Saudi Arabia’s Housing Goals Need Empowered Women

(Bloomberg Opinion) -- A year ago, much of the conversation about women’s empowerment in Saudi Arabia centered on the government’s decision to let them drive. Other well-publicized reforms since then have opened up opportunities for women in the military and aviation, as well as access to previously proscribed or restricted spaces, like sports stadiums and music concerts.

But away from the headlines and photo-ops, Saudi women are also being empowered by gender-neutral policy changes. One example: the government’s aim to increase home ownership among citizens to 70% by 2030.

One essential requirement to reaching this goal is the growth of the mortgage industry, giving more young people—women as well as men—the opportunity to buy their first homes. Another is the acceleration of women’s employment: more working women will greatly expand the demand for mortgages among women looking to buy homes, either on their own or as part of dual-income families.

Although overall employment among Saudis has not significantly improved over the past two years, more women are entering the workforce—albeit from a low base—reaching 20.2% in 2018, from 19.4 percent in 2017. Consumer credit is expanding, too. Credit to households has more than doubled in the past 10 years, from about $40 billion to nearly $92 billion as of September 2018.

As long as these trends continue, everybody wins. In addition to increasing the economic inclusion of women, the expansion of mortgage finance will also boost growth in the kingdom’s financial sector, by creating more profit opportunities for banks—they have already welcomed the prospect of women applying for loans to buy their own cars—which in turn will make them attractive to investors seeking listed Saudi firms. Tadawul-listed banks that seize the mortgage-market potential will benefit from Saudi Arabia’s recent inclusion in emerging-market indices.

Home ownership in Saudi Arabia currently rivals rates in the U.S. and in Turkey, the kingdom’s regional peer. Some 60% of Saudis own their homes, which equals the proportion in Turkey, and is slightly below that of the U.S. As in most economies, more older Saudis own homes than younger people: 39% of young adults under the age 35, compared with 50% of those between 35 and 44, according to research by HSBC.

Despite the high ownership rates, there’s plenty of potential for growth. Unlike in the U.S., access to mortgages and other financial products is scarce in Saudi Arabia. According to a report on financial inclusion by the King Khalid Foundation, nearly seven million Saudis don’t have bank accounts; women make up 60% of the “unbanked” population. Rapid urbanization and the movement of more young people into cities increases the demand for housing stock.

Women are a large part of that demographic change. An increase of one percentage point to the Saudi workforce every year would add about 70,000 more women a year to the labor market. This would increase the demand for new products to improve financial mobility. HSBC projects the growth in female employment has the potential to generate $33 billion in new mortgage loans, or 40% of the first-time buyer demand, either as independent purchases (Saudi women have long had the right to property) or by their contribution to household income.

These trends coincide neatly with new banking policy changes that are encouraging banks to extend more housing loans. The Saudi central bank has twice extended loan-to-value limits in the past two years. In the first quarter of 2017, the maximum ratio was extended from 70% to 85%; in January 2018, up to 90%. The government has also introduced support for low-income and first-time buyers through its Real Estate Development Fund (REDF) as a subsidy for both debt-service costs and principal payments. Unsurprisingly, the government is predicting anticipating a spike in investments in the housing sector.

When social policy and state development objectives align with market opportunity, change can come quickly. For Saudi women, that could be as meaningful as some of the higher-profile changes they’ve seen over ether past year.

To contact the editor responsible for this story: Bobby Ghosh at aghosh73@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Karen E. Young is a resident scholar at the American Enterprise Institute.

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