JumpStart International

JumpStart International met yesterday with Iraq's Undersecretary for the Ministry of Housing and Construction.

Unlike Western countries, where affordable housing is relatively available, there are a number of systematic difficulties to housing construction in some Middle Eastern countries. Because of a banking system that is affected by some cultural traditions (for example, the Koran is perceived to forbid charging interest) as well as difficulties because of the war, loans are not available to most people, partially because loans are too expensive, equating to about 15% interest.

A total of 15% interest effectively means that the cost of a mortgage doubles the price of a house every 4-5 years, rather than every 12 years like a 6% mortgage does. As a result, if you are buying a house in Iraq, you do it with cash: a concept that would be inconceivable in the west, and which also results in a substantial drag on the housing construction industry.

Despite that, as you drive throughout the city, many individual houses can be seen being worked on, although there are no large housing projects or high-density housing construction going on that I have seen. JumpStart is proposing to start a pilot project with the Ministry of Housing and Construction that would use existing land stock of the Ministry and build 10-20 units of housing of 100 sq meters (1000 sq. ft) that would be targeted to sell for $8,000 per unit, using traditional construction means. This may or may not be possible in today's environment, but we are aiming to start the pilot project within 45 days and find out what happens.

Monthly salaries, which for those who have jobs in the middle class may be only $200/mo, mean that housing payments would need to be no more than about $70/month. This means that if we had a program that required $4,000 down and $100/ mo for 4 years that the family would own a house after four years. This misses the "sweet spot" of the market, but for the time being, it could provide a small jumpstart in housing construction. We would hope to work with the Ministry to spin out private construction and real estate development businesses and work with existing banks to provide loans within these guidelines. If the model works, it could be scaled up rapidly to employ several thousand workers in home construction and partially provide for the sore need for housing in the Baghdad market.

The 5 year payback on construction would lessen the lender's financial risk and the chance of foreclosure and increase the throughput of the financing partners to fund more loans more quickly. The disadvantage is that the houses would still be unaffordable for most of the residents of the country; however, it is a simple and single step in the right direction.