Affordable Housing in Bhutan: An Assessment of Housing Needs

Tenzin Jamtsho

Director of Administration and Finance at Druk Gyalpo's Institute (formerly the Royal Academy), Bhutan 

December 4, 2023

Introduction

Although Bhutan is rapidly urbanizing, since starting planned development in the 1960s, the Royal Government of Bhutan has always followed a conservation-centered development policy focused on preserving the pristine environment and maintaining a good natural resource base. With a development philosophy based on Gross National Happiness (GNH), remarkable progress has been made in human as well as economic development. Urban areas in Bhutan have experienced continuous population growth primarily due to people moving from rural to urban areas: as of 2022, 39% of the population reside in urban areas and 61% are in rural areas (NSB, 2022). While the rate of this increase has reduced recently, it is anticipated to persist in upcoming years. Moreover, Bhutan is witnessing a decline in average household sizes and a rise in the number of households. These patterns, coupled with a scarcity of affordable housing units, have led to a growing housing shortage, limited home ownership, and significant rental burdens, particularly among those with lower incomes (Ugyen, 2021).

Institutional and Legal Framework

Article 9 of the Constitution of the Kingdom of Bhutan mandates the state to promote conditions that will enable the pursuit of Gross National Happiness. The National Housing Policy 2020 aims to provide affordable rental housing and facilitate homeownership through enhanced institutional frameworks and collaboration among housing stakeholders, emphasizing the housing market's role in bolstering economic development and community welfare. Additionally, Bhutan's 12th Five-Year Plan (2018-2023) focuses on enhancing the quality and sustainability of human settlements, stressing the need for affordable housing in urban areas due to evolving family structures and urbanization, recommending the promotion of affordable housing and homeownership schemes as a crucial strategy. 

Since the 1960s, the Royal Government of Bhutan along with state-owned enterprises have been offering cost-effective and socially rented housing to civil servants. A significant portion of affordable homes is allocated to educators, healthcare professionals, and civil servants with lower incomes. As per the annual financial report from the Ministry of Finance, Despite the government’s consistent allocation of an average of 5.5% of the total budget towards housing and community development over the last two decades, Bhutan is still experiencing a growing housing affordability crisis. The National Housing Development Corporation Ltd (NHDCL), responsible for affordable housing provision, has not made any investments in the capital city of Thimphu since completing the Changjiji Complex (one of the major affordable housing projects undertaken by the state) in 2007. As a result, individuals from low-income brackets are managed by residing in shared accommodations. Without addressing the supply of affordable housing, Bhutan's urban population may neither own a home nor rent one in the future, instead, they would live with relatives or friends. 

Four Key Challenges to Affordable Housing in Bhutan

Four primary factors contribute to unaffordable housing in Bhutan: (i) scarcity of land, (ii) access to capital, (iii) the cost of construction and labor, and (iv) lack of data.

(i) Scarcity of Land

Employment opportunities in Bhutan, predominantly in government, the private sector, and the burgeoning tourism industry, concentrate primarily in urban centers, pulling citizens toward these densely populated areas. While the land for the development of human settlement remains limited and stagnant. land availability and usage in Bhutan reveal that less than 1% of the entire land is utilized for human settlement (NLCS, 2023).

(ii) Access to Capital

Lack of access to capital stands as a significant obstacle to housing provision. Bhutan's business model for housing, which does not facilitate economies of scale, is compounded by a high-interest rate of up to 13%. Despite plans for large-scale affordable rental housing, budgetary constraints hinder their realization, and the government lacks the capacity to implement fiscal measures to lower housing loan interest rates. The issue of housing affordability extends beyond low-income groups; landlords constructing apartment buildings using bank loans face challenges in loan repayment due to high-interest rates and the overall cost of living in Bhutan (Dema, 2013).

(iii) Cost of Construction and Labour

The procurement of construction materials in Bhutan heavily relies on imports from countries like India and Thailand, as locally sourced materials are limited. Bhutan lacks the necessary scale in terms of materials, workforce, and demand to achieve self-sufficiency in this area, thereby making the construction of affordable housing challenging. 

(iv) Lack of Data

The Ministry of Works and Human Settlement, aiming to assist housing stakeholders in making informed decisions regarding affordable and accessible housing in urban centers in Bhutan, has highlighted limitations due to insufficient data on housing units. A recent report commissioned by the Ministry, "Housing Market Assessment for Four Thromde" (CBRED, 2020), addressed several gaps while emphasizing the need for more accurate data collection and access. Investing in housing research and data was seen as vital to understanding the intensifying housing crisis and facilitating more informed decision-making processes.

Moving forward

Following Bhutan’s excellent management of COVID-19, the country is back on its development trajectory, with the Government implementing systemic reforms for building a future-fit governance system that addresses interconnected complex development challenges. As a part of the civil service reform, the Royal Commission for Urban Development has been established to meet the challenges of urbanization. Reforms in the construction industry provide an opportunity to support ‘greening’ the sector to deliver resilient, climate-proof infrastructure and green jobs. In 2021, the Asian Development Bank (ADB) granted financial assistance to enhance access to suitable and reasonably priced rental housing. ADB plans to aid the development of 1,000 affordable housing units in urban centers of Bhutan with the aim to benefit government and private sector employees from lower to middle-income brackets, including marginalized municipal waste workers. The housing will also prioritize gender inclusivity, and climate and disaster resilience, while integrating local cultural heritage and traditional architectural elements (ADB 2021). A new housing division under the Ministry of Infrastructure and Transport (MoIT) has been formed as a part of the civil service reform and is currently carrying out various activities and exercises to formulate a building database and an online system to maintain data with relevant stakeholders (Business Bhutan, 2023).

Although the government demonstrates a progressive strategy by embracing systemic thinking and consistently enhancing planning policies and practices, the persistent challenge of housing affordability will endure unless comprehensive and future-focused measures specifically targeting land-related issues are effectively addressed (Lhazin, 2020). Moreover, coordination among diverse housing stakeholders is essential for integrating various perspectives and solutions (Friedmann, 2005) to resolve the escalating housing affordability crisis and address the housing system's complexities. It is also crucial to create a conducive system to enhance affordable housing options, aiming not only at improving urban areas but also at transforming Bhutan’s rural areas into more comfortable living spaces (State of the Nation, 2022).