Addis Ababa City Administration Land Lease Proclamation

SUSTAINABLE AND INCLUSIVE
HOUSING IN ETHIOPIA:
A POLICY ASSESSMENT
Tadashi Matsumoto and Jonathan Crook
Executive summary CONTENTS

Ethiopia is the second most populous and the fifth least urbanised
Executive summary 1
country in Africa. Just 21% of the population lives in cities, well below
the sub-Saharan Africa average of 40.4%, although Ethiopia’s urban 1. Introduction 6
population is projected to grow between 3.8% to 5.4% per year. From
2. Ethiopia’s urban and housing
2000 to 2015, Addis Ababa’s population grew by 37% (from 2.8 million
policy landscape 8
to 3.8 million) and its built-up area by 32% (from 85km2 to 113km2).
3. Assessing Ethiopian national
While the rapid pace of urbanisation in Ethiopia could generate
urban housing policy framework 21
many benefits, it is driving an urgent need for adequate, resilient
and affordable housing, and it also brings the challenge of urban 4. Recommendations and conclusion 46
sprawl, which must be met through the delivery of compact urban
References 50
development.
Ethiopia’s current urban housing stock has a number of
characteristics that make urgent action important – both to support
residents’ well-being and to create sustainable cities. These
characteristics include: a housing market historically dominated by
owner-occupiers a highly fragmented, informal and closed rental
market; overcrowding and low-quality housing conditions; and fast-
Disclaimer:
growing, unmet housing demand that outpaces the provision of This document, as well as any statistical data
affordable housing. and map included herein, are without prejudice to
the status of or sovereignty over any territory, to the
delimitation of international frontiers and boundaries
and to the name of any territory, city or area. The
opinions expressed and the arguments employed
herein do not necessarily reflect the official views
of OECD member countries.
Coalition for Urban Transitions ABSTRACT
c/o World Resources Institute As the second most populous and fifth least urbanised country in Africa,
10 G St NE Ethiopia is currently facing the pressure of rapid urban expansion and
Suite 800 growing urban housing demand. Ethiopian cities generally have a large
Washington, DC 20002, USA proportion of sub-standard housing stock and a deficient affordable formal
rental market. In a context where the government owns all urban land
and exerts considerable control on development, since 2006 Ethiopia has
C40 Climate Leadership Group undertaken an ambitious housing programme to significantly increase the
3 Queen Victoria Street quantity of affordable urban housing units, although challenges remain. This
London EC4N 4TQ working paper assesses the impact of national housing policy instruments
United Kingdom in Ethiopia on housing affordability and urban form and provides insight to
enable a more robust framework for compact and affordable cities.
WRI Ross Center for Sustainable Cities CITATION

10 G St NE Matsumoto, T. and Crook, J., 2021. Sustainable and inclusive housing in
Suite 800 Ethiopia: a policy assessment. Coalition for Urban Transitions. London and
Washington, DC 20002, USA Washington, DC. Available at: https://urbantransitions.global/publications
This material has been funded by UK aid from the

UK government; however, the views expressed do not
necessarily reflect the UK government’s official policies.
Photo credit: Milosk50/Shutterstock

ABBREVIATIONS
CSA Central Statistical Agency of Ethiopia
CUT
Coalition for Urban Transitions
ETB Ethiopian birr
FHC Federal Housing Corporation
IHDP Integrated Housing Development Programme
NPC
National Planning Commission
NUDSP National Urban Development Spatial Plan
OECD Organisation for Economic Co-operation and Development
PPP
Private–public partnerships
ULG Urban local governments
US$ United States dollar
SUSTAINABLE AND INCLUSIVE HOUSING IN ETHIOPIA | 3

This paper assesses how Ethiopia’s current national housing framework is
addressing the dual challenges of housing affordability and compact development,
and provides recommendations to promote sustainable and inclusive cities in
Ethiopia. To do so, it takes an analytical framework developed by the Organisation
for Economic Co-operation and Development (OECD), in partnership with the
Coalition for Urban Transitions, that identifies 16 housing policy instruments from
around the world with an impact on compactness and housing affordability and
applies it to the Ethiopian context. The analysis indicates that several important
policy instruments for compactness and housing affordability identified in the
framework are currently in place in Ethiopia, but that certain key instruments are
absent.
Key findings from this paper’s analysis of the Ethiopian housing framework include:
• Despite public ownership of all urban land, coordinated urban land-use

planning and control remains a challenge in Ethiopia, and the federal and
subnational governments have considerable untapped potential to improve
land value capture.
• Ethiopia has made important progress in tackling historically high and rising
urban housing demand, particularly through its condominium development
homeownership programme – the Integrated Housing Development
Programme (IHDP) – which built nearly 400,000 units in 12 years.
• However, IHDP units are largely unaffordable for their target of lowest-income
households, and the home ownership programme has been unable to meet
demand and has incurred unsustainably high costs (subsidies totalling an
estimated US$9 billion).
• Ethiopia’s housing policy framework is characterised by measures promoting

homeownership, and private housing developers primarily target high-income
households.
• The development of a formal rental market is hindered by limited regulations

and a lack of transparency between landlords and tenants.
Based on these key insights, this paper proposes the following policy
recommendations (Section 4) to help scale up affordable housing and ensure
compact development in Ethiopia’s cities:
• Lay the groundwork for fiscal measures that can foster compactness and
housing affordability, including through urban cadastres and regular property
valuation. Revising impact fees and implementing a development tax would
internalise urban infrastructure costs and help to bolster local revenue
collection, limit distortionary impacts on housing affordability, and encourage
more efficient use of urban land. Urban cadastres and regular revaluation of
properties should be key priorities.

• Incentivise infill development, to minimise sprawl. The federal government
should consider providing technical support and fostering a regulatory
environment to incentivise infill development for housing. Such measures
might involve easing zoning requirements for high-quality development and
reducing the burden of administrative and legal permitting processes.
• Provide incentives to investors and developers for affordable rental housing.

Private–public partnerships (PPPs), supported by the establishment of a legal,
institutional and regulatory frameworks, offer an opportunity for affordable
rental housing that would lessen the financial burden on the public sector.
• Enforce and more strongly implement inclusionary zoning for private

developments to ensure affordable rental housing. This would see a greater
proportion of new housing units set aside for affordable rental housing.
Government regulations and guidelines, as well as tax incentives to private
developers for the allocation of a share of affordable rental housing units in
new developments, could greatly lower the burden on the public sector for the
direct provision of affordable housing.
• Develop clear landlord–tenant regulations. The government should work

with the private sector to design and supply guiding principles, such as a
standardised rental contract, to ensure that both parties have equal access to
information as well as respective legal rights.

1. Introduction
Housing is an essential need affecting the well-being of all citizens. Accordingly,
providing adequate and affordable housing is a core national policy objective,
especially given its impact on inequalities. Lower-income households typically live
in lower-quality housing, on which they spend a greater share of their disposable
income. In OECD member countries, one in three low-income private
renters spends more than 40% of their disposable income on rental
Urban sprawl has a costs alone.1,i Overcrowded and poor living conditions, whether for
formal or informal housing, further undermine well-being in many
range of economic, developing countries.
social and Cities face particularly marked housing affordability challenges,
environmental with strong demand for urban housing and rising housing prices
around the world, due in part to increasing urbanisation rates. At
repercussions, the same time, cities are facing sustainability challenges. Typically,
including lower urban sprawl has a range of economic, social and environmental
repercussions, including lower productivity, rising greenhouse gas
productivity, rising emissions, encroachment on fertile agricultural land, and reduction
greenhouse gas in recreational spaces for leisure. National governments thus have
to address two urgent policy objectives simultaneously: i) providing
emissions, adequate, resilient and affordable housing; and ii) delivering
encroachment on compact urban development.
fertile agricultural Ethiopia, like many of its East African neighbours, is experiencing
rapid urbanisation and facing both policy challenges. This
land, and reduction paper identifies six cross-cutting housing policy instruments
in recreational that best encompass Ethiopia’s national housing framework
from the perspective of housing affordability and compact urban
spaces for leisure. development. These six policies are set out in Section 3.
The analytical framework used to assess the six instruments is based

on the global assessment of 16 national urban housing policy instruments affecting
housing affordability and compact development conducted in a recent OECD/CUT
working paper, Housing policies for sustainable and inclusive cities.2 The objective of
this follow-up paper is to assess how Ethiopia’s current national housing framework
is effectively addressing the challenges of housing affordability and compact
development, and to provide recommendations to promote sustainable and
inclusive cities in Ethiopia.
The structure of the paper is as follows. After this introductory section, Section 2
maps out Ethiopia’s current housing policy landscape. Section 3 then carries out
i. Typically, a housing expenditure threshold over 40% is considered a burden on households, between 30% and 40%
is considered unaffordable, and expenditure under 30% is considered affordable.

in-depth assessments of the six major national housing policy instruments.ii The
concluding Section 4 summarises the key characteristics of these instruments
and provides overarching policy recommendations to support compact urban
development and affordable housing in Ethiopia. The paper benefitted from
desk research and a fact-finding mission to Addis Ababa, Ethiopia, in July 2019
to interview government officials and leading experts and to collect data and
documentation.
The numerous benefits provided by compact cities have been subject to debate
in light of COVID-19. Especially at the outset of the pandemic, questions emerged
regarding the vulnerability of densely populated cities and their potential to spread
COVID-19, due to close proximity among residents and the difficulty in applying
social distancing measures. However, as documented in the OECD report Cities
policy responses to COVID-19, urban density alone does not make cities and their
residents more vulnerable to the impacts of COVID-19, and is not necessarily
correlated with higher transmission rates.3 Rather, structural socio-economic
conditions in many cases underpin urban residents’ resilience or vulnerability (e.g.
access to good health care). In fact, dense urban environments can provide quicker
access to health and social services, create support networks to combat social
isolation and make use of “social infrastructure” (i.e. community institutions) to
alleviate the consequences of COVID-19. This paper does not specifically analyse
the impacts of COVID-19 on urban housing in Ethiopia, although this remains an
important area for further research.
The paper applies the definitions of urban sustainability and affordable housing as
laid out in Housing policies for sustainable and inclusive cities. Urban sustainability
is thus considered from the perspective of compact urban development, which is
characterised by “dense and proximate development patterns […] linked by public
transport systems [and with] accessibility to local services and jobs”.4 Affordable
housing, in line with the definition employed by many OECD and non-OECD
countries, can be measured relative to the proportion of households or population
that spend more than 40% of their disposable income on housing costs. Housing
affordability definitions naturally vary from country to country (see Box 1 for the
Ethiopian context). Building on the methodology developed in Housing policies for
sustainable and inclusive cities, this paper focuses on the formal housing market,
and hence informal housing remains outside its scope. While regional governments
and secondary cities are discussed in the paper, the primary focus of the assessment
and recommendations is on the federal government and on Ethiopia’s capital
city, Addis Ababa, where the greatest demand for and supply of housing are
concentrated.
ii The Ethiopian framework plan – the National Urban Development Spatial Plan (NUDSP) – as well as some
legislation under consideration (rent cap, tenant–landlord regulation), are not discussed in full, as they were still
either under review or discussion at the time of writing.

2. Ethiopia’s urban and housing policy landscape
2.1 ETHIOPIA REMAINS PREDOMINANTLY RURAL, BUT RAPID URBANISATION
IS UNDERWAY
Ethiopia is the second most populous and the fifth least

Just over 20% of Ethiopia’s
population live in urban areas urbanised country in Africa. At present, 21% of Ethiopia’s 112
million residents live in urban areas (23.5 million people),iii according
to the national definition.5 Although significantly below the sub-
Saharan average of 40.4%, Ethiopia’s urban population is expected to
grow considerably over the next few decades: the Central Statistical
Agency of Ethiopia (CSA) projects that the urban population will
23.5
MILLION - urban residents
increase to 42.3 million by 2037, growing at 3.8% per year, while the
World Bank projects this growth at a higher rate of 5.4% per year.6 The
main drivers of urbanisation are:
• Economic growth: Ethiopia’s average annual gross domestic

product (GDP) growth rate was 10.4% between 2004 and 2018.7
While urban inequality (measured by the Gini coefficient) is high,
it has declined in recent years, from 0.44 in 2005 to 0.37 in 2011.8
112
MILLION - total population
There are marked differences between the livelihoods of people
in rural areas (of whom 25.6% live in poverty) and urban areas
(of whom 14.8% live in poverty).9 This “urban advantage” drives
natural population growth – where the mortality rate is lower
than the fertility rate – which is estimated to have accounted for
up to 40% of urban population growth as of 2012.10
Ethiopia’s urbanisation rate is
currently significantly below • dministration and planning: The reclassification of rural
A
the sub-Saharan average villages into towns accounted for approximately 33% of growth
in the total urban population as of 2012,iv while the expansion
of existing urban areas into nearby settlements accounted
for 3%.11 The government’s efforts to embed (sustainable)
urbanisation priorities within national development plans
such as the 2015–2020 Growth and Transformation Plan II also
40.4%
Sub-Saharan urbanisation rate
iii Ethiopia’s urban population stands at 38%, according to the new methodology developed
by the OECD, the European Commission and a coalition of four other international
organisations (World Bank, FAO, UN-Habitat, ILO) to define the degree of urbanisation in
the world – where urban centres are defined and measured as high-density places having at
least 50,000 inhabitants, rather than according to nationally varying definitions for “urban”
and “rural”. That being said, the housing data analysed throughout this paper was produced
according to Ethiopia’s statistical definition of “urban”.
iv As detailed by the World Bank in its 2015 Ethiopia Urbanization Review: “Rural villages are
21%
upgraded to towns when they meet the following requirements: over half of the population
are engaged in non-farming activities such as petty trading, service provision and the like;
most of the residents in the area are benefiting from urban-based facilities like electricity,
piped-water supply, telephones, schools, and health services; total population living in
Ethiopia’s urbanisation rate that particular location is 2,000 and above; and the area is believed to have potential for
economic growth and attraction of migrants to engage in nonfarm activities.”

Ethiopia’s urban population is contribute to urbanisation.12 Given that urban households are on
expected to grow considerably average smaller than rural ones – comprising 3.5 people rather
over the next few decades than 4.9 – housing needs will continue to grow with the rate of
urbanisation.13
2037 • hanging patterns of work: At present, agriculture employs
C
77% of the workforce (90% of which are small-scale farmers) and
contributes 38.8% of GDP. However, Ethiopian cities have been
estimated to contribute 38% of GDP through the employment,
42.3
formal and informal, of only 15% of the country’s total workforce,
and 60% of all new jobs created between 2005 and 2011 were in
Million - urban residents
urban centres.14 Accordingly, rural–urban migration accounted
for 24% of the growth of urban populations as of 2012.15
• rowing labour force: Ethiopia’s labour force has doubled over

G
ECONOMIC GROWTH the last 20 years, and CSA projections suggest it will increase
Higher prosperity in urban from 39 million in 2007 to between 86.5 and 91.2 million by
areas drives population
2037.16 This future growth is also due to Ethiopia’s high youth
growth, as the mortality rate
is lower than the fertility rate. population: 40.6% of Ethiopians are between 0–14 years old,
compared to the global average of 25.8%.v,17 This increase in the
labour force implies a growing share of urban residents seeking
employment opportunities in Ethiopian cities.
The capital city of Addis Ababa is by far the most populous city in
Ethiopia, having undergone rapid growth in terms of population,
25.6%
RURAL residents
3.8 million in 2015 versus 2.8 million in 2000 (37% increase), and of
built-up area, 113 km2 in 2015 versus 85 km2 in 2000 (32% increase).vi,18
live in poverty
14.8%
URBAN residents
live in poverty
v Ethiopia’s population age structure is almost identical to the sub-Saharan Africa regional aggregate and contrasts
with that of OECD member states: percentage of total population aged 0–14 (Ethiopia, 40.8%; sub-Saharan Africa,
42.5%; OECD, 17.7%); percentage of total population aged 15–64 (Ethiopia, 55.7%; sub-Saharan Africa, 54.6%; OECD,
65.1%); percentage of total population aged 65 and above (Ethiopia, 3.5%; sub-Saharan Africa, 2.9%; OECD, 17.2%).
vi Pesaresi, M., Florczyk, A., Schiavina, M., Melchiorri, M. and Maffenini, L., 2019. GHS settlement grid,
updated and refined REGIO model 2014 in application to GHS-BUILT R2018A and GHS-POP R2019A,
multitemporal (1975-1990-2000-2015), R2019A. European Commission, Joint Research Centre.
DOI:10.2905/42E8BE89-54FF-464E-BE7B-BF9E64DA5218.

Drivers of Urban population growth as of 2012
40%
from natural
33%
from the reclassification of rural
24%
from rural-urban
3%
from the expansion of urban areas
population growth villages into towns migration into nearby settlements
2.2 AN OWNER-OCCUPIED HOUSING MARKET WITH LIMITED FORMAL

RENTAL OPTIONS
More than 80% of Ethiopia’s housing market is owner-occupied (Table 1).

There is, however, a notable difference between urban and rural areas: only
39% (1.8 million) of all urban units were owner-occupied, compared with 95%
(13.9 million) of all rural units.19 While rental tenure accounts for a small share
(15%) of Ethiopia’s 19.4 million total housing units, it accounts for 54% of all urban
housing units; in the capital city, Addis Ababa, this share is even higher, rising to
61%.
Key:
DELIMITATION
TOTAL RURAL URBAN ADDIS ABABA

Table 1: Ethiopian housing unit tenure in 2016
DELIMITATION
NUMBER OF
HOUSING UNITS
(% OF TOTAL), BY
TYPE OF TENURE
15 756 705 13 940 377 1 816 327 247 511

OWNER-OCCUPIED
(81.22%) (94.59%) (38.96%) (29.80%)
2 922 830 416 019 2 506 811 507 265

RENTED
(15.07%) (2.82%) (53.77%) (61.06%)
651 112 344 411 306 701 69 765

FREE OR SUBSIDISED
(3.36%) (2.34%) (6.58%) (8.40%)
67 721 36 048 31 673 6 159

OTHER
(0.35%) (0.24%) (0.68%) (0.74%)
793 352 441 -

NOT STATED
(38.96%) (-) (0.01%) (-)
19 399 161 14 737 207 4 661 953 830 700

TOTAL
(100%) (100%) (100%) (100%)
Notes: CSA considers a housing unit to be “free of charge or subsidised” (simply referred to as “Free or Subsidised”
in the table) if it is provided to a tenant for free or at a subsidised rate on behalf of a relative or an employer.
Source: Author elaboration adapted from Ethiopia’s Central Statistical Agency Welfare Monitoring Survey
2015/2016.20
Private households accounted for three-quarters of rented units in cities, according

to the most recently available census data (Table 2).vii The availability of rental units
from house renting agencies or other institutions is very limited (2.7% nationwide
and 2.5% in cities). This implies that the rental market in Ethiopia may be
fragmented (i.e. many individual households are renting a relatively small number
of units), informal (i.e. rental contracts may not be regulated and transparent)
and relatively closed (i.e. rental information may not be widely available). On the
formal market, rental housing allowances (or rent-subsidy vouchers) are provided
to employees of certain universities, public institutions and companies, but remain
unavailable to urban residents who would benefit from such support.
Kebele housing – government-managed rental housing that is inexpensive but

typically of low-quality – is the second most common form of rental tenure (20% of
total rental housing units) and is especially prevalent in urban areas, where 345,428
vii Since the Welfare Monitoring Survey 2015/2016 did not collect disaggregated data according to the type
of rental tenure, the most relevant data source was last collected in 2007, when the third and most recent
national population and housing census was conducted (Table 2). The census data reveal the constitution of
the rental market in 2007 and are largely consistent with WMS 2015/2016 (Table 1), and hence inform current
understanding of Ethiopia’s urban rental tenure.

kebele units are located (95% of all kebele units). The 148,645 units in Addis Ababa
– 43% of all urban kebele units in the country – account for nearly 40% of all rental
housing in the city. The high rate of kebele housing units in Addis Ababa explains
the city’s lower share of rentals supplied by private households relative to the
country average. Kebele housing provides an affordable housing alternative for low-
income households (see Box 1 on housing affordability in the Ethiopian context),
but represents a challenge from a housing quality perspective due to its often poor
quality, as will be further discussed in this paper.
Table 2: Detailed Ethiopian housing unit tenure in 2007
DELIMITATION
TYPE OF TENURE
TOTAL HOUSING UNITS 15 103 137 12 206 118 2 897 019 628 986
TOTAL OWNER-OCCUPIED
12 303 481 11 164 791 1 138 690 205 196
UNITS
% OF TOTAL HOUSING UNITS 81.46% 91.47% 39.31% 32.62%
TOTAL RENT-FREE UNITS 1 016 246 815 291 200 955 37 293
TOTAL RENTAL UNITS 1 783 410 226 036 1 557 374 386 497
Rental from kebele 362 303 16 875 345 428 148 645
% of total rental units 20.32% 7.47% 22.18% 38.46%
Rental from private household 1 363 129 194 015 1 169 114 222 384
Rental from private household 24 587 1 717 22 870 11 388

Rental from private household 23 835 7 397 16 438 3 281

Rental from private household 9 556 6 032 3 524 799

Notes: The CSA considers “Rent-Free Units” to be owner-occupied units where the inhabitant does not pay rent.
For the purposes of this paper, “Rent-Free Units” have been included as a distinct category, and thus have not been
accounted for in the tabulation of total owner-occupied units. “Occupied difference rent” indicates housing units
occupied by households paying a difference in rent. Such a household owns another housing unit that is rented for
either less or more compared to the rent of the housing unit the household is occupying at the time of the census.
Source: Author elaboration adapted from the 2007 Population and Housing Census of Ethiopia.21

2.3 LOW-QUALITY URBAN HOUSING AND LIVING CONDITIONS PRESENT
SIGNIFICANT CHALLENGES
Housing quality in Ethiopia is lower than in neighbouring countries, with

overcrowded and poor living conditions constituting the major housing
challenges in large urban centres.22 “Wood and mud” – also referred to as chika-
bet [wood/mud + straw-mortar house] construction – historically served as the
primary construction material for the walls of three-quarters of all housing units,
rising to 80% in cities.23 The two most commonly used materials for flooring in
urban housing units were “earth or sand” (23%) and “dung” (9%), an indication of
low-quality housing (Table 3).viii Some 65% to 75% of the urban population lives in
what might be considered slums since many housing units lack durability, adequate
space, access to safe water and sanitation, and security of tenure.24 Overcrowding
compounds these risks: 65% of urban households use a single room for sleeping, yet
the average urban household size is 3.5 persons (Table 3).
While access to services, such as water, sanitation, solid waste and electricity, is
significantly better in urban areas than rural areas, it nonetheless remains low.
Almost all urban households have access to an improved source of drinking water
and 93% have access to electricity, yet only 16% use improved sanitation (e.g. flush/
pour-flush to piped sewer/septic/latrine).ix,25 Solid waste management also poses a
challenge, as it is often discharged into open areas, endangering public health.
viii Flooring materials differ widely in urban and rural areas: “earth or sand”, “vinyl or asphalt strips” and “carpet” are
most often used in urban households (23% each), whereas the floors in rural households are primarily of “earth or
sand” (55%) and “dung” (39%).
ix Household coverage for water, sanitation and electricity remains low in Ethiopia. Nearly two-thirds (65%) of
all households have access to an improved source of drinking water, but only 6% use improved sanitation. The
remaining 94% use unimproved sanitation: generally a shared facility (9%), an unimproved facility (53%) or no
facility (32%). Urban households are more likely than rural households to use improved sanitation (16% versus 4%),
and while nearly all urban households (93%) have access to electricity, this is only the case for 26% at the national
level. Unimproved sanitation poses numerous health risks, which can be compounded by rapid urbanisation as
cities struggle to provide wastewater infrastructure to a fast-growing population. Sanitation-related issues are
among the leading causes of disease transmission in Africa, especially for cholera, diarrhoea, dysentery and
typhoid. The low share of improved sanitation in Ethiopia’s cities is a common challenge across urban areas in
sub-Saharan Africa, where only 20% of the population is estimated to have safely managed sanitation and 25% to
basic sanitation.26

Table 3. Ethiopian housing characteristics
Percentage distribution of housing characteristics by households
HOUSEHOLDS
HOUSING CHARACTERISTICS
Yes 93% 8% 26%
ELECTRICITY
No 7% 92% 74%
NATURAL FLOOR
Earth, sand 23% 55% 48%
Dung 9% 39% 33%
RUDIMENTARY FLOOR
Wood/planks 0.3% 0.1% 0.2%
FLOORING Palm/bamboo 0.8% 1.7% 1.5%
MATERIAL FINISHED FLOOR
Parquet or polished wood 1% 0.1% 0.3%
Vinyl or asphalt strips 23% 1.2% 5.6%
Ceramic tiles 4% 0.1% 0.9%
Cement 16% 1.6% 4.5%
Carpet 23% 1.4% 5.8%
One 65% 72% 70%
ROOMS USED Two 25% 23% 24%
FOR SLEEPING
Three or more 9% 5% 6%
Source: Ethiopia’s Central Statistical Agency’s Demographic and Health Survey 2016.27
2.4 A UNIQUE CONTEXT FOR URBAN HOUSING MARKED BY PUBLIC OWNERSHIP

OF LAND AND INCREASING LIBERALISATION
Ethiopia’s housing policy has been characterised by public ownership of land

and a predominantly government-led supply of housing. All land in Ethiopia was
nationalised in 1974, shortly after Emperor Haile Selassie was deposed by the
Derg, the communist military junta that governed Ethiopia between 1974 and 1991.
Proclamation Number 47, “Government Ownership of Urban Lands and Extra
Houses”, formally defined government ownership of urban land, as was later
enshrined in the 1995 Constitution.28
Proclamation Number 47 also introduced three new typologies for government-

supported housing that are still in place today: i) government-owned units rented
at monthly rates above 100 Ethiopian birr (ETB), primarily destined for government
officials and administered by the Federal Housing Corporation (FHC) (formerly the

Agency for the Administration of Rental Houses); ii) kebele housing, inexpensive
and often poor-quality government-owned units rented at monthly rates below
100 ETB and managed by the lowest level of government; iii) cooperative housing,
whereby small groups of individuals (typically 10 to 20) register together as a
cooperative group for land allocation to independently construct communal
housing, benefitting from below-market-value land allocation, subsidy of
construction materials and low mortgage interest rates prior to 1991.29
In 1991, the Ethiopian People’s Revolutionary Democratic Front introduced an

increasingly market-oriented approach to urban housing development. The 1993
Urban Land Lease Holding Proclamation established long-term lease holding: the
auction of city plots for long-term leases ranging from 15 years for urban agriculture
to 99 years for housing. The proclamation, as well as proclamation 272/2002 which
replaced it, stipulated that land used for social services and “low-cost housing”
could be leased free of charge.30 Importantly, neither proclamation defined “low-
cost housing”x (see Box 1 on housing affordability in the Ethiopian context).31
This provision was later repealed by Proclamation 721 in 2011, which stipulates
that “every plot of urban land shall have a benchmark lease price”.32 The 1995
Constitution also permits urban land-use rights to be transferred to individuals,
cooperative housing groups and private entities on a leasehold basis.33 Although the
proportion of urban housing stock delivered by private developers is minimal, the
private real estate sector has grown in the post-1991 period, focusing primarily on
high-income households in Addis Ababa and several secondary cities. The absence
of widespread affordable mortgage finance presents an impediment for private
developers to construct affordable housing.
The increasing liberalisation of the housing market was marked by the removal
of subsidies on the sale of building materials and the setting of interest rates for
housing construction at market rates (Regulation Number 3/1994). Subsidised
interest rates were also removed after 1991, which significantly increased lending
rates, from 4.5% for cooperatives and 7.5% for individuals to 16% for both,
presenting an obstacle for low-income households to secure a home loan.34 When
loans were available from the construction bank (now dissolved), they were
insufficient to meet very high demand. Additionally, since many low-income
households receive income informally and lacked capital to use as collateral,
there has been virtually no access to formal credit.35 As the state retains public
ownership of all land, the local level of government acts as the sole supplier of land
for housing development in urban areas through direct allocation (“allotments”)
x Proclamation Number 80/1993 states: “In the case of urban land used for social services and low cost houses,
the rate of rent payable in accordance with sub-article 1 of this Article shall be low” (Article 8, §2). Proclamation
272/2002, “Re-enactment of the Urban Lease Holding Proclamation”, which repealed the original 1993
Proclamation, similarly states, “Region or City government may permit urban land for lease payment down to nil
for a development activity, social service-rendering institution, low-cost housing, private dwelling houses and
similar undertakings it purports to encourage” (Article 8, §2). Neither proclamation provided a definition of “low-
cost houses/housing”.

and auction.xi,36 Unlocking new private capital remains a significant challenge for
the Ethiopian government, although certain instruments, such as housing bonds,
could help finance growing demands for housing, especially in light of current debt
sustainability issues.
As will be further detailed, the Integrated Housing Development Programme

(IHDP) – the leading national policy instrument for the construction of affordable
condominium units – successfully supplied 383,000 housing units between 2006
and 2018, but is soon expected to be phased out owing to capacity and delivery
issues, as well as the highly subsidised nature of the programme. Within this
context, the government is currently seeking an effective alternative set of housing
policy instruments to provide greater supply of affordable units to an over-
demanded housing market. To date, these alternative instruments have not yet been
made public, aside from the announcement of an intention to boost the role of the
private sector (foreign and domestic).
Photo credit: Dereje/Shutterstock
xi Formal housing refers to housing owned by individuals, private developers or the government, and that complies
with all legal standards, including the land lease law as well as building codes and standards. Housing delivery
systems under this group include housing cooperatives, privately owned individual houses, private real estate
developments, government housing for civil servants and government-owned condominium housing.

BOX 1 Housing affordability in the Ethiopian context
In the OECD, affordable housing is typically measured relative to the proportion of household/
population expenditure on housing costs that does not exceed 30% of disposable income (over
40% is deemed a burden by the OECD). In the Ethiopian context, housing may appear relatively
affordable at first glance: expenditures on “housing (rent), water, electricity and gas” account
for around 19% of annual expenditures for households across all consumption quintiles (19.5%
average for urban households), which is not dissimilar to the OECD average of 22%.37
However, upon further scrutiny it is clear that the Ethiopian context is very different, for
instance with regard to other expenditure categories. Across the OECD, 14% of total household
expenditure on average is on “food and non-alcoholic beverages”, whereas in Ethiopia this
category accounts for more than 54% of total expenditures for fully 80% of households (even
households in the fifth consumption quintile expend 44% in this category): Ethiopian urban
households in the first consumption quintile spend up to 60% of annual expenditures on “food
and non-alcoholic beverages”.38
In practice, this means that housing and food costs alone account for 65% of annual
expenditures for the average urban household in Ethiopia – a figure that rises to 80% for urban
households in the first consumption quintile and only goes as low as 60% for households in the
fifth quintile. Even with housing finance, only 3.5% of urban households are estimated to be
able to afford the cheapest new housing unit (20m2) built by a formal developer or contractor,
which would cost around 600,000 ETB (PPP US$ 55,871).39
For households in Addis Ababa, median rent shares as a proportion of household consumption
are estimated to be much lower for those occupying informal housing (14.8%) than formal
housing (45%), IHDP (52%) or cooperatives (56%); low-income households in Addis Ababa (e.g.
quintiles one and two) can essentially only afford informal housing or kebele housing.40 This is
illustrative of the great challenge in Ethiopia to define and provide affordable housing for all.41
Source: FDRE CSA, 2017. Demographic and Health Survey 2016; C-GIDD, 2020. GIDD database; OECD,
2021. Building for a better tomorrow; OECD AHD, n.d. OECD Affordable Housing Database: Indicator HC1.1;
Zhang et al., 2019. Unlocking Ethiopia’s Urban Land and Housing Markets.
2.5 URBAN GOVERNANCE AND FINANCE IN ETHIOPIA’S FEDERAL FRAMEWORK
Ethiopia is a federal country with decentralised governance based on nine

autonomous regional states (kililoch) and two chartered cities – Addis Ababa
and Dire Dawa – that have the statUs of a regional state.42 Ethiopia is one of the
few African countries where, on the regional level, all three branches of government
– legislative, executive, judicial – are independent from the federal government.
The 1995 Constitution established the federal structure in which each region has its
own autonomous and elected government. After the decentralisation of governance

to the regional states in 1995, a second phase of decentralisation followed in 2002,
the District-Level Decentralisation Programme, after which the bulk provision of
public services was devolved to the sub-regional level of government.43
There are 780 subnational governments including the 9 regions and 2 chartered
cities, as well as 6 zones, 98 urban local governments (ULGs) and 665 rural
woreda districts (woredas can be rural or urban) (Figure 1).44 The regional states
are structured into zones that are headed by appointed executives and councils
and serve a coordinating role as well as linking between regions and the next
level of government, which consists of woredas and ULGs (also referred to as city
administrations).45 Approximately 1,385 urban settlements have populations mostly
below 20,000 and do not have ULG status, functioning instead under the authority
of woredas.46
Figure 1. Governance structure in Ethiopia
FEDERAL GOVERMENT
9 REGIONS AND
2 CHARTERED CITIES
6 TERRITORIAL ZONES
98 URBAN LOCAL GOVERNMENTS

665 URBAN LOCAL GOVERNMENTS
*KEBELE / SUB-CITIES *KEBELE / MUNICIPALITIES
Note: *Kebele administration units were the lowest level of government for years but they no longer exist, having been
integrated into woredas.47
Source: Author elaboration.

Local governments have the major responsibility for urban housing
The federal development in Ethiopia.xii,48 ULGs are assigned municipal functions
by regions through city proclamations. These include housing
government collects supply as well as land servicing and supply, in addition to supply
the bulk of revenues and quality of water; electricity and telephone services; construction
and lighting of roads; drainage and sewerage; solid waste disposal
to transfer in turn to systems.49
local governments, Although local governments have the ability to set local service
making spending charges and tax rates within a range set by the federal or regional
government, the federal government collects the bulk of revenues
more decentralised to transfer in turn to local governments, making spending more
than revenues. decentralised than revenues (Box 2). Fiscal decentralisation remains
limited, with significant disparities between local governments,
particularly between urban and rural municipalities.50 In 2009,
intergovernmental transfers represented from 45% to 80% of regional expenditures,
creating a high dependency of regional governments and thus reducing their
autonomy. Woredas face a similar situation as they mostly rely on regional transfers
to fund their spending.51
Photo credit: Dereje/Shutterstock
xii Each level of government is responsible for the provision of public services at its level, whereas the federal
state is responsible for shared competences and for all powers that have not been delegated to the regional
level. The regional governments are responsible for a wide range of policy domains, including economic and
social development policies, while the woredas are in charge of water provision and distribution, building and
maintenance of local roads, primary schools and primary health care services, among other services.

BOX 2 Revenue sources in Ethiopia
Revenue sources are clearly assigned to the federal and regional states, but weak fiscal bases
and collection obstacles undermine local governments’ fiscal revenues. This renders local
governments highly reliant on intergovernmental transfers, limiting their autonomy.
Tax revenue: the constitution allows the regional states to levy the following taxes: income tax
on employees of the state government; agricultural tax on farmers; tax on individual traders,
houses and other property owned by private persons or regional governments; sales tax on
public enterprises owned by the state government; and forest products. Regional states also
receive income from shared taxes levied by the federal government on profit, sales, excise and
personal taxes on enterprises (the list is jointly established); taxes on the profits of shareholders
(companies and individuals); and taxes on income derived from large-scale mining, petroleum
and gas operations. This regional system of taxation creates important income inequalities
between regions, as the limited tax bases are unevenly distributed in the country. There is also
an imbalance between federal and regional states, and between the regional states themselves,
in the distribution of shared taxes. The chartered city of Addis Ababa, estimated to generate
25% of national GDP, has the power to create new taxes and levies.
Other sources of revenue: regional states and chartered cities (Addis Ababa and Dire Dawa)
also benefit from other sources of revenues, including: administrative fees and charges, such as
work permits, court fines and fees, forfeits, business and professional registration and licence
fees; sale of public goods and services; government investment income; and miscellaneous
revenues. Addis Ababa raises revenues through urban land lease, yet this is decreasing as a
share of its total local revenue.
Source: OECD/UCLG, 2016. “Ethiopia” in Subnational Governments Around the World - Part III: Country
Profiles, Organisation for Economic Co-operation and Development, Paris, and United Cities and Local
Governments, Barcelona. Available at: http://www.oecd.org/regional/regional-policy/profile-Ethiopia.pdf.

3. Assessing Ethiopian national urban housing
policy framework
3.1 OVERVIEW: MAJOR NATIONAL HOUSING POLICY INSTRUMENTS IN ETHIOPIA
In light of the challenges and opportunities facing housing development in

Ethiopian cities, this section analyses the Ethiopian national housing policy
landscape by applying the analytical framework developed in a working paper
published in 2020, Housing policies for sustainable and inclusive cities (Box 3).52
BOX 3 Framework to assess national housing policy instruments
The OECD, in partnership with the Coalition for Urban Transitions, has developed a framework
to assess how national housing policy instruments can affect urban compactness and housing
affordability. Sixteen national housing policy instruments from around the world were
categorised into three groups owing to the cross-cutting nature of many policies: i) policy
instruments affecting use of land for housing development, thus affecting the general housing
market; ii) policy instruments mainly affecting the owner-occupied housing market; and iii)
policy instruments mainly affecting the rental housing market.
The overall assessment found that in the first group of policies on land use, regulatory
instruments, such as urban growth boundaries (UGBs), urban services boundaries (USBs) and
greenbelts, as well as tradable/transferable development rights, bear a risk of negative impacts
on compactness and housing affordability. These policies require particularly careful design
and implementation – for example, with regard to their capacity to adapt to urbanisation trends
in the case of greenbelts or UGBs and USBs. In contrast, fiscal instruments, such as split-rate
taxes, taxes on vacant land, impact fees, development taxes and incentives for higher density/
accessibility, tend to be more adaptable and are more conducive to increasing compactness
and housing affordability. Such instruments can be particularly effective in preventing windfall
gains for landowners and redistributing a degree of landowners’ benefits directly to urban
residents.
Source: Moreno-Monroy et al., 2020. Housing policies for sustainable and inclusive cities.

Table 4 reproduces the framework developed in Housing policies for sustainable and
inclusive cities, complemented with a mapping exercise performed for the case of
Ethiopia based on the interviews and literature review conducted within the context
of this paper.
The result of the mapping exercise reveals that several key instruments for compact
urban development and affordable housing are already implemented or in progress
in Ethiopia:
• “Impact fees” are in place, in the form of the national land allocation
system which incorporates benchmark prices since 2011 to try to recover
infrastructure costs.
• “Incentives for higher density or accessibility” are also implemented, namely

through the IHDP, which has provided subsidies for higher density/floor-
to-area housing developments and mandates, although there are no such
incentives for private developments.
• “The perpetual use of social housing for rent in central urban areas” is
especially prevalent in Ethiopia through kebele housing units.
• “Rent control” applies to kebele and federal housing corporation (FHC) units
but is not extended to the private rental market.
• “Regulations on tenant–landlord relations”: a tentative regulation on

establishing tenant–landlord relations has been proposed.
The mapping exercise also found that Ethiopia lacks several key policy instruments
which are in use globally to enhance housing affordability and compact urban
development:
• From the category of policy instruments affecting the use of land for housing
development, the Ethiopian national policy framework lacks split-rate
property taxes and vacant urban land taxes (in fact, standard property taxes
are not effectively implemented in Ethiopian cities in practice), a development
tax, tradable/transferable development rights, urban growth/service
boundaries, and greenbelts.
• From the category of policy instruments mainly affecting the rental housing
market, the Ethiopian national policy framework lacks subsidies or tax
incentives to investors and developers for affordable rental housing. Rental
housing allowances apply to employees of certain universities, public
institutions and companies, but remain unavailable to urban residents who
would benefit from such support.
The full results of the mapping exercise are summarised in Table 4 and expanded
upon in the following subsections, which assess the six main national housing
policy instruments in Ethiopia and their impacts on urban compactness and
housing affordability.

Table 4: Global mapping of national housing policy instruments affecting urban compactness
and housing affordability, applied to the context of Ethiopia
Note: In the “Policy” column, the following colours assess the extent to which a given policy instrument is generally advisable, based on analysis in Housing
policies for sustainable and inclusive cities (not necessarily prescriptive for the Ethiopian context), in order to achieve compact and inclusive cities:
• Not advisable in principle.

• May be advisable but requires careful assessment to avoid potentially mixed or adverse impacts.
• Advisable with appropriate qualifications.
OVERVIEW OF POLICY INSTRUMENTS IDENTIFIED IN IS THE POLICY

HOUSING POLICIES FOR SUSTAINABLE AND INCLUSIVE CITIES. INSTRUMENT IN
PLACE IN ETHIOPIA’S
Policy Impact on Impact on NATIONAL POLICY
instruments Objectives compactness affordability FRAMEWORK?
POLICY INSTRUMENTS AFFECTING USE OF LAND FOR HOUSING DEVELOPMENT

Split-rate Incentivise property If well designed and Effect on housing prices is No: in practice property taxes are
property taxes owners to build on (or adequately targeted, split- mixed not effectively implemented in
or vacant urban improve) their properties rate taxes reduce incentive Ethiopian cities; neither a split-
land tax while disincentivising land for sprawl rate property tax nor a vacant
speculation urban land tax are in place
Impact fees Internalise the cost of More dense and less Mixed – prevent windfall Yes, within the national land
infrastructure provision fragmented development gains for landowners (for allocation system: since 2011,
by charging developers/ as incentives to build near developing their land benchmark prices for land
landowners for their existing stock increase without providing necessary allocation are required to be set
developments in order to infrastructure) and increase at cost-recovery levels for the
recover the social cost of access to services provision of basic infrastructure
conversion to housing
Development tax Internalises the social and Less sprawl, as it provides Mixed – can capture and No
environmental loss of open disincentives to landowners redistribute landowners’
space by levying tax on for land conversion benefits to urban residents
land that is converted from
agricultural to urban use
Tradable or Compensate restricted May not directly reduce Uncertain – depends on the No
transferable development rights by sprawl but can produce initial state of regulation and
development allowing a right to develop a more dense development allocation of development
rights plot of land to be transferred if restricted rights in urban rights
to another plot; often used to fringes are traded to urban
preserve historical buildings centres; the correct cap
needs to be established
Urban growth Contain sprawling housing Less sprawl and more dense Increased housing prices No
boundaries or development by physically development, but more
urban service limiting developable fringe sprawl and more fragmented
boundaries areas if boundaries are not
drawn properly or updated
periodically

Greenbelt Designates areas of open Less sprawl and more dense Increased housing prices No
space surrounding urban development, but fixed
areas (or certain parts greenbelts are likely to lead
outside urban areas) that to leapfrogging (development
act as physical boundaries outside the greenbelts)
against city expansion
Incentives for Incentivise housing Less sprawl and more dense Increased affordable housing Yes: since IHDP as a whole has
higher density or development with higher development stock; access requirements benefitted from preferential
accessibility density/floor-to-area ratio can increase inequality subsidies, high-density housing
and with better access through housing cost developments are incentivised
through subsidies; used in overburden (higher grants indirectly (IHDP developments
areas where densification and subsidies can capitalise can be up to 7 or 12 floors but
needs to be encouraged into higher prices) there are no specific subsidies/
(e.g. near public transit incentives for higher-floored
infrastructure or high IHDP developments); incentives
employment areas) are not in place for non-IHDP
housing developments
POLICY INSTRUMENTS MAINLY AFFECTING THE OWNER-OCCUPIED HOUSING MARKET

Grants for buying Increase access to housing; Less compact if preference is In practice with rigid Yes: with IHDP housing, land
or constructing alleviate housing cost burden given to single-family home supply they can inflate land is provided for free or at a very
a new home for homeowners/home projects prices; increased housing low price; the government
buyers cost overburden (unless also procures and provides
restrictions on mortgage construction materials at
uptake are in place); if below-market prices for IHDP
targeting is weak, higher- and cooperative housing
income households mostly
benefit
Mortgage interest Allows taxpayers to own Results in an increase either Higher housing prices in Yes: IHDP’s mortgage loans are
deduction their homes and brings in space consumed per capita places with rigid housing issued by the Commercial Bank
positive externalities to their or in the share of single- supply; increased wealth of Ethiopia at subsidised rates
communities family homes in peripheral inequality when beneficiaries
areas (more in places with are high-income households
rigid housing supply) that benefit from large tax
deductions
Preferential tax Increases positive effects of No densification effect Lower-income households No

treatment on homeowners in communities expected; higher space per overburdened by rising
home sales by promoting home capita consumption / higher housing prices (especially
ownership and increasing share of single-family homes in markets with a rigid
share of homeowners, in suburbs supply); can have a positive
through exemption from impact on labour mobility as
capital gains taxes homeowners can sell homes
more easily when needed
POLICY INSTRUMENTS MAINLY AFFECTING THE RENTAL HOUSING MARKET

Regulations on Address asymmetric Neutral Mixed – May increase Yes (in discussion): a tentative
tenant–landlord information and unequal security of tenure and regulation on establishing
relations bargaining power between minimum quality standards tenant–landlord relations has
landlords and tenants of rental housing but may been proposed
indirectly decrease rental
housing supply and can
reduce labour mobility

Inclusionary Ensure access to affordable More compact if housing Lower housing costs; housing No: exists for certain private
zoning housing by reserving new is located in more central quality may degrade if residential developments,
housing to be rented at areas compared with social rental revenue cannot cover but it is not strictly enforced
below-market-price levels housing stock maintenance costs and “affordable housing” in
(often for certain periods, e.g. this context applies widely to
20 years) apartment building units which
are unaffordable for most
households in practice
Rental housing Ease housing cost burden Neutral Mixed – Increase access to No: only certain universities,
allowances or for renters by lowering rents affordable housing for lower- government organisations
rent-subsidy through a subsidy income households and can and companies provide rental
vouchers also increase residential housing allowances for their
mobility; can boost rents and respective tenants
land prices if supply is rigid
Rent control Establish controls on rent Neutral Mixed – May increase Yes: rent controls are in place
(e.g. initial rent level, and/or affordability of rental for kebele and FHC units. In
increases in rent levels) housing in the short-term but addition, a tentative regulation
decrease supply across the to fix a rent cap has been
housing market proposed for the private rental
market (in discussion)
Perpetual use of Create a pool of social More compact since such Lower costs for social Yes: kebele housing stock was
social housing housing units to be leased housing is located in more housing tenants and often historically located on
for rent in central out to eligible households central, and generally denser, increased overall access to prime urban land in central
areas through a below-market use areas social housing areas. While some units have
contract been demolished, many kebele
units remain in central areas
and their residents rent at
below-market rates (in Addis
Ababa, however, much of the
inner city has been delineated
for redevelopment, including
kebele units located there)
Subsidies or tax Ensure access to affordable Mixed – More compact Lower housing costs, but No
incentives for housing by providing development through potentially greater spatial
affordable rental incentives to investors and regeneration and conversion segregation; if developments
housing developers of central housing stock are built at low cost in areas
or explicit subsidies for with low connectivity this
multi-family dwellings; can lead to poor-quality
less compact development housing and worse access
through development in to jobs and services. Tax
peripheral areas, with incentives may create
maximum negative effects some distortions (e.g. tax
when combined with low avoidance)
occupancy rates
Source: Table adapted from Housing policies for sustainable and inclusive cities, with complementary information
regarding Ethiopia (rightmost column) derived from the analysis conducted in this paper.

3.2 KEY FINDINGS AND IN-DEPTH ANALYSIS OF ETHIOPIA’S MAJOR NATIONAL
HOUSING POLICY INSTRUMENTS
This section and its six subsequent subsections provide in-depth analysis of six
major national housing policy instruments affecting housing affordability and
compact development in Ethiopia. The previous section found that, out of 16 global
policy instruments, seven policy instruments are in place in Ethiopia. In fact, these
are in operation in the form of six different programmes and initiatives listed below:
1. Policies to regulate land use for urban housing development
• Land-use planning
• Land allocation for affordable housing
2. Policies to promote homeownership in cities
• Integrated Housing Development Programme (IHDP)
• Cooperative housing
3. Policies to promote rental housing in cities
• Kebele housing
• Federal Housing Corporation
Key components of these policy instruments, as well as their impact on

compactness and housing affordability, which are assessed in full in subsections
3.2.1–3.2.6, are summarised in Table 5. Several of the instruments are in fact
cross-cutting in the Ethiopian context: the IHDP, for instance, is a stand-alone
policy instrument that incorporates elements of three global policy instruments
documented in Housing policies for sustainable and inclusive cities: “incentives for
higher density or accessibility”, “grants for buying a new home” and “mortgage
interest deduction”.53

Table 5: Impacts of national housing policy instruments on compactness and housing affordability
POLICY DESCRIPTION AND TIMELINE IMPACT ON IMPACT ON HOUSING

INSTRUMENT COMPACTNESS AFFORDABILITY
Land-use planning National frameworks (e.g. National Urban National frameworks are not Too restrictive land-use regulations
Development Spatial Plan, Growth and always respected (or enforced) (vis-à-vis demand for housing) or
Transformation Plan II) provide provisions in practice, which is due partly inconsistent implementation and
and regulations aiming to reinforce to limited government capacity, monitoring could increase housing
government control of urban land use. competing policy priorities and prices.
rapid urbanisation.
Land allocation for As the sole suppliers of urban land in Land has been allocated for It incentivises developers to
affordable housing Ethiopia, public authorities provide land residential purposes to high- construct affordable housing, but
through leases via direct allocation and density condominiums (namely rigid supply of suitable land may
auction (the latter accounts for a minor within the context of IHDP), limit supply of affordable housing.
portion of land provision). All land was which contributes positively to Too costly (due to low benchmark
nationalised in 1974 and Ethiopia’s urban compactness when located in prices, the government has not
land lease policy was established in 1993 central urban areas. captured a significant source of
and revised in 2002 and 2011. revenue that could be channelled
into provisioning more affordable
housing).
Integrated Housing A homeownership programme designed IHDP condominiums are high While IHDP increases the available
Development to provide housing for low-income density relative to land area affordable housing stock, higher-
Programme (IHDP) households through the construction and contribute to compactness, income households mostly benefit
of condominiums. A total of 383,000 when centrally located. When (low-income households are
housing units were constructed between IHDP redevelopments have unable to afford upfront down
2006 and 2018, primarily in Addis Ababa displaced kebele residents payments and long-term mortgage
(314,000). to the urban periphery, payments).
contributes to sprawl. When
built along the urban periphery,
IHDP condominiums negatively
impact compactness and
contribute to sprawl.
Cooperative A means of securing land for private, Medium-density development, Increases affordable homes.
housing collective construction of housing units but may contribute to urban However, the required
by a small group (typically 10 to 20 sprawl if built in the urban upfront capital costs as well
individuals). It occupies a limited portion periphery. It is estimated that as construction costs render
of total housing and benefits middle- and up to 60% of land allocated to cooperatives still unaffordable for
high-income households. In secondary cooperatives in Addis Ababa is low-income households.
cities, it is often the main source of located in the periphery.
housing supply. It has been suspended
in Addis Ababa since 2005, but there is
growing interest in re-establishing it.
Kebele housing: Inexpensive and often low-quality Kebele units are high density Remains by far the most affordable
low-income- government-owned rental units. relative to built-up area and formal housing option in urban
household targeted Established in 1975, when the Derg the majority are located in areas in Ethiopia (e.g. 10 ETB per
rental housing nationalised a vast portion of informal central urban areas. However, month). Kebele units are often
settlements. Over the years, some such density is largely due to sublet informally and thus are
kebele units have been demolished while kebele units’ small floor area, occupied by more households than
other informal settlements have been overcrowding and limited on paper.
regularised and added to kebele housing infrastructure connections.
stock.

Federal Housing Government-owned units managed by the FHC units were historically FHC units are subsidised and
Corporation (FHC) FHC (established in 1975) and rented at low density relative to built-up remain quite affordable for the
units: government- monthly rates above 100 ETB, primarily area and to land area, but FHC target group, primarily government
official targeted targeting government officials. FHC units is pursuing a densification officials. Overall, FHC units
rental housing are typically of better quality (and on programme (up to 20 storeys). only occupy a small portion of
larger land parcels) than kebele units. FHC’s overall impact on total urban housing and most
Historically, FHC solely managed the compactness depends on where households do not qualify for
rental stock but it now has an extended (re)development occurs; when them.
mandate to construct new units. at the urban periphery, the
outcome is not optimal, even if
the resulting developments are
higher density than those they
are replacing.
Source: Author elaboration based on interviews from the fact-finding mission and on the analysis in section 3.2.
Key findings from the analysis in the subsequent subsections are summarised
below:
• The federal and subnational governments have considerable untapped

potential to improve land value capture since all land is publicly owned.
Public control over urban land-use planning has been used to demarcate
areas (e.g. for affordable housing, industry and transport corridors, etc.), but
opportunities to take full advantage of leases and tax revenue possibilities
have been missed, as generic property taxation is not effectively implemented
in Ethiopian cities. Ethiopia’s current land lease system and historical
government policies have also prioritised land allocation below cost-recovery
levels in lieu of land auction. The combination of these factors deprives local
governments of significant revenue sources and provides an obstacle for
overall financial sustainability, with repercussions for infrastructure delivery
and future affordable housing programmes.
• Despite government ownership of all urban land, coordinated urban

land-use planning and control remains a challenge in Ethiopia. The lack
of sufficient coordination and of land-use control is tied to limited government
capacity (including for monitoring and enforcement) as well as to the need
to urgently respond to growing demand for urban housing and transport
infrastructure.
• During the last two decades, Ethiopia has made important progress in
tackling historically high and rising urban housing demand. The federal
government has assumed an active role in addressing the country’s urban
housing shortage, contributing significant resources to increasing the housing
stock. Through IHDP alone, between 2006 and 2016, a notable 383,000
condominium housing units have been constructed, involving nearly 2,000
contractors and 12,000 small and medium-sized enterprises (SMEs). However,
supply has been unable to satisfy demand due in part to lack of capacity,
construction and transfer delays, a continued rapid urbanisation rate and the

very high unsustainable costs of IHDP borne by the government (an estimated
US$9 billion).
• IHDP has inadvertently benefitted middle- and high-income groups

rather than the targeted lowest-income groups. The highly subsidised
nature of IHDP in part limited the number of total housing units that could
be constructed (even if 383,000 units is a notable figure), and thus fewer
households in need could access affordable housing (the waiting list extends
to 800,000). The target mismatch was also partly due to IHDP being a
homeownership programme. Even with IHDP’s large implicit subsidies, many
low-income households cannot afford to own housing units (inability to pay
down payment and/or the mortgage) and do not always qualify for loans.
• The development of a formal rental market in Ethiopia remains limited.

Kebele housing and FHC qualify as formal rental options, but the former
is maintained by the government as a historical legacy and faces its own
challenges regarding quality, overcrowding and informality, while the latter
accounts for a limited share of the housing market (an estimated 24,587 units,
which are primarily intended for civil servants). In addition, since the total
number of kebele units diminishes following redevelopment projects, many
households may be forced to resort to informal housing in the absence of
a formal rental market if they can neither afford an IHDP unit nor secure a
kebele unit (both in high demand).
• There is a lack of transparency and regulations between landlords and

tenants since most urban rentals are managed by individual homeowners
– in part a consequence of the relative absence of a formal rental market.
Currently, landlords have a disproportionately favourable position since the
majority of rental arrangements are agreed upon informally. Since many urban
households live in informal settlements and/or pursue informal housing
arrangements, they are exposed to numerous risks tied to low-quality housing
conditions and to lack of legal recourse when faced with an unplanned event
such as flooding, rent increase or eviction.
• Private housing developers in Ethiopian cities have primarily targeted

high-income households to date in order to maximise a positive rate of
return as well as due to the relative absence of mortgage finance and the
limited financial means of low- and middle-income households.
Subsections 3.2.1–3.2.6 assess in full detail the six defining national urban housing
policy instruments that best encompass Ethiopia’s national housing framework
from the dual perspective of housing affordability and compact urban development.
3.2.1 Land-use planning

National- and urban-level frameworks in Ethiopia detail numerous provisions and
regulations reinforcing urban land-use planning, but certain current practices can

serve to undermine controlled development. Ethiopia’s five-year Growth and
Transformation Plan II (GTP II, 2015–2020) highlights the costs of uncoordinated
urban development and sprawl, and calls for strategic urban planning with an
emphasis on high-density areas, mixed land-use development – including a 30%
target for green infrastructure and recreational areas in Ethiopian cities – and
integrated public transport.54 GTP II also calls for cities and smaller municipalities
to guide their development according to regional and national spatial development
plans. At the national level, Ethiopia has developed the National Urban Development
Spatial Plan (NUDSP), mapping a vision to 2035 for urban development according to
different projected scenarios and objectives, and establishing implementation
priorities such as strengthening urban–rural linkages, developing urban clusters,
setting up an inter-ministerial urban spatial planning committee, an urban
development investment fund and a new urban planning institute.55 While the
NUDSP has not yet been officially approved, it recommends the establishment of
regional and urban cluster spatial plans in accordance with the broad guidelines set
out in NUDSP. In this way, at the urban level, individual cities can design and
implement their own master plans (or structure plans or strategic plans depending
on the size and categorisation of the city) in alignment with the NUDSP.
Building on the overarching guidelines in NUDSP, urban land-use plans, such
as Addis Ababa’s tenth master plan, account for a range of traditional zoning
regulations regarding road width and building use height, floor area ratio, and set
back distance,56 but the interviews, as well as literature review, show that these are
not always strictly respected in practice. Addis Ababa’s tenth master plan, providing
a long-term vision for the years 2017 to 2027, highlights that green areas accounts for
37% of the city’s surface but that this marks a reduction over time due to informal
development as well as circumvention of regulations on the part of private actors,
and even of public actors.
Coordinated urban land-use planning remains incompletely realised in Ethiopia,
despite the high potential presented by the government’s ownership of all land. The
government has sought to strengthen its control of land-use planning in frameworks
such as NUDSP (NUDSP has been drafted for some time but is not yet approved),
but this has been hindered in part by rapid urbanisation and limited government
capacity to perform extensive monitoring and enforcement of federal guidelines.
Operating in a federal system, NUDSP requires adoption and implementation at
the regional level (which has yet to occur) in order to in turn formally guide urban
planning. NUDSP marks important progress as a guiding framework to establish a
long-term vision with corresponding objectives to reinforce urban land-use planning
– e.g. the establishment of a federal urban development agency between 2020–2025
– but coherent and coordinated urban land-use planning remains limited while
these measures await implementation and while government capacity remains low.
It is reported that in practice even public authorities may occasionally circumvent
the government’s land-use planning guidelines in order to, for instance, rapidly
allocate land for the establishment of an industrial park without a thorough prior
assessment of its full potential impacts.

In the same vein, while transit-oriented development features in Addis Ababa’s
tenth master plan, land for housing and industrial developments is at times
allocated in locations either with poor or non-existent transport infrastructure, as
has occurred in peripheral large-scale housing development sites under the IHDP.57
Transit-oriented development has not yet been implemented in Addis Ababa and
nearly all IHDP condominiums built between 2013 and 2018 are located more than 15
kilometres from the city centre.58 Lack of sufficient horizontal coordination between
the relevant national ministries and local institutions contributes to reduced
government control over land use, which creates unintended negative outcomes
for spatial development. In its 2035 vision, NUDSP recommends the establishment
of a metropolitan transport authority in all current or future Ethiopian cities over
500,000 inhabitants, which will be an important step to ensure more integrated
transport and land-use planning in the future. However, it should be noted that
currently the only city with a population over 500,000 is Addis Ababa, which has
3.8 million residents, while three other cities are approaching the 500,000 mark:
Bahir Dar (490,000 inhabitants), Adama (450,000) and Dire Dawa (430,000).59 In
practice this indicates that, in the short term, no cities aside from Addis Ababa
would qualify for the establishment of a metropolitan transport authority.
Limited control over urban land-use planning has also resulted in the existence
of a relatively high proportion of vacant land in Ethiopian cities. The World Bank
estimates that underdeveloped land accounts for an important portion of the
total land area in a range of different cities: approximately 46% in Addis Ababa
and in Mekelle, 25% in Bahir Dar, 77% in Dessie and 32% in Hawassa.60 It is
important to note that these figures consider green spaces, protected areas, urban
agriculture, forests, water bodies and land identified as having a special function
as “undeveloped”, meaning that the proportion of truly vacant land is likely to be
lower. In the Bole and Akaki-Kaliti sub-cities of Addis Ababa, which have been the
two main expansion frontiers in terms of built-up area between 2005 and 2019, more
than 303 hectares of land, equivalent to an estimated 21,643 residential plots and
90,000 housing units, have been left vacant for over 10 years – up to 57% of Bole
sub-city is vacant.61
Vacant land within the urban core, especially in Addis Ababa, is widespread
and often remains undeveloped for years. There are three main reasons for the
high proportion of vacant urban land. First, there is low government capacity to
process and transfer land lease rights and to monitor and enforce land parcels and
leases. Ethiopian law forbids lessees to hold land for more than two years without
developing it, although in practice, many developers and investors opt to hold
land for speculative purposes for many years.62 Second, certain zoning regulations
that mandate a minimum height requirement for development may be unfeasible
for an individual, cooperative or small business to comply with. As a result, such
stakeholders may decide to postpone developing land and wait to transfer their
lease at a higher price.63 The numerous vacant lots are also often occupied by
informal developments, further complicating potential future efforts by either the
government or private entities to develop such land. Third, the relative absence

of fiscal instruments such as taxes on property, which tend not to be enforced in
practice in Ethiopian cities, is another factor contributing to the high rate of vacant
lots.
In Ethiopia, taxes on property (e.g. land, buildings)i in cities are not effectively
implemented. Although some forms of taxation exist (e.g. roof taxes, permit
holding fees), they are not regularly updated or enforced, and the rates are too
low to constitute a source of revenue. In Addis Ababa, despite attempts in the
1990s to register and revalue properties, property taxation is absent in practice
due to deliberate property undervaluation, the absence of revaluation, and the
government’s inability to register most new properties.64 In Dire Dawa, Bahir Dar
and Mekelle, a pilot project to design and implement property taxation is underway
but has not yet concluded. Public ownership of land and political obstacles facing
the implementation of property taxation in Ethiopian cities may present challenges,
but the absence of such taxes represents a massive missed opportunity for land
value captureii and local government revenue generation in Ethiopia.iii,65 This also
presents a barrier to related fiscal instruments, such as split-rate taxes (land taxed
at a higher rate than the buildings on it) or a vacant urban land tax, which could
serve to limit land speculation, to boost local tax revenue and to reduce incentives
for urban sprawl, as seen in Table 4. It is worth bearing in mind in the context of
taxing vacant urban land that care must be taken to avoid disenfranchising those
with legitimate rights: i.e. those who are not hoarding parcels for speculation, but
are waiting until they can afford to build on their plots to the required planning
standards/height. Another key consideration is how to coordinate between
regulation and tax measures to avoid underdevelopment.
Lack of adequate land-use control, coupled with inadequate government

compensation for land expropriation and the absence of a development tax,
has driven informal urban expansion into largely agricultural peri-urban areas,
as with the case of Addis Ababa. When neighbouring rural land is planned
for urban expansion, it is exposed to default expropriation, whereby local
government authorities compensate inhabitants who have a legal right to the
land.66 However, when inhabitants do not have, or cannot prove, a legal right to
the land, compensation is not issued. MUDH estimates that official auction prices
for rural land converted to urban land may be 50 to 100 times greater than the
i Property taxes include recurrent taxes on immovable property or net wealth, taxes on the change of ownership
of property through inheritance or gift, and taxes on financial and capital transactions. Unless otherwise noted,
within the context of this paper the term “property tax(es)” refers to the category of recurrent taxes on immovable
property, encompassing land and buildings.
ii Land value capture is rooted in the notion that public action should generate public benefit, and can be
understood as a policy approach that enables communities to recover and reinvest land value increases that result
from public investment and government actions: examples of land value capture instruments include land value
taxes, impact fees, land banking, charges on building rights, and more.
iii Generally speaking, property tax revenues tend to be much larger in developed countries (2.2% of GDP) than in
developing countries (0.6% of GDP), and – due to a variety of historical, cultural and institutional reasons – are
particularly low in African countries at 0.38% of GDP on average across 32 African countries.

level of compensation provided by local governments.67 On the informal market,
rural residents can obtain considerably higher prices for their land as compared to
government compensation.
As a consequence, many rural residents (typically farmers) living outside the urban
periphery decide to pre-emptively subdivide and sell their land informally, which
incentivises urban sprawl and the continued expansion of informal settlements.
Tradable or transferrable development rights, where the right to develop a plot of
land (i.e. at the periphery) is transferred to another plot (i.e. in the urban centre),
can in certain contexts provide an additional measure of flexibility to planners to
produce denser development and reduce incentives for sprawl,68 though the impacts
on housing affordability are uncertain (Table 4). Transferrable development rights,
as with urban growth/service boundaries and greenbelts (also absent in Ethiopia),
may not be able to adequately limit urban sprawl, especially in a context with a high
degree of informal land transactions and settlements.
3.2.2 Land allocation for affordable housing

The government’s historical management of land distribution through allocation
and auction is intricately linked to many of the issues facing urban land-use
planning. Dating back to 1993, Ethiopia’s urban land lease policy, which provides
land through direct allocation and auction and which stipulated prior to 2011 that
land used for “low-cost housing” could be leased free of charge, has transitioned
to a more market-oriented system following a last set of revisions in 2011. These
revisions established, among other things, a benchmark lease price for all urban
land plots.69
As the sole suppliers of urban land in Ethiopia, local governments play a key role
in land provision, but face a financial burden as land is allocated far below market
value and often below cost-recovery levels (Box 4). Although the cities of Mekelle,
Bahir Dar, Hawassa and Adama sold leases worth over US$77 million between 2014
and 2017 in their expansion areas alone, rapid urbanisation would inhibit municipal
governments from capitalising on a potentially major source of revenue via the
lease system. By Ethiopian law, land must be provided with basic minimum services
prior to being leased, meaning that road, water and electricity infrastructure must
already be provided before any significant revenue is generated. Moreover, except
for a minimal down payment, revenues are collected throughout the entire duration
of a lease, which can extend up to 50 years in certain cases, thus providing a
significant financial obstacle for local governments.70
Since leases are fixed payments determined at a given point in time, they do not
correspondingly reflect changes in the market value of land. This marks a significant
missed opportunity for land value capture and regular own-source revenue for
cities.71 Property taxes can enable a shift away from the current model where cities
rely primarily on land acquisition and inefficient land leasing that fails to capture

land value. The lack of a land cadastre, and the historic inability of municipalities
to develop one in Ethiopia, has also rendered municipalities unable to accurately
estimate their potential own-source revenue from land use or to enforce and
monitor its collection. While evidence indicates that the cost of administrative
improvements can discourage governments, notably in developing countries,
from investing in a consolidated national cadastre system,72 a consistent property
identification system that allows for regular updates is a sensible investment. For
example, a government programme in Mexico successfully updated the cadastre of
11 municipalities, thereby increasing their property tax collection by an average of
40%.73 A property identification system also creates the option of pooling national
resources for investing in institutional capacity.74
BOX 4 Urban land lease policy in Ethiopia: land allocation and auction
In Ethiopia, land is provided either by direct allocation or auction, often at benchmark prices
far below cost-recovery levels for the provision of basic infrastructure. Direct allocation is more
widely used, and auction is only used for a minor fraction of the total allocated land parcels:
6.2% in Addis Ababa (2011–2013); 3.6% in Mekelle (2012–2013); 2.3% in Kombolcha (2012–
2013); 2.9% in Bahir Dar (2013).75 Since the 2011 land lease proclamation, benchmark prices
have been required to be set at cost-recovery levels for the provision of basic infrastructure,
and the price-setting for auctions starts at cost-recovery levels.76 In this way, the Ethiopian
framework includes impact fees. Despite these requirements, the benchmark prices remain
substantially below market prices: for instance, in cities such as Bahir Dar, Dessir and
Kombolcha, benchmark prices were tens to even hundreds of times lower than auction prices.
In addition, land for condominiums (as well as certain private individual homes) has primarily
been auctioned starting at either low benchmark prices or at nearly no cost.
Zhang et al. estimate that forgone revenues from land allocated at no cost or benchmark prices
amounted to 206 billion ETB annually in Addis Ababa between 2013 and 2017 (approximately
seven times the city’s annual budget), which is equivalent to the construction costs of
approximately 300,000 IHDP units.77 Land revenues in Adama, Addis Ababa and Mekelle
have been found to account for below 10% of total city revenues. Such a low land revenue
rate indicates a missed opportunity for land value capture that is detrimental to the financial
stability of local governments.
The land leasing and land allocation systems have historically led to non-transparent
urban land pricing in Ethiopian cities. A clause in the 2002 land lease revision allowing for
“negotiation”, led to a scenario where, of 1,000 land lease transactions between 2002 to
2009, more than 96% of plots were leased through “negotiation”, and only 4% via allotment
at benchmark prices and auctioning – the price per m2 for a plot of land in one of Addis
Ababa’s sub-cities could reach 50 times the price of another plot in the same area.78 The 2011
proclamation scrapped “negotiation” as a modality for land leasing and made all commercial
land dependent on auction (at least on paper). This certainly increased the government’s

capture of land value in the short term (land leasing remains much less sustainable in the long
term than property taxation), but also with a potential impact on lowest-income households
that has yet to be fully measured: by the end of 2014, land plots sold for 65,000 ETB in some
areas of Addis Ababa and for as much as 307,000 ETB per m2 in one instance, higher than the
average US$15,250 price for developed real estate in Geneva at the time.79
Source: World Bank, 2015. Ethiopia Urbanization Review; Goodfellow, 2017. Taxing property in a neo-
developmental state; Zhang et al., 2019. Unlocking Ethiopia’s Urban Land and Housing Markets; Lall et al.,
2017. Africa’s Cities: Opening Doors to the World.
Infill development occasionally occurs in vacant lots in Ethiopian cities.

However, there are no policy instruments to facilitate infill development, such
as easing zoning requirements, reducing the burden of administrative and legal
permitting processes or providing financial incentives. In the Ethiopian context,
an important option is to financially support individual homeowners to construct
secondary dwellings for rent. Owners of individual detached homes, notably in
secondary cities, often have parcels of land with available space on which to add
additional dwellings, but may lack the financing to do so. In 2017, the Hawassa city
administration launched a pilot microfinance scheme with a local microfinance
institution in order to provide loans to homeowners for the construction of a
secondary dwelling for rent on their parcels of land.80 While the programme
encountered obstacles – due to low uptake and lack of capacity to monitor whether
the dwellings complied with prescribed living and sanitation standards – it provides
a potential model that, subject to revision, could bear promising results, especially
in Ethiopia’s secondary cities.
3.2.3 Integrated Housing Development Programme

Since 2006, the federal government has primarily focused its urban housing
development strategy on constructing new housing units, providing infrastructure
and promoting small urban-based enterprises (primarily in the construction
industry), namely through the Integrated Housing Development Programme
(IHDP). Following a 2004 pilot project in Addis Ababa, IHDP was officially launched
in 2006. IHDP is a national condominium development programme designed to
provide better housing opportunities for low- and middle-income households by
increasing and improving the housing stock intended for homeownership. IHDP
units were allocated based on a lottery system and financed through subsidised
mortgage loans (Box 5). As a homeownership programme, IHDP does not offer
units on a rental basis.i IHDP was also designed as part of the country’s economic
i A limited number of units are available to rent for school teachers. It has been reported that, in recent years,
the Addis Ababa government has begun to extend units for rental to households that are displaced by IHDP
redevelopment but unable to afford the down payment or mortgage for any type of IHDP unit.

development strategy in order to create job opportunities, support local businesses
and incentivise the use of local construction materials.81
Between 2006 and 2010, the first four-year phase of IHDP, the government set a
target to construct 360,000 condominium housing units, of which 175,000 (48.6%)
were planned in Addis Ababa, by far the most populated city in the country, and the
remaining 185,000 (51.4%) in selected regional cities.82 Although the target was not
accomplished, the IHDP has rendered the government the leading housing provider
during the period, supplying 232,915 condominium units (51.2%) of a total of 455,473
urban units between 2007 and 2013.83
In mid-2010, IHDP was suspended in all regions except for Addis Ababa. The
suspension was due to slow uptake and high costs, namely the limited ability
of households to pay the down payment and monthly mortgage, and of regional
states to repay construction loans, as well as low effective demand due in part to
opposition to high-rise condominiums from local populations on socio-cultural and
aesthetic grounds.84 In the regional cities (excluding Addis Ababa), a total of 69,921
units were constructed through IHDP before the suspension.85
Between 2006 and 2018, IHDP has led to the total construction of 383,000 housing
units (314,000 in Addis Ababa) and the subsequent transfer of an estimated 245,000
units (182,000 in Addis Ababa; 62,300 in secondary cities), while also involving
nearly 2,000 contractors and 12,000 SMEs in housing development projects.86 IHDP
has thus made a considerable contribution to the overall urban housing stock in
a short time, while also providing local economic opportunities. Prior to IHDP,
the domestic construction sector lacked relative capacity and expertise, but it has
been bolstered through the programme. However, factors such as rapid population
growth, the rising cost of labour and construction materials, limited government
capacity and high subsidies have inhibited IHDP’s ability to satisfy rising demand
for housing, for which there is an estimated shortage of between 1.2 million and 1.5
million housing units.87
BOX 5 IHDP unit allocation and loan programmes
IHDP units have been allocated on the basis of a lottery system and financed by mortgage
loans from the Commercial Bank of Ethiopia issued at subsidised rates (a form of mortgage
interest deduction). The lottery was closed to new registrants in 2013 in Addis Ababa (IHDP
was suspended in regional cities in mid-2010). In order to qualify for a housing unit, an
applicant could not already have owned a home (nor their spouse), had to be at least 18 years
old and to have lived for at least six months in the city in which they were applying for a
unit. The lottery system included special provisions such that 30% of IHDP units had to be
allocated to women and that the elderly or handicapped were granted priority for ground floor
housing units.88 Applicants had to have saved a certain percentage of the cost of their intended
apartment as down payment in the Commercial Bank of Ethiopia before they could be included

in the lottery draw. These deposits served to finance construction but tied up a significant
portion of household savings for long periods of time.
IHDP’s housing loan programmes were divided into three categories, each designed for a
different target population and reflecting different financial requirements (Table 6):
• The “10/90” programme was intended for low-income households, with civil servants
highlighted as a target group, earning a monthly income below 1,000 ETB. The programme
requires a down payment of 10% of the total purchase price, with the remaining 90%
constituted by a loan to be paid back over a period of 25 years at a rate of 9.5%, and
beneficiaries are only eligible for the studio unit.
• The “20/80” programme requires a 20% down payment with the remaining 80%
constituted by a 20-year loan at a rate of 9.5%.
• The “40/60” programme was intended for middle- and high-income households, requiring
a down payment of 40%, with the remaining 60% constituted by a 17-year loan at a rate of
7.5%.89
Table 6: IHDP loan programme financial requirements
IHDP LOAN PROGRAMME DOWN PAYMENT LOAN TERM LOAN RATE
10/90 10% 25 years 9.5%
20/80 20% 20 years 9.5%
40/60 40%/100% * 17 years 7.5%
Note: *A later draw for the 40/60 programme only included applicants who had saved the full cost of the down payment.
Source: MUDHC, 2014. National Report on Housing & Sustainable Urban Development.
The “40/60” programme was the last of the three loan programmes to be introduced (in 2014
and only in Addis Ababa) and was specifically designed as a revision to IHDP in recognition
that IHDP’s subsidies were not financially sustainable.90 To this end, the required 40% down
payment of the “40/60” programme has helped to somewhat reduce the financial burden on
the government, as the units are allocated closer to the market price (the units still remain
subsidised).91
Source: MUDHC, 2014. National Report on Housing & Sustainable Urban Development; UN-Habitat, 2011.
The Ethiopia Case of Condominium Housing; World Bank, 2015. Ethiopia Urbanization Review; MUDHC/
Cities Alliance, 2015. State of Ethiopian Cities Report 2015.
IHDP’s “10/90”, “20/80” and “40/60” housing loan programmes (Box 5) have
increased access to relatively affordable housing, but they remain prohibitively
expensive for low-income households. Although a household in the lowest
consumption quintile is eligible for the “10/90” loan, the monthly payment for a

studio exceeds 30% of the household’s expenditures (making it unaffordable)ii and
recipients of the “10/90” loan are only eligible to purchase studio units that are 20m2
or smaller (Table 7).92 Despite IHDP’s high subsidies, even the studios, which are
the cheapest units, are unaffordable for the two lowest consumption quintiles in all
Ethiopian cities.93 Clearly, larger unit types (1–3 bedrooms) were even less available
for the lowest consumption quintiles; even though lower-income households are
not necessarily smaller, they are primarily eligible for the studio units through the
“10/90” loan (Table 7). The “40/60” programme as well, which targeted middle-
income households and was only available in Addis Ababa, was found to be
affordable only for households in the highest consumption quintile (based on
a 30% monthly saving-income ratio) – as a result, “40/60” applicants included
wealthier Ethiopians living in secondary cities or even abroad, which greatly
increased demand from (and delivered 40/60 units to) groups that were beyond the
programme’s target base and stressed Addis Ababa city administration’s capacity.94
Table 7: Loan eligibility for the four IHDP unit types
IHDP UNIT TYPE PLANNED UNITS (%) UNIT SIZE LOAN ELIGIBILITY
Studio 20% < 20 m2 10/90, 20/80, 40/60
1 bedroom 40% 20–30 m2 20/80, 40/60
2 bedrooms 20% 30–45 m2 20/80, 40/60
3 bedrooms 20% > 45 m2 40/60
Source: Adapted from Tipple and Yitbarek Alemayehu, 2014. Stocktaking of the housing sector in sub-Saharan Africa.
Part 3: Ethiopia.95
The unintended mismatched targeting of IHDP unit allocation raises questions

about the efficient use of public resources. Zhang et al. find that an estimated
US$2–3 billion could be unintentionally misallocated to urban households in the
top two consumption quintiles, according to the proportion of households currently
living in IHDP units (this estimate also assumes that all IHDP households received
their units via allocation).96 The fact that many low-income households are priced
out of even the most affordable condominiums included in the IHDP programme,
or must resort to leasing them out to generate income, is certainly not an optimal
outcome given the highly subsidised nature of the programme (US$9 billion) and
also highlights the problem associated with the national government’s promotion
of homeownership at the expense of rental opportunities.
ii As detailed in the 2015 World Bank review, income data in Ethiopia are sparsely reported, which is why
consumption data are employed as a proxy. The housing affordability of IHDP is assessed based on the threshold
that households should not spend more than 30% of annual expenditures on housing costs. Though, as noted in
Box 1, even the 30% threshold may be too high for many urban households in Ethiopia.

Despite its status as a homeownership programme, IHDP has partially increased the
available urban rental housing stock by inadvertently incentivising IHDP recipients
to lease their units. Many IHDP households – up to an estimated 70% – lease their
condominium units (often informally) to generate an additional source of income,97
which many households must do in order to cover mortgage payments.98 In this
way, IHDP has unintendedly increased the supply of units available for rental
although not in a necessarily significant or measurably equitable manner. While
certain low-income IHDP households have benefitted from the additional, and
occasionally significant, sources of revenue from leasing their condominium units,
such households must often revert to informal housing with poor living conditions
while leasing their condominium units, which stands at odds with IHDP’s goal of
improving housing quality for low-income households.
As stated, IHDP faces unsustainably large implicit subsidies of about US$9 billion.
In an effort to reduce the financial risk borne by local contractors and to ensure
availability of construction materials, the federal and regional governments secured
a value-added tax exemption on the import of machinery and materials purchased
in bulk for IHDP such as crushers, loaders, cement, rebar, glass and aluminium.iii,99
The federal government and Addis Ababa City Administration also financed the
provision of infrastructure (e.g. access roads, utilities) and provided the design
and construction management of the condominiums free of charge (whether
designed/managed by the government or outsourced to consultants). Analysis by
Zhang et al. in 2019 revealed that the average cost to the government for delivery
of one IHDP unit was 647,007 ETB (US$23,292), equating to approximately 12,094
ETB (US$431) per m2: on this basis, the total cost of construction of all IHDP units
to the government thus was estimated to exceed 247 billion ETB (approximately
US$9 billion).100 If one assumes that the full average transfer price was recovered
by the government upon the sale of all constructed units, the 383,000 IHDP units
constructed between 2006 and 2018 were estimated to have incurred government
subsidies amounting to approximately 150 billion ETB (US$5.3 billion). This would
suggest that only 35% of the cost of constructing an IHDP unit is recovered by the
government. Indeed, although the cost of IHDP units are much lower than private
sector units (approximately 25% the cost of private development), such savings are
largely due to the lack of inclusion of the direct costs of construction, infrastructure,
financing and land in the sale price of IHDP units.101
As a large-scale condominium programme, IHDP has supported the development

of multi-storey residential buildings with a higher density (relative to land area)
than other prevailing non-condominium urban housing options, but its overall
impact on compact urban form is not clear-cut. Although typically only one to two
storeys, kebele housing has high density relative to built-up area and land area, but
this density should not be commended as such since it is indicative of overcrowded
conditions and limited street/sidewalk networks and green spaces. Despite this,
iii In addition, Ethiopia’s heavy reliance on imported materials and machinery for housing construction in general
has seen strong price fluctuation for these goods, depending on the exchange rate: in 2018, the national bank’s
devaluation of the currency to encourage exports led to a 50% increase in the price of construction materials.

kebele housing’s high density does not match the density (and highly improved
living conditions and infrastructure) of 7-/12-storey IHDP condominiums; however,
when kebele residents have been displaced by IHDP redevelopments to the urban
periphery, this contributes to urban sprawl (not to mention potentially worse living
conditions for these residents). IHDP has of course contributed to higher density
on each condominium development site, even if its overall impact on compact
urban form can be qualified. Over time, IHDP condominiums have increased in
density. During the pilot phase of IHDP, condominiums were initially three-storeys
(including the ground floor) and five storeys. The three-storey condominiums were
no longer pursued since they were not dense enough. Eight-storey condominiums
became common, and even 13-storey condominiums, as was the case in the Lideta
redevelopment project (see section 3.2.5 on kebele housing). However, IHDP cannot
be said to have greatly contributed to compact urban form, firstly because such
a high subsidy rate could warrant a larger impact on compactness, and secondly
because it has in fact contributed to sprawl.
In Addis Ababa, where most IHDP condominiums have been constructed, initial
condominium projects as well as select redevelopment projects were constructed in
select areas of the inner city, yet most condominiums have been built in the urban
periphery, thereby contributing to urban sprawl.102 Nearly all IHDP developments
between 2013 and 2018 were in fact built more than 15 km from the city centre of
Addis Ababa.103 IHDP was conceived primarily to substantially increase the urban
housing stock, due to significant demand as well as a pressing need to improve
housing conditions for low-income households and to begin formalising a large
informal housing sector: evidently, responding to this demand has been a top
priority, but a consequence of this provision-oriented approach is the risk of a lack
of cross-sectoral integration of housing policy with spatial planning and transport
policy, further inhibiting compact and connected urban development.104
As a consequence of the numerous identified challenges, as well as lack of capacity

and delayed distribution of housing units to households, IHDP – in its current form
– is soon expected to be phased out. The IHDP lottery registration system has in fact
been closed to newcomers since 2013, as there is a waiting list already extending
up to 800,000; formerly planned IHDP construction developments have also been
put on hold. Within this context, the government is currently seeking out new and
alternative housing policy instruments to replace IHDP, in order to supply affordable
housing units to a market in which there is high unsatisfied demand. However, to
date, these alternative instruments have not yet been made public, aside from an
announcement to boost the role of the private sector (foreign and domestic).

3.2.4 Cooperative housing
Cooperative housing was first initiated in the late 1970s (Proclamation Number 138)
and has served as a means to promote homeownership primarily for middle- and
high-income households. In order to qualify for cooperative housing development,
a small number of individuals (typically 10 to 20 individuals, none of whom
can already own a home) must register together as a group in order to apply for
land allocation and to collectively pool the required capital for the total upfront
construction costs: 50% of construction costs set aside prior to registration with
the remaining 50% set aside prior to permitting and construction.105 Prior to 1992,
cooperatives experienced a range of benefits: a 60% subsidy on construction
materials, low mortgage interest rates and land allocation at no charge. However,
only 40,539 units were constructed through cooperative housing between the late
1970s and 1992, indicating its limited impact on overall urban housing supply.106
After 1991, private housing cooperatives made 75m2 to 250m2 plots of land available
to individual households.
In 2005, new cooperative housing units were prohibited at the federal level, owing
primarily to exploitation of the preferential land allocation system granted to
cooperatives in order to engage in speculation; such exploitation and ensuing
speculation was tied to the lack of government capacity to perform regular
monitoring and reporting. Although new cooperative housing units remain
prohibited in Addis Ababa, several regions passed legislation in 2010 in order to
resume cooperative housing for two-storey structures that continue to benefit from
preferential subsidies such as near-free land allocation, which represent a grant
for buying or constructing a new home (Table 4).107 In secondary cities, cooperative
housing is often the main source of the housing supply. In recent years, there
has been renewed interest to resume cooperative housing in Addis Ababa, but no
legislation to this effect has passed yet.
As the Ethiopian urban housing market features few formal housing options,
cooperatives have historically embodied the primary formal private housing
provision mechanism. However, they currently constitute a limited portion of the
total urban housing stock and remain a housing option primarily for middle- and
high-income households. Owing to the high upfront capital costs, cooperative
housing remains affordable for only a limited portion of Ethiopia’s urban
population: Zhang et al. conducted a recent survey in the cities of Addis Ababa,
Adama and Mekelle, finding that 70% of households inhabiting cooperative housing
are from the top two consumption quintiles: 47.8% (Q5), 22.4% (Q4), 15.6% (Q3),
7.7% (Q2), 5.5% (Q1).108
From the perspective of compact development, cooperative housing may have

reduced urban density and contributed to sprawl. Cooperative houses are primarily
one- or two-storey structures (e.g. a series of neighbouring row houses) that
historically were built at the urban periphery, where lower-quality and cheaper land
was available for allocation by the government.109 In Addis Ababa, for instance,
it is estimated that 60% of land allocated to cooperatives is located in the urban

periphery.110 Additionally, land provided to housing cooperatives has not always
been serviced with adequate infrastructure, which has been detrimental to housing
quality and has left space for informal infrastructure provision that inhibits both
optimal spatial planning and integration of housing with an array of public services
such as education and transport. In order for cooperative housing to contribute to
infill development in urban areas, it is important to review the design criteria (e.g.
multi-storey structure) as well as incentives (e.g. larger financial incentives for high-
density development). In Addis Ababa, for instance, it was the practice to build
walk-up condominiums through cooperative housing which, although less dense
than IHDP condominiums, do present a potentially replicable model. Introducing a
rental cooperative housing system can be an interesting option to consider as well.
3.2.5 Kebele housing: low-income-household-targeted rental housing

Kebele housing units are inexpensive, high-density (relative to built-up area and
even to land area due to crowded land use and living conditions) and low-quality
rental units that were officially introduced to the Ethiopian housing market in 1975
when the Derg nationalised a vast swathe of informal settlements and conferred
their management to the lowest level of government, the kebele (now integrated
into the woreda).iv,111 Despite the Derg’s recognition of kebele units as formal
housing, they are often considered to be informal or slum housing because they
are overcrowded and many lack key amenities such as drinking water, sanitation,
cooking facilities, power supply and waste disposal (most inner-city kebele units in
Addis Ababa have piped water and electric power). Indeed, much kebele housing
is old, having been constructed many decades ago, with little to no maintenance
carried out in the intervening years. In spite of the liberalisation of Ethiopia’s
housing market 1991, kebele housing was not widely re-privatised and is thus still
managed by local authorities (there are exceptions, as Mekelle, where dwellings
were restored to their previous owners within the context of upgrading exercises).112
Kebele housing rents are very inexpensive (typically costing 10 ETB per month) and
do not cover the cost of operation and maintenance, with the result that the quality
of many units has considerably deteriorated. Kebele housing stock is of particularly
low quality for a number of reasons: major renovations by tenants were not allowed
by the kebele councils, the government is largely inactive in providing maintenance,
rebuilding with stronger materials is prohibited, rent is low and tenants choose
not to make general repairs or upgrades for fear of having to pay increased rent.113
Despite such challenges, kebele housing is considered, in a sense, to represent
a form of social security: it is often centrally located, which increases access to
services and minimises transport costs, and it is the most affordable formal housing
option in the country, with many informal arrangements commonly made between
tenants such that family members or friends may effectively “inherit” or “sublet”
kebele units. Such informality between tenants and sub-tenants has also been
iv Kebele administration units were the lowest level of government but they no longer exist, having been integrated
into woredas.

subject to abuse, but kebele housing plays a key role in supplying shelter for an
important portion of Ethiopia’s urban population: on paper, 22% in 2007.114
The most recent official data indicated the existence of 362,303 kebele units at
the national level, with 345,428 units located in urban areas (95%), as of 2007.115
The actual figures may be higher than these estimations owing to the difficulty
in comprehensively accounting for all units. Moreover, several households may
unofficially inhabit a unit that is officially intended for only one household on
paper, adding another layer of complexity in order to accurately account for all
households living in kebele housing. On a different but related note, informal
settlements in Ethiopian cities (settlements deemed “illegal” or “informal” by
the government, hence excluding kebele housing) are routinely regularised on
the basis of cut-off years cross-referenced with satellite images: in Addis Ababa,
settlements appearing in satellite images prior to 1997 could be regularised while
those appearing afterwards risked demolition and relocation, but the cut-off years
have not remained consistent and have been associated with election cycles.
Regularisation is also undertaken proactively by city governments, for instance in
Hawassa, where nearly 18,000 informal settlements were regularised in 2016,116 or in
Dire Dawa, where 7,000 out of 10,000 informal houses where regularised.117
In 2007, 41% (148,645) of all kebele units in Ethiopia were located in Addis Ababa.118
Moreover, in 2008, it was estimated that more than 40% of the population of Addis
Ababa lived in older kebele housing units covering 11% of the total land area of
the city.119 Not only do the lowest-income households live in kebele units, average
consumption levels of those renting kebele units in Addis Ababa are 33% below
those renting in the private market, indicating that lowest-income households
are more likely to rent kebele units than private rental options, for which a robust
formal market is already lacking.120
As an important portion of urban kebele housing units have been located on prime
urban land, redeveloping such units poses both an opportunity for bringing new
urban functions and a challenge concerning the displacement of numerous low-
income households that may not be able to afford housing elsewhere. In Addis
Ababa, the majority of kebele housing is located in the urban centre where land
is highly valuable – for instance, across from the Presidential Palace – which
has prompted redevelopment efforts.121 While kebele housing has historically
represented the perpetual use of social housing for rent in central urban areas, this
is changing. For example, much of Addis Ababa’s inner city has been delineated
for redevelopment. By and large, the clearing and redevelopment of kebele units
remains very much at the discretion of public authorities.
The first inner-city redevelopment and relocation plan occurred in the central Lideta
sub-city of Addis Ababa within the context of IHDP. A total of 1,160 residential
housing units – 997 kebele units, 123 privately owned and 40 rental housing
administration units – were cleared for redevelopment and were replaced by a
mix of 53 eight-storey and thirteen-storey condominiums accounting for a total of
1,859 units.122 Owners or tenants displaced by redevelopment projects are typically

offered the chance to either buy IHDP condominium units (without taking the risk
of the lottery) or to rent other kebele units often located in the urban periphery
(if available), consequently relocating residents from the centre of the city to the
urban periphery,123 which may lead to urban gentrification. Nearly 50% of the pre-
existing kebele occupants before the Lideta plan accepted an offer to be relocated
to a new condominium unit elsewhere, despite anticipating difficulties in affording
their new monthly payments, and 420 kebele households that could not afford a
new condominium unit were relocated to another kebele unit elsewhere.124 The
Lideta redevelopment project is unfinished to date and has indeed resulted in
gentrification, whereby private developers have constructed additional expensive
high-rises and many original low-income residents have been displaced, often
without either adequate formal resettlement options or subsidised housing.125
Generally speaking, redevelopment projects in the urban core such as Lideta that
focus on higher density condominiums (relative to land area), do indeed increase
compactness in the area concerned. However, redevelopment projects do not always
replace lower-density one- or two-storey housing units with the same proportion of
new condominiums as in the case of Lideta.126
Reducing the total stock of kebele units via redevelopment poses an additional
challenge for housing affordability given that many households cannot afford the
down payment or monthly fees of IHDP condominiums and are thus faced with
few formal housing options.127 Since there is no significant formal rental market –
aside from kebele units, the total number of which evidently diminishes following
redevelopment projects – these households may be forced to resort to informal
housing if they can neither afford an IHDP unit nor secure a kebele unit, both of
which are in high demand.
Urban redevelopment projects, especially redevelopment of kebele housing units

located on high value urban land, are designed to improve housing living conditions
and optimise spatial function in urban centres, but can have repercussions for
housing affordability. Such projects do play an important role in accomplishing
these goals, but they can also negatively contribute to the quality of life of existing
urban residents if affordable housing options are not provided for them. In addition,
since there is no formal diversified rental market, there is a lack of transparency
between landlords (sometimes represented by unlicensed agents) and tenants,
with the former having an advantageous position since the majority of rental
arrangements are agreed upon informally. This means that tenants have virtually
no legal protection or recourse, for instance when faced with an unplanned event
such as flooding, sudden rent increase or eviction.v,128 In the absence of a diversified
formal affordable rental market regulated by clear tenant–landlord relations, many
predominantly low-income urban households will continue to struggle to secure
decent and affordable formal housing.
v A draft bill proposed in 2020, the Real Estate Development Marketing Proclamation, seeks to regulate the real
estate sector, including price hikes.

3.2.6 Federal Housing Corporation: government-official-targeted rental housing
The FHC manages the second type of formal, government-controlled rental housing
available in Ethiopia. This type of housing was officially introduced at the same
time as kebele housing in 1975 – by Proclamation Number 35 which nationalised all
urban land and private housing units – but unlike kebele housing, which manages
rentals below a monthly rate of 100 ETB, FHC is charged with the management of
rental units above 100 ETB.129 FHC manages a significantly smaller housing stock
than that covered by kebele: only 24,587 units in Ethiopia (93% of which are in
urban areas). Half of the total stock is located in Addis Ababa, which accounts for
11,388 units.130
As illustrated in numerous interviews, these rental units have historically been

– and continue to be – intended first and foremost for government officials.
Doctors, public employees such as teachers, as well as officials from embassies and
international organisations, also have preferential access to FHC units. Historically,
FHC was charged solely with managing the existing stock rental stock of units, but
in recent years its mandate has been extended to include the construction of new
rental units, especially for public officials.
The quality and size of FHC units are typically better than kebele housing
units – large villas are included in FHC housing stock – and tend to be low-
rise constructions built on large land parcels. While the existing FHC stock is
generally low density, FHC is pursuing a densification programme in order to
make better use of space and capture greater value from land use. In particular,
many of the large villa-style houses are being demolished in order to be replaced
by high-rise apartment buildings (up to 20 storeys). Inclusionary zoning applies
to FHC densification (on a separate but related note, such zoning theoretically
applies to private residential developments, but it is not strictly enforced and the
“affordability” threshold remains very high for most households). The overall
impact of FHC on compactness depends on the location of where redevelopment
and new construction occur; when at the urban periphery, the outcome is
not optimal with regard to sprawl and access to services, even if the resulting
developments are higher density than those they are replacing. With regard to the
new efforts to densify FHC stock in Addis Ababa, for instance, most FHC properties
are located in central parts of the city, indicating a positive impact on compactness
but also a key missed opportunity, since transport planning and infrastructure
development have not been coordinated in the densification programme to date.
Although FHC units remain generally affordable, they cater to a limited market.
Since FHC units only occupy a small portion of the total housing stock, primarily
target government officials and remain too expensive for much of the population,
they hardly qualify as an affordable housing option for the majority of urban
households.

4. Recommendations and conclusion
The objective of this paper is to provide an assessment of Ethiopia’s existing
national housing policy framework, from the perspective of compact urban
development and housing affordability. Applying the analytical framework
developed in Housing policies for sustainable and inclusive cities to the case of
Ethiopia, served to identify six national urban housing policy instruments.131
These six instruments consist of: two policies to regulate land use for urban
housing development – land-use planning and land allocation; two policies to
promote homeownership in cities – IHDP and cooperative housing; and two policies
to promote rental housing in cities – kebele housing and the FHC.
On the one hand, several of these policies were cross-cutting, covering seven
of the sixteen international policy instruments identified in Housing policies for
sustainable and inclusive cities. On the other hand, certain key instruments for
affordability and compactness from the international assessment were absent from
the Ethiopian context, such as a split-rate tax and a vacant urban land tax (property
taxes are not effectively implemented in Ethiopian cities in practice), a development
tax and incentives for developers for the construction of affordable rental housing
(Section 3.2 and Table 4). Key components of these policy instruments, as well as
their impact on compactness and housing affordability, were assessed (Section 3.2
and Table 5).
Based on the assessment, this paper identifies the following five overarching
policy recommendations to achieve a more robust framework for compact urban
development and affordable housing:
1. Lay the groundwork for fiscal measures that can foster compactness and
housing affordability, including through urban cadastres and regular
property valuation
Implementing revised impact fees (current rates are far too low) and considering
a development tax (not in place) would be a first step towards internalising
urban infrastructure costs and the real cost of sprawl, and help to: ensure
that infrastructure provision accompanies development; bolster local revenue
collection; limit distortionary impacts on housing affordability; and encourage
more efficient use of urban land. As detailed in this paper and in Housing
policies for sustainable and inclusive cities,132 fiscal measures absent from
the Ethiopian framework, such as a split-rate tax and a tax on vacant urban
land, could incentivise the renovation of existing structures and discourage
the hoarding of vacant land for speculation. However, before considering a
split-rate tax or vacant urban land tax, property taxation is a prerequisite but
it is not effectively implemented in Ethiopian cities. The relative absence of
property taxes is a major missed opportunity for land value capture and local
government revenue generation and, despite the potential implementation
challenges (see Section 3.2.1. Land-use planning), it is crucial to accelerate their
use in Ethiopian cities and enforce their collection, and also to regularly revalue

property values. Well-functioning tax systems require corresponding capacity
for property valuation and tax collection, especially urban cadastres: the design
of urban cadastre systems and their systematic implementation in Ethiopian
cities are urgent priorities that could be pioneered at the federal level through a
guiding framework or regulation.133
2. Incentivise infill development to minimise sprawl

The federal government can consider providing technical support and fostering
a regulatory environment to incentivise infill development for housing on
behalf of private homeowners and developers (this form of infill development
can minimise sprawl and reduce informality due to the ensuing increase
in formal housing options). Such measures might involve incentivising
mixed-use development, thus easing zoning requirements for high-quality
development and reducing the burden of administrative and legal permitting
processes, which would facilitate cooperation with the private sector. Beyond
the scale of private homeowners, the government’s decision to densify FHC
units by constructing high-rise apartment buildings is a positive use of infill
development that will increase the total rental housing stock, albeit primarily
for civil servants. However, FHC densification is currently being pursued without
consideration of transport planning and infrastructure development, which is
a missed opportunity for coordinated land-use planning that may hamper the
programme’s overall success and lead to non-optimal outcomes.
3. Provide incentives to investors and developers for affordable rental

housing
The federal government could mobilise the private sector to provide affordable
housing units to lessen the financial burden on the direct housing provision
by the public sector. Beyond potential subsidies to investors and developers,
further pursuing private–public partnerships (PPPs) may open a new window
of opportunity for affordable rental housing, where the private sector builds and
manages rental housing stocks while the public sector provides incentives and
retains a degree of control over affordability. A challenge is that the government
needs to establish a legal, institutional and regulatory framework for PPPs
with clear respective roles, responsibilities, standards and monitoring. This is a
challenge but is crucial prior to engaging in a PPP so as to ensure government
standards are respected. While there is no standard PPP framework, examples
and guidelines from international experience are numerous, and include the
OECD’s “Recommendation on the public governance of PPPs”.vi,134
vi The OECD’s “Recommendation on the Public Governance of PPPs” sets out three core principles: i) establishing
a clear, predictable and legitimate institutional framework; ii) grounding the selection of PPPs in value for
money; and iii) using the budget process transparently to minimise fiscal risks and ensure the integrity of
the procurement process. The “PPPs Reference Guide: Version 3”, to which the OECD contributed, is another
comprehensive source.

4. Enforce and more strongly implement inclusionary zoning for private
developments to ensure affordable rental housing
The federal government could consider extending inclusionary zoning, as
already exists in the context of FHC (and IHDP unintentionally), more strictly
to private developments such that a greater proportion of units in new housing
constructions be set aside for affordable housing at fixed rates, preferably for
rental given the urgent need for improved affordable rental housing in Ethiopia.
Certain private developments are subject to inclusionary zoning in theory, but
in practice there is little enforcement and the threshold for what is deemed
“affordable” remains too high for most households. The federal government
could achieve stronger implementation of inclusionary zoning through direct
regulation and guidelines or through other means, such as a tax incentive to
private developers allocating a proportion of new units for affordable rental
housing. While the units themselves might still be partially subsidised by the
government, such measures benefit from the construction expertise of the
private sector and can significantly lessen the burden on the public sector for
the direct provision of affordable housing.
5. Develop clear landlord–tenant regulations

In order to strengthen a formal rental framework, regulations establishing c
lear relations between landlords and tenants will also be needed to ensure
that both parties have equal access to information as well as respective legal
rights. As a first important step, the federal government could work with the
private sector to design and supply guiding principles – such as a standardised
contract for rentals – delineating the responsibilities and rights of the respective
parties. The interviews conducted for this paper indicated that the government
is currently considering a regulation on landlord–tenant relations, which is a
welcome initiative.
Implementing these policy options will require an enabling framework, which

should be considered in parallel. For example, given the existing coordination
difficulties between ministries, departments and different levels of government,
the federal government should redouble its efforts to strengthen governance
and coordination mechanisms. One option is to establish an inter-ministerial
committee on spatial planning (as detailed in the NUDSP), convening, for instance,
the Ministries of Urban Development and Construction, Transport, Finance
and Economic Cooperation, in order to avoid a fragmented approach to urban
development and the danger of broader policy misalignments, for example between
urban and rural land policy. For instance, there are currently limited horizontal
coordination mechanisms for urban and rural policy.135 Establishing a multilevel
mechanism to finance affordable housing and compact urban development is
another key enabling factor, to which could be added the establishment of a
monitoring and evaluation system of housing subsidies to assess overall outcomes
as well as specific results of ongoing programmes.

The rapid pace of urbanisation in Ethiopia is profoundly changing the country and
can generate many benefits. However, it also poses several pressing challenges with
regard to supplying affordable housing and limiting sprawling urban development.
In response to these challenges, the analysis and policy recommendations set
out in this paper seek to help scale up affordable housing and ensure compact
development in Ethiopia’s cities, supporting residents’ well-being and promoting
sustainable and inclusive cities.
Photo credit: Iulian Ursachi/Shutterstock

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SUSTAINABLE AND INCLUSIVE

Tadashi Matsumoto and Jonathan Crook

Executive summary CONTENTS

WRI Ross Center for Sustainable Cities CITATION

This material has been funded by UK aid from the

Photo credit: Milosk50/Shutterstock

CSA Central Statistical Agency of Ethiopia

ETB Ethiopian birr

FHC Federal Housing Corporation

IHDP Integrated Housing Development Programme

NUDSP National Urban Development Spatial Plan

OECD Organisation for Economic Co-operation and Development

ULG Urban local governments

US$ United States dollar

SUSTAINABLE AND INCLUSIVE HOUSING IN ETHIOPIA | 3

• Despite public ownership of all urban land, coordinated urban land-use

• Ethiopia’s housing policy framework is characterised by measures promoting

• The development of a formal rental market is hindered by limited regulations

SUSTAINABLE AND INCLUSIVE HOUSING IN ETHIOPIA | 4

• Provide incentives to investors and developers for affordable rental housing.

• Enforce and more strongly implement inclusionary zoning for private

• Develop clear landlord–tenant regulations. The government should work

SUSTAINABLE AND INCLUSIVE HOUSING IN ETHIOPIA | 5

The analytical framework used to assess the six instruments is based

SUSTAINABLE AND INCLUSIVE HOUSING IN ETHIOPIA | 6

SUSTAINABLE AND INCLUSIVE HOUSING IN ETHIOPIA | 7

Ethiopia is the second most populous and the fifth least

• Economic growth: Ethiopia’s average annual gross domestic

SUSTAINABLE AND INCLUSIVE HOUSING IN ETHIOPIA | 8

•  rowing labour force: Ethiopia’s labour force has doubled over

SUSTAINABLE AND INCLUSIVE HOUSING IN ETHIOPIA | 9

2.2 AN OWNER-OCCUPIED HOUSING MARKET WITH LIMITED FORMAL

More than 80% of Ethiopia’s housing market is owner-occupied (Table 1).

TOTAL RURAL URBAN ADDIS ABABA

SUSTAINABLE AND INCLUSIVE HOUSING IN ETHIOPIA | 10

15 756 705 13 940 377 1 816 327 247 511

2 922 830 416 019 2 506 811 507 265

651 112 344 411 306 701 69 765

67 721 36 048 31 673 6 159

793 352 441 -

19 399 161 14 737 207 4 661 953 830 700

Private households accounted for three-quarters of rented units in cities, according

Kebele housing – government-managed rental housing that is inexpensive but

SUSTAINABLE AND INCLUSIVE HOUSING IN ETHIOPIA | 11

Table 2: Detailed Ethiopian housing unit tenure in 2007

Rental from private household 24 587 1 717 22 870 11 388

Rental from private household 23 835 7 397 16 438 3 281

Rental from private household 9 556 6 032 3 524 799

SUSTAINABLE AND INCLUSIVE HOUSING IN ETHIOPIA | 12

Housing quality in Ethiopia is lower than in neighbouring countries, with

SUSTAINABLE AND INCLUSIVE HOUSING IN ETHIOPIA | 13

2.4 A UNIQUE CONTEXT FOR URBAN HOUSING MARKED BY PUBLIC OWNERSHIP

Ethiopia’s housing policy has been characterised by public ownership of land

Proclamation Number 47 also introduced three new typologies for government-

SUSTAINABLE AND INCLUSIVE HOUSING IN ETHIOPIA | 14

In 1991, the Ethiopian People’s Revolutionary Democratic Front introduced an

SUSTAINABLE AND INCLUSIVE HOUSING IN ETHIOPIA | 15

As will be further detailed, the Integrated Housing Development Programme

Photo credit: Dereje/Shutterstock

SUSTAINABLE AND INCLUSIVE HOUSING IN ETHIOPIA | 16

2.5 URBAN GOVERNANCE AND FINANCE IN ETHIOPIA’S FEDERAL FRAMEWORK

Ethiopia is a federal country with decentralised governance based on nine

CSA Central Statistical Agency of Ethiopia

FHC Federal Housing Corporation

IHDP Integrated Housing Development Programme

NUDSP National Urban Development Spatial Plan

OECD Organisation for Economic Co-operation and Development

• Economic growth: Ethiopia’s average annual gross domestic

• rowing labour force: Ethiopia’s labour force has doubled over

KEBELE / SUB-CITIES KEBELE / MUNICIPALITIES