POLICY PARADOX IN HOUSING SUPPLY FOR THE URBAN POOR ...

POLICY PARADOX IN HOUSING SUPPLY FOR THE URBAN POOR:
A CASE OF DHAKA CITY, BANGLADESH
Md. KAMRUZZAMAN and Nobuyuki OGURA
University of the Ryukyus
ABSTRACT: This paper presents the conflicting goals in housing supply for the urban poor in Dhaka city,
Bangladesh. Dhaka is a burgeoning mega city and capital of Bangladesh with population of over 12 million,
30 percent of which lives in informal settlements and is classified as urban poor. They have so long been
suffered from housing ills even though they played important roles in the economic activities of the city. To
make housing programs accessible to the huge urban poor, the apportioned cost must be affordable to them
without subsidy and continued reliance on subsidy cannot be sustained if the housing programs aimed to
widen enough. As the resources of the Government are little, housing programs can only be sustained if
aimed at full cost recovery from the beneficiaries.
This study reviews the existing housing situation and the supply trend in Dhaka city. With a particular
reference to ‘Bhashantek Rehabilitation Project (BRP)’, an ongoing project devised to house 80,000 urban
poor in the outskirts of Dhaka, the study addresses the policy tool and the aptness of the project to the target
beneficiaries based on the ‘affordability’, ‘cost recovery’ and ‘replicability’ concepts. It revealed from the
analysis that BRP is deemed to be poorly fitted to the target population. The foreseeable outcome of the
project has a clear disparity with its aim which might not contribute well to curve the housing dearth of the
real poor. A more sophisticated role of the state is necessary to provide the institutional support for well
functioning property markets, as well as to capture the opportunities high value property markets provide.
KEYWORDS: Dhaka, Housing, Urban Poor.
1. INTRODUCTION
The growth of Dhaka city, which now has nearly
13 million inhabitants and ranks among the largest
metropolitan areas in the world, began in the early
1970s. During the last three decades, the population
in Dhaka grew rapidly, while the supply of housing
was sluggish. This resulted in housing shortage and
chronic house price inflation in the city. A great
majority of the city dwellers find difficulties to have a
decent shelter. They live in informal settlements and
manage to build and maintain their habitats without
direct or with very limited support from the formal
and public sectors, often in the face of tenure
insecurity. The private and informal entrepreneurs
supply scarce and costly housing resources to them.
The government, unable to meet the huge housing
demand on its own, is slowly espousing participatory
approach involving the private sector to deliver
shelter to the poor. In order to expand housing supply
in Dhaka, the government recently took projects for
the purpose of constructing apartments for the city’s
poor dwellers. The current low cost housing programs
in the developing countries were primarily brought by
the policy of cost realization adopted by the
international funding agencies led by the World Bank
(WB) in the 1970s (O’Hare et al., 1998). The aim of

this study is to evaluate the policy tool to the supply
housing for the urban poor based on
‘affordability–cost recovery–replicability’ concepts.
2. POPULATION GROWTH AND HOUSING
PROBLEM IN DHAKA CITY
2.1 Population Growth and Concentration
Dhaka is the tenth largest urban agglomerations in
the world with second fastest rate of population
growth and has become one of the mega cities of the
world (UN, 2004). The average annual growth rate
of Dhaka city’s population during the last three
decades has been over 7 percent, thus doubling its
population every decade. From a humble beginning
as a small colonial town, Dhaka emerged as a
prominent city when it was selected to be the capital
of Bangladesh in the 1970s. The result was that
while overall urban population growth averaged
5.4% between 1981 and 1991, Dhaka’s growth
averaged 6.5%. Since 1991, Dhaka’s population has
been experiencing growth rate of 4.3% compared to
a national average of 3.2% (Table. 1).
Table 1. Population, Growth Rate and Density in Dhaka
Year
Population
(million)
Annual
Growth
Rate (%)
Total Area
(sq. km)
Gross
Density
(per./km 2 )
1974 2.0 10.4 336 6,156
1981 3.4 8.1 509 6,759
1991 6.4 6.5 1,353 4,795
2001 9.9 4.3 1,464 6,771
Source: BBS, 2001, 2005
2.2 Housing Shortage and Situation in Dhaka
The ever-increasing number of people and
industries within the Dhaka city has created a serious
housing shortage. The imbalance between the total
number of households and the total housing stock is
often referred to as the great housing shortage in
Dhaka. In table 2, it is shown that the quantity of
houses is considerably below the number of
households. The growth of dwelling stock was
inadequate to cope with the increasing population and
the intensifying housing need in Dhaka. As a result,
the ratio of dwelling to households in Dhaka was 0.71
in 2001.
Table 2. Population, Households & Housing Stock, 1991-2001
Bangladesh Dhaka
Variables
1991 2001 1991 2001
Population (million) 106.3 123.2 6.4 9.9
Households (million) 19.3 25.4 1.1 2.1
Household Size 5.5 4.8 5.5 4.7
Housing Stock (million) 16.3 18.9 1.0 1.5
Source: Complied from BBS (2001) and Hoek-Smit (1998)
The growth in housing supply has always lagged
behind the demand. This has resulted in
overcrowding with high occupancy rates and high
room density. The unsatisfactory housing situation is
further reflected in the total and per capita
availability of floor space of the main living area.
The average floor space per person is 3.7m 2 . In Dhaka
about 70% of the total housing stock is rented (ADB,
1997). The Bangladesh Bureau of Statistics (BBS)
has categorized urban housing types into
cement/brick, corrugated iron/metal sheet,
mud/unburnt brick, straw/bamboo. Eighty-nine per
cent of poor households in Dhaka live in one-roomed
homes of the latter types. In the densely populated
slums of Dhaka, the floor area per person is as small
as 1.2m 2 . In short, the poor in Dhaka city live in
impoverished conditions lacking access to land,
shelter and basic urban services.
What is more important, for the concerns of this
paper, is that a significant proportion of the urban
population can be categorized as poor and live in
informal settlements. According to an estimate by
Islam (2005), in Dhaka around 35% of the people
lived below the poverty line, out of which around
20% were classified as “hardcore poor” who lived in
informal settlements. Lack of tenure security and

poor quality of housing is a direct indicator of these
settlements.
2.3 Housing Cost
This high price of land in Dhaka acts as a
prohibitive factor in the supply of housing to all but
the highest-income groups. On account of high price
of land, lower middle-class Households (HHs), who
are actually majority in cities, are virtually kept out of
the land market (ADB, 1997). The Bangladesh Urban
0 2 4 km
Land Price in Dhaka, 2005
270 US$/sq. m
335 US$/sq. m
550 US$/sq. m
670 US$/sq. m
Fig. 1 Residential Land Price in Dhaka
(Source: Field Survey, 2006)
N
780 US$/sq. m
1,340 US$/sq. m
1,560 US$/sq. m
and Shelter Sector Review shows that in Dhaka, the
price of un-serviced and undeveloped land would be a
minimum of US$ 3 per sq. m, with that of serviced
land around US$ 45 to 66 per sq. m. The price of
prime serviced land is around US$ 1,615 per sq. m in
the central business district. Fig. 1 provides some
idea regarding land value in 2005. Residential land
values in prime locations of Dhaka range between
US$ 550 and 1,560 per sq. m. These figures prove
that land prices are too high compared to other cities
developing countries.
2.4 Housing Providers in Dhaka
The Household and Expenditure Survey (1988-89)
confirmed that 93 percent of all housing in Dhaka
was provided through the private sector. The public
sectors’ contribution is too insignificant and
government’s policy is to act as an enabler in order
to increase access to land and other supporting
facilities especially for low and middle-income
groups and the construction of housing will
generally be left to the private sector and the people
themselves.
The private housing market is dominated by small
scale, self built housing. In the absence of
well-established formal land and housing markets in
Dhaka city, informal sector has been playing the
major role to cater the housing needs. Small-scale
builders and developers, (self-help) owner-builders
operating in the informal private sector, are the
largest suppliers of land and shelters in Dhaka.
Around 92% of urban land and 96.5% shelter units
are provided through the informal sector. In Dhaka
the rental sub-market in informal settlements is the
single largest supplier of housing.
Table 3. Population in Informal Settlements in Cities
City Population No. of Settlements
Dhaka 3.50 (million) 4,300
Chitagong 1.83 (million) 1,814
Khulna 0.17 (million) 470
Rajshahi 0.15 (million) 539
Source: Ahmed (2007)
The informal sector includes the provisions of
both sub-illegally and illegally constructed housing.
Sub-illegal housing supply includes the housing
constructed on legally occupied land but violating
building codes. It is evident from the Table 3 that the
number of people living in informal settlements, as
well as the number of these settlements is

significantly high in Dhaka city over the other four
large cities of Bangladesh. These informal housing
developed on own land is affordable to the poor. The
informal sector holds the role of largest housing
supplier in Dhaka, both in the rental and ownership
sector.
This dominance of the informal delivery systems
over the formal system is also highlighted by a
breakdown of the housing stock into sub-categories.
The informal sector is estimated to have produced 85
percent of the 1.0 million housing units in the city
(Table 4). The highest segment (85%) of urban
housing stock belongs to informal sector; including
50% of the stock belongs to permanent shelter (Table.
4). While self-construction accounts for half of the
total stock, slums and squatter settlements represent
the other 35 percent of it.
Table 4. Relative Importance of Housing Providers in Dhaka
Housing Sub-sector Units (%)
Public housing 100,000 (10%)
Formal Private Housing 48,000 (4.8%)
Sector Cooperative 2,000 (0.2%)
Total Formal Sector 150,000 (15%)
Private Housing 500,000 (50%)
Informal Slums 200,000 (20%)
Sector Squatter Settlements 150,000 (15%)
Total Informal Sector 850,000 (85%)
housing for the urban poor tended to follow the
“western” models of slum clearance and the building
of public-sector replacement apartment blocks. The
former usually served to do no more than shift the
slum problem around the city, and the latter almost
invariably turned out to be housing that could not be
afforded by the urban poor (Pugh, 1989). The current
WB’s approach was based upon following the
implications of three relatively simple concepts —
“affordability”, “cost recovery” and “replicability”.
In the 1980s, a number of Indian cities became the
“laboratories” in which this new approach of the WB
was tested (Pugh, 1990).
4. CASE STUDY: BRP IN DHAKA CITY
The Government of Bangladesh (GoB) has taken
up Bhashantek Rehabilitation Project to provide
housing for the Slum Dwellers (SD), who have so
long been objects of neglect and suffered even
though they played important roles in the economic
activities of the city. The project is expected to
provide shelter to more than 80,000 urban poor. This
is the first, in its type, joint venture rehabilitation
project by the Government and private organization.
GoB has provided land at Bhashantek in the outskirts
of the city. Around one third of the project has been
completed and its final completion is expected to be
within December, 2009 (Fig. 2).
Total 1,000,000 (100%)
Source: Estimates from Islam (2004)
3. REVIEW OF HOUSING POLICY IN THE
DEVELOPING WORLD
From the end of the 19th century and up to the
1970s, housing policy for the urban poor in many
developing countries often imitated that in developed
countries. Considerable faith was placed in
borrowing models of planning. All too often,
however, these plans were divorced from the reality
on the ground (Devas, 1993). Policy with regard to
Fig. 2 Housing Project for the Urban Poor at BRP,
Total land area of BRP is 20 hector where 15,024
apartment units will be constructed. Gross dwelling
units density is 748 dwelling unit/ha. Residential
land coverage is about 58% of total land.

Government is providing the total land for the
project which costs about US$ 50 million. The land
price at project location is about US$ 254 per sq. m
and the selling price of apartment units is US$ 160
per sq. m.
The project has been planned for implementation
in co-ordination with government land, investment
of private companies and deposits from the
beneficiaries. The private developer has developed
the land and constructing affordable low-cost flats
for poor people who would pay the costs in
installments. But the condition of the SDs appeared
to be really tough to pay the monthly installment.
Existing housing finance system is also not
supportive to access housing loan for them.
Two types of 6-storied buildings are being
constructed for the poor in the project. The 18.75 sq.
m type-A flats are for SDs and 28 sq. m type-B flats
are for the Low Income Groups (LIGs) (Fig. 3).
Type-A flat has one room with a kitchen and a toilet;
and type-B flat has two rooms, one kitchen and one
toilet. There is a small veranda in both types of flats.
Initially it was decided that 60 percent of the
dwelling unit would be for the SDs and the rest for
low-income families and low-paid government
employees.
Kitchen
1.4 x
1.6m
Bed Room
3.6 x 2.6m
Toilet
1.2 x
1.6m
1.2 m Wide Corridor
Type-A for SDs
Toilet
1.3 x
1.7m
Bed Room
3.0 x 2.9m
Kitchen
1.5 x
1.7m
Drawing /
Dining
3.4 x 2.9m
1.2 m Wide Corridor
Type-B for LIGs 0 1 2 3m
Fig. 3 Floor Plans of the Dwelling Units at BRP
5. ANALYSIS OF THE PROJECT
Here the study provides an analysis of the BRP
and the problems they present. The evaluation is
made on WBs trilogy: affordability, cost recovery
and replicability.
Affordability meant adopting a realistic approach
to housing supply in terms of what the urban poor
could really afford, recognizing that, initially at least,
the standards of these housing would fall way below
conventional norm. Cost-recovery is related to the
concept of affordability in that it implied a ‘user
pays’ policy rather than the adoption of subsidies.
The standards provided would then be based on what
could be afforded by consumers, rather than on
design ideals. Replicability completes the apparent
process of logic in this approach in that, if costs are
recovered because they are affordable to the groups
affected, then the successful repetition of such
projects becomes likely, leading to overall
improvement in housing provision.
5.1 Affordability
In this section, it is attempted to measure the actual
level of affordability as affordability equation often
calculated theoretically which exceeds the capability
of the low-income beneficiaries in reality. In the
developed countries, housing cost is considered equal
to 30-36 months’ income in order to calculate
recovery and return (Jorgensen, 1977). Housing
prices can neither be determined rationally in relation
to incomes of the target groups, nor does income limit
by prices, since there are wide variations between
individual HH’s propensities to pay and access to
resources.
House Price to Income Ratio
12
9
6
3
0
BHP Apartments
Other Cheap Apartments
19 sq.m Unit for
Slum Dwellers
28 sq.m Unit for
LIGs
Fig. 4 House Price-Income Ratio at BRP

The house price to income ratio of BRP apartment
units is found to be 4.4 and 4.3 for the SDs and LIGs
respectively. The house price to income ratio of BRP
apartment and other average cheap apartment having
same floor area for the two distinct groups is
compared in Fig. 4. It is evident from Fig. 4 that BRP
apartments costs half or less than half in comparison
with other cheap apartments at a market price.
House Rent to Income Ratio
60
50
40
30
20
Left Y-Axis: Rent-Income Ratio
Right Y-Axis: Ave. Floor Area
Slum Dwellers
LIGs
Fig. 5 House Rent-Income Ratio for the SDs & LIGs
Theoretically, these units are affordable to the
target population, if house price to income ratio is
considered only. Another important parameter to
measure of housing affordability is house rent to
income ratio. Other studies affirm that house rent
covers about 53% of monthly household income to
the SDs and 43% to the LIGs (Fig. 5). As depicted in
Fig. 5, the average rental floor area of the two income
groups are 22m 2 and 42m 2 respectively and it also
evaluates the aptness of the dwelling unit’s size of
BRP. It reveals that the BRP dwelling units are almost
equal in size to the general rental floor area of the two
income groups.
The affordability issue has been treated variously
for the lower-income groups, and failures have been
ascribed to wrong estimation. If the HHs’
affordability is estimated properly, housing projects
could be sustained by setting the standard at
appropriate level and optimizing the resource usage
that are expensive in one way and in excruciatingly
60
50
40
30
20
Floor Area, sq.m
Housing Price, US$
short supply on the other way, and thus ensuring full
cost recovery.
The project sale apartment units to the
beneficiaries in an understanding that they will repay
the installment no more than 5 years despite there is
no external finance either from the Government’s
side or from the developers’ end. The individual HHs
need to cover this expense from savings or other
private effort. Thus it appears that it is quite difficult
to own an apartment with savings only for the low
income people. More than 80 percent of the target
population will not be able to own these apartments
due to poor affordability and lack of finance for the
target population even though these are cheap
enough.
5.2 Cost Recovery
As the resources of the Government are little,
housing programs can only be sustained if aimed at
full cost recovery from the beneficiaries. Land and
construction cost cover the major portion of the total
investment and here this two elements among others
are considered in order to analyze the recovery
estimation. In BRP, land is supplied by the
government for the low income population for free.
Government will take the registration cost only from
the beneficiaries and virtually there has negligible
return. Hence it can be treated as a highly subsidized
project.
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
LIG - Expending 40% of Income
LIG - Expending 35% of Income
Poor - Expending 45% of Income
Poor - Expending 40% of Income
1 3 5 7 9 11 13
Year of Income
Fig. 6 Homeownership at Different Monthly
Expenditure Rate by the Target Population

Construction cost of the whole project is being
carried on by the private developer. The final
beneficiaries of the project will be selected by
drawing lots out of many applied applicants who will
be allowed to pay the total cost with no more than 60
installments. The private developer will not hand over
the legal documents for ownership of the apartments
unless the beneficiaries complete their payment.
From this perspective, it is assumed that developers’
will be able to recover their capital. But the
repayment calculation of the beneficiaries is different.
Total cost of the dwelling units are equivalent to
amortize 40 percent of monthly income devoted to
housing for 10.6 and 10.8 years for the SDs and LIGs
respectively and the detail is explored in Fig. 6. A
lower expenditure will obviously require more
repayment period. It will be very difficult to repay the
unit cost by the beneficiaries within 5 years and
within the prevailing financial situation. Banking
criteria rarely allow for loans to be granted on the
basis of anything other than regular and documented
income. Thus the beneficiaries will be in
disadvantageous state to repay the cost and
foreseeable recovery of the BRP is questionable.
5.3 Replicability
The current policies of international funding
agencies are based on cost recovery and revolving.
Land, infrastructure, finance and utilization of active
housing supply energy remain the key issue to
replicate housing programs for the urban poor in the
Dhaka city besides the common issue of
affordability and cost recovery.
Housing encompasses large direct and indirect
costs of numerous components, which are variables in
the eventual financial composition of a shelter
program. It is axiomatic that the land cost is the first
debit from the sum total of what can be afforded. If
land is under-priced it will amount to a subsidy. An
unaffordable project can reach the target group only
with subsidy; continued reliance on subsidy for an
indefinite period cannot be sustained. An individual
cannot organize land servicing successfully. The
poorer section of society is politically less able to
ensure that they are provided with infrastructure out
of regular budgets and thus it is realistic that they
themselves finance these. Again, subsidies in the
developing world go mostly to the rich who could
influence the resource allocation to favor them, not
those whom these are for (Rahman, 2001). In this
consequence it may be deemed that the real poor
might be deprived at BRP as land; the most costly
resource, is supplied for free. It will remain a major
hurdle to revolve housing projects if land is to
supply without any cost; especially when land value
in Dhaka is extremely high.
To make a housing program accessible to the
target HHs, the apportioned cost must be affordable
to them. If the project is aimed to homeownership,
then it should have some provision of external
finance. Otherwise it will be difficult to revolve
housing schemes for the urban poor as the occupant’s
invest from savings will be beyond the limits set by
the project criteria. It is evident from the example of
BRP that the target population will find difficulty to
attain home ownership mainly due to lack of external
finance despite the apartments are cheap and
eventually difficult to repay.
6. CONCLUSION
The experience of housing program for the urban
poor in Dhaka city, as narrated in this paper, is about
the success or failure of a housing strategy.
Involvement of public sector as direct housing
supply has limited potential. The case, nonetheless,
reveals the hidden realities involved in the project
and plausible outcome of such housing delivery. This
paper focuses on the paradoxes in public policy and
the role of government in an enabling approach.
Housing scarcity is acute, complex and a universal

problem in the developing world. Policies to supply
shelter seem to be ill suited to the realities of cities
where nearly all housing is produced by private or
community efforts. The role of government in
housing is very different from traditional policy
maker because a policy without the realities is
destined to fail. Nowhere is this situation seen more
vividly than in the cities of the developing countries.
Dhaka is one such city where the gap between the
strategies to supply shelter vis a vis effective regain to
lessen the shelter crisis is more vibrant.
Based on the analysis and outcomes of this study,
the following conclusions can be drawn to formulate
policies and programs to lessen housing dilemma in
Dhaka city.
First, housing in a form of permanent shelter is
extremely expensive for the low income population.
Specifically, land price in Dhaka city is too high and
it results home ownership beyond the limit of the
study population.
Second, apartment units at BRP are quite
low-priced as the project is highly subsidized. There
has absence of formal finance for the beneficiaries to
repay the unit price. Due to lack of formal finance,
home ownership for the low income population
remains difficult even though these dwelling units
are cheap. Capital investment may be regained by
the developers’ but the occupants might fall into
disadvantageous state to do the same.
Third, difficulties of acquiring land in appropriate
parcels and locations remain one of the major
hurdles to revolve housing projects like BRP. The
target population might be deprived and hence the
aim of the project might derail.
Fourth, Dhaka’s housing is dominated by the
private and informal sector. To direct the potential of
any housing scheme, the private sector effort need to
be utilized. Under the management of private energy
housing; either in rental or ownership sector, is
expected to be affordable, recoverable and replicable
without any subsidy or large investment from the
Government.
Finally, an unaffordable project can reach the
target group only with subsidy and that is again
wasted on subsidized sites-and-service projects. The
misinterpretation of affordability that suppresses
people’s capabilities reduces the efficiency and
effectiveness of the housing programs like BRP in
various ways. Affordability is the generic problem
inhibiting the poor HHs from the market. Access to
credit is identified as imperative to eliminate the
constraint. In order to address the housing crisis
effectively, the government should reorient its
priorities and strategies towards making provisions
which would facilitate the growth of cheap, small
and popular housing units. Encouraging informal
private sector could be one step towards that.
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