People are struggling to afford a place to live. Home prices are set for another record this year, even as the supply of homes for sale increased. While that might sound like a lot, the Middle East has one of the least affordable housing markets for homeownership and renting. 

Homes cost more than five times the average salary. Rental prices are rising. Meanwhile, new housing doesn’t match the demands. The fact is that there isn’t enough affordable housing—homes at prices families can really afford.

COST-BURDENED

Home prices have outpaced wage growth rates. Many cannot afford to live in the communities where they work; how much farther are they supposed to commute?

While home prices increased by 17% year-on-year as of 2024, most UAE and wider Gulf region employees were awarded pay increases of 4% to 6% in 2024.

The Dubai real estate market has witnessed double-digit growth rates in most areas since the market recovery in 2022, adds Vishwa Karthik, Senior Director, Consulting, MEA at JLL. “This coupled with a significant increase in mortgage rates in recent years with EIBOR touching 5.6% in November 2023, up from a record low of 0.25% in August 2021, has made homeownership dearer.”

Homeowners are also cost-burdened by a sharp increase in insurance premiums.

Rent prices are also rising in most of the region’s cities. Most renter households spend more than 30% of their income, if not half, on housing. 

“While the number of high-net-worth individuals has risen, middle-class households are facing mounting financial strain due to wages failing to keep pace with inflation,” says Ayman Youssef, Managing Director at Coldwell Banker.

“At the same time, home prices and loan interest rates have surged, making homeownership increasingly challenging. Since the middle class is the backbone of the economy, this imbalance is unfortunate,” he adds.

Interestingly, since rent prices have also risen, with apartment rents growing by 22% and villa rents by 13% year-on-year, Ari Kesisoglu, President of Property Finder, says, many renters are now considering purchasing homes, “which has led to more end users, rather than investors, opting for mortgages.” 

According to a Knight Frank report, the overall residential market is projected to see an 8% rise in 2025, while luxury properties are expected to climb by 5% on average in Dubai.

DRIVING PRICE RISE 

According to analysts, rising prices in cities like Dubai, Abu Dhabi, Doha, and Riyadh are driven by their appeal as safe places to live, population growth, strong economic growth, investor-friendly markets, a low tax regime, and proximity to high-growth markets like India and China.

“Combined with first-class infrastructure and a business-friendly environment, these cities continue to draw attention, currently offering returns on investment of 5-7% compared to 3-5% in cities like London, Paris, and New York,” says Kesisoglu. 

This may be, but Karthik says a stable property market is “essential for long-term growth.”

“As demand continues to outpace supply in many segments, the need for a stable and mature property market remains strong,” reiterates Banker. “If current trends persist, we anticipate a more balanced and sustainable market emerging by early 2026, supported by strategic government policies and continued foreign investment.”

In a time when potential buyers need to earn way more than they earn now, affordable homes would make the most sense for price-sensitive buyers. However, home builders have moved away from entry-level homes over the past decade.

“A well-functioning housing sector that caters to all strata of society is critical to the overall health of society, economy, and long-term financial stability and growth,” adds Karthik.

MEETING GROWING DEMAND

While it’s common in shortages to blame and pick scapegoats, the real question is whether we can build enough housing to meet growing demand. 

“In cities like Dubai, Abu Dhabi, Doha, and Riyadh, there is ample opportunity to build enough housing to meet demand, as these regions don’t face the same land scarcity challenges seen in places like Singapore or Hong Kong,” says Banker. “With sufficient land availability and ongoing urban development, these cities can continue to expand their housing supply to accommodate growing populations and demand for real estate.”

There are ambitious plans. Saudi Arabia plans to increase homeownership from 47% to 70% by 2030. According to a PwC Middle East report, fulfilling this vision requires a staggering 1.5 million new housing units, or 115,000 units annually. One way to bridge this gap is off-plan projects, where buyers purchase homes before they’re built. They can be cheaper than ready-made options, allowing developers to cater to a wider range of budgets. 

According to the report, off-plan sales in the kingdom grew by 52% in the first half of 2023, making homeownership a real possibility.

The potential of off-plan sales is undeniable, but it hinges on effective marketing, convenient locations, balancing liquidity with financing options, attracting more developers, and ensuring quality assurance, which are crucial components for building a sustainable, thriving off-plan market, the report adds.

Its neighbor, Abu Dhabi, launched 38 new off-plan projects and completed 12 major developments in 2024.

Dubai also aims to elevate the real estate sector. “It is already on track to deliver record-breaking results, with a year-on-year volume increase of approximately 60.6%, reaching around 109,527 transactions in 2024,” says Kesisoglu. “Developers are ramping up efforts, with many projecting even higher volumes in 2025.”

Undoubtedly, achieving housing affordability requires a strategic, ecosystem-wide approach.

According to Karthik, some approaches, such as providing free or heavily subsidized land for projects, establishing a dedicated regulatory organization responsible for supplying and allocating affordable housing units, and creating “escrow-like” structures to manage affordable housing assets, are worth exploring. 

“Since prime location properties command premium prices due to limited supply, developing new communities from the ground up is essential,” adds Kesisoglu.

A COMPLEX CHALLENGE

Affordable housing is a long-developing and complex problem; there’s no magic wand we can wave to eliminate it, particularly with the significant rise in construction costs. 

“Factors such as the high cost of materials, labor, and infrastructure development contribute to increased expenses, making it harder to maintain affordable pricing while offering top-quality living standards,” says Banker.

To address this, value engineering becomes crucial, he adds. “This approach allows for achieving the same quality of construction at a lower cost by optimizing materials, processes, and design without compromising safety or functionality.”

Additionally, the scarcity of affordable land remains a key issue, further driving up prices and limiting opportunities for affordable housing development.

Meanwhile, for potential buyers on the sidelines, the lower borrowing costs and boosted supply should help with affordability. 

“National interest rates have gradually decreased over the past 12 months, following Federal Reserve changes, making mortgages more affordable and increasing consumer borrowing capacity,” says Kesisoglu. “This positive shift is providing some relief and creating opportunities for those looking to step into homeownership.”