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As much of the Arab world increasingly becomes the stage for popular movements demanding improved living conditions, the lack of adequate economic opportunities for youth has come to the foreground.  Widespread nepotism and astronomical unemployment rates, despite relatively high economic growth in many countries, have highlighted the deep inequalities within these societies and the need to provide avenues to take advantage of these enormous reservoirs of human capital.

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Saudi Arabia, although not host to the popular uprisings seen elsewhere, contains one of the largest youth populations in the region—sixty percent of its population is under 40, and it is estimated that forty-five percent is under the age of 20.  Meanwhile, its overall population is expected to grow by a million and a half people within the next three years.

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These realities put enormous stress on the Saudi system to provide housing and jobs.  In the next three years the Kingdom is expected to need up to 2 million new units—and more than 10 to 20 million homes over the next ten years (According to Credit Suisse Group and the Saudi Shura Council’s Economic Affairs and Energy Committee).  And in order to provide adequate employment opportunities, the Kingdom will need to provide 100,000 jobs per year for the next twenty years in Riyadh and Jeddah alone, according to figures published by both cities’ planners.

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Over the last several years, Saudi Arabia’s government has been debating and discussing the passing of new mortgage law that some scholars suggest will spark intense economic growth and give Saudis improved access to credit in order to purchase homes.  Issues that are taking on new dimensions given the demands of citizens throughout the region.  Currently, the Saudi market suffers from strict regulations that make accessing mortgages exceptionally difficult.  As a result of these tight regulations and high real estate values, only about 35% of Saudis own their homes.

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Some project that the new mortgage law, if passed, could increase housing demand by 50% and improve middle and low-income families’ access to home ownership.  The new law will most likely also lead to enormous spikes in already high land and real estate values.  It may also produce unregulated, speculative neighborhood typologies, the type of sprawling suburban landscapes that other countries are struggling to regulate.

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So while this new law could do much to stimulate the Saudi economy and provide jobs and access to housing—issues that are becoming increasingly important with regards to security—it also presents some serious challenges.  What about issues related to foreclosure and default, or the need for support industries that mitigate lending and borrowing risks, such as credit checks, etc.?  In addition, what type of development will this building boom produce?  Will it be low quality, speedily built, exclusively automobile reliant, poorly adapted to the environment and resource intensive?  Or can the proper urban planning mechanisms and design guidelines be put in place so that Saudi Arabia can avoid the type of development pitfalls that other nations continue to suffer from?

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Ultimately, this mortgage law can go a long way towards addressing the inequalities that are sparking so much energy in other parts of the Arab World.  They could, on the other hand, deepen those ruptures if the appropriate mechanisms are not in place to ensure that the next Saudi housing boom improves the living conditions of all Saudis.  How are property prices regulated or affordable housing opportunities provided to ensure that middle and low-income families truly stand to benefit from this new law? And can the example set by the KSA lead the region in establishing secondary markets? Comments, ideas, and insights from the field are welcome!

Saudi Mortgage Law: youth, housing and unemployment

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