Housing preferences and attribute importance among low-income consumers in Saudi Arabia

Abstract

Against a backdrop of recent strong growth in the Saudi Arabian housing market, rising housing costs, and diminishing consumer disposal incomes, this study examines the housing preferences of low-income consumers in Saudi Arabia, with specific emphasis on their preferences for alternative dwelling types and tenure options, factors influencing their housing decisions, and how these vary across socio-demographic sub-segments of this population segment. Using data collected through a structured self-administered survey in the major urban areas of the country, we find that majority of respondents prefer the small house to duplex or apartment, and despite their limited incomes the majority prefer buying over renting. We also find a very strong relationship between tenure preferences and dwelling type, with respondents who prefer the small house or duplex overwhelmingly opting for the buying option, whilst respondents who choose apartments prefer the rental option. On importance of housing attributes, a factor analysis of 35 housing attributes included in the study produced 10 factors, of which financial considerations, private living space, and aesthetic aspects of the house rank as the top 3 important factors in the low-income consumers' housing decisions. The 3 least important factors are exterior space, street location, and proximity to relatives. The latter is a particularly interesting result, given the strong social and familial bonds in Saudi culture. On socio-demographic differences, only for importance interior layout, private living space, aesthetics, and exterior space do we find significant gender differences (females consider them more important than males). The implications of these results are discussed and an outline suggested for future research on housing preferences in this important market of the Arab Middle East.

Introduction

The importance of adequate housing for citizens and residents of any country or society cannot be overemphasized. Adequate housing is so much an integral part of the needs of every society that its value for individuals, families, communities, and society at large is hardly questioned. Perhaps, the largest investment that most families will ever make, purchasing or renting a home, provides security, stability and privacy to people all over the world. As a commonly recognized symbol of social status, in many societies the kind of housing a person occupies also determines how s/he is valued. As a consequence, for many consumers the housing decision is a high involvement one requiring the need to balance among a complex interplay of factors. It is not surprising then that several academic studies have sought to understand how consumers make their housing decisions. Issues examined in these studies have included inter alia, consumers' preferences for alternative dwelling and tenure options and the impact of housing attributes (Cho, 1997, Consuelo Colom, 2008, Coolen and Hoekstra, 2001, Cropper et al., 1993, Elder and Zumpano, 1991, Hofman et al., 2006, Painter et al., 2001) and related environmental factors (Cervero, 2002, Chapple, 2006, Hays and Alexandra, 2007, Ma and Banister, 2006; Rouwendal & Meijer, 2001).

Published academic studies of consumers' housing preferences and related issues have also spanned a variety of national contexts (in both developed and developing countries). Previous studies have been conducted in China (Cho, 1997, Li, 2003, Wang and Li, 2006); Scotland (Parkes & Kearns, 2003); Panama (Koizumi & McCann, 2006); Sweden (Brownstone & Englund, 1991); Finland (Loikkanen, 1992); Ghana (Tipple & Willis, 1991); Japan (Seko & Sumita, 2007) to mention a few. However, it is well known that national and cultural factors play significant roles in housing preferences and house attribute importance, and so findings from a study conducted in one national/cultural context may not necessarily extend to other contexts. This paper contributes to this multi-national literature by exploring the housing preferences of low-income consumers in Saudi Arabia, with specific emphasis on their preferences for alternative dwelling types and tenure options, and the factors influencing their housing decisions. It further explores socio-demographic differences in these preferences.

The focus on Saudi Arabia is interesting for a number of reasons. Saudi Arabia is an important country in the Arab Middle East with the largest real estate market in the oil-rich Gulf Cooperation Council (GCC) countries. It also has a very young demographic profile (around 45% of the population is below age 20 years) and rapid urbanization rate that have combined to fuel expected future growth in an already burgeoning real estate market. At the same time, modernization of the Saudi economy has brought with it important changes in the structure of Saudi society. Traditionally, Saudi families lived in extended family households consisting of individual detached houses or villas surrounded by gardens and high walls for privacy. With modernization this traditional extended family household is slowly eroding as young Saudi couples are increasingly choosing the option of living on their own rather than with the extended family, creating further upward pressure on housing demand. Indeed, virtually all popular press reports on the Saudi real estate market paint a picture of a market in which the residential sector is characterized by a major housing shortage that will require huge investments to add around 1 million units by 2012. Added to this is the much talked about anticipation of a new mortgage law that is expected to significantly change the economics of the residential real estate sector through increased interest by private investors, particularly commercial banks. Understanding consumers' dwelling and tenure preferences and the factors influencing these in such a market is therefore important for both policy makers in their bid to devise effective spatial policies to manage housing demand, and for private real estate developers in their bid to satisfy the needs of their customers. This is because greater knowledge of real estate consumers and their behavior will lead to better understanding and prediction of decision makers' actions in the real estate market (Gibler & Nelson, 2003).

The focus of this paper on the low-income segment of this country is also timely. Although the Saudi Arabian housing market has witnessed strong growth during the past years (Al-Sayari, 2007) and is set to grow significantly over the coming years (Jones Lang LaSalle, 2008), housing costs are on the rise in most cities, and doing so significantly faster than incomes (Salama & Alshuwaikhat, 2006). At the same time, disposal incomes are now not as healthy as they used to be during the oil boom years of the 1970s or the immediately following years.

For 2007, mean annual gross income per capita was around SR 26,876 (US$ 7166) for men and SR 7491 (US$ 7166) for women (CDSI, 2007). Over 60% of all households had annual disposable incomes of less than US$ 25,000 (SR 93,750) equivalent to SR 7851 per month (CDSI, 2007). Thus, low-income consumers are a significant part of the Saudi population, and an important target for both real estate developers and government housing programs. Numerous government housing projects, policies of free distribution of land to low-income urban dwellers, and a growing number of housing projects funded by private charitable organizations to provide shelter to the poor all attest to the importance of this segment in housing policy in Saudi Arabia.

This paper is structured as follows. Following this introduction, there is a review of some pertinent literature in this area. Next, the methodology used in the empirical study is presented. Following this, the data analysis and results are presented. There follows an outline of the implications of the findings. In a final section, the limitations of the study are outlined and suggestions made for future research.