards. From health effects and the duration of exposure to loss and damage from disasters, the global climate crisis highlights the urgent needs for access to disaster and climate-resilient housing.
However, informality is not a problem in itself. Informal settlements remain hotbeds of economic activity, community resilience and growth. People want to stay in their homes for many reasons—they build communities and settlements and invest resources in their homes; for these reasons, achieving access to sustainable housing often requires upgrading existing housing.
To support investment in upgrading informal housing, focus should be on targeted financing that fulfills these functions. within a complex and often lagging regulatory environment and in service those living in informal housing, rather than adopting inappropriate models that are better suited to the formal housing market. By moving resources directly to those in need of improved housing conditions, the private sector can play a major role in reducing safety and health risks traditionally associated with informality to protect people’s lives, assets and well-being.
Mobilizing resources for sustainable housing
Why is there such a huge gap in financing global sustainable housing needs? For a number of reasons: inadequate information on informal housing, insufficient prioritization of informal versus formal housing structures, perceived complexity and risk, and insufficient engagement with local communities. All this is combined with the fact that countries at the forefront of climate vulnerability often lack the domestic resources to fully meet their needs and rely on global aid and foreign aid mechanisms.
Despite these challenges, there is ample private capital to finance this gap, and private sector actors can play a critical catalytic role in opening up investment avenues for sustainable housing finance. Critical actions that the private sector can take include:
- Recognize that housing is multidimensional across all sources of private capital: One way to do this on a large scale is to reframe, or rather conceptualize, housing investment as limited to a single sector. multidimensional financing with downstream effects on a number of development goals: gender equality, water and sanitation, health, economic growth, etc. Housing affects 14 of the 17 Sustainable Development Goals (SDGs). initiatives such as A NEW HOMEOrganizations led by the World Resources Institute draw attention to the central role housing can play in bridging the gap between those with access to basic services and those without.
- Adopt long-term investment plans to maximize the impact of socially responsible investments in informal housing. Another is to look at investments from a long-term perspective. Loans issued by commercial banks prevail short term with high interest ratesreducing its effectiveness in financing informal housing upgrades that would benefit from longer payback periods. By providing longer-term capital, homeowners can make needed improvements and upgrades to their homes for disaster and climate resilience sooner.
- Recognize that effective investment strategies for informal housing require adequate levels of technical assistance funding. Technical assistance can take many forms, from quality assurance to capacity building for actors across the value chain and development of tools and resources. Regardless of the implementation mechanism, this remains a major upfront cost in developing an effective strategy. By investing in technical assistance, investors can also mitigate risks such as poor construction or process cuts.
At the same time, it is important to avoid housing financing. Although houses often represent the majority of a household’s assets, and blended finance using homeowner savings is often an effective long-term strategy, it is important to avoid treating informal housing dwellers as the only source of capital in the housing improvement process. respect for dignity and the right to housing.
Deploying Microfinance Solutions in the Philippines
An example of where these strategies have been effective is the Philippines, which is currently ranked as the most risky country. World Risk Index it’s the third year. Build change and local microfinance institutions (MFIs) have taken the initiative an adaptation-oriented lending and technical assistance model It enables poor women to finance quality structural improvements to their informal homes as well as improvements for daily living.
This project combines affordable loan options covering the cost of common defect remediation through locally trusted MFIs and Build Change’s engineering and technology platforms to improve quality construction and payment performance. To date, the program has secured more than 9,000 people through improved housing.
This market-based solution has helped supply meet sustainable housing demands in the Philippines and is expanding to other countries such as Indonesia to meet the needs of the informal housing sector through effective lending and technical assistance.
Looking ahead to COP29 and beyond
As we look to COP29, billed as the “Financing COP”, the New Collective Quantitative Goal (NCQG) discussions will shape the future of adaptation finance and we hope easier and more transparent investment climate resilience and adaptation measures.
At the same time, private sector actors will have to be proactive in prioritizing housing investment and financing and influencing those living in informal settings.
This article is presented as part of our Climate Justice 2024 Series, which will run parallel to the Climate COP in Baku for the next two weeks.
In addition to in-depth articles and podcasts from our global community, we host an online event Community Forum November 21 (10 to 11:15 a.m. EST / 3 to 4:15 p.m. GMT). Join us as we come together as a community to explore how businesses can put people at the center of climate action.
