Affordable Housing: An Overview of Practices in Vietnam and Massachusetts 

Mai Nguyen 

consultant, International Finance Corporation, Vietnam 

December 4, 2023

Affordable housing is disappearing in Vietnam

In Vietnam, there are five income groups, and the real estate market is divided into social housing, affordable housing, mid-range housing, high-end housing, and super-luxury housing. Although it appears that supply and demand align with income segments, the reality is different. In recent years, particularly in 2021 and 2022, the market for apartments below 30 million VND/m2 has diminished in Ho Chi Minh City, and Hanoi no longer has apartments priced at 25 million VND/m2. Despite support policies, there is a significant gap in the supply and demand for affordable housing. The disparity in living costs between social and commercial housing can be addressed through affordable housing ownership, offering a foundation to prevent increasing wealth and poverty disparity. However, the affordable housing segment faces high demand, minimal supply, and a lack of specific policies to address the severe shortage. The future imbalance in supply and demand may worsen as mid-range housing for above-average income disappears, while high-end and super-luxury housing experiences a surplus.

Define the concept as a basis for policy

Social housing and affordable housing are often confused, but the 2014 Housing Law in Vietnam defines social housing as state-supported housing for households in poverty, near poverty, and specific groups like students, workers, officials, and the armed forces. Affordable housing lacks a precise definition, being called various names such as low-cost commercial housing, reasonably priced housing, or affordable housing. Generally understood as housing the middle-income group can afford without financial strain, some definitions based on price and area have been used, but they are deemed unsuitable for long-term development due to macroeconomic factors. Despite a past government-supported initiative with a 30 trillion VND package to aid low-income individuals in home purchases, it was a one-time policy lacking a systematic foundation and specific regulations for affordable housing.

Officialize the segment in legal regulations

Developers have shifted focus from affordable housing to higher-income products due to shrinking profit margins caused by escalating land prices and construction costs. Challenges like procedural complexities and prolonged construction times hinder sustainable engagement in the affordable housing sector. To address this, potential solutions include streamlining procedures, offering tax incentives, and ensuring efficient project implementation. Government collaboration with the private sector could alleviate the housing burden. Officializing the affordable housing segment would bridge the gap between social and commercial housing, facilitating more effective regulation. The suggested amendments to the 20% allocation mandate for social housing in urban development projects aim to enhance implementation. Recognizing the affordable housing segment could involve altering land allocation regulations or introducing flexibility in meeting social housing obligations.

Quality issues

The Ministry of Construction aims to achieve 1 million social housing units by 2030 to address housing challenges for low-income individuals. However, practical considerations are needed to overcome challenges related to quality and access to housing loans for effective project implementation. Despite existing social housing and resettlement projects, accessibility remains difficult due to issues such as project abandonment, high prices, and obstacles in loan mechanisms. Quality control through construction supervision is identified as crucial, emphasizing the need for approved designs to meet standards and regulations. Active involvement of external parties in quality control is suggested to prevent resource wastage. The lack of strict management and economic incentives or penalties for inadequate supervision is highlighted as contributing to low-quality social housing projects.

Practices in Massachusetts

In Massachusetts, comprehensive regional planning mechanisms, such as inclusionary zoning under Chapter 40B of the state's General Laws, are implemented. In cities like Boston, commercial housing projects with more than 10 units in regions with a shortage of affordable housing must include a percentage of affordable units (typically 13%) or contribute to a city's affordable housing fund. Some developers choose to collaborate with affordable housing developers to implement the second option, constructing affordable units at different locations. In many cases, this second solution is preferable, as low-income individuals, even if they can afford a unit in a commercial project, may struggle with living costs in affluent areas, especially those lacking convenient public transportation.

This mechanism could be applicable in large cities in Vietnam, leveraging private sector capabilities, resources, and efficiency to contribute to increasing the supply of affordable housing and addressing social stratification in urban planning. However, thorough and long-term consideration of the benefits and drawbacks is necessary. With rapid urbanization in Vietnam, currently approaching 40%, the expansion of cities is inevitable. Yet, the manner of expansion, whether vertical or horizontal and the rate at which it occurs must be carefully managed to ensure infrastructure keeps pace.

What is the work?

Urban planning is a complex challenge, and even more complicated is ensuring it aligns closely with reality, not merely relying on paper calculations. If a city mandates comprehensive regional planning, should it take charge of managing the affordable housing fund? How should this fund be utilized? Should it cover operational costs (salaries, offices, and other expenses), or should it be strictly allocated for developing affordable housing projects? Should the city privatize this activity, letting private developers find partners to build affordable housing, or should it sell a portion of affordable units within its own projects? Could public-private partnerships (PPPs) be a viable solution? Are tax incentives or density bonuses attractive enough to engage private developers?

Solving the housing problem, especially affordable housing, requires collaboration from various sectors in society—public, private, and communal. Mechanisms and policies pose challenges but are crucial to effectively change the current inefficient situation. The question arises: How can we collectively review what has been done well, identify areas for improvement, and call upon collective intelligence to address this essential issue?