Smart Cities

How More Affordable Housing Can Impact Job Creation and Productivity

Businesses add their voice (and powerful data) to those of artists, activists and analysts calling to make housing in cities more affordable.

July 17, 2016

The global challenge of ensuring affordable housing in growing cities has inspired laments about a loss of the grassroots vitality that made cities hotbeds of culture and fears about the capacity to provide for newcomers from the countryside in developing nations. However, there’s a new source of momentum for affordable housing: The Global Cities Business Alliance, (GCBA), a not-for-profit launched by a coalition of businesses from across diverse sectors.

If that seems unusual, consider the findings of a report released by the GCBA (of which MasterCard is a member) this spring, Housing for Inclusive Cities: The economic impact of high housing costs. Among them: Of the 15 major world cities examined, San Francisco had the most expensive average monthly rents ($2,824), whereas Beijing ranked as the least-affordable city, with average housing costs accounting for more than 100% of net earnings—suggesting that a worker with an average salary cannot live alone in typical city accommodation. As the report details, these findings have business implications for everything from consumption to compensation.

Fresh off the Alliance’s 2016 Symposium, we spoke with Programme Director Gary Sharkey about the report and how efforts in the private sector can help move the dial on making cities more affordable and inclusive.

Some of the most striking findings in the recent report are the nearly $7 billion in unrealized spending for New York City and nearly $6 billion for Hong Kong that would be unleashed if more affordable housing were available. How likely do you think it is that public and private sector leaders will look at this and push for some kind of change?

It’s more than inevitable, it’s already happening. Our follow-on Policies in Practice report launched at the Symposium looks at approaches being taken in a cross section of global cities to address housing cost challenges. These range from innovative land use and transport planning strategies to new mechanisms for financing housing or measures to influence demand. Costs continue to rise despite these innovations though, so we hope to continue to explore how different approaches might have the best chances for success in individual cities.

What does the research suggest would be the implications for job creation in these cities by freeing up income currently spent on high housing costs? 

Our research points to a few ways new jobs could be created in cities if housing were more affordable. The first of these is linked to urban citizens’ disposable income. In most of the cities we studied, housing costs take up a relatively large portion of employee salaries. If these urban workers didn’t spend so much of their salaries on housing, supplying the goods and services they’d otherwise consume should provide an employment boost. Similarly, the research showed that employers in leading global cities have to pay premium wages to attract and retain talent. If these premiums were lower, businesses would likely hire more employees to support overall productive economic activity. Urban leaders are already seeking to improve affordability of cities in the context of their social goals. Our research suggests that beyond these social goals, affordability can also help drive economic productivity and prosperity for urban citizens.

Compared with past efforts, how is the GBCA offering more innovative initiatives to foster knowledge-exchange among cities?

The first big difference is the focus of who we’re engaging. A number of the more effective city networks such as C40 or Rockefeller’s 100 Resilient Cities are issue-focused, looking, for example, at urban security issues or climate resilience. Yet, despite the good work being done by these networks, when setting up the GCBA, we found that many of these initiatives have a focus on city authorities, facilitating dialogue primarily among officials.

Learning from the experience of London First, we sought to create a different dynamic that would be focused on, funded by and governed by business—explicitly seeking to convene multi-stakeholder dialogues on urban issues at both global and local levels. 

The second big difference between GCBA and other initiatives is our focus on the world’s business capitals. These large and economically significant cities are well-integrated into the global economy and strategic for business. Innovative approaches pioneered by smaller cities often face challenges in both scale and complexity for applications in larger cities. Over time, we’ll certainly want to create mechanisms to integrate these innovations into our city-business dialogues, but, for the short term, the feedback we’ve gotten from cities is that this primary focus on a specific peer group of cities is helpful and is one of the reasons we’re gaining momentum.

What were the most promising developments coming out of this month’s global summit?
After collaborative global research on city-business interaction and housing over the past year, it’s great to see these two projects now moving to local levels, investigating how our comparative global approach might be able to begin to address specific challenges in individual cities.

On the city-business interaction side, we’re going to Chicago, where the city already has effective strategic dialogue with its business community through initiatives like World Business Chicago, but has had less success engaging the city’s technology companies and start-ups in the same kind of long-term strategic dialogue. It will be great to see how other cities’ achievements in this area might be able to support Chicago’s efforts.

Similarly, after having our Global Cities Symposium in London this year and planned for New York City next year, it’s great to see that our Housing for Inclusive Cities project will now turn its attention to these cities, building from our work this year and investigating what insights a comparative look at the their respective residential housing markets might surface.

Interested in taking a deeper dive into the issue? Check out these reads:

What makes housing affordable?

Amid so much talk of affordable housing, it’s important to have a baseline definition of what that term actually means. This piece offers a useful introduction to this term and the challenges involved in creating a definition that holds up in international comparisons.

The paradox of soil  

This article in The Economist takes a global view of a driver of rising housing expenses: the costs of land.