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UNCLAS SECTION 01 OF 04 ALGIERS 000385 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN SOCI PGOV AG
SUBJECT: BEYOND BRICKS AND MORTAR: ALGERIA'S HOUSING CRISIS 
 
¶1. (SBU) SUMMARY: A housing shortage across Algeria is one of 
the worst economic problems facing the country.  To help ease 
the shortage, in 2004 President Bouteflika launched an 
ambitious plan to build more than one million new housing 
units by the end of 2009.  The program has fallen far short 
of expectations.  The USD 9 billion effort aimed to increase 
the housing stock to seven million units and reduce the 
average household occupancy rate from seven persons per unit 
to five.  At the end of 2007, the Minister of Housing 
declared that 43 percent of the target number of homes had 
been completed.  Our contacts believe this figure is far too 
optimistic, however, and that in reality fewer than 20 
percent of the planned housing units have been built.  The 
government's housing plan is plagued by inefficiencies 
related to poorly managed housing subsidies and inadequate 
regulations covering land development and property titles. 
The spiraling costs of building materials is also crippling 
construction projects as contractors find they cannot operate 
within the low fixed-price per square meter demanded by the 
government.  The government now finds itself forced to 
subsidize the markets for some building materials. 
Complicating matters further, existing housing stock is not 
fully utilized because of issues of affordability and a lack 
of mortgage financing.  USG proposals to assist the Algerians 
to address their housing problem have so far gained little 
traction.  END SUMMARY. 
 
THE ORIGINS OF ALGERIA'S HOUSING CRISIS 
--------------------------------------- 
 
¶2. (U) Algeria has faced a housing shortage since the 1980s. 
Years of terrorism in the 1990s caused a spike in 
rural-to-urban migration and a subsequent demand for urban 
housing for which the federal and local governments were not 
prepared.  With no clear economic vision, lackluster regional 
development policies and inadequate urban planning models, 
the largely state-run construction sector could not keep up 
with the flow of people to the cities, and limited mortgage 
capacity made private financing of new home construction 
nearly impossible.  As a result, generations of families, or 
multiple families, found themselves trapped in the same 
apartment, waiting for their chance to get on a list for a 
new home. 
 
THE REAL PROBLEM: LACK OF AFFORDABLE HOUSING 
-------------------------------------------- 
 
¶3. (SBU) Analysts estimate that housing prices have more than 
doubled during the past three years.  Property prices are 
inflated because the national government continues to own 
most of the land in Algeria, and the process by which 
developers or individuals can obtain clear title to property 
is cumbersome and sometimes less than trustworthy.  The 
highly publicized effort to remedy the perceived housing 
shortage belies the fact that between 700,000 and one million 
housing units (ironically, the same number of units targeted 
in the president's housing initiative) are unoccupied at any 
given time, according to press reports quoting the current 
and former ministers of housing and the chief loan officer 
for the state-run CNEP Banque, which issues most mortgages in 
Algeria.  The home vacancy rate is due largely to leasing 
constraints and the shaky title system.  Banks will not 
accept a mortgage application unless clear title is proved at 
the outset.  During a period in the late 1980s and early 
1990s, opposition party leaders in many local governments 
handed out large numbers of "temporary deeds" to properties 
that were never expropriated, and these temporary deeds were 
never reconciled against the original land titles.  As a 
result, today multiple claims often exist on the same lots, 
and banks will not finance their sale. 
 
¶4. (SBU) Supply is also constrained and prices are squeezed 
upward because the transfer of government-built housing is 
both severely restricted and poorly monitored.  Stories 
abound of middle-class families who manage to acquire and 
sell multiple government-subsidized apartments in spite of 
transfer restrictions.  Eviction laws favorable to tenants 
also prompt some landlords to leave units vacant rather than 
rent to families who cannot guarantee their incomes over 
 
ALGIERS 00000385  002 OF 004 
 
 
time.  It is common, for example, for landlords to demand a 
full year's rent in advance of occupancy, something most 
Algerians cannot afford.  Some landlords choose to keep 
properites vacant in hopes of finding an expatriate or a 
foreign company that will offer top price and a long-term 
commitment.  These constraints affect commercial space as 
well as residential.  We were told by a major international 
oil company last year that the average price for a square 
meter of office space in the Hydra district of Algiers was 
equivalent to office space on the Champs Elysees in Paris. 
For this reason, and to some extent because of security 
concerns, many leading corporations are housed in villas 
around Algiers rather than traditional office buildings, 
which further restricts housing supply. 
 
¶5. (SBU) Additionally, in widely published comments made at a 
conference on organized crime in early March, Ahmed Remili, 
Assistant Director of Criminology at the National Criminology 
and Criminality Institute (INCC), noted that land speculation 
as a means to launder money from contraband sales and other 
illegal activities has restricted in-fill property supply and 
has consequently added significantly to the cost of housing. 
The "Mafia du Foncier," or Real Estate Mafia, is also 
legendary in Algeria: criminal or quasi-criminal elements are 
believed to control large swaths of the limited number of 
privately held parcels across the country, and collude to 
keep land values high. 
 
¶6. (SBU) Large-scale private development projects announced 
recently by Gulf investors will do little to ease the housing 
shortage, since the proposed developments cater to the 
wealthy rather than the majority of the population that is 
searching for affordable urban housing.  Since 2003, 
Algerians have had greater access to mortgages, but the cost 
of housing puts most Algerians out of the market.  We 
calculate the home price-to-income ratio (total home price 
over annual household income) for Algeria to be about 13.  By 
comparison, according to the Overseas Private Investment 
Corporation (OPIC), the ratio for neighboring Morocco is 9.2, 
and 5 for Tunisia.  (The U.S. Department of Housing and Urban 
Development reported in 2006 that the home price-to-income 
ratio for the United States was 3.  In 2005 San Francisco 
topped the U.S. market at 12.6, below our estimate of 
Algeria's average.)  High unemployment and underemployment, 
along with the ever-rising cost of living, have also been 
steadily eroding most Algerians' ability to secure an 
affordable mortgage.  Mortgage lending represents about 10 
percent of the credit portfolios of Algeria's banks and, 
according to a 2005 World Bank study, housing finance makes 
up less than one-half of one percent of Algeria's GDP, 
whereas housing credits represent over four percent of 
Morocco's GDP and six percent of Tunisia's. 
 
BRICKS AND MORTAR: THE GOVERNMENT'S PLAN FALLS SHORT 
--------------------------------------------- ------- 
 
¶7. (SBU) Housing Ministry Director of Housing Programs and 
Real Estate Development Mohammed Tahar Boukhari told us on 
February 20 that the ministry delivered 650,000 completed 
housing units between 1999 and 2004.  He said that the 
government then determined that there was an immediate need 
for an additional 1.2 to 1.3 million new units across Algeria 
to reduce overcrowding and reach a national target of five 
occupants per home, down from an average of seven.  The 
housing program ultimately developed consists of six 
categories of housing, each with a different level of 
government subsidy.  For example, 25 percent of the units 
will be deemed "social" housing, where the government will 
remain the owner of the property and occupancy will be 
completely subsidized, while ten percent will be on a 
purchase-to-lease plan (AADL) where tenants will be given 
financial assistance to assume title to the property over 
time. 
 
¶8. (SBU) In terms of construction market share, Mr. Boukhari 
told us that private Algerian developers have access to 95 
percent of the new-housing market.  He said that contracts 
for some 80,000 units of the government's five-year project 
have been awarded to foreign firms, most notably Chinese, 
 
ALGIERS 00000385  003 OF 004 
 
 
Egyptian, Lebanese and Turkish companies.  He added that out 
of 25,000 private Algerian construction firms, only 1,000 
have the required qualifications for these projects. 
 
¶9. (SBU) Recently the housing ministry claimed publicly that 
it completed 43 percent of the planned units between 2005 and 
2007, and that this accounted for 65 percent of the five-year 
program's budget.  But an executive with Egypt-based Orascom 
Construction Industries told us in early March that based on 
his study of government construction tenders and his 
conversations with industry players, the completion rate was 
actually only 12 to 17 percent.  An Algiers-based 
international housing consultant told us on March 12 that the 
completion rate was no more than 20 percent.  They said that 
the fixed price per square meter that the government demands 
is too low for profitability.  Projects are often turned over 
to successive developers after the contract is awarded 
because no company can make the project profitable given the 
price ceilings.  Thus, few of the large-scale projects have 
actually been completed, although many have been started. 
According to the two men, a lack of capacity and experience 
among Algerian firms has further slowed the pace of 
construction. 
 
¶10. (SBU) Our contacts explained that attracting developers, 
particularly foreign companies, has been a challenge because 
the fixed price per square meter required in the government's 
tenders is far too low to absorb the skyrocketing costs of 
raw materials and labor.  This has been front page news in 
the last ten days, as several leading Algerian newspapers 
have reported at length about the spikes in prices for 
building materials, especially wood, cement and iron.  On 
March 26, the Arabic-language daily paper Echourouk el-Youmi 
reported that the price of construction iron had more than 
doubled in the last few months, causing the government to 
begin subsidizing the iron market.  Echourouk also reported 
that the cost of building new apartments had jumped by 30,000 
dinars, or about USD 4,500, due to the escalating costs of 
building materials.  The paper said that both private and 
publicly-owned construction companies have asked the 
government to raise the price per square meter from the 
current range of 22,000-26,000 dinars (USD 335 to USD 396) to 
at least 34,000 dinars (USD 518) in order to reflect the 
current cost of materials. 
 
REFORM EFFORT: NEW LAND TITLES, NEW TOWNS 
----------------------------------------- 
 
¶11. (U) The government is now looking at developing the 
housing market and industry by improving the legal frameworks 
for land transfer and mortgage lending.  Finance Minister 
Karim Djoudi recently created a committee composed of 
officials in charge of budget, land and tax administration, 
as well as officials from the Ministry of Housing, the 
National Housing Fund (CNL) and commercial banks.  The 
committee is charged with assessing current government 
housing policies in order to recommend and implement new 
measures that will remove housing barriers.  In addition, the 
government recently trained more than 3,000 land 
administration agents who will be tasked with regularizing 
property deeds and titles. The Director of Architecture and 
Urban Planning at the Ministry of Housing recently told us 
that the government is also piloting a regional development 
project aimed at creating 12 new cities, five in the environs 
of Algiers, to ease crowding caused by urban migration. 
 
COMMENT: MIXED MESSAGES ON PRIORITIES IN HOUSING 
--------------------------------------------- --- 
 
¶12. (SBU) Algeria's housing crisis is not simply a matter of 
construction or mortgage capacity.  Issues of land use 
planning, development policies, title regulations, and 
subsidy programs all drive up the cost of housing, making 
affordability a more important issue than either housing 
supply or mortgage availability.  New housing stock should 
help ease prices, but without a proper regulatory framework 
and consumer-driven mortgage practices, the number of vacant 
units will rise along with new apartment towers.  We have 
tried to help by offering Department of Treasury programming 
 
ALGIERS 00000385  004 OF 004 
 
 
in the area of mortgage lending and credit risk assessment 
and management, but the U.S. subprime crisis and concerns 
over security have kept a HUD team from coming to Algiers. 
We have also received mixed messages from the Algerians over 
the priority it places on housing issues.  During a recent 
visit, Treasury DAS Larry McDonald was told by the Minister 
of Finance that one of U.S. Treasury's resident advisors in 
Algeria should help his agency expand mortgage lending in 
Algeria.  As soon as the minister left the room, an official 
with the national Treasurer's office told McDonald to ignore 
the housing issue and focus on debt management.  Such mixed 
signals highlight the the general lack of vision within the 
Algerian government regarding the course of economic reform 
here, and make our efforts to provide effective programming 
all the more challenging. 
DAUGHTON