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Abu Dhabi: A shortage of 20,000 housing units by the end of the year could increase inflation and raise the cost of living in Abu Dhabi further, according to a study.
The solution is to freeze prices, according to the study released on Sunday by the Abu Dhabi Chamber of Commerce and Industry.
"In 2008, housing projects will target highly paid executives while people with low and medium income will be affected by the shortage and high rent," it said.
"The housing shortage will inevitably increase rents and put more stresses on people who pay more than 40 per cent of their income in housing."
This shortage has become more evident as the population of Abu Dhabi has doubled by most estimates over the past few years. "In 2005, the supply and demand was levelled and there was no shortage in housing. In 2006, there was a shortage of 3,000 units. By 2007, the shortage rose to 8,000 units," the report said.
While the direct impact may be an increase in the cost of living, the report said the shortage could ultimately create a vicious circle that could affect the overall performance and competitiveness of the country.
Despite dozens of housing projects underway in the capital, the Chamber says this will not meet more than 20 per cent of the shortage.
According to the report, the solution to this ever-growing problem is to freeze rent prices for two years, to develop a housing plan to meet low and income demands and to encourage the private sector companies for low income construction.
However, Khalfan Al Ka'abi, chairman of the Chamber's construction committee, said freezing rents would only bring more chaos. "Freezing the rent is a very bad solution because this would freeze all investments. The solution is more units. More units will inevitably cut down prices," Al Ka'abi said.
While the concept of freezing rents may sound idealistic to renters. Ka'abi says this move would discourage developers from building.
"We need to motivate more investors. The solution is that the government needs to give more land and the developers to build more. There needs to be a better platform where more developers can build. You can not just depend on master developers who will build cities and islands. The government must encourage all sizes of developers," Al Ka'abi says.
According to previous chamber reports, the ideal annual rent should not exceed four monthly salaries. However, the average person pays more than 40 per cent on housing alone.
"Salaries have gone up but they have been consumed by an increase in the cost of living so we are back to where we started. Once the supply matches the demand that's when prices will start to level," Al Ka'abi says.
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