Addressing the Missing Middle: Housing Solutions for Mongolia Re-imagining Ger Districts: A Blueprint for Green, Resilient and MINISTRY OF URBAN DEVELOPMENT, CONSTRUCTION AND HOUSING OF MONGOLIA 1 Addressing the Missing Middle: Housing Solutions for Mongolia FUNDERS 2 Addressing the Missing Middle: Housing Solutions for Mongolia 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. RIGHTS AND PERMISSIONS The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes if full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: PUBRIGHTS@WORLDBANK.ORG. CITATION Please cite the report as follows: World Bank. 2024. Reimagining Mongolia’s Ger Districts: A Blueprint for Green, Resilient and Affordable Housing in Mongolia. Washington, DC: World Bank. Cover /back cover photos: Panorama of Ulaanbaatar. Layout Design: Encrea Studio 3 Addressing the Missing Middle: Housing Solutions for Mongolia Table of Contents Acknowledgements Page 07 Acronyms Page 11 Executive Summary Page 13 1 Introduction Page 25 1.1 Urban development context and challenges in Mongolia 1.2 Current land allocation policies contribute to urban expansion 1.3 Common growth pattern of ger neighborhood 1.4 Harsh climate conditions exacerbate urban challenges 1.5 Lack of infrastructure in many ger areas worsens conditions for households 1.6 The housing shortage is both qualitative and quantitative 1.7 Missed opportunities for wealth building among Ger residents 1.8 Current Government programs and policies need readjustment to address complex urban challenges 1.9 Opportunities to develop ‘missing middle’ solutions 2 Solution 1: Green and Resilient Retrofits for Existing Homes in Ger areas Page 43 2.1 Last mile infrastructure connectivity 2.2 Resilient retrofits 2.3 Green, energy-efficient retrofits 4 Addressing the Missing Middle: Housing Solutions for Mongolia 3 Solution 2: Introducing New Resilient Housing Typologies Page 55 3.1 Housing typology 1: Single-family (detached) house 3.2 Housing typology 2: Duplex house 3.3 Housing typology 3: Shop house 3.4 Housing typology 4: Low-rise housing 3.5 Passive and green design 3.6 Best GER certification system 3.7 Affordability of new housing typologies 4 Solution 3: Gradual Densification Page 65 4.1 Identified densification approaches in ger areas 4.2 Gradual densification 4.3 Land and housing densification schemes 4.4 Densification case studies 4.5 Environmental benefits of densification 4.6 Affordability and other benefits of gradual densification 5 Solution 4: Sites and Services Page 77 5.1 Case studies 5.2 Environmental benefits 5.3 Affordability and other benefits 5 Addressing the Missing Middle: Housing Solutions for Mongolia 6 Implementing and Financing “Missing Middle” Page 91 6.1 Engaging the community 6.2 Supply side implementation: ensuring greener and more resilient construction 6.3 Demand side implementation: financing ‘missing middle’ solutions 6.4 Identifying current financial barriers 6.5 Expanding access to home improvement loans 6.6 Expanding access to mortgages via HFP reform 6.7 Conclusion 7 Proposed Roadmap Page 103 8 Conclusion Page 107 6 Addressing the Missing Middle: Housing Solutions for Mongolia Acknowledgment This report is the result of extensive collaboration between the of Housing and Finance Division, Policy Planning Department). From Government of Mongolia and the World Bank, incorporating the Bank of Mongolia, we thank A.Enkhjin (Director General, Reserve comprehensive consultations with various government agencies, Management and Financial Market Department); Odgerel Ochbold development partners, and other stakeholders. It was prepared by a (Reserve Management and Financial Market Department Head of team led by Dao Harrison, Senior Housing Specialist, Task Team Leader, Financial Market Division); Enkhdalai Batjargal (Reserve Management World Bank, and the core team comprised of Olivia Nielsen (Principal, and Financial Market Department Financial Market Division Economist); Miyamoto International); Emile Fremont (Urban Planner, MAD Urban); Enkhbayar Ochbadrakh (Reserve Management and Financial Market (Pallavi Sengupta, Urban Specialist Consultant, World Bank); Altangerel Department Financial Market Division Senior Economist) Davaajargal (National Consultant, World Bank); Badamkhand Bold (Team In Erdenet, we especially thank A. Tuvshinjargal (Deputy Mayor of Assistant, World Bank) and Kai Xin Nellie Teo, (Program Assistant, World Orkhon Aimag); TS. Bayarjargal (Director of Urban Development and Bank). Extended team members included: Munkhbayar Buyan (Mongolian Construction Office); D. Nyambaatar (Architect of Urban Development University of Science and Technology), Ariunzaya Chuluunbaatar (MAD and Construction Office); A.Munkhtsolmon (Senior Officer of Urban Urban), Pavin Chanteau (Consultant), Mike Emmerton (Consultant), Development and Construction Office); S.Davaadorj (Director of Ricardo Ochoa (CAPSUS); Adriana Navarro-Sertich (Associate Principal, Development Policy and Planning Department); R.Galbaatar (Officer Miyamoto International), Amir Gilani (Miyamoto International), of Development Policy and Planning Department). Mungunchimeg Perenlei (Consultant); Nandin Enkhtuvshin (Consultant) and Harish Khare (Consultant). Editing for this report was done by Emma In Darkhan, we especially thank D.Eldevsaikhan (Director of urban Harwood (Senior Program Coordinator, Miyamoto International) and the redevelopment unit), S.Undrakh (Senior officer of land affairs and report was designed by Encrea Studio. urban development division); G.Tuya (Housing specialist of urban redevelopment unit); B.Egshiglen (Foreign communication specialist The report was peer reviewed by Yan F. Zhang (Senior Urban Specialist, of urban redevelopment unit). World Bank); Abhijit Shankar Ray (Senior Urban Specialist, World Bank). The team thanks Boldoo Magvan (CEO, Mongolia Green Finance The team thanks Mara Warwick, World Bank Country Director for China, Corporation) and Undraa Agvaanluvsan (CEO, Mongolia Green Building Mongolia, Korea; Tae Hyun Lee, Country Manager, Mongolia; Sudeshna Council) for reviewing the report to ensure accuracy from the market Ghosh Banerjee, Regional Director, Infrastructure, East Asia and Pacific context. Region, Yoonhee Kim, Practice Manager, Urban, Resilience and Land, East Asia and Pacific Region; Xiaodong Wang, Infrastructure, Program The team is grateful to many officials and stakeholders for their Leader for China and Mongolia, for their guidance during this study. input, engagement, and collaboration. These include, at national level, Finally, we would like to thank the Global Facility for Disaster Reduction representatives from the Ministry of Construction, Urban Development and Recovery and City Climate Finance Gap Fund for funding this study and Housing: B.Gunbold (Director General of Policy Planning Department); and making preparation of this report possible. E.Batbold (Head of Housing and Finance Division); G.Chinsanaa (Expert 7 Addressing the Missing Middle: Housing Solutions for Mongolia Over the past two decades, urbanization in Mongolia has surged, leading efficiency and access to basic infrastructure. Such investment would to a rapid and sizeable increase in multi-story housing developments, enable residents to obtain property certificates which would facilitate particularly in Ulaanbaatar and secondary cities. Alongside this growth, access to housing finance, increase financial inclusion and enhance ger districts have also proliferated, now accommodating around 50% economic stability. The findings and recommendations of this study of the urban population. These districts offer basic settlement options are intended as a Blueprint toward resilient, inclusive, and affordable for new rural-to-urban migrants but are plagued with numerous issues, housing for ger areas development to guide Mongolian policymakers in including high poverty levels, substandard housing, and insufficient improving access to green, resilient, and affordable housing, ultimately infrastructure, leading to problems such as air and soil pollution, and shaping a more equitable housing landscape in the country’s urban poor mobility and livability. areas. This study highlights the environmental, social, and economic disparities Finally, I express my sincere gratitude and thanks for the tremendous between households living in the formal consolidated areas and those support, teamwork, and partnership of the World Bank, MCUDH, and living in the ger districts, with a focus on the secondary cities of Darkhan the two secondary cities – Darkhan and Erdenet, in the preparation of and Erdenet. These cities present an opportunity to address these this report. disparities before they replicate the challenges in Ulaanbaatar and elsewhere. The study identifies four solutions to help ger households invest in resilient, energy-efficient housing that is both affordable and financeable, thereby improving overall livability and bridge the gap between different socio-economic groups. These solutions are applicable to key cities across Mongolia. The report underscores the need to upgrade, build and densify houses Tae Hyun Lee, Country Manager, Mongolia and neighborhoods in ger districts to meet resilience and Sustainable World Bank Development Goals (SDG), including construction quality, energy 8 Addressing the Missing Middle: Housing Solutions for Mongolia MINISTRY OF URBAN DEVELOPMENT, CONSTRUCTION AND HOUSING OF MONGOLIA Affordable housing provisioning has long been a priority of the In this spirit, I wholeheartedly welcome the findings in the “Reimagining Government of Mongolia, The rural-to-urban migration over the Ger Districts: A Blueprint for Green, Resilient and Affordable Housing in last thirty years has led to the rapid expansion of the ger districts. Mongolia” report and appreciate the World Bank close collaboration Traditional ger districts often lack essential infrastructure such as to support a forward for innovative urban housing solutions in the sanitation, electricity, and adequate heating, contributing to severe ger districts in Mongolia. Finally, I express my sincere gratitude and winter air pollution primarily caused by coal burning. thanks for the tremendous support, teamwork, and partnership of the World Bank, our ministry, and the two secondary cities – Darkhan Ensuring that housing is resilient to Mongolia’s harsh climatic and Erdenet, in the preparation of this report. conditions as well as affordable is a cornerstone of our housing strategy. The recent launch of our new housing regulations and announcement of new funding for housing subsidies signal the Government of Mongolia’s commitment to major policy reform to support affordable, resilient, and inclusive housing. The Government also passed the resolution #483 dated 27th of Dec, 2023, which calls for the development of the “My House” scheme to provide subsidy support for resilient and energy-efficient self-construction and housing retrofits, and for connection to essential infrastructure for housing in ger areas. The Government of Mongolia is dedicated to BATSUURI Jamba addressing the housing needs of its citizens through a multifaceted The Minister of Urban Development, approach that combines green, resilient, and affordable solutions. Construction and Housing 9 Addressing the Missing Middle: Housing Solutions for Mongolia Referenced Organizations BOM Bank of Mongolia CAPSUS Sustainable Capital GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit GoM Government of Mongolia MUDCH Ministry of Urban Development, Construction and Housing MECC Ministry of Environment and Climate Change MoF Ministry of Finance NOSK Capital City Housing Corporation TUHF Trust for Urban Housing Finance ADB Asian Development Bank MET Ministry of Environment and Tourism Notations °C Celsius cm Centimeter CO2/a Carbon dioxide per annum °F Fahrenheit g Gravity Ha Hectare kg CO2/a Kilograms of carbon dioxide per annum kg/kWh Kilograms per kilowatt-hour kMNT Thousand Mongolian Tugrik kMNT/m 2 Thousand Mongolian Tugrik per square meter kMNT/kWh/a Thousand Mongolian Tugrik per kilowatt-hour per annum kWh/a Kilowatt-hour per annum kWh Kilowatt-hour kW Kilowatt kWp Kilowatt-peak m Meter Mt Megatonne W/m K 2 Watts per square meter per kelvin 10 Addressing the Missing Middle: Housing Solutions for Mongolia Acronyms AHURP ADB Ulaanbaatar Green Affordable Housing and Resilient Urban Renewal Sector Project BAU Business-as-Usual EE Energy Efficient EDGE Excellence in Design for Greater Efficiencies (a Green Building Certification system) EPS Expanded Polystyrene DHS District Heating System DTI Debt-to-Income Ratio GEA Gross External Area GHG Greenhouse Gas HH Households HFP Housing Finance Program HRV Heat Recovery Ventilator IFI International Finance Institutions LTV Loan-to-Value Ratio MNT Mongolian Tugrik (Currency) MSME Micro-, Small-, and Medium Enterprises NBFI Non-banking Financial Institution NIA Net Internal Area PGA Peak Ground Acceleration PVC Poly Vinyl Chloride QA/QC Quality Assurance/Quality Control URM Unreinforced Mortar QA/QC Quality Assurance/Quality Control SOAP Switch-off Air Pollution Project SS Sites and Services SSAR Small-Scale Affordable Rental WASH Water, Sanitation, and Hygiene XPS Extruded Polystyrene 11 Addressing the Missing Middle: Housing Solutions for Mongolia 12 Addressing the Missing Middle: Housing Solutions for Mongolia Executive Summary Mongolia’s urban landscape stands at a to ownership of land parcels.¹ While these crossroads of tradition and modernization. In the allocation policies have led to high ownership absence of comprehensive planning measures rates, they have also spawned a network of and development strategies, rapid urbanization interconnected urban challenges, including has strained infrastructure, highlighted the the underutilization of urban land, heightened acute need for adequate housing, and driven up pollution levels, increased vulnerability to pollution and climate hazards. These challenges natural disasters, growing housing deficits, are especially acute in the ger areas, a fixture of and the emergence of sprawling low-density Mongolia’s urban landscape. neighborhoods. Due to the unplanned nature of these neighborhoods, many still lack access This study, conducted through fieldwork from to basic infrastructure – less than 50% of the 2022 to 2024, under the oversight of the population of Ulaanbaatar has access to central Ministry of Urban Development, Construction heating, clean water, and sewerage (World and Housing, and with close collaboration with Bank, 2022). the municipal governments of Darkhan and Erdenet, identifies solutions to address these challenges. Ulaanbaatar Ger areas face with numerous challenges 98% 47% Ger areas embody Mongolia’s transition from historically nomadic lifestyles to contemporary semi-urban settlements, characterized by a combination of traditional Mongolian yurts (gers) and increasingly, simple brick or wooden 47% 50% houses. About 60% of Mongolia’s urban population live in ger areas today (ADB, 2020). Their rapid growth is the result of increased rural-to-urban migration, land privatization, Figure 1. Infrastructure access in Ulaanbaatar and legislation entitling all Mongolian citizens Source: World Bank, 2022. ¹The Law on Mongolian Citizens’ Ownership of Land, adopted in 2002, regulates the allocation of land for ownership, the types and sizes of land that can be owned, and outlines the responsibilities of local administrations 13 Addressing the Missing Middle: Housing Solutions for Mongolia Urban areas face high homes) of new units below the MNT 1.5 million/ access to essential services including heating, quantitative and qualitative m² threshold (NOSK, 2019). water, and sanitation. Given Mongolia’s high housing shortages Qualitatively speaking, much of Mongolia’s level of seismic risk, preliminary studies indicate that up to 80% of the housing stock in ger areas The rapid and sustained influx of people to urban housing, outside of the newly-built multi- could be vulnerable to damage or destruction in urban areas has drastically increased demand story development projects, is substandard. the event of an earthquake. While these homes for adequate and affordable housing, outpacing Traditional gers typically lack proper insulation, cost around 35 million MNT (around 10,200 current supply by tens of thousands of units. resulting in limited thermal efficiency, which USD) to build, their poor quality and lack of The gap between housing supply and demand in turn leads to high energy consumption and infrastructure access prevent their acceptance in the capital remains greatest for lower income increased emissions from coal-dependent as a form of collateral to housing finance loans. households. Figure 2 below displays housing heating systems. Other ger area housing In fact, many banks consider these homes to be demand and supply in Ulaanbaatar broken down typologies, such as simple one-to-two story of ‘zero value.’ by the cost of housing per m², demonstrating houses, are often constructed without a severe lack in the supply (of almost 27,200 adherence to construction standards and lack Unlocking wealth-building opportunities for Ger households Demand Supply Price not identified 2,000 The substandard quality of construction and lack of access to basic services prevents 250 these homes from obtaining certificates of <3,000,000 3,400 immovable property. These certificates are essential for accessing financial services like 640 2,500,000 - 3,000,000 mortgages and loans. Upgrading these homes 5,400 to meet structural, energy efficiency, and 2,000 infrastructural standards could dramatically 2,000,000 - 2,500,000 5,500 change this dynamic by allowing properties to obtain registration. These upgrades would 1,500,000 - 2,000,000 12,900 enable ger residents to reap the benefits of 13,200 their property appreciating in value, thus <1,500,000 27,200 enhancing financial stability and elevating 1,750 their economic standing, transforming missed opportunities into tangible avenues 5,000 10,000 15,000 20,000 25,000 30,000 for wealth building. Figure 2. Gaps between housing demand and supply in Ulaanbaatar (NOSK, 2019) 14 Addressing the Missing Middle: Housing Solutions for Mongolia Current Government policies struggle to address housing Developer-built Self-built ger issues in ger areas housing housing types The government’s housing policies employ two High construction & Very poor construction standards and central strategies: public-led investments in minimum EE standard low levels of energy efficiency infrastructure after land-allocation and housing construction, and support for private-sector led re-development of ger areas through the construction of high-rise apartment buildings. These efforts have proven to be slow and costly, with the deployment of basic infrastructure services after land allocation and home construction resulting in high expenses and low connection rates. In Darkhan and Erdenet, High-rise Brick Timber Concrete block infrastructure investments following land Development Housing Housing & Plaster allocation have led to a connection rate of only 2.84 m MNT / 688,000 MNT / 860,000 MNT / 860,000 MNT / 10 percent among ger households.² On the other sqm; 50 sqm sqm; 40 sqm sqm; 40 sqm sqm; 40 sqm hand, high-rise apartments cost upwards of 142 million MNT (USD 41,500) and are unaffordable 142 million MNT 27.5 million MNT 34.4 million MNT 34.4 million MNT to 70 percent of the urban population. USD 41,500 USD 8,000 USD 10,000 USD 10,000 Additionally, the GoM’s subsidized Housing Finance Program excludes ger households in Figure 3. Different types of housing in Mongolia two ways: first, detached houses in ger areas are not eligible for the subsidy, and second, there is a 30 percent down payment requirement.³ Non-ger households can leverage equity from Addressing the “missing middle” their existing homes to meet the 30 percent Housing in Mongolia spans two extremes: low- of quality, infrastructure service accessibility, down payment required by the housing finance quality, self-built ger homes on one end, and and protection from hazards and pollution. In program. However, ger housing lacks inherent unaffordable high-rise developments on the contrast, high-rise developments cater to a commercial value, preventing ger households other. This disparity highlights a significant wealthier demographic and are often priced from securing financing to upgrade their homes opportunity to develop the ‘missing middle,’ a beyond the reach of most Mongolian citizens. or access affordable and adequate housing. This term that refers to diverse housing solutions that This stark division underscores the urgent need program, along with the GoM’s other housing bridge the gap between these two extremes. for innovative solutions that can bridge the gap policies and initiatives, must be reformed to be While ger areas are vital to the nation’s cultural in housing options, address the environmental more inclusive and effectively meet the housing identity and provide urban access to low- issues exacerbated by substandard housing, needs of the large population living in ger areas. income families, they typically fall short in terms and unlock household wealth. ² Source: Information provide by Darkhan and Erdenet city governments ³Necessary to access the HFP mortgage program 15 Addressing the Missing Middle: Housing Solutions for Mongolia Solution 1: Green and resilient retrofits A targeted survey⁴ conducted in Darkhan and Missing Middle Erdenet revealed that over 90% of surveyed households prefer upgrading their current homes over relocating to developer-built housing. This reflects a strong attachment to current household locations and an urgent need to roll out housing upgrades at scale. Despite recent infrastructure investments in some of the ger areas⁵, the majority of ger households lack access to heat, running water, and sanitation while living in substandard housing. Focusing interventions on ger neighborhoods with existing infrastructure 1 2 connectivity enables households to upgrade 3 their homes, unlock wealth by accessing basic 4 services, and pursue seismic and green retrofits. Figure 4. Mongolia’s ‘Missing Middle’ Last mile infrastructure connection coal heating and conversely, the overall health damage, posing potentially life-threatening of the households can be improved. risks to inhabitants during seismic events. Many A study of six ger plots with existing housing units require structural improvements infrastructure across Darkhan and Erdenet, revealed that individual connection costs Seismic strengthening to increase resilience against potential hazards. Typical structural vulnerabilities include mixed- averaged 10 million MNT (3,000 USD). A survey of thirty houses in the ger areas material construction and inadequate detailing However, these costs can be reduced by of Darkhan and Erdenet revealed that for ductile behavior. allowing households to apply collectively. By approximately 80% of the housing stock exhibit enabling households to connect to central significant levels of structural deficiencies. A range of retrofitting solutions to address heating, water, and sewerage, pollution levels Alarmingly, 60% of these surveyed homes are seismic risk can be deployed using locally can be significantly reduced by decreasing at risk of total collapse or severe structural available building materials and construction ⁴ The survey was carried out in April 2024 during a consultant mission to Darkhan and Erdenet. investment in 7 areas, namely Bulag, Rashaant, Saran, Tsagan chuluut, Bayantsagan, Denj and The survey was facilitated through two focus group discussion (FGD) meetings with residents Govil bags. The city built 8 Water and heat distribution grid substations, 7,407 meters of water of the two cities, totaling 67 respondents. and hot water pipeline, 5,323 meters of drinking water lines, 3,916 meters of sewage lines, bore ⁵ Darkhan developed infrastructure services in 5 locations: the bags 5, 6, 7 and 8 (in Mankhan and 99 sewage wells and constructed an additional 800 meters of engineering pipelines. While Naran Tolgoi). Across those ger areas, the city built 14 new substations for the water and heating Darkhan and Erdenet aimed to connect 3,365 households, only about 180 households connected distribution grid, 7,302 meters of heating pipeline, 4 900 meters of water and hot water lines, their houses to the grid. 12,171 meters of sewage lines and one heating pump station. Erdenet focused its infrastructure 16 Addressing the Missing Middle: Housing Solutions for Mongolia techniques commonly employed in Mongolia. The proposed interventions range from low- cost techniques like plaster reinforcement to more extensive repairs involving the addition of concrete sheer walls. Proactive seismic strengthening of vulnerable housing can dramatically reduce the risks of casualties, injuries, and property damage during Detached Housing Duplex Housing Shophouse Low-rise Housing earthquakes and similar climate hazards. (1 floor) (2 floors) (1-2 floors) (3-5 floors) Retrofitted homes also benefit from improved market value and collateral potential, enabling Figure 5. Overview of new housing typologies owners to access formal housing finance. Solution 2: Green retrofits designed based on average acceptable sizes Introducing new housing and housing preferences, ensuring suitability, Structural strengthening must be completed before housing can qualify for green, energy- typologies to address diverse livability, and affordability for a broad spectrum efficient retrofits, which is especially important housing needs of residents. in ger areas where low energy efficiency leads The introduction of green and resilient housing These typologies are designed to preserve local to significant heat loss. Affordable solutions typologies will bridge the gap between low- traditions in housing design, while incorporating such as roof insulation can substantially reduce quality single-family residences and high-rise modern elements, improved service access, heat loss and thus carbon emissions while apartments. This approach allows the market and support for future densification efforts. remaining financially accessible to even lower- to cater to diverse needs, preferences, and Single-housing typologies, for instance, can income ger households. affordability levels. These typologies are be incrementally extended over time with the addition of airlocks, garages, or even second floor facilities. The shophouse design integrates Proposed both housing and economic needs, featuring a Typical typology a commercial space on the ground floor and a ger home Energy e cient, residential space above, accommodating the Self-built home resilient home* with common practice of home-based businesses. Cost: access to services 35 million MNT Cost: 64 million MNT These new typologies qualify for certification *Certified by EDGE or of immovable assets through their high-quality Spending Best GER Simple less than 30 construction, infrastructure connections, and million MNT energy efficiency. By investing an additional 30 Considered of zero value and more unlocks Full value of home unlocked, cannot be used as collateral. full value which can appreciate over time. million MNT (8,800 USD) on top of the current ger household investment of 35 million MNT to build an average ger home, households can Figure 6. Comparison of current ger house and proposed typology values 17 Addressing the Missing Middle: Housing Solutions for Mongolia unlock the full economic and livability benefits asset, and still provide enough space within the comfort while minimizing heat loss and gain. of a well-designed and well-built residence, khaasha to build an additional house for the Construction techniques like quality insulation, with the potential for its value to appreciate family to monetize. These typologies can be airtight construction, and high-performance over time. built directly in existing ger neighborhoods windows further enhance building resilience and where infrastructure has already been deployed energy efficiency. Additionally, landscape design These new and resilient housing typologies (densification solution 3) or on planned sites is essential for sustainability, with elements are accessible to income deciles 4-5 and and services developments (solution 4). like windbreaks, rain gardens, and permeable above, whereas high-rise apartments are only surfaces aiding in water management, carbon accessible to income deciles 8-9 and higher⁶. Introducing new housing typologies to the sequestration, and ecological balance. By New housing typologies would bridge the market also presents an opportunity to embracing these integrated design and quantitative housing deficit while ensuring that reimagine approaches to passive and green landscape strategies, we can create resilient, new homes are both resilient to disasters and design. Architectural strategies such as adopting energy-efficient, and environmentally friendly mitigate the impacts of climate change. The compact shapes, utilizing thermal mass urban spaces that support sustainable living. smallest typology can be built for 65 million materials, and optimizing window placement MNT, registered with a certificate of immovable and size help to maximize energy efficiency and These new housing typologies can be certified by the EDGE or Best GER rating system, currently being developed by the Mongolian Affordable to Green Building Council with oversight by the Total cost (MNT in Income Decile MUDCH, which would likely be a requirement Type thousand) for banks to provide a housing finance loan. Resilient self-built Basic house-min construction MNT 55,385 4 & above Solution 3: standards (46 m²) USD 16,100 Gradual densification Green and MNT 63,570 Mongolia’s urban development policies have resilient Detached House (46 m²) 5 & above USD 18,500 favored rapid vertical densification with large- contractor scale multi-story development, overlooking the Detached House (2 Flr-46 m²) MNT 65,785 built 5 & above USD 19,000 potential benefits of a gradual densification Mixed-Use (54 m²) MNT 76,920 strategy. Though gradual densification may take 5 & above longer to achieve, this alternative strategy offers USD 22,500 Low-Rise Apartment Building MNT 88,340 a more sustainable and affordable pathway to USD 25,000 5 & above urban development by preserving existing (58 m²) Existing communities and enhancing neighborhood reslient livability. Having already invested in infrastructure developer MNT 142,000 High Rise Apartment (50 m²) 8 & above access in certain ger neighborhoods as built (min EE) USD 41,500 identified under this study⁷, municipalities can Figure 7. Missing Middle homes are accessible to deciles 5 and above based on HFP financing terms ⁶ The affordability analysis utilizes the average annual nominal household consumption by deciles data from 2022, adjusted for 20% inflation to 2024 (in thousand MNT), to establish income deciles in all three cities. The data is sourced from the National Statistics Office of Mongolia. 18 Addressing the Missing Middle: Housing Solutions for Mongolia now optimize these investments by increasing Solution 4: the in-place density. Sites and Services Gradual densification refers to the incremental Lastly, Sites and Services schemes have construction of additional housing, commercial emerged as an effective alternative to previous spaces, and public areas within existing urban practices of raw land allocation and delayed, environments. This approach, emphasizing uncoordinated infrastructure provision. This medium-density developments like low-rise approach first establishes well-planned buildings and mixed-use complexes, boosts essential trunk infrastructure networks, housing supply and diversity without disrupting followed by core housing construction. community dynamics. It proves particularly cost- Housing can be incrementally expanded effective compared to high-rise construction, especially in high-risk seismic zones. Low-rise and mid-rise structures offer more affordability per square meter, easing financial strain on households. Under this approach, the most affordable housing is accessible to income deciles 4-5 and above, in contrast to regular government schemes where apartments are affordable to deciles 8 and above. A multifaceted toolkit of land and housing densification approaches—such as infill construction, plot reconfiguration, land consolidation, and Figure 8. Mankhan Tolgoi site - Before (top) and after (bottom) densification readjustment—is recommended to promote more efficient land utilization, improved infrastructure access and service provision, upgraded transport district heating networks more feasible. This links, and an expanded supply of resilient unlocks significant climate change mitigation housing. Mainstreaming alternative housing and economic productivity benefits, especially typologies like duplexes, townhouses, and considering Mongolia’s extreme continental low-rise multifamily developments alongside climate. By fostering a vibrant, mixed-use traditional single-family homes in ger districts environment, gradual densification contributes can further facilitate gradual densification. to the creation of sustainable, resilient urban Crucially, the increased population density and areas that are well-equipped to meet the economies of scale achieved through these challenges of the future. interventions make the implementation of Figure 9. Darkhan SS site – Incremental development ⁷ In Darkhan: Bags 5,6,7 and 8 (Mankhan Tolgoi and Naran Tolgoi. In Erdenet: Bulag, Rashaant, Naran, Tsagaan chuluut, Bayantsagaan, Deni and Govil). 19 Addressing the Missing Middle: Housing Solutions for Mongolia by individual landholders, as their financial affordable housing at scale in livable mixed- m² of commercial space and 525 m² of public capacity permits. However, there are several use neighborhoods, without the tremendous facilities are planned, the exact nature of which prerequisites for ensuring the success costs and challenges associated with current will be defined by the Municipality based on of these schemes, including proximity to approaches to ger area re-development. the needs of residents. The benefits of the socioeconomic opportunities and access to sites and services include a reduction in GHG The selected scenario depicted in Figure emissions by over 45%, increased access to public transport, community participation in 9 enables the construction of 326 units, basic services, and above 60% cost savings planning, and the inclusion of public green consisting of 103 self-built detached houses, compared to current post-land allocation spaces and amenities. If these considerations 55 duplex housing units, 48 low-rise housing context. are accounted for, Sites and Services units, and 10 shophouses. Additionally, 750 programs can promote climate-resilient, Sites and services Sites and Services scenario leads to a scenario results in Sites and services scenario is about: REDUCTION OF THE INCREASED ACCESS GHG EMISSIONS to basic infrastructure and services 46% 47% 61% for for Erdenet Darkhan MORE AFFORDABLE* than the land IMPROVING THE allocation scenario *GHG emissions per household per year LIFE QUALITY of the householders *Costs per household As Compared to the Land Allocation Scenario Figure 10. Benefits of sites and services 20 Addressing the Missing Middle: Housing Solutions for Mongolia Implementing and financing Streamlining the construction process benefits of a certified home. Community “Missing Middle” solutions in involves developing and distributing a range engagement will be crucial in this process, Mongolia of pre-designed housing prototypes that involving collaboration with local leaders and cater to diverse family sizes and preferences. organizations to promote the adoption of Focus Group Discussions conducted in Darkhan These prototypes, ranging from single-family new building practices through workshops and Erdenet revealed a proactive community units to expandable two-story buildings, and demonstration projects, fostering a ready to embrace and support improvements will simplify construction and ensure high sense of ownership and commitment to to their housing and community. Residents standards of safety and sustainability. sustainable development. expressed significant concerns about the Additionally, the BESTGER rating system will poor quality of their current housing and certify homes based on structural integrity, Developing tailored housing limited access to essential services, while energy efficiency, and environmental impact, finance products also demonstrating a strong commitment thereby encouraging adherence to best The creation of “missing middle” housing to upgrading their homes, particularly in construction practices to access the financial solutions necessitates the development of connecting to existing infrastructure and implementing energy and structural retrofits. The discussions also uncovered a willingness Low-income Low-middle Middle-income High-income among a substantial majority of households to Starting from income Starting from Starting from financially invest in these improvements, with decile 1 Starting from decile 5 decile 8 many indicating they would allocate up to 30% decile 3 of their income towards such initiatives. Affordability of solutions by income deciles Ensuring greener and more resilient construction A comprehensive approach is needed to Roof insulation Full house retrofit New green and Green and support households and contractors in building and basic seismic and connection to resilient house energy efficient greener and more resilient homes. This includes retrofit infrastructure construction apartments in trainings, the provision of pre-designed housing high-rise building prototypes, and assistance to obtain certification through the BESTGER rating system. Extensive training programs will be offered to households and local contractors, focusing on seismic retrofit techniques and energy-efficient building practices. These programs will educate households on construction monitoring and • 2 million MNT / • 12 million MNT / • 63 million MNT / • 142 million MNT / 580 USD 3,500 USD 18,000 USD 41,000 USD equip contractors with technical skills needed for retrofitting existing homes and constructing • Microloan via NBFI • Microloan or • Mortgage via bank • Mortgage via bank mortgage new resilient and energy-efficient homes from the ground up. Figure 11. Affordability, costs, and financing of proposed solutions by income decile 21 Addressing the Missing Middle: Housing Solutions for Mongolia innovative housing finance products tailored to extend the program beyond high-rise within the housing market, these reforms can to the unique needs of ger area residents. This developments and into the ger areas. significantly improve the quality and diversity development is crucial for providing affordable, of available housing options. This strategic impactful, and sustainable financial solutions. The down payment requirement of 30% and approach strengthens Mongolia’s housing Non-banking financial institutions (NBFIs) insufficient savings capacity often prevent ger finance system in ger areas, making it more are positioned to offer microfinance loans for households from accessing the affordability effective, equitable, and sustainable, while home improvements, especially to households benefits of the HFP. Additionally, the capacity directly improving residents’ quality of life and that do not meet the stringent lending criteria of banks to underwrite mortgages for economic stability. of commercial banks. Additionally, commercial informal households needs improvement. loans could be extended for constructing new While the interest rate subsidy helps reduce Implementation considerations housing typologies and facilitating densification monthly payments, it requires adjustments To ensure the effective implementation of efforts in ger areas to support broader urban to prevent subsidy overreach as household housing finance reforms, it is vital to consider the development and integration. incomes increase. perspectives of both households and financial Effective reform of the HFP requires institutions. Households in ger areas often Reforming existing housing subsidy face challenges in obtaining down-payment adhering to principles that ensure access to policies assistance and loans that align with their equitable, efficient and transparent financing The reform of Mongolia’s mortgage subsidy without crowding out the private sector. Key income levels, while banks require assurances program is pivotal to create a more inclusive principles include providing larger subsidies of quality construction and reliable collateral and financially accessible housing market. for households with the greatest needs, to finance these homes. Quality construction ensuring non-discriminatory access to subsidy practices will require establishing standards, Currently, the Housing Finance Program (HFP) programs, minimizing the overall cost of providing training, implementing a QA/QC is the Government’s flagship program to subsidies, and addressing the gaps that the system, and developing a construction quality subsidize high-rise developments. Although private sector otherwise cannot. Maintaining and energy-efficiency certification process to the program offers long loan tenors and low transparency in all program operations and ensure quality. The development of accurately interest rates, the cost of these units remain expanding the housing finance market are priced and targeted financial products enables unaffordable to ger residents. The economic imperative to improving equitable access, residents to access the funds needed for home cost of subsidizing a mortgage is 52 million fostering public trust, and encouraging greater improvements. By addressing these needs and MNT⁸ and disproportionately benefits higher private sector participation in affordable aligning financial products with both household income groups. Conversely, a well-constructed, housing development. This approach will not capabilities and institutional requirements, energy-efficient ger area home would cost the only address immediate housing needs but housing finance reforms can drive meaningful government significantly less at around 23 also foster long-term market development, progress toward more inclusive and sustainable million MNT, making these units a more viable encouraging new market entrants and housing solutions in ger areas. This will not and sustainable option for financial assistance. stimulating competition. only facilitate the adoption of sustainable The current expansion of HFP, supported by building practices but also enhance the broader additional funding from the country’s new By leveraging both private and public resources economic and social benefits of improved provident fund, presents an opportunity and fostering innovation and competition housing in Mongolia. ⁸See “Figure 70. Comparative Analysis of Ger Housing Solutions vis a vis Multi-Story Unit under million MNT financed with a 100 million loan through the HFP. The economic cost is the total nominal HFP. Source: World Bank, 2024.” for more details. This cost assumes an apartment price of 142 cost of the subsidy discounted at the policy rate calculated in March 2024. 22 Addressing the Missing Middle: Housing Solutions for Mongolia This comprehensive approach to implementing and financing “missing middle” housing solutions highlights the necessity of community engagement, innovative financial products, and the removal of systemic barriers to create a more inclusive and sustainable urban housing market in Mongolia. Conclusion Mongolia’s cities are at a critical crossroads, Bridging this divide requires innovative solutions navigating the fine line between the sprawling, that enhance the livability and sustainability of unplanned growth of low-density ger areas ger areas while thoughtfully promoting urban and the rapid expansion of compact, multi- densification. This report outlines a detailed story developments. This duality presents both framework for targeted interventions in ger challenges and opportunities in managing the areas with existing infrastructure investments, need for sustainable, organized growth while encompassing residential retrofitting programs, addressing the housing demands of a diverse context-specific densification techniques, and and expanding population. Rapid urbanization community-engaged planning approaches. continues to strain infrastructure, heighten This set of practical and easy-to-implement demand for adequate and affordable housing, solutions can collectively enhance climate and increase real estate prices. Although current resilience, environmental sustainability, and government policies focus on addressing these the quality of life across informal settlements in challenges through ger area redevelopment, Mongolia’s cities. The recommended solutions there is an opportunity to focus on the ‘missing are tailored to leverage local conditions, middle’—the housing segment between low- creating inclusive, broad-based socio-economic rise sprawl and high-rise developments. opportunities in a financially feasible manner. 23 1 Introduction Mongolian cities are some of the least dense globally, with high levels of air pollution particularly in winter months. Housing is available at 2 extremes. Expensive high-rise developments priced at 142 million MNT or self-built homes in ger districts costing 35 million MNT. 60% of Mongolia’s urban population resides in ger areas. 80% of ger area homes are structurally unsound. 50% of urban households do not have access to central heating water, and sewarage. Missed Oppurtunity: lack of housing quality means ger homes are of “zero value”. • Opportunity to invest in ‘missing middle’ solutions. • Increasing the green and resillient housing stock can curb pollution and the effects of climate change. “ People do not demand houses; they demand habitats. A house is an object; a habitat is a node in a multiplicity of overlapping networks – physical (power, water and sanitation, roads) economic (urban transport, labour markets, distribution and retail, entertainment) and social (education, health, security, family, friends). The ability to connect to all these networks makes a habitat valuable⁹ ⁹Professor Ricardo Hausmann, John F. Kennedy School of Government and Director, Harvard Growth Lab Addressing the Missing Middle: Housing Solutions for Mongolia 1.1 1.2 Urban development Current land allocation context and challenges in compared to May of 2023, with prices increasing policies contribute to Mongolia by as much as 1.3% in one month alone (NSO, 2024). These increases are not limited to newly urban expansion Mongolia, a nation with a vast and rugged expanse, constructed properties, as the average price is at a critical juncture in its road to sustainable per square meter in Ulaanbaatar is 4.02 million Since the first Land Law was passed in 1994, urban development. As of 2023, Mongolia’s MNT (1,188 USD) for a new apartment and 3.89 Mongolia’s land tenure framework has operated population is estimated to be approximately million MNT (1,153 USD) for an old apartment. under a three-pronged system: 3.5 million, of which 69% reside in urban areas, In addition to housing affordability constraints, a significant rise from just a few decades ago. the city faces environmental challenges, such as • • Ownership: This tenure grants Mongolian air pollution worsened by the widespread use of citizens full control over land, allowing them Rapid urbanization, primarily concentrated coal for heating in the ger districts. to sell, rent, or lease it. It applies to all land in Ulaanbaatar and the two secondary cities, except pastureland, common tenure land, and Darkhan and Erdenet, highlights a complex array Increased rural-to-urban migration has driven areas designated for special government use. of urban and housing challenges that demand the expansion of traditional living quarters into immediate attention. The World Bank has been leading a series of studies in Ulaanbaatar, extensive semi-urban settlements or ‘ger areas.’ • • Possession: Available to Mongolian citizens, These areas are distinguished by the presence companies, organizations, and enterprises Darkhan, and Erdenet to identify key solutions to with foreign investments, this type of tenure of gers (traditional Mongolian yurts) and overcome these challenges. is issued by license for 15 to 60 years, with the increasingly, by simple brick or wooden houses, reflecting a blend of historical nomadic lifestyles option to renew for an additional 40 years. While Mongolia’s population is low relative to its vast physical expanse, the concentration and contemporary urban living. Ger areas are of people in urban centers like Ulaanbaatar, typically situated on the fringe of cities and • • Use: Land use licenses are available to foreign citizens, foreign countries, international Darkhan, and Erdenet puts significant strain on lack essential infrastructure, such as heating, organizations, and Mongolian entities. the already limited infrastructure and housing piped water, sewage systems, and reliable These licenses are initially issued for 5 years in these cities. electricity. This unique form of settlement now and are renewable thereafter, outlining the accommodates one third of Mongolia’s total land’s intended use and characteristics, As Ulaanbaatar is home to nearly half of population, presenting challenges to urban typically for construction purposes. Upon Mongolia’s total population, this significant planning, service delivery, and environmental completion, the land reverts to the State, urban concentration has led to unique challenges sustainability. As ger areas are central to while the property rights over the structure in planning and housing. The rapid urban influx discussions on urban development in Mongolia, itself remain unaffected. has outpaced the development of essential there is need for innovative solutions to infrastructure, leading to inadequate housing integrate these communities into the urban The Land Law, amended several times¹⁰, and escalating real estate prices. As of May 2024, fabric, improve living conditions, and ensure that served as a catalyst for the rapid growth of the National Statistics Office (NSO) documented their growth contributes positively to the overall ger areas throughout the country. In a recent a 12% surge in Ulaanbaatar’s housing prices development of the city. 26 Addressing the Missing Middle: Housing Solutions for Mongolia effort to stop urban sprawl, the Ulaanbaatar ownership over the built asset represents municipality temporarily halted allocation of a significant missed opportunity for both raw land. However, this measure has had limited households and municipalities. success as informal urban expansion persists.¹¹ Secondary cities (Erdenet and Darkhan) continue to allocate raw land, but discussions with city officials revealed that this is likely to become an 1.3 issue as ger areas are fast approaching official Common growth pattern of ger neighborhoods city limits.¹² Large, allocated land plots are often subdivided over time to give land to relatives or or to sell Upon arrival to the city, families are typically portions to other ger households, contributing allocated a plot of land through the local khoroo to the fragmented ger landscape, especially in (district) which they subsequently register. older ger areas.¹³ Eventually, they build a fence around the Although this land tenure framework has led to land, creating the khashaa and when possible high ownership rates, undeveloped ger land— obtain a small and expensive micro loan to lacking infrastructure and legitimate immovable improve their plot. The family builds a house, property—cannot be used as collateral by but due to the lack of formal construction banks.¹⁴ training or regulatory codes, the house is not durable. Consequently, without adhering to This current framework, with legal ownership of construction codes, these homes cannot be land but without legal tenure of the built asset, used as collateral. The overarching issue is that also prevents cities from effectively raising land is being allocated without infrastructure taxes on real estate as there is no registered services and not aligned with Master Plan immovable property to tax, and only the land leading to suboptimal housing conditions. can be effectively taxed. Tax levied on land is calculated as a percentage of a government- based land value index and is extremely low, in the range of a couple thousand MNT annually for average size land plots. The lack of legal ¹⁰The last attempt to amend the land law framework was in 2023. resource demands, the requirements of individual families and overall property density within the ¹¹In Ulaanbaatar, rural migrants continue to settle illegally on the edge of existing peri urban ger Soum. Initially allocated up to 700 sqm in Ulaanbaatar and 3,500 sqm in aimag centres, khashaas areas, contributing further to urban expansion. are then often subdivided over time resulting in a smaller land plots (200 to 500 sqm) in central ¹²Available land is identified by the city or Soum governments in their annual land management ger areas. plans. ¹⁴Banks can take as collateral land with possession or use tenure. Only once the land (ownership ¹³Citizens Representatives’ Khurals, who govern individual Soums, have legal powers to establish tenure) is developed (connected to the grid and or with independent energy system with a the maximum size and location of the land allocated to citizens for housing, in accordance with land registered built asset on it) can banks use that property (land + construction) as a collateral. 27 Addressing the Missing Middle: Housing Solutions for Mongolia Land allocation does not follow Master Plan 1 2 3 Family moves to Family is allocated plot Land registrations Ulaanbaatar according to local khoroo occurs 4 5 6 Eventually family gets micro Family build house that is loan to improve plot not durable Loan amount is small No construction standards Without resilient construction and expensive or formal training standards, homes cannot be used as collateral Figure 12. Typical journey of family moving to Mongolia’s cities. (World Bank, 2021) 28 Addressing the Missing Middle: Housing Solutions for Mongolia A glance at a typical ger home Construction costs vary depending on the materials used and their quality. Simple brick houses typically range from 175 to Ger houses are typically constructed by the owners themselves, often 200 USD per square meter to build, whereas solid timber and with the help of local construction crews. These crews may assist in lightweight concrete block houses may cost around 250 USD per building specific parts of the houses, such as plumbing or electrical square meter to construct. For a 40 m² house, this translates to work. The construction of houses is tailored to the financial capabilities a total cost of 8,000 to 10,000 USD, or 27 to 34 million MNT. In of each household, resulting in significant variations from one khashaa contrast, a ger is much more affordable, with costs ranging from to another. USD 1,500 to USD 5,000 for the larger and more expensive ones. Typically, ger houses consist of a single-story structure featuring a spacious main living room with an integrated kitchen area, along with one to two separate bedrooms. Ger houses commonly incorporate an entrance lobby that is partially or fully separated from the main room, serving as Figure 13. Example of a pitched roof ger house in Darkhan a buffer zone against the cold during the winter months. The ger house in Darkhan (Figure 13) features a pitched roof, while Figure 15. Common structure of building envelope the one in Erdenet (Figure 14) including the roof, external walls, and foundation exhibits a noticeable entrance extension constructed with Houses are typically constructed gradually and with different lightweight concrete blocks, materials used for various rooms, based on what is available contrasting with the brick and in the market. The main frames of houses are commonly built timber frame used for the main using brick, concrete blocks (a recent addition to the ger area structure. landscape), timber, or a combination of these materials. Over time, households may add insulation to the walls and roof attic Figure 14. Example of a pitched roof and extend the main building with small extensions to create ger house in Erdenet additional space. 29 Addressing the Missing Middle: Housing Solutions for Mongolia Figure 17. Entrance lobby (left), living room (middle) and stove / kitchen (right) of ger houses in Darkhan and Erdenet A targeted survey conducted among ger households in each city revealed that, on average, residents of Erdenet have a higher monthly income compared to those in Darkhan, earning MNT 1.76 million and MNT 1.25 million respectively per month.¹⁵ This disparity is not surprising, considering that Erdenet boasts the highest income per capita figure at the national level. In Darkhan, the average number of people per household is 3.9, while in Erdenet, it is 3.8 – both slightly exceeding the national average of 3.7 (NSO, 2023). The survey revealed that the majority of residents are currently employed, with at least one member of each household working. The occupations among the surveyed ger residents vary widely: a significant portion are employed in the private sector, holding manual positions such as leatherworkers, repair workers, or mechanics, and some engage in seasonal work, such as construction during the summer months. Additionally, some individuals work for public administration or the mining company in Erdenet. Surveys also indicated that ger households are willing to improve the condition of their homes, yet they often lack the necessary financial resources to fulfill these aspirations.¹⁶ Moreover, when queried about their willingness to relocate to new housing equipped with infrastructure services, ger residents frequently express a preference for remaining on-site rather than relocating to distant apartment building locations. This underscores the necessity for local solutions focused on retrofitting and densification. Figure 16. Common external wall structure: timber (left) and light concrete block (right) ¹⁵See survey carried out above – the income survey was carried out in July 2023 and only ¹⁶Consultant field surveys carried out in May and July 2023 in Darkhan and Erdenet across 19 respondents participated in each city. 60 households, 30 in each city. 30 Addressing the Missing Middle: Housing Solutions for Mongolia Despite ger areas being a longstanding feature of Mongolia’s cities, the accelerated growth of these settlements is notable due to increased Lyon 11,000 /km² rural-to-urban migration in recent decades and subsequent land law amendments. Since 2008, free land parcel for residential purpose are given Leeds 9,450 /km² to every Mongolian citizen, with a maximum size limit of 700 m² in the capital of Ulaanbaatar, 3,500 m² in Aimag (provincial) centers, and Osaka 5,740 /km² 5,000 m² in Soum (district) centers (Hayward, 2021). While this unique framework has led to a high land ownership rate that is unusual Darkhan 3,051 /km² for informal settlements in emerging markets, it has also resulted in rapid and uncontrolled urban sprawl of ger areas that remain sparsely Erdenet 2,292 /km² populated. Essential components such as affordable housing, public infrastructure, and basic services like healthcare, schools, and transportation networks have not kept pace, Figure 18. Population density of Darkhan and Erdenet compared to other global secondary cities hindering the transformation of nascent peri- urban ger areas into sustainable, integrated urban environments. confluence of factors, including Mongolia’s The consequence of these policies has resulted extreme climate, high greenhouse gas in extremely low population densities in ger (GHG) emissions associated with traditional areas. Increasing density through strategic Mongolian lifestyles, strong individual initiatives can curb the housing deficit, while landholding patterns, and formal systems of tackling climate issues and urban sprawl. land tenure. Recognizing these differences is Ger areas in Mongolia are significantly different essential to the conceptualization of solutions from other informal settlements in neighboring to improve living conditions and mitigate Asian countries. This distinction is due to a harmful emissions in ger areas. 31 Addressing the Missing Middle: Housing Solutions for Mongolia 1.4 1.5 Harsh climate conditions Lack of infrastructure in exacerbate urban many ger areas worsens challenges conditions for households Mongolia contends with an extreme continental zones has significantly heightened flood Limited access to infrastructure compounds climate marked by lengthy, frigid winters and risk by altering natural valleys and drainage existing challenges. While access to electricity brief, warm summers. Ulaanbaatar experiences paths. This risk is further exacerbated by the is widely available, access to heat, warm water, average winter temperatures plummeting to deterioration or total obsolescence of 60% of and sewage remain a major issue. -20°C (-4°F) or lower, compounded by severe flood control infrastructure in Mongolia since The Mongolian energy system relies primarily on wind chill. The prevalent use of coal-burning 1996. Nearly 95% of ger households rely on on- coal-fired Combined Heat and Power plants, with stoves for heating in ger areas significantly site pit latrines and dispose of sewage in the Ulaanbaatar, Erdenet, and Darkhan located within contributes to heightened greenhouse gas street or sub-standard wastewater pits. These the central energy system. Energy distribution emissions and air pollution, placing Mongolian poor waste management contribute to severe in these cities is enabled through a district cities among the most polluted cities in the health issues, as water, sanitation, and hygiene heating network that supplies heat and water world during wintertime. (WASH)-borne diseases remain significant to residents. Public companies are responsible hazards, and greywater threatens both the Mongolia has already been severely impacted for delivering essential services such as water, environment and groundwater (Uddin, et al., by climate change. Changing rainfall patterns, sewage, heating, and electricity throughout 2014). Open latrines and dumpsites become desertification, extreme climate hazards, and the service areas. Similarly, road construction is particularly hazardous during flooding and increasing occurrences of natural disasters are financed through public spending. heavy rain, leading to potential water source among the observed effects. Between 1940 and contamination, the spread of waterborne While Erdenet and Darkhan have started 2015, ambient air temperatures rose by 2.4°C, diseases, and increased risk of injury or pilot infrastructure projects to expand district posing substantial risks to the environment, accidents in these conditions (Gutberlet & heating and sewage lines into ger areas, many biodiversity, community health, and socio- Uddin, 2018). The overflow and dissemination residents are unable to benefit from these city- economic systems. of waste materials during such events can pose level infrastructure services due to the high significant health and environmental risks to individual cost of connection and difficulty in Projected climate trends, such as increased the community. Additionally, stagnant water overcoming administrative hurdles.¹⁷ The last- frequency in summer flooding, the earlier and compromised sanitation infrastructure mile infrastructure connection package aims onset of spring snowmelt, periodic droughts, during floods can create breeding grounds for to bridge this financial gap by connecting and rising temperatures will disproportionately disease vectors. residents to heat, water, and sewage lines built impact the ger areas. The unregulated expansion of ger areas into erosion-prone by the cities. This initiative can significantly ¹⁷The lack of clarity as to the number of connection thresholds required to activate, the administrative process in working with the service delivery companies, and the actual cost have in combination led to the low connection ratio by the ger households. 32 Addressing the Missing Middle: Housing Solutions for Mongolia improve living conditions at both the household Percentage of People with Access Service or and neighborhood levels.¹⁸ Amenity Erdenet Ger Areas Consolidated Areas In Erdenet, 2020 data shows that 99.7% of city households were connected to the electricity Employment 44 7 100 network, but only 45% to sanitation, and 44% to the district heating system and the water Public transport 66 49 93 supply network. The lack of access to district School 35 4 82 heating compels households to heat their homes using their own devices, most often Health 44 7 100 consisting of wood/coal-fired stoves which are inefficient and lead to high levels of pollution. Public Space 39 1 97 Furthermore, the population in ger areas has reduced access to urban amenities compared Table 1. Population with access to urban amenities in ger areas and consolidated areas of Erdenet (World Bank, 2022) to those in consolidated city areas, including schools and transportation services. As of 2020, 55% of Darkhan’s total housing Percentage of People with Access Service or units had access to the central water supply Amenity Erdenet Ger Areas Consolidated Areas network, 58% of them to sanitation, and 58% to district heating systems. Similarly to Employment 20 32 98 Erdenet, the ger area population is less likely to have access to urban amenities than their Public transport 49 13 76 consolidated areas counterparts. School 52 11 83 Both cities have experienced difficulties in expanding their infrastructure networks into Health 65 9 100 the ger areas, primarily due to their very Public Space 47 7 76 extremely low density and the limited financial resources of local administrations. ¹⁹ Table 2. Population with access to urban amenities in ger areas and consolidated areas of Darkhan ¹⁸ This effort should be complemented by the construction of a proper road system throughout ¹⁹24 inhabitants/ha in ger areas against 273 inhabitants/ha in consolidated areas in Erdenet, ger areas. This aspect has been addressed separately in Chapter 3: Solution 3 - Gradual and 25 inhabitants/ha in ger areas against 160 inhabitants/ha in consolidated areas in Darkhan. Densification case study, which includes a budget for on-site public infrastructure such as roads and other facilities. 33 Addressing the Missing Middle: Housing Solutions for Mongolia 1.6 Demand Supply The housing shortage Price not identified 2,000 is both qualitative and <3,000,000 250 3,400 quantitative 640 2,500,000 - 3,000,000 The impacts of unsustainable urbanization and 5,400 economic shifts are often visible in the state 2,000 of a country’s housing sector. In Mongolia’s 2,000,000 - 2,500,000 5,500 case, these impacts are both quantitative and qualitative. The rapid and sustained 1,500,000 - 2,000,000 12,900 influx of people to urban areas has drastically 13,200 increased demand for adequate and affordable <1,500,000 27,200 housing, outpacing current supply by tens of 1,750 thousands of units. This gap is exacerbated by the limited availability of land suitable for 5,000 10,000 15,000 20,000 25,000 30,000 development, compounded by speculative real estate practices that drive up prices and make Figure 19. Gaps between housing demand and supply in Ulaanbaatar (NOSK, 2019) housing unaffordable for a large segment of the population. The gap between housing supply and demand in the capital remains greatest for lower income households. Figure 19 below displays housing supply and demand in Ulaanbaatar, broken down by the cost of housing per m². It demonstrates a severe lack in the supply of new units below the MNT 1.5 million/m² threshold, with a shortfall of almost 27,200 homes (NOSK, 2019). Qualitatively, the housing deficit is characterized by the poor living conditions prevalent in many of Mongolia’s urban and peri-urban areas, especially within the ger districts. 34 Addressing the Missing Middle: Housing Solutions for Mongolia 1.7 Missed opportunities for wealth building among Ger residents Around the world, housing is often the primary registered and provide their owners with legal form of household wealth accumulation and proof of ownership. In addition to upgrades of Requirements for obtaining a plays a pivotal role in lifting the middle class existing homes, all new homes should be built certificate of immovable asset out of poverty. By owning a home, families can to these standards to enable households to secure a stable asset that typically appreciates receive immovable asset certification from the • Land ownership certificate or decision start. This certification is essential not only for to own land (Governor’s order, in value, providing both financial security and a enhancing the market value of the property attachment). means to accumulate wealth. Access to home equity loans and the ability to use property but also for leveraging it to secure loans and as collateral for working capital loans for self- other financial products. Access to such financial • Land Possession certificate or contract (Cadastral map, the owned businesses can help households move services could enable residents to invest further verification report’s land address, size, into the middle class and support long-term in their properties, start businesses, or pursue land use, unit field number, ownership economic growth. other economic opportunities that contribute to sir name, name, registration number). long-term financial stability and growth. Yet in Mongolia, a substantial proportion of the population live in substandard housing in Support for property upgrades and certification • Cadastral map included in the land registration fund (the original file ger areas and do not meet the formal property could thus serve as a critical intervention detailing the property). registration requirements. This lack of formal to break the cycle of poverty in ger areas, recognition as legitimate properties prevents transforming them into hubs of economic • Conclusions of the state control and these households from obtaining certificates activity and secure living environments. This assurance of land condition and quality. of immovable property, which are crucial for strategy would not only benefit individual accessing financial services such as mortgages households but also stimulate broader • Planning drawing of house including economic development and social stability in construction norms and standards. and loans. Consequently, this represents a the region. Photograph the building from 4 sides. missed opportunity for wealth building among Ger residents. • Commission payment (0.01% of the value of the property). Connecting these homes to infrastructure and ensuring they meet standards for structural integrity and energy efficiency could unlock significant potential for residents to build wealth. Once upgraded, these properties could be 35 Addressing the Missing Middle: Housing Solutions for Mongolia 1.8 Current Government Case Study 1 programs and policies Property Rights and Economic Empowerment need readjustment to in Kyrgyzstan (World Bank, 2009) address complex urban challenges In Kyrgyzstan, a significant portion of the services, particularly through mortgages. The Mongolian housing market is organized population lived in informally constructed The total value of loans extended under around three main actors: the state, the private buildings with no legal claim to their these new property rights surged to over sector, and the beneficiaries. properties. Much like Mongolia, this US$1.3 billion, equivalent to 23% of the lack of formal property rights restricted country’s GDP. This influx of credit was • • State / Public Stakeholders: The state promotes access to credit and financial services, instrumental in boosting economic activity affordable housing for low and middle-income inhibiting economic development and and providing the financial means for many groups through TOSK and NOSK, offering perpetuating poverty. to improve their living conditions and invest units for sale and rent. It encourages home in their futures. ownership via the Housing Mortgage Program To address these challenges, a transformative (HMP) managed by the Ministry of Finance and project was launched by the World Bank in The regularization of property rights and the the Bank of Mongolia. The state also allocates 2000 with the aim of regularizing over subsequent increase in access to credit have raw land to citizens and government housing 660,000 informally constructed buildings been pivotal in lifting many out of poverty. agencies with international financial institutions and formally registering the property Homeowners could invest in their properties, partners to redevelop ger areas and build new rights for the occupants. This initiative not enhance their living standards, and secure green housing. only legalized a vast number of homes their financial futures. The broader economic but also enabled residents to leverage impact included increased construction • • Private Sector: Real estate developers build their properties as collateral to access activity, job creation, and improved stability housing, particularly in Ulaanbaatar and secondary credit market. in the housing market. cities, while commercial banks and financial institutions offer HMP products, underwrite As a direct result of the project, the mortgages, open accounts for beneficiaries, and citizens of Kyrgyzstan experienced a provide credit lines to developers. substantial increase in access to financial • • Beneficiaries: Beneficiaries include ger households, who receive free raw land, and other low to middle-income groups excluded from the traditional housing market. Local ger households should be consulted and involved in redevelopment projects to foster community and encourage project uptake. 36 Addressing the Missing Middle: Housing Solutions for Mongolia The Mongolian government continues to play process due to the negotiations required with trading, services, and social infrastructure. a key role in the housing market as illustrated landowners for land swapping agreements. by major programs such as the Ulaanbaatar • • Areas for improvement of living conditions masterplan and several housing programs. Given the current situation and existing urban cover 5,238.2 ha (27.4%): The living However, many of these have been unsuccessful framework, Ulaanbaatar should focus its environment of ger areas will be improved at targeting housing in ger districts. urban intervention projects on well-defined through resident participation by building areas, which are limited to a handful of cities partial and independent engineering 1.8.1 Current masterplans for the and towns. Additionally, it should concentrate suppliers, trading facilities, and public centres Ulaanbaatar will be difficult to implement. on redeveloping existing ger areas through to provide accessible community services. incremental densification in line with the Ulaanbaatar has developed a new master recommendations made in this report. This • • Housing: Ger area redevelopment to plan, Ulaanbaatar 2040, to address to increase density in central (high-rise and approach would promote more sustainable address several pressing issues, including mid-rise apartments), middle (mid- to urban development that is inclusive of ger area overpopulation, lack of housing, environmental low-rise apartments), and fringe (low-rise populations while respecting the environment pollution, traffic congestion, and insufficient development) areas. and minimizing impact on natural resources infrastructure. These challenges contribute to around Ulaanbaatar. health problems, social stress, and a generally poor living environment for the city’s residents. The primary housing aspects of the plan 1.8.2 A lack of housing products However, the master plan is ambitious and include: targeted at ger households may present significant implementation • • Areas where construction/buildings will be perpetuates economic exclusion challenges. The development of new satellite maintained in the current pattern(s) cover Despite the Government’s defined targets and cities in peri-urban areas is a cumbersome 1,343.3 ha (7.0%): Historical parts of the city numerous policy initiatives aimed at fostering endeavor that comes with heavy investments as well as historical, cultural, and architectural sustainable urban development, significant for infrastructure network extension and land monuments/buildings/complexes will be shortcomings in the housing sector persist, development, notwithstanding the challenges maintained, restored, and developed through and land in ger areas remains underutilized. ²⁰ to foster general public enthusiasm for the partial planning. projects big enough to create a local sustainable 1.8.2.1 Focus on high-rise housing housing and commercial market. In addition to • • Redevelopment areas cover 9,603.8 ha developments leaving ger areas out infrastructure development, constructing the (50.2%): Parts of ger areas which do not meet requirements for use will be redeveloped. of reach necessary housing and associated facilities Mongolia’s housing policies primarily will require substantial investment, which may prove even more challenging to secure. • • New construction areas cover 2,955.0 ha emphasize long-term formal housing projects (15.4%): New settlements will be set up in in urban and peri-urban areas, focusing on Redeveloping ger areas, which account for 50% vacant spaces of the city by building new apartment buildings and planned residential of the total area, will be a complex and lengthy housing/apartments, public buildings for communities. Although these projects offer ²⁰ National Green Development Policy (2014), the Sustainable Development Vision 2030 (2016), the Sustainability Outlook of Mongolia (2018), the “150,000 Households- house Program” (Government Resolution No. 202,2019), the State Policy for Housing and Public Utility Services (Parliament Resolution No. 94, 2020), the recent new Urban Redevelopment Law and recent update of its Nationally Determined Contributions (NDCs) and the NDC Action Plan. Further, as part of its NDCs, the government has committed to reducing GHG emissions by 2.7% by 2030. Climate Change is also included as a key element of urban planning in the latest version of Mongolia’s Law on Urban Development (1998, updated in 2008 and 2019) 37 Addressing the Missing Middle: Housing Solutions for Mongolia quality housing, they are often unaffordable for low-income households in ger areas. Moreover, substantial public capital is required for extending infrastructure networks to newly developed zones. While the Urban Redevelopment Law outlines different types of interventions (see Figure 20), unclear implementation guidelines lead current master plans and national policy programs to prioritize the construction of new cities, satellite cities, and urban settlements over revitalizing existing built areas. This overlooks the opportunity to enhance density and infrastructure in more central locations. Recent master plans envision the construction of hundreds of thousands of residential units over the next two decades to address the housing needs of the future population.²¹ 1.8.2.2 Lack of access to housing finance in ger areas Figure 20. Urban development activities under the 2040 plan Current mortgage subsidies offered under the HFP primarily cater to high- and middle- income formally employed individuals with (LTV) ratio of 70%.²² In contrast, commercial Current housing policies struggle a favourable credit history. Low-income mortgages provided by banks have remained to address the needs of ger households in ger areas often do not meet the far less affordable, with yearly interest rates of households qualifications needed to access these financial 15% to 20% for 20 to 25 years and an LTV of Mongolia’s housing policies have failed to meet products, making it difficult for them to 50% to 80%. Over the past two decades, the the needs of low-income households and to purchase formal housing units. Since 2013, the public sector-supported mortgage program promote sustainable housing markets. Over Bank of Mongolia’s Housing Finance Program has inadvertently created an unsustainable the last two decades, urban development has supported qualifying households with two-tiered market, dividing those with access has exacerbated wealth disparities in subsidized mortgage rates ranging from 6% to to affordable mortgages from those without. property ownership, resulting in a two-tiered 8% for up to 30 years, offering a Loan to Value housing market. On one front, developers have ²¹ This includes more than 300,000 units in Ulaanbaatar and its surroundings ²²To decentralize the capital city and encourage residents to migrate to the secondary cities and rural areas, with the development if of satellite cities. the Government recently launched a new 3% mortgage program for first time buyers with the government guaranteeing 60% of the 30% down payment with an initial target of 5,600 households per year. 38 Addressing the Missing Middle: Housing Solutions for Mongolia constructed numerous high-end residential units in prime locations through mortgage programs. Before After 1 Conversely, self-built housing units in ger areas Reconstruction of built-up lack integration with the mainstream financial areas that do not meet urban sector. While government housing finance planning standards subsidies are well-intentioned, they have not supported the financing of self-built housing 2 and retrofits in ger areas. Access to housing Demolition and reconstruction finance subsidy products could empower ger of buildings and structures households to make resilient and energy- that do not comply with efficient home improvements and take on new building usage construction projects, enabling them to seize economic opportunities and foster a more 3 inclusive housing landscape. Recognition of ger areas Although many ger households possess formal land titles for their Khashaa, the built-up properties – their main assets – are 4 often exchanged informally through cash or Re-planning and barter transactions. This practice arises from redevelopment of ger areas exclusion from traditional financial channels and real estate markets. Furthermore, their houses are considered ‘of zero value’ to banks that cannot make loans against structurally unsafe assets. Unfortunately, this limits ger area 5 Re-planning and redevelopment of public spaces households from fully leveraging the value of their property or participating in formal financial transactions, hindering their access to economic opportunities and broader financial inclusion. Figure 21. The Missing Middle solutions align with the Urban Redevelopment Law Intervention types 3 and 4 (Darkhan Administration, 2022) 39 Addressing the Missing Middle: Housing Solutions for Mongolia Number of new mortgages issued and apartments commisioned per year 30,000 16,000 14,000 25,000 12,000 20,000 10,000 15,000 8,000 6,000 10,000 4,000 5,000 2,000 2010 2011 2012 2013 2014 2015 2015 2017 2018 2019 2020 2021 2022 2023 Apartments commisioned 9,899 11,349 11,413 18,012 23,833 23,729 18,832 11,023 11,161 13,999 15,639 17,478 23,201 19,196 New mortgages Issued - - - 13,851 14,592 11,731 11,610 6,026 3,909 4,815 5,594 13,292 7,847 8,889 Figure 22. Number of new mortgages issued, and apartments commissioned per year (National Statistics Office, 2023) (Bank of Mongolia, 2023) 1.9 their low-density sprawl, traditional gers, and segment of the housing spectrum often Opportunities to develop referred to as the ‘missing middle.’ This term self-built detached houses, are integral to the ‘missing middle’ solutions encapsulates a range of housing solutions nation’s cultural identity but face challenges related to infrastructure, services, and livability. that lie between the traditional ger homes and The Government’s current housing policies modern high-rise apartments. Conversely, high-rise developments cater to a revolve around two main strategies: the different demographic, often at a higher cost, augmentation of infrastructure within existing Though significant, the focus on infrastructure and may not be accessible or even desirable for ger areas and the construction of high-rise enhancement in ger areas and the development many. This dichotomy leaves a substantial gap in apartment buildings. While these efforts aim of high-rise apartments does not fully embrace housing options and underscores the necessity to address the pressing needs of urbanization the diversity of housing needs among Mongolia’s for innovative solutions that bridge this divide. and housing shortages, they overlook a critical urban population. Ger areas, characterized by 40 Addressing the Missing Middle: Housing Solutions for Mongolia Addressing the “missing middle” involves reimagining Mongolia’s approach to urban housing, focusing on strategies that enhance the livability and sustainability of ger areas Missing Middle while increasing urban density in a thoughtful manner. This includes improving existing homes within ger districts through better infrastructure—such as access to water, sanitation, and electricity—and integrating these areas more seamlessly into the urban fabric. Additionally, the concept of planned land development, where sites are designated for housing and equipped with necessary infrastructure before construction begins, presents a forward-thinking solution. This approach not only makes urban expansion more orderly but also ensures that new 1 2 developments are built with a vision for 3 4 community and connectivity from the outset. Figure 23. Mongolia’s ‘Missing Middle’ Such strategies offer numerous advantages, both economically and socially. For the Government, focusing on the ‘missing middle’ 1.9.1 Local survey to identify Survey respondents were identified with the could mean a more cost-effective way of ‘missing middle’ solutions help of the municipalities in both secondary addressing housing shortages and urban sprawl cities, targeting residents of ger areas where To identify appropriate ‘missing middle’ infrastructure has already been developed. as it leverages existing land and resources solutions, a series of field surveys were Local Kheseg²⁴ leaders assisted in introducing more efficiently. For households, it promises carried out between 2022 and 2024 to collect the project and its objectives to the ger more affordable housing options that do not relevant data (socio-economic profile of ger residents and helped gather respondents for compromise on quality or access to services. households, structural assessment of ger each survey. Moreover, by fostering a more diverse urban properties, preference of housing habitat) in landscape, Mongolia can cultivate communities The solutions presented in the next chapters Darkhan and Erdenet. Focus groups were also that are resilient, sustainable, and reflective of have been embraced by local ger residents and led with households to discuss their appetite its rich cultural heritage. correspond to their needs and affordability levels. for the different solutions.²³ ²³The first survey was conducted in May 2023, which collected household socio-economic data and was distributed to the participants to collect information on their socio-economic profile assessed the structural integrity of 30 ger homes in Darkhan and Erdenet. This survey allowed the (household characteristics, house & land ownership, housing aspirations, financial capacity, solution team to establish the construction profile of ger houses and recommend the appropriate set of preferences). These insights helped fine-tune the recommendations made in this report. technical solutions for structural and energy efficiency retrofit works. The team further collected socio-economic data on the 30-40 residents per city who attended the ²⁴Local administration unit focus group discussions held to present out the technical solutions in May 2024. A questionnaire 41 Addressing the Missing Middle: Housing Solutions for Mongolia 42 Addressing the Missing Middle: Housing Solutions for Mongolia 2 Solution 1 Green and Resilient Retrofits for Existing Homes in Ger areas 90% of households in Darkhan and Erdenet’s ger areas do not wish to move. Municipalities have invested in infrastructure in some ger areas, but connectivity rates remain low due to high individual connection costs. Seismic retrofits are urgently needed for 60% of ger homes. Affordable energy efficient retrofits can yield strong energy savings and environmental benefits. By leveraging ger areas with infrastructure services, investment in structural upgrades and energy-efficient retrofits can help households unlock their home’s value. 43 Addressing the Missing Middle: Housing Solutions for Mongolia A survey conducted in Darkhan and Erdenet revealed that over 90 percent of households 2.1 Last mile infrastructure preferred to stay in their current locations rather than relocate to developer-built housing. This reflects a strong attachment to their ger connectivity neighborhoods and highlights the urgent need to roll out housing upgrades at scale. Though the municipalities of Darkhan and Helping households connect the last mile of Erdenet have extended infrastructure to infrastructure to the existing district heating Despite major infrastructure investments in some ger areas, the prohibitively high cost and sewage networks will significantly enhance several ger areas²⁵ to support around 3,500 of individual household connections has their quality of life and reduce pollution in ger households in Darkhan and Erdenet, 90 percent rendered these investments ineffective. The areas. Areas with existing infrastructure where of these households still lack access to heat estimated cost of connection is MNT 500,000 households have not yet connected offer an and water and live in sub-standard housing. per linear meter, with a total connection cost at ideal starting point for initial interventions. Households in neighborhoods with existing a minimum of MNT 5 million. As a result, most Other interventions will require larger scale infrastructure connectivity can begin upgrading households cannot afford to connect their infrastructure investments in district heating their homes and unlocking household wealth by houses to the newly developed infrastructure. and sewage network systems. connecting to local services and undertaking seismic and green retrofits. Meters USD MNT Connection for close distance 10 1,453 5,000,000 Connection for medium distance 20 2,907 10,000,000 Connection for long distance 50 7,267 25,000,000 Table 3. Total cost of various infrastructure connection packages according to distance from main point of connection ²⁵ In Darkhan: Bags 5,6,7 and 8 (Mankhan Tolgoi and Naran Tolgoi. In Erdenet: Bulag, Rashaant, Naran, Tsagaan chuluut, Bayantsagaan, Deni and Govil) 44 Addressing the Missing Middle: Housing Solutions for Mongolia 2.2 Resilient retrofits 2.2.1 Ger areas face a multitude of hazards Hazard Earthquake Flood Mongolia is vulnerable to various natural hazards and climate-related risks, including flooding, Probability of occurrence Low Moderate dzuds, and water insecurity, all of which are compounded by its location in an active seismic Advanced warning (predictability) No Yes zone. In the 20th century, Mongolia experienced four earthquakes with magnitudes of 8.0 or Impact: Casualties Many Few higher. Since 1980, there have been over 40 Impact: Property damage High Moderate earthquakes with magnitudes of 6.0 or higher, which are capable of causing significant damage. Impact: Downtime Long Short-moderate While floods occur more frequently, they generally result in less severe consequences Impact: Repair costs High Moderate compared to the rare but highly destructive earthquakes. Thus, earthquake hazard can be Table 4. Natural hazard risk of unreinforced masonry homes based on international seismic and flood experiences considered the predominant risk. This risk is and local conditions. especially acute for the non-engineered building typologies found in the two cities, including unreinforced masonry (URM), mortar walls, and wooden structures. Table 4 lays out the natural hazard risk for unreinforced masonry homes, based on international seismic and flooding experiences. 45 Addressing the Missing Middle: Housing Solutions for Mongolia 2.2.2 Seismic Risk in Darkhan and Erdenet 9 1 Both Darkhan and Erdenet are situated in 8 2 zones prone to severe earthquakes. Due to the absence of proper zonation, many 7 3 structures are located in some of the most 106-120 48-49 4 vulnerable parts of the cities, and the prevalent 15-25 non-engineered building types increase susceptibility to damage from natural hazards. As shown in Figure 24, Erdenet is a city of particularly high seismicity, where earthquakes with peak ground acceleration (PGA) of over 50 percent gravity (g) in the horizontal direction and 16 percent g in the vertical direction can be anticipated. Erdenet faces heightened vulnerability due to its proximity to a fault line, mirroring conditions reminiscent of structures in Nepal before the devastating earthquake. Figure 24. Seismicity of Erdenet city Engineered or non-engineered buildings that do not account for seismic forces are unlikely to be able to withstand this level of shaking. Darkhan Erdenet A survey of thirty households in the ger areas Type Single family Single family of Darkhan and Erdenet revealed concerning findings about the structural integrity of Number of occupants 4 4 housing and provided insights into the housing Materials Bulk, brick, Concrete block, preferences of the participants. Approximately concrete block, plaster, wood log, bulk 80% of the surveyed houses exhibited log, sheet metal brick, sheet metal, significant structural defects, with around 60% posing life-threatening risks during seismic wood with siding events. About 20 percent of these issues % of households reporting water/ 32% 5% could be easily remedied at a relatively low cost structural damage (under 1.7 million MNT), while the remaining 80% would necessitate extensive and costly Prefer to stay in location and retrofits exceeding 1.7 million MNT. 95% 100% upgrade home Table 5. Current housing typologies and household preferences survey results 46 Addressing the Missing Middle: Housing Solutions for Mongolia The analysis revealed that nearly all surveyed The above items are critical for all building performing preventive maintenance to prevent households in Darkhan and Erdenet prefer to construction, especially for non-engineered the degradation of key building components, stay in their current locations and upgrade buildings, where the construction quality thereby preserving its capacity to withstand their homes rather than purchase apartments control and quality assurance are likely not code future natural hazards. or other developer-built housing. Only a small compliant. Given that altering the level of hazard percentage would consider relocating to row and exposure is not possible, the only way to Deficiencies and corresponding strengthening houses, and there was minimal interest in low- mitigate risk is through structural reinforcement. techniques were specifically formulated to rise housing as an alternative option. These Buildings strengthened for earthquakes also complement energy efficiency recommendations findings highlight the surveyed households’ perform well when subjected to other natural to improve the lives of residents and the overall strong attachment to their current locations hazards, which is especially important given health of entire communities. and their focus on improving their existing Mongolia’s multi-hazard risk profile. This homes, which, however, require structural approach has proven to be cost-effective both improvements and energy efficiency upgrades globally and in developing countries. 2.2.4 Key structural deficiencies to enhance resilience against potential of ger housing hazards. Based on the collected data, common The following table summarizes the most vulnerabilities are identified as follows: 2.2.3 Increasing the seismic common and critical seismic deficiencies • • Construction using various material types. resilience of ger housing observed in the surveyed buildings and proposes innovative, cost-effective retrofit approaches. Strategies such as effective land use and • • Systems shown to lack adequate detailing zoning, improved regulatory frameworks for These approaches are designed for effective implementation, considering the construction for ductile behavior. permitting and inspection, code-compliant bill of materials and associated costs. While • • The load path between the floor/roof to the design, high-quality construction practices, the interventions below often address multiple walls and the foundation is not well defined. and diligent maintenance can be employed deficiencies, a measure for each individual to enhance resilience in new construction. For deficiency is provided for simplicity. • • There is lack of positive attachment (tie-down existing assets, however, these approaches may The lack of precise zoning makes these non- or anchorage) between floors and walls. not be feasible. The most straightforward, cost- engineered structures vulnerable to floods and effective, and dependable method to bolster • • There is a lack of restraint to prevent out of the resilience of already-constructed assets, earthquakes. To address these vulnerabilities plane failures. and bolster community resilience, cost-effective such as housing, is to strengthen the building strengthening methods using common • • The walls have low in-plane capacity. to withstand acute stress from natural hazards. construction materials and techniques in For the strengthening to be effective, it must • • There is no confinement for the walls. account for the availability of resources and Mongolia and the region have been designed. These retrofits not only mitigate structural the level of local knowledge in construction • • Walls have been constructed without practices. Once strengthened, it is essential weaknesses but also allow for vertical extensions reinforcement (used to provide ductility). to promote densification in ger areas. to maintain the integrity of the structure by 47 Addressing the Missing Middle: Housing Solutions for Mongolia Table 6. Type of structural deficiencies in ger home and proposed solutions Deficiency Potential Solutions Substandard Walls PP bands and plaster. Out-of-Plane Wall Failure Improve connections and roof diaphragms; Replace gable walls with steel framing. Lack of Bond Beams Timber or concrete bond beams. 2.3 Large Window Splints and bandages with concrete. Vertical Openings/Lack of Lintels bands for larger openings. Green, energy-efficient Weak Roof-Gable Wall Metal straps and diagonal bracing. retrofits Attachment Energy efficient retrofits should be applied to Mixed Materials and Lack Replace damaged segments; Reinforced plaster resilient homes that have already undergone of Confinement or concrete. robust structural strengthening. This targeted approach ensures that investments in energy Building Irregularity Building additions, walls thickening, or new efficiency not only contribute to reducing concrete walls/bracing. energy consumption and GHG emissions, but also reinforce the structural integrity of buildings against potential hazards. By Wood Log Buildings Plywood or wire mesh plaster. prioritizing resilient homes for energy efficiency retrofitting, communities can simultaneously address multiple challenges, including climate and premature births. Workplace absences due mortality by 28%. Electrifying heating in Ger change adaptation, disaster risk reduction, and to pollution are costly, especially for female areas could cut PM2.5 by 120 μg/m3 and reduce sustainable development. workers with young children. annual disability-adjusted life years and deaths by 40%, with health benefits outweighing any In ger areas, low energy efficiency scores in Traditional stoves in Ger districts, which GDP loss (World Bank, 2024). the majority of houses lead to considerable consume large amounts of coal, are major heat loss and pollution, exacerbated by over pollution sources. Mongolia ranks third globally To improve urban living conditions, there 50 percent reliance on coal. On average an for air pollution, with very high PM2.5 levels. A is need for the urgent adoption of energy- individual household burns a truckload of coal 2011 World Bank study estimated air pollution efficient retrofit solutions. Current energy every winter and pollution levels are tenfold healthcare costs at 18.8-27.9% of Ulaanbaatar’s policies fail to incentivize improvements as higher than WHO standards. Studies link this GDP and 8.8-13.1% of national GDP in 2008. subsidies for district heating systems are pollution to respiratory, cardiovascular diseases, Reducing PM2.5 by 200 μg/m3 could lower solely based on square footage, thereby 48 Addressing the Missing Middle: Housing Solutions for Mongolia neglecting actual energy consumption and hindering conservation efforts. Moreover, inadequate maintenance of district heating 176,182 200,941 infrastructure has caused them to deteriorate, Centralized heating Other type of heating thus contributing to high levels of heat loss. Subsidies should be revised to encourage conservation by measuring consumption rather 2.64% than by measuring housing size. 176,182 A survey of 30 households across Darkhan and Low pressure Erdenet revealed a strong desire for subsidized stove and heat system green retrofit loans. While most households are initially uninterested in obtaining a loan 44.98 % 51.30 to upgrade their homes, there is a clear 1.08% indication of interest if the loan is subsidized. 4,236 Implementing subsidies or incentives to encourage green retrofits has the potential to Electric heating Total households 391,698 increase rates of participation and adoption among households. Figure 25. Main heating sources in Darkhan and Erdenet 2.3.1 Insulating the building Financial Characteristics Darkhan Erdenet envelope of existing houses Avg. monthly income 1.16 million MNT 2.4 million MNT According to the survey results, 25 percent of (decile 6) (decile 8) houses lack roof insulation and over 75 percent lack adequate wall insulation. These deficiencies Avg. number of members formally employed 1 2 not only compromise thermal comfort but also result in significant heat loss within the homes. % of households reporting a credit history 68% 84% % of households with outstanding debt 79% 74% Preference for banks vs. NBFIs Banks Banks % of households willing to obtain loans for upgrades 26% 26% % of households willing to obtain subsidized green 89% 89% loans Table 7. Household finances and appetite for housing upgrade survey results 49 Addressing the Missing Middle: Housing Solutions for Mongolia 3% 2.3.1 Insulating the building 6% No envelope of existing houses 31% ASH Most houses use heating stoves with wall 25% heaters, fueled by coal and firewood. On Mineral wall, Glass Wool, Rock Wool average, households consume approximately 3-4 tons of coal and 2 cubic meters of firewood Expanded Polystyrene annually for heating purposes. However, the Other lack of adequate heating insulation results in substantial heat loss and increased fuel consumption. 35% 15% Figure 26. Roof insulation materials 4% 7% 4% 25% 7% Plaster Brick Metal 81% Wood siding Ali+PU siding PVC siding (<0%) Simple stove Improved stove 57% Heat only boiler Figure 27. Wall insulation materials Figure 28. Heating sources of surveyed households 50 Addressing the Missing Middle: Housing Solutions for Mongolia Table 8 depicts the disparities between the Envelope Wall Roof Attic Window Floor Door minimum U-value building code requirements for new construction and the present condition of existing houses in Climate Zone II. Existing Min U-value 0.272 0.183 0.207 1.6 0.455/0.3 1.11 houses generally exhibit higher U-values across various components of the building envelope, Present condition 0.522 - 0.831 2.713 4.0/0.88 1.11 compared to the optimal values stipulated by the building code for new construction. This Table 8. Minimum U-value building code requirement (Climate Zone II) for new construction and housing repairs suggests that the current insulation in existing houses is inadequate, leading to higher rates of heat loss and lower energy efficiency. Addressing these disparities through retrofitting or improving insulation could significantly enhance About the SOAP project in Mongolia (GERES, 2024) the energy efficiency and thermal comfort of The Switch-Off Air Pollution (SOAP) market by forming and training local MSMES housing, aligning them more closely with the Project is a 4-year project started in as well as construction workers. As part of standards set for new construction. 2018, with the aim to decrease to air the project, more than 1,546 houses were pollution in the capital city by reducing insulated, around 70 MSMEs trained, and 20 coal consumption, minimizing heat loss, technical solutions developed. and improving the energy efficiency of individual houses in the ger areas. Geres SOAP 2 was launched in 2022 in Ulaanbaatar Mongolia INGO is implementing the SOAP and Darkhan to scale up previous project in cooperation with the Building achievements, train more SMEs, and insulate Energy Efficiency Center, Mongolian more homes. Target to insulate 5,900 National Construction Association, and houses and train 160 MSMEs, while reaching People In Need INGO with the financial 2.2 million people. support of the European Union, Abbe However, the initiative seems to struggle to Pierre Foundation, Czech Development take off due to low financial incentives for Agency, and the French Development the households to insulate their homes. Agency. The project stimulated the development of a local energy efficiency 51 Addressing the Missing Middle: Housing Solutions for Mongolia Assumptions: Coal emissions factor: 0.341 kg / kWh; Firewood: No CO2 savings, carbon neutral; Savings period: 20 years In addition to insulating homes, ger households should be encouraged to adopt alternative heating sources to replace coal entirely. Alternatives to coal include connecting directly to district heating system or implementing new 2.3.1.1 Roof insulation 2.3.1.3 Window insulation systems such as a grid-connected PV system Insulating the roof with 15 cm of mineral wool Double-glazed PVC windows are commonly or heat pumps. Each of these offer various is an affordable and effective way to enhance used but are prone to damage and emit advantages and challenges in their adoption energy efficiency in housing. harmful chemicals. Triple-glazed windows are linked to costs and capacity.²⁶ recommended for better energy efficiency, as they offer enhanced insulation and reduced heat transfer. 2.3.1.4 Savings Table 9 provides a comprehensive overview of the savings associated with the implementation of the energy efficiency measures. The results indicate significant energy savings across all components, with the highest savings achieved through a roof/attic insulation retrofit. 2.3.1.2 Wall insulation For optimal thermal efficiency, insulate Significant CO2 savings can be achieved both walls and all external vertical surfaces through a roof-only retrofit. Over a span of 20 simultaneously. Use 10 cm of Expanded years, this approach yields notable reductions Polystyrene (EPS) for masonry walls and in carbon emissions while remaining a cost- mineral wool for timber structures. For effective solution. Data from SOAP shows that foundations, use Extruded Polystyrene (XPS): only 150 million USD is needed to insulate 10 cm thick for above ground, 30 cm thick for all roofs of homes in Mongolia, leading to sections above ground level, and 20 cm thick 1.8 million tons of CO2 savings or 10% of for below ground. Mongolia’s NCD target. ²⁶ Expansion of district heating is constrained by municipal capacity, however some ger neighborhoods have already received connectivity. In areas which remain disconnected, alternative systems such as PV system or heat pumps offer an attractive green solution. 52 Addressing the Missing Middle: Housing Solutions for Mongolia Wall Foundation Roof / Attic Window Total 2.3.3 Conclusion Area (m²) 71.95 10.3 51.6 7.92 Addressing the housing challenges in Mongolia, especially in ger areas, requires Unit cost (kMNT/m²) 82 128 39 390 a comprehensive approach that balances resilience to natural hazards with the need Total cost (kMNT) 5,900 1,314 2,015 3,089 12,318 for energy efficiency and environmental sustainability. Introducing green and Baseline (kWh/a) 22,551 22,551 22,551 22,551 resilient retrofits offers a viable path forward, enhancing the structural integrity of homes Improved (kWh/a) 19,146 21,959 17,353 21,495 to withstand seismic and other natural risks while simultaneously improving their Savings (kWh/a) 3,405 592 5,198 1,056 10,251 energy performance. This approach seeks to safeguard residents’ physical well-being Specific savings 1.73 2.22 0.39 2.93 1.20 by reducing the risk of catastrophic damage (kMNT/kWh/a) and contributes to broader environmental Table 9. Savings of energy efficiency measures of building envelope for single floor house (Dharkan) goals by decreasing reliance on polluting heating sources and lowering greenhouse gas emissions. The findings from Darkhan Single Double and Erdenet underscore a clear preference Darkhan among households for improving their Coal Savings CO2 Savings Coal Savings CO2 Savings existing homes rather than relocating, emphasizing the importance of community- kWh Mt kWh Mt centric solutions that respect the needs Roof only 2,647,513 and desires of residents. By integrating 5,448,050 1,856 902 advanced retrofitting techniques with Total Envelope 10,744,125 3,660 9,694,972 3,303 targeted policy support, such as subsidized green retrofit loans, Mongolia can make Single Double significant strides towards creating more Erdenet sustainable, comfortable, and resilient urban Coal Savings CO2 Savings Coal Savings CO2 Savings and peri-urban living environments. kWh Mt kWh Mt Roof only 5,099,031 1,737 2,477,720 844 Total Envelope 10,055,520 3,425 10,433,886 3,554 Table 10. Roof only retrofit savings 53 Addressing the Missing Middle: Housing Solutions for Mongolia 54 Addressing the Missing Middle: Housing Solutions for Mongolia 3 Solution 2 Introducing new resilient housing typologies Houses in ger areas are commonly self-built with varying degrees of construction quality and completion, generally resulting in low-quality homes that expose families to safety risks and poor livability. This substandard quality leads banks to consider these homes of ‘zero value.’ There is a need to introduce new housing typologies that are affordable, green, and resilient, particularly in areas where infrastructure connectivity is already established. A green and resilient housing unit of 46 square meters can be constructed for 64 million MNT. This unit not only provides full value, but also allows for monetization of the remaining space on the khashaa. A variety of housing typologies can be introduced in order to meet the diverse needs of different families. Houses can be certified by EDGE or Best GER Simple Rating System to improve access to housing finance. 55 Addressing the Missing Middle: Housing Solutions for Mongolia New green and resilient housing typologies should be developed for ger neighborhoods to leverage existing infrastructure and bridge the gap between low-quality single-family residences and high-rise apartments. This approach will allow the market to cater to a diverse range of needs, preferences, and affordability levels along the housing ladder. Designed with average acceptable sizes and Detached Duplex Shophouse Low-rise housing preferences in mind, these typologies housing housing housing (1-2 floors) ensure suitability and livability for a diverse (1 floor) (2 floors) (3-5 floors) range of residents. Additionally, construction and sale costs are based on market data for comparable products in secondary cities, Figure 29. Overview of new housing typology options ensuring affordability and accessibility for potential buyers. By adhering to construction standards, connecting to infrastructure, and ensuring Proposed Typical typology energy efficiency, these new typologies can ger home Energy e cient, qualify for a certificate of immovable asset. Self-built home resilient home* with Investing about 30 million MNT (8,800 USD) Cost: access to services more in a home allows households to unlock 35 million MNT Cost: 64 million MNT the full economic and well-being benefits of *Certified by EDGE or Spending Best GER Simple a well-designed and constructed home, which less than 30 significantly appreciates in value over time. million MNT Considered of zero value and more unlocks Full value of home unlocked, cannot be used as collateral. full value which can appreciate over time. Figure 30. Difference in value between existing ger homes and proposed typologies 56 Addressing the Missing Middle: Housing Solutions for Mongolia Case Study 2 Previous approaches to introducing new housing typologies in Mongolia As part of the Tsaiz area redevelopment rates). Erel LLC, a local construction company, Advantages: plans, the Capital City Housing Corporation was responsible for building the houses, while (NOSK) and GIZ, a German development NOSK and the City of Ulaanbaatar were tasked This project showcases the feasibility of agency, cooperated with local contractors with connecting the buildings to central water, implementing land readjustment programs and commercial banks to develop the heating, and sewage systems. The apartment in ger areas. Unlike land consolidation Tsaiz Eco Town Project in 2022. Five ger designs offer a range of options and sizes initiatives, these projects can be rapidly district families were temporarily relocated to accommodate various household profiles, implemented due to their small scale and in order to build twenty low-rise, energy- including 42.9 m² units with 2 rooms and 1 the limited upfront investment needed to efficient townhouses made of prefabricated bathroom, as well as 69.2 m² duplexes with 3 acquire land. The townhouse model follows concrete panels. Once construction was rooms and 1.5 bathrooms. Each house includes green construction standards and can be complete, the five families were moved back outdoor parking and a small outdoor space replicated in other locations. into the new houses, and the remaining 15 on both the northern and southern sides, Considerations: houses were put on the market through providing residents with convenient amenities the local mortgage program offered by and outdoor areas. While land readjustment programs offer five commercial banks (at 6 to 12% yearly an alternative approach to densification and urban development, there are several caveats to consider. They are often most successful in higher value, centrally located areas where land value capture is effectively possible, as opposed to urban fringes. Connectivity to the infrastructure grid is an important prerequisite, as it helps increase land value and, consequently, property values. Figure 31. Tsaiz Eco town rowhouses – Ulaanbaatar (Erel Group, 2021) 57 Addressing the Missing Middle: Housing Solutions for Mongolia 3.1 Housing typology 1: Single-family (detached) house Basic Modul +Airlock Add On +Garage + Self Built Room (Insulated) The first typology is a simple, single-floor detached house that can be extended through incremental vertical or horizontal construction. Figure 32. Detached Housing – Concept Design (Etape Studio, 2023) This can include the addition of airlocks, garages, or even second floor facilities. The design adheres to modern construction standards, incorporating WASH facilities within the house and utilizing efficient insulation materials. The disposition of the house enables dual orientation for improved natural ventilation and provides space for outdoor activities and added privacy. Figure 32 depicts a conceptual design for a detached house, featuring a flat roof model spanning 46 m². This housing typology endeavors to enhance urban quality while maintaining local traditions in housing and architecture. Figure 33 illustrates the layout of the 46 m² house, including the addition of a vestibule and garage extension, with a zoomed-in view showcasing an alternative layout. Figure 34 further demonstrates the replicability of the 46 m² house to increase density within the surrounding area. The small size of the house allows the household to optimize the remaining land on the khashaa to build another home for rent or for sale. This typology is the most affordable among those proposed and can be built for just 64 million MNT, including infrastructure connectivity. Figure 34. Replicable design of detached housing units Figure 33. Layout of detached housing unit showing land optimization 58 Addressing the Missing Middle: Housing Solutions for Mongolia 3.2 Housing typology 2: Duplex house The duplex housing type can accommodate one or two households. To increase economies of scale, the model can be built either on a single basis or in rows. Moreover, the single and duplex housing models can be seamlessly connected at the street level to optimize efficient land use and limit energy loss between buildings. Figure 35 depicts the ground and first floor of the duplex housing typology, featuring modular internal walls to ensure flexibility. First Floor Ground Floor Figure 35. Duplex housing – Concept Design (Etape Figure 36. Ground & first floor of the duplex house Studio, 2023) 59 Addressing the Missing Middle: Housing Solutions for Mongolia 3.3 Housing typology 3: Shophouse Many ger residents run businesses from their properties or homes, including small workshops and retail outlets. Therefore, it is crucial to incorporate both housing and economic needs into new typologies. The shophouse design addresses this by providing a commercial space on the ground floor and a residential area above or adjacent, with separate entrances for each. Mixed-use housing creates opportunities for vibrant neighborhoods by stimulating Ground Floor First Floor economic development and households income and employment. Figure 37. Shophouse overview – Concept Design 3.4 Housing typology 4: Low-rise housing Low-rise housing models, though requiring a change in land use, are the most effective way to densify ger areas while providing affordable housing options for residents. This middle ground between single-family houses and high-rise buildings is the missing element in Mongolia’s current urban landscape.²⁷ Figure 38. Low rise housing – Type 1:G +2 (top); Type 2: G +3 (bottom) ²⁷ Such types of buildings have been constructed in the 1980’s and 1990’s, most notably in Ulaanbaatar city center, but their design has been since then abandoned to the profit of high-rise buildings. 60 Addressing the Missing Middle: Housing Solutions for Mongolia 3.5 Passive and green design • Incorporating roof overhangs or eaves helps shade windows during summer while supplementary heating or hot water. permitting sunlight entry in winter. • Controlled ventilation systems, such as In addition to diversifying housing typologies, heat recovery ventilators (HRVs), maintain it’s crucial to consider the urban scale and • Integrating snow management features into indoor air quality while minimizing heat loss. integrate passive and green design principles roof design ensures safe snow accumulation that bolster the resilience of housing and the Effective landscape design strategies are and adequate insulation. These integrated broader urban environment at reduced costs. integral to enhancing the sustainability and design principles contribute to resilient and Architectural strategies play a pivotal role in resilience of outdoor spaces. energy-efficient housing solutions at the achieving this goal. These include: urban scale. • Implementing windbreaks using tall trees, • Adopting a compact shape to mitigate heat shrubs, or hedges helps to block and redirect Construction and materials play a crucial role in loss, solar gain, and heat distribution, while strong winds, creating a more comfortable optimizing the energy efficiency and resilience optimizing orientation to capture maximum outdoor environment. of buildings. sunlight during winter months. • High-quality insulation is essential in walls, • Incorporating rain gardens and swales aids • Utilizing thermal mass materials in the in capturing and filtering rainwater, thereby roofs, and floors to prevent heat loss, with building’s structure facilitates the absorption reducing runoff and erosion. locally available and appropriate materials and storage of heat during the day, releasing selected to optimize thermal resistance. • The use of permeable surfaces, such as it at night for enhanced comfort. This includes materials like adobe and concrete. • Addressing and minimizing thermal bridges permeable paving, facilitates rainwater ensures consistent insulation throughout infiltration, promoting groundwater recharge • Ensuring even distribution of captured and mitigating flooding risk. the structure, while airtight construction solar heat through open floor plans or reduces heat loss through drafts by sealing • Selecting native and drought-resistant strategic placement of thermal mass around windows, doors, and wall joints. plant species conserves water and minimizes materials, coupled with effective airflow and ventilation strategies, further optimizes • Installing high-performance windows with maintenance requirements. energy efficiency. double or triple glazing and low U-values • Planting carbon-sequestering trees and minimizes temperature transfer while still shrubs helps offset carbon emissions by • Properly sizing and positioning windows allowing for solar gain. capturing and storing carbon dioxide. to maximize solar gain in winter and minimize heat loss at night is essential, • Incorporating thermal curtains or shutters • Embracing sustainable landscaping with south-facing windows prioritized for over windows adds an extra layer of practices like mulching and composting optimal sunlight exposure. Careful design insulation and reduces heat loss at night. fosters a healthy and ecologically balanced considerations for east and west-facing • Integration of solar thermal panels or landscape, particularly vital in cold climates windows balance daylighting and heat gain. collectors into the building design provides where soil health is paramount. 61 Addressing the Missing Middle: Housing Solutions for Mongolia Recreation Cooler air / These measures collectively energy savings Increased Better air quality Community contribute to energy-efficient property values Aesthetics and resilient buildings Urban Tree Cover that are well-equipped Intercepts and Rain Gardens Swales evaporates to withstand varying catch water rainfall from roofs catch water and environmental conditions. filter it slowly back into the ground Ecological Services Water Quality Pervious Pavement allows water to pass through into the Soil Building native soils with mulch and Figure 39. Passive and green design compost holds moisture 3.6 BestGER Certification System It is important to ensure that new typologies The BestGER certification includes two main BestGER Simple is designed for certifying new are built according to code and meet green and frameworks: the “BestGER Comprehensive” housing construction in ger areas as it aims resilient construction standards. The Mongolian and the “BestGER Simple.” The comprehensive to facilitate the adoption of green building Green Building Council (MGBC) is in the process system includes 39 criteria across six sections, practices with a straightforward and user- of developing the BestGER Rating certification, encompassing electricity and heating resilience, friendly approach: standing for “Best Governance in Efficiency and materials and resources, and water efficiency. Resilience.” The system is designed to address Conversely, the BestGER Simple is streamlined • Energy and Water Efficiency: This category the unique environmental challenges of with 12 criteria in two sections, focusing on includes criteria such as electricity and Mongolia, including extreme weather variations energy-efficiency and construction resilience. thermal efficiency, use of renewable energy, and seismic activities, making it a crucial tool This tiered approach allows flexibility and water conservation, and water recycling. for sustainable urban development. accessibility for various types of projects and These measures are particularly relevant in stakeholders. ger neighborhoods where infrastructure may 62 Addressing the Missing Middle: Housing Solutions for Mongolia be less developed, and resources are scarcer. 3.7 units while also ensuring that new homes are resilient to disasters and capable of mitigating • Resiliency and Environment: This Affordability of new the impacts of climate change. These homes will help households to unlock the latent wealth category assesses the building’s structural integrity, resistance to housing typologies in their land and properties. seismic events, floods, and fires, The proposed housing typologies are accessible These housing models can be constructed as well as indoor air quality and to income deciles 4-5²⁸ and above, whereas the within existing ger neighborhoods (as part accessibility. Given Mongolia’s high-rise apartments currently available on the of Solution 2 and 3) or on planned sites and extreme weather conditions and the market are only accessible to income deciles services developments (as part of Solution 4). vulnerability of Ger areas to natural 8-9 and above. These new housing typologies disasters, this category is crucial for would help alleviate the shortage of housing ensuring safer and more durable constructions. BestGER Simple encourages practices Total cost Affordable by (MNT in Income Decile that are both environmentally friendly Type thousand) and cost-effective in the long-term. Using materials and technologies that Resilient Basic house-min construction MNT 55,385 4 & above enhance energy and water efficiency self-built USD 16,100 standards (46 m²) allows homeowners to save on utility bills, while resilient construction reduces Green and Detached House (46 m²) MNT 63,570 5 & above the need for frequent repairs and resilient USD 18,500 rebuilds after environmental stresses. contractor-built Detached House (2 Flr-46 m²) MNT 65,785 5 & above The system respects the traditional USD 19,000 Mongolian lifestyle and architectural Mixed-Use (54 m²) MNT 76,920 styles, such as the ger, while introducing 5 & above USD 22,500 modern improvements that do not Low-Rise Apartment Building MNT 88,340 disrupt the cultural fabric of these USD 25,000 5 & above (58 m²) communities. This approach ensures community acceptance and broader Existing reslient implementation of the standards, developer-built MNT 142,000 High Rise Apartment (50 m²) 8 & above USD 41,500 while certification can help households increase their home’s value. Figure 40. Affordability of new housing typologies based on the HFP mortgage (70% LTV, 6% interest, 20 year tenor) ²⁸ Based on the HFP mortgage product with an LTV of 70%, an interest rate of 6% and a loan tenor of 20 years. Prices include the cost of land, connectivity to infrastructure and housing construction. 63 Addressing the Missing Middle: Housing Solutions for Mongolia 64 Addressing the Missing Middle: Housing Solutions for Mongolia 4 Solution 3 Gradual densification Municipalities have invested in essential building infrastructure (heating, water, and sanitation) in some ger areas. Yet, impact remains low due to low density and low connectivity rates. With less than 10% of households connected to infrastructure in both cities, the individual connection cost is approximately MNT 235,760,000 (70,000 USD) per household. A green and resilient housing unit of 46 square meters can be constructed for 64 million MNT. This unit not only provides full value but also allows for monetization of the remaining land space on the khashaa. Opportunity to densify areas where infrastructure already in place. Case studies presented to cities of Darkhan and Erdenet on specific sites highlight low costs to municipality and strong impact for community. This chapter aims to offer alternative solutions for redeveloping ger areas by identifying opportunities to leverage existing infrastructure investments. This approach seeks to increase the housing stock, reduce pollution and environmental degradation, and enhance community well-being through gradual densification. 65 Addressing the Missing Middle: Housing Solutions for Mongolia 4.1 Identified densification Incremental Densification Rapid Densification approaches in ger areas. The extremely low population density and significant sprawl in ger areas make it costly for government to invest in and operate essential public infrastructure services and thus, makes it challenging for households living in ger areas to achieve adequate and resilient homes. Residents in the ger areas are exposed to public health risks, poor living conditions, limited access to essential services, and natural disasters and climate-related hazards. To address these urban challenges and support the GoM’s “New Recovery” policy, various land and housing densification strategies should be considered for ger areas. These strategies should complement existing housing development and ger redevelopment efforts, promoting more efficient land use, better infrastructure access, and the creation of sustainable, livable communities. Figure 41. Incremental vs. rapid densification 66 Addressing the Missing Middle: Housing Solutions for Mongolia 4.2 Gradual densification Mongolia’s current urban development Infill development utilizes land that is by incorporating green spaces, pedestrian- policy has focused on rapid densification, typically unused or underused for new or re- friendly streets, and local amenities, thus primarily through the construction of development purposes. In centrally located improving residents’ quality of life compared high-rise buildings to address the housing urban areas, underutilized sites may be to the rapid densification seen in Mongolia. needs of the growing urban population. repurposed to bolster affordable housing Additionally, gradual densification can boost However, gradual densification provides a supply, promote economic activity, provide local economies by introducing commercial more sustainable pathway by preserving green spaces, and more. In Mongolia’s ger real estate that supports small businesses and community character, utilizing existing areas, this approach would involve upgrading generates employment. assets, and enhancing neighborhood the land enclosed in existing khashaas and livability. This approach is particularly relevant This approach emphasizes a participatory constructing additional housing to increase the in neighborhoods where infrastructure has process, ensuring that projects align with housing stock. been established but remains underutilized the needs and preferences of residents. due to low density and connectivity. Though Direct engagement fosters more equitable Land swapping and consolidation²⁹ is the gradual densification takes longer to achieve and inclusive urban growth, allowing the planned readjustment or reallocation of land than its high-rise alternative, it offers many benefits of densification to be shared across parcels and their ownership. This approach more benefits. the community. By promoting a vibrant, is typically applied to larger areas of land in mixed-use environment, gradual densification support of wider development initiatives, Gradual densification supports the careful such as bolstering economic productivity, the contributes to the creation of sustainable, planning and addition of housing, commercial provision of infrastructure and public facilities, resilient urban areas that are well-equipped real estate, and public spaces without housing construction, and climate resilience to meet future challenges. disrupting the social fabric of communities. programs. This approach could significantly Medium-density developments, such as low- increase the housing stock in ger areas. The Asia 4.3 rise buildings, townhouses, and mixed-use Development Bank’s Affordable Housing and complexes, can expand housing options Urban Renewal Project (AHURP) in Ulaanbaatar and diversity, making neighborhoods more accessible and affordable for a broader range Land and housing employs a land swap method, exchanging ger households’ land for new housing units and of residents. Moreover, it can increase the value densification schemes consolidating the swapped land for multi-story of existing homes by creating more desirable housing development. living environments. Various densification approaches can support sustainable land use, increase access to Beyond housing, gradual densification affordable and green housing, and improve the enhances the livability of neighborhoods quality of life for households. ²⁹ Land consolidation is a planned readjustment and rearrangement of fragmented land parcels and their ownership. 67 Addressing the Missing Middle: Housing Solutions for Mongolia Land readjustment, a long-standing and Case Study 3 widely used densification strategy, involves reorganizing the ownership and use of Affordable Housing and Urban adjacent, fragmented sites to enable residential Renewal Project (AHURP) development and the upgrading of informal settlements. The success of land readjustment The Asian Development Bank (ADB)-led to 5,000 units. The limited private sector depends on the voluntary contribution of land Affordable Housing and Urban Renewal participation in the redevelopment process and the availability of bankable land. However, Project (AHURP) aims to address the has been attributed to rising construction when paired with enhanced service provision, housing and infrastructure needs of costs and the challenges private developers improved access to public infrastructure, and Ulaanbaatar’s ger areas. It builds on face in implementing land swapping efficient land use, the increased value of land ADB’s other initiatives in Mongolia such mechanisms with ger residents. Additionally, often encourages landowners to participate. as the Ulaanbaatar Urban Services and the project’s large scale requires obtaining In Mongolia, this approach could include the Ger Areas Development Investment approval from numerous residents before construction of row houses designed for Program (GADIP), to enhance the impact proceeding with the construction of new incremental expansion, providing households of investments in public transportation residential units, further hindering progress. with additional land and access to essential and subcenter upgrades. The objective Lessons learned services. The sale of homes would help of AHURP is to increase the supply of subsidize construction costs, making the affordable and energy-efficient housing While the project is still ongoing, valuable project financially sustainable. units. Housing units will be built within lessons have already emerged from its newly developed eco-districts to encourage implementation. Building public facilities mixed-use, mixed-income, and resource and key infrastructure services first is efficient developments. The project will also essential to demonstrate public support enhance the quality of life for ger residents for redeveloping the ger areas. However, by developing public spaces and facilities, the scale of the redevelopment must be as well as creating on-site economic carefully considered, as it can impede opportunities. smooth project implementation. A lack AHURP’s objective to redevelop 100 of granularity in the approach prevents hectares of ger areas through large land organic and gradual adoption by residents. consolidation and readjustment operations Therefore, incorporating local, bottom- may be one of the most ambitious urban up approaches in redevelopment and housing initiatives in Ulaanbaatar at present. densification may provide an effective tool However, as of now, the project’s housing for addressing the complex urban housing units have not yet been built. The original challenges in Mongolia. plan for 10,000 units has been revised down 68 Addressing the Missing Middle: Housing Solutions for Mongolia provides financial assistance for the Densifying ger areas in Mongolia would Case Study 4 expansion or improvement of backyard units, offer several benefits that can complement Gradual densification in tailored to meet the unique needs of small and enhance the efficacy of formal housing South Africa to medium-sized residential developments. developments. By increasing the housing This initiative aims to make backyarding stock through densification and small- Small-Scale Affordable Rental (SSAR) a more accessible economic pursuit for scale operations, Mongolia’s cities can is a common housing practice in South homeowners, ensuring that the units are not address the growing needs of its urban Africa where rental housing is developed only financially viable but also compliant with population while adhering to sustainable informally on an existing residential local regulations. TUHF also offers guidance development practices. property, typically in the form of single- to homeowners on property development or multi-story flats. As land and affordable and management. This holistic approach to housing become increasingly scarce, the service provision contributes significantly to SSAR sector effectively maximizes urban the formalization and professionalization of land use while offering below-market backyard rentals, which are essential for the rental rates. This practice, also known growth and sustainability of this sector. as ‘backyarding,’ helps to alleviate the housing crisis through urban densification, Lessons for Mongolia household income generation, and local The case of SSAR in South Africa provides economic growth. South Africa has valuable insights into how informal rentals implemented a progressive approach to can offer adequate housing solutions in regularizing SSAR, seeking to establish Mongolia’s secondary cities. To enforce minimum standards, reduce adverse regularization and formalization, South externalities, and de-criminalize small- Africa integrates SSAR into the municipal scale rental developments. The country is administrative system, ensuring that also pursuing the formalization of SSAR backyarding properties are valued and held through the municipal administrative accountable to meet quality standards. system in order to better address health Clear enforcement systems ensure that and safety risks, oversee densification, backyarding properties are registered as enhance asset value for property owners, rental businesses in accordance with existing capture value increments, and finance regulations and that properties are managed public infrastructure investments. responsibly. Furthermore, government The Trust for Urban Housing Finance financial support, is crucial to incentivize (TUHF), is a private sector institution which landlords to expand their properties in provides financing options for affordable accordance with construction standards construction as well as capacity building while offering affordable rates for low- to support homeowners. The institution income renters. 69 Addressing the Missing Middle: Housing Solutions for Mongolia Some of the key benefits Access to Housing of densifying ger areas are: Well-managed densification can contribute to a more diverse and affordable range of housing options by increasing the housing stock. Efficient Land Use Densifying ger areas can lead to more efficient land use, reduce urban sprawl, and preserve valuable natural resources. Reduced GHG Emissions Densification can contribute to reduced GHG emissions by enabling more efficient heating and energy use. Infrastructure Efficiency Planned densification can optimize the utilization of current infrastructure, including water and Economic Growth sanitation systems, transportation networks, and energy grids. Densification can create new economic opportunities for ger area residents by increasing the demand for local goods and services. As the population density rises, businesses can benefit from a larger customer base, which can lead to job creation and economic growth. Improved Access to Public Services and Amenities Densification increases the feasibility of investing in Land Value Capture schools, healthcare facilities, and other public amenities. Developing on existing land mechanically raises the value of the land and real estate. While it’s important to consider the potential repercussions of gentrification, guided and thoughtful enhancements resulting from development can be advantageous for both the public sector and the community. This includes generating Social Sustainability additional tax revenue through increased land values and construction, as well as providing better access to Densification and land readjustments can enhance capital and additional amenities, ultimately leading to social sustainability by fostering a sense of an improved quality of life. community and social cohesion among ger area residents. 70 Addressing the Missing Middle: Housing Solutions for Mongolia Case Study 5 Micro-densification in Chile (World Bank, 2023) Chile’s Micro Densification Program was The benefits of the program are introduced as a response to the significant multifaceted. At the household level, it issue of overcrowding, which constitutes preserves social and family networks and the majority of the housing deficit in offers flexibility to meet family needs. the country. Overcrowding affects over On a neighborhood scale, the program 454,000 households, representing 91.4% achieves balanced densification, sparks of the qualitative housing deficit. local renewal, and contributes to balanced territorial growth. At the city level, it reduces The program introduced in 2022 transport costs, enhances urban equity, and leverages available urban land to promote fosters well-located project development by development in more consolidated areas improving proximity to work and education of the city. It involves on-site housing opportunities. interventions with various typologies designed for densification on small lots or condominiums. This approach allows for the construction of additional housing units in existing urban areas without requiring extensive new land development. The aim is to enable residents to remain in their communities, thereby maintaining their social and family networks while enhancing their living conditions. 71 Addressing the Missing Middle: Housing Solutions for Mongolia 4.4 its strategic location, a land consolidation or Case Study 6 Densification case readjustment scheme should be considered for studies 4.4.1 Darkhan this area. The objectives of the proposed scenario are In collaboration with key stakeholders, Interventions in ger areas should prioritize to optimize land value in this centrally located landowners, and local communities, risk-free locations near economic hubs, ideally site, revitalize underutilized infrastructure potential densification sites in Darkhan with existing infrastructure and transportation developments, and densify through land and Erdenet were identified and prioritized access to optimize land value capture and consolidation and readjustment. This can be based on the intervention scenarios. previous investments in infrastructure. Focus accomplished by integrating a variety of housing should be on areas in the southeast, northwest, The urban landscape of Darkhan and types, with low-rise housing constituting 57% and central west sides of the city, with three Erdenet deviates from the typical profile of units, and duplex and detached housing each sites in Darkhan identified to showcase the of ger areas found elsewhere in Mongolia. making up 19%. The proposed redevelopment outcomes of densification schemes. The In these cities, most ger area residents of the areas highlighted in orange and yellow subsequent section offers an outline of one of reside in houses rather than traditional in the figure below also seeks to improve the these sites selected for analysis. gers. The existing housing stock mainly current site layout and internal accessibility. comprises single- to two-story blocks, This 21-hectare site, currently occupied by This involves optimizing the road network along with brick and timber frame houses. ger districts, offers a low-risk opportunity for layout and establishing inviting public spaces. Local survey results indicate minimal redevelopment due to its proximity to the city Currently, the site is characterized by a poor willingness among ger area residents center and access to socio-economic facilities. internal road layout, small and fragmented land to relocate from their current homes Despite infrastructure being available on-site, plots, and few commercial buildings. to other single houses. In Darkhan, 98 few people are actually connected to it. Given percent of surveyed households support the redevelopment of ger areas. However, only 5 percent of households showed interest in switching to townhouses, less than 50 percent were willing to relocate, and only 26 percent were interested in moving to apartment buildings. Figure 42. Darkhan Site 3 Case Study (8th Bag Figure 43. Mankhan Tolgoi site and its surroundings 8th Mankhan Tolgoi) (MAD Urban, 2023) 72 Addressing the Missing Middle: Housing Solutions for Mongolia 4.5 The development of the site follows an The project unfolds in several phases: incremental process to minimize disruptions Phase 1 focuses on optimizing sites Environmental benefits of to the local communities: through urban infill and land consolidation, densification while Phase 2 delineates new mobility connections. Phase 3 involves the GHG emissions associated with densification subdivision of resulting lots and the are lower compared to those of high-rise establishment of a road network. In Phase developments. A 2023 study conducted 4, new housing typologies such as single- by CAPSUS demonstrates significant GHG family homes, duplexes, shophouses, emission reductions for both densification case rowhomes, and low-rise multifamily studies in comparison to an alternative high- units are proposed. Phase 5 and 6 rise development scenario, with per household entail incremental growth and phased energy consumption reduced by an average of development, respectively, while Phase 7 over 20%. emphasizes enhancing public equipment and recreational spaces alongside risk mitigation strategies. Phase 8 culminates in a more efficient mix of land uses, including public amenities and improved mobility and infrastructure connections. Throughout the process, attention is paid to improving site accessibility and land use efficiency, with a focus on minimizing household displacement through the subdivision of existing plots and offering a mixed-income community with a variety of housing types and plot sizes. Figure 44. Mankhan Tolgoi site - Before (top) and after (bottom) densification 73 Addressing the Missing Middle: Housing Solutions for Mongolia High-rise scenario Mixed-use scenario is about: contributes to its REDUCES GHG EMISSIONS* ENERGY EFFICIENCY with reductions* of 32.4% 19% 23% 20.7% 26.7% for for MORE EXPENSIVE* for for Erdenet Darkhan Erdenet Darkhan than the Mixed-use scenario *GHG emissions per household per year *Reduction in energy consumption *Costs per household per household per year Mixed-use densification High-Rise development DARKHAN GHG SCENARIOS Total annual GMG emissions [kgCO2/housing unit (hu)] 10,024 -23% CO2 13,033 Energy consumption [kWh/hu] 10,661 -26% 14,324 Cost per housing unit [MNT/hu] 96.7 million -32% 142.8 milllion Figure 45. Energy efficiency and costs of mixed-use vs. high rise development 74 Addressing the Missing Middle: Housing Solutions for Mongolia 4.6 Affordability and other benefits of gradual Densification High Rise densification Scenario Development Constructing high-rise buildings is particularly costly in high seismic zones like Mongolia, while Affordability >4th Income Decile >8th Income Decile low-rise and mid-rise buildings are more cost- effective per square meter, thereby reducing the financial burden on households. Under the proposed gradual densification scheme, Access to the most affordable house is accessible Very Good Good transportation to households in income deciles 4-5 and above, compared to the current government densification scheme, where the most affordable apartment is only accessible to Access to local those in income deciles 8-9 and above. Gradual economic High Medium opportunities densification offers several benefits beyond affordability, such as improved access to public transport, enhanced economic activities, community preservation, and better access to Urban High Low public services. integration Although rapid densification through high- rise development may appear to provide a quick solution to the housing shortage, the Access to public High Low long-term benefits of gradual densification equipment present a more compelling alternative. This approach preserves the integrity of existing communities, enhances urban livability, promotes sustainable growth, and fosters a Access to Good Good sense of place and belonging among residents. public facilities As Mongolia continues its urbanization journey, embracing gradual densification could lead to more harmonious and vibrant cities. Figure 46. Qualitative Comparison of Ger Densification versus High Rise Development 75 Addressing the Missing Middle: Housing Solutions for Mongolia 76 Addressing the Missing Middle: Housing Solutions for Mongolia 5 Solution 4 Sites and Services City expansion has been led by raw land allocation with infrastructure built long after houses are in place. The status quo has led to low population density, high pollution levels, as well as great difficulties and high costs in providing infrastructure to ger households. Sites and Services schemes offer an alternative method, where infrastructure is strategically developed before land is allocated and housing is built. Sites and Services schemes offer many benefits: cost effectiveness, smart urban planning with greater density and improved communities, disaster risk reduction, lower pollution levels, and the increased well- being of residents. Sites and services definition: Sites and services is a method to provide affordable housing through the development of plots equipped with essential infrastructure, like water and sanitation services, leaving the actual building of homes to residents themselves. 77 Addressing the Missing Middle: Housing Solutions for Mongolia Alongside targeted housing and urban densification strategies for ger areas, it is essential to ensure cities expand in a controlled and efficient manner. Over the last two decades, the government’s policy to address rapid rural-urban migration has focused on allocating raw land with formal tenure to households in ger areas. As a result, cities in Mongolia have grown at unprecedented rates. Between 2010 and 2018, Ulaanbaatar’s ger areas expanded by 2.1 times. Darkhan’s ger areas expanded by 128 percent between 1999 and 2018, while Erdenet’s urban footprint increased by 82 percent, nearly twice the rate of its population growth at 49 percent (World Bank, 2022). Uncontrolled ger expansion has pushed Erdenet to its city limits, necessitating a complete reevaluation of its urban development strategy. Rapid horizontal expansion has resulted in negative consequences such as urban sprawl, high pollution levels, and a lower quality of life, as many households still lack access to essential infrastructure. Built-up area changes by hectare, 2010-2018 2010 2018 16,352 20,000 14,585 12,456 16,000 12,000 7,736 8,000 1,464 1,953 1,726 1,376 1,069 4,000 793 Building Public Industry Mining Ger areas Figure 48. Infrastructure built post development Figure 47. Mixed-income and mixed-use scenario vs. high rise development 78 Addressing the Missing Middle: Housing Solutions for Mongolia Post-development investments in infrastructure have proven to be highly expensive, with an estimated cost of Case Study 7 MNT 253 million (around 74,000 USD) Existing sites and services project per household.³⁰ With fewer than 10 in Mongolia percent of households willing to pay Since 2018, Arvaikheer, the aimag centre of space rather than an economically vibrant the high individual connection fees, this Uvurkhangai province in central Mongolia, area. As a result, the density gains are results in wasted fiscal expenditure. has implemented a Sites & Services constrained compared to the business as Sites and services development initiative in the new settlement zone of usual (BAU) scenario of ger area expansion. strategies, currently being explored in the city. The municipality designated a The average density in the detached housing cities like Darkhan, provide an alternative 20-hectare plot of land connected to the area remains below 40 people per hectare, solution for land allocation. This approach central infrastructure grid (electricity, water, thereby limiting the benefits of infrastructure is especially pertinent in Mongolia’s sewerage, and heating), allowing residents connection to only a handful of residents. secondary and tertiary cities, where to self-build their houses according to a pre- well-located vacant land is still available. established design.³¹ With the assistance of Sites and services integrate the initial mortgage loans, residents were responsible provision of essential infrastructure, such for constructing their homes according to as water, electricity, and sanitation, with construction standards. the gradual construction of residential The site is divided into two main areas: units on a planned urban site. three-quarters of the space is dedicated to individual detached houses, while one- quarter is occupied by low-rise apartment buildings. Despite a certain degree of success with high occupancy rates, strong demand, and households effectively connected to the central city grid, this project has limitations in terms of space utilization, average density, and urban mix. The general site layout is rather poor, following a simple orthogonal plan with very little space dedicated to communal activity or green parks, for instance. In addition, the site is solely occupied by Figure 49. Sites & Services project in Arvaikheer:Site residential properties, creating a dormitory layout & example of model home built ³⁰ Based on data shared by the City of Darkhan and 10% connectivity rate. ³¹ The municipality gave residents 5 designs to choose from to build their houses. 79 Addressing the Missing Middle: Housing Solutions for Mongolia Despite recent efforts to develop sites and services projects in Mongolia, optimal results have not yet been achieved. Decades of Best practices for Sites and experience worldwide grants access to the Services development best practices and insights needed to ensure Decades of learnings from international best practices warn that the the success of such projects. success of site and services projects is contingent on a series of factors that should be considered and addressed, such as the need for: Land close to economic opportunities as well as key facilities and infrastructure present on the site. Clear strategies for land acquisition, compensation, allocation, and plot sizing, along with flexible tenure approaches and planning to support incremental housing construction. Promotion of mixed-income development. Deliberate targeting of households and incorporation of community preferences while maintaining affordability and cost recovery for all stakeholders. Development of public amenities (recreation and public spaces, community centers, health centers, education facilities, etc.) as well as the provision of a range of typologies and mixed-use opportunities to attract potential residents and the private sector. Sustainable design measures to promote green and resilient housing and urban environments (e.g., passive design, nature- based solutions, water/energy-saving fixtures, etc.). Capacity building of the implementing agency and technical assistance to households/builders, as well as the creation of necessary local governance structures for long-term maintenance and operations. 80 Addressing the Missing Middle: Housing Solutions for Mongolia The Sites and Services approach emphasizes Promotes evolutive core housing. Allows for cost-sharing among the pre-planning of residential areas, wherein Homes can be designed to be expanded households, thereby reducing per unit the government or development agencies over time, enabling initial homes to be expenses and improving affordability. By prepare land parcels complete with essential affordable to lower income households planning for infrastructure and services in infrastructure—such as roads, water supply, while providing the opportunity for advance, the Sites and Services approach sewage, and electricity – before allocating expansion as their income grows. spreads the cost of these essentials over them to households. This method enables the a greater number of households, reducing strategic planning of urban spaces, fostering the per-unit expense. This cost efficiency the creation of cohesive and well-structured can make essential services more neighborhoods from the outset. Here are accessible to lower-income households, several reasons why Sites and Services contributing to more equitable urban development offers a superior alternative for development. Furthermore, the strategic Mongolia’s development: layout and shared amenities can increase the overall value of the neighborhood, Infrastructure is planned and implemented offering economic benefits to both before development. By incorporating residents and the local government. infrastructure into the initial planning phases, the Sites and Services model allows for more Fosters a sense of ownership and efficient and cost-effective provision of community among residents, as they essential services. This preemptive strategy Figure 50. Example of evolutive core housing (Blanco, are often involved in the development prevents the expensive and challenging Doucet, Navarro-Sertich, & Vicente, 2014) process. Early engagement and process of retrofitting infrastructure into participation in planning can lead to a established, densely populated areas. It stronger commitment to the upkeep ensures that development keeps pace Employs a holistic approach to create and governance of shared spaces and with demand, reducing the environmental livable and attractive neighborhoods infrastructure, promoting long-term impact and enhancing the resilience of while improving the quality of life for sustainability. urban systems against natural hazards. This residents. The Sites and Services model approach encourages optimal land use and facilitates the integrated design of public density planning, ensuring that residential spaces, including parks, recreational areas are designed to accommodate an areas, and community facilities, from the appropriate number of households without beginning of the development process. excessive strain on resources or space. It Well-designed public spaces encourage promotes a balanced density that supports community interaction, physical activity, vibrant communities and sustainable urban and a connection to nature, contributing growth, avoiding the pitfalls of both over- to the overall well-being of the population. crowding and inefficient sprawl. 81 Addressing the Missing Middle: Housing Solutions for Mongolia Sites and services strategies closely resemble those of densification schemes. For example, public spaces such as pocket parks and public space interventions offer valuable opportunities for enhancing the livability and resilience of ger districts. With an approximate cost of MNT 40 million, these interventions focus on providing recreational spaces, greenery, and risk mitigation measures, particularly in addressing flood risks. By creating accessible and inviting outdoor areas, these initiatives contribute to community well-being, promote social interaction, and help mitigate the impacts of natural hazards, thus improving the overall quality of life in ger districts. Sites and Services schemes can support housing solutions that are tailored to lower- income households. Promoting a diverse use of the housing types presented in Solution 2 fosters a vibrant urban environment, catering to the needs of different socioeconomic groups and promoting inclusivity within the community. Public amenities in ger districts play a crucial role in promoting resource efficiency, communal cohesion, and enhanced living conditions within communities. By providing essential services and facilities accessible to all residents, these amenities contribute to a more sustainable Figure 51. Example of housing expansion on a core unit in Jamaica and inclusive environment, fostering a sense of belonging and social connectedness among community members. 82 Addressing the Missing Middle: Housing Solutions for Mongolia 5.1 Case Study 8 Case studies Several sites in Darkhan and Erdenet 5.1.1 Erdenet have been selected together with local The city of Erdenet has identified potential governments to model potential sites locations for Sites & Services initiatives and services scenarios and identify their within its housing strategies. The chosen benefits and challenges. site for the project is situated in the southern district of the city, surrounded by existing ger areas. The selected 4-hectare plot is conveniently close to newly constructed social amenities, such as a school and the district administration building. In addition, the existing infrastructure networks developed in the vicinity of the site can be extended.³⁴ Figure 53. Erdenet Bag SS site – Incremental development The development of the site follows an incremental process over time which allows the residents to build up the properties as their financial capacity permits: The scheme presented enables the construction of 117 units, including 33 detached houses (self- built), 26 duplex housing, 48 low rise housing units and 10 shops and housing premises. There are plans to allocate 750 square meters for commercial use and 525 square meters for public amenities, the specific details of which Figure 52. Possible location for a Sites & Service are pending determination by the Municipality Project in Erdenet (MAD Urban, 2023) to align with the residents’ needs. 83 Addressing the Missing Middle: Housing Solutions for Mongolia From a cost analysis perspective, the efficiency. An allocation of MNT 12 billion outcomes deviate from the previously across 7 districts yielded 19km of heating, presented mixed-use and mixed- water, and sewage lines, intended to benefit income scenario in this report. In the a target population of 1,245 households. Sites & Services example, the public However, with a connection ratio of less sector assumes responsibility for than 15%, the actual cost per household for bringing infrastructure services to the connection remains considerably prohibitive site (including extending networks at MNT 171 million. Conversely, the Sites & from nearby substations), constructing Services initiative not only facilitates the roads, and installing public amenities. provision of fundamental infrastructure Private expenditures are confined to services on-site but also encompasses the the construction of residential and development of roads and public amenities commercial facilities on the premises. as integral components of the project’s concept. This comprehensive approach Upon examining Erdenet’s previous requires a total public investment budget of investments in infrastructure service MNT 4.2 billion, translating to an individual delivery, it becomes evident that such cost per household of MNT 36 million. endeavours have exhibited notably low 15,000,000 Total infrastructure costs 12,000,000 Cost per housing unit MNT Thousand 10,000,000 5,000,000 4,225,971 171,500 36,119 Land allocation & post investment Sites & Services Figure 54. Infrastructure investment – comparison between SS scenario versus land allocation & post investment in infrastructure in Erdenet 84 Addressing the Missing Middle: Housing Solutions for Mongolia 5.2 Cost [MNT million/housing unit] Environmental benefits Infrastructure Cost The environmental benefits of pre-planning Housing Cost infrastructure before constructing houses are Sites and -72% significant. A comparative scenario analysis Services 85.5 28.0 revealed that the GHG emissions in a Sites & Services scenario are over 45 percent lower compared to the current scenario, where infrastructure is added afterward. This reduction is mainly attributed to households Land being constructed with environmental Allocation 142.3 268.3 considerations in mind and having access to district heating from the outset in the Sites & Services approach. 0 100 200 300 400 Figure 55. Housing and Infrastructure Cost comparative GHG emissions (in use) [kgCO2/housing unit year] Coal GHG emissions Commuting GHG emissions Sites and 9,921 -61% Services 588 Housing GHG emissions 636 Land Allocation 12,663 14,076 0 5,000 10,000 15,000 20,000 25,000 30,000 Figure 56. Erdenet GHG emissions (in use) 85 Addressing the Missing Middle: Housing Solutions for Mongolia Sites and services Sites and Services Sites and services scenario leads to a scenario results in scenario is about: REDUCTION OF INCREASED ACCESS GHG EMISSIONS to basic infrastructure and services 46% 47% 61% for for Erdenet Darkhan MORE AFFORDABLE* than the land allocation scenario *GHG emissions per IMPROVING QUALITY OF household per year LIFE of the householders *Costs per household As Compared Against Raw Land and Post-Infrastructure Investment Scenario Figure 57. Comparative Impact of Sites and Services Scenario Against Raw Land and Post-Infrastructure Investment Scenario 86 Addressing the Missing Middle: Housing Solutions for Mongolia 5.3 Affordability and other Housing cost versus Housing value Cost/housing unit Value/housing unit benefits The Site & Services approach yields significantly 160,000 superior outcomes compared to the high-rise 2.75% developer-built model. The SS scenario offers more economically accessible options, making 140,000 148,160 144,192 it feasible for households starting from the 4th income decile, whereas the high-rise alternative remains affordable only for households from 120,000 the 8th income decile and beyond. Moreover, 120,016 urban integration within both the site and neighbouring areas is notably more efficient in 100,000 MNT Thousand the SS scenario, facilitated by a more optimal land use strategy inherent to the SS initiative. Additionally, the emphasis placed on public 80,000 spaces and amenities, such as small urban 72% parks, in the SS scenario extends benefits to residents beyond those directly affected by the 69,754 60,000 densification process. 40,000 20,000 High Rise Sites & Services Figure 58. Housing cost and value comparison between high-rise developments and sites and services schemes 87 Addressing the Missing Middle: Housing Solutions for Mongolia Sites and Services developments embody a forward-thinking approach to urban planning Sites & High Rise and housing in Mongolia. They stand in stark Services Development contrast to the prevailing practice of allocating land to households first, with infrastructure development lagging behind. This conventional Affordability >5th Income Decile >9th Income Decile method frequently leads to disjointed urban sprawl, inadequate infrastructure provision, and underutilized land. These challenges exacerbate the pressures of rapid urbanization, particularly in Mongolia’s capital, Ulaanbaatar, Access to Very Good Good and other burgeoning cities. transportation As Mongolia faces the challenges of rapid urbanization, adopting a Sites and Services development approach provides a pathway Access to local to creating more sustainable, efficient, and economic High High opportunities livable urban environments. This method not only aligns with the goals of economic and environmental sustainability but also supports the creation of cohesive communities where Urban High Low residents can thrive. It represents a strategic integration shift towards planning-led development, crucial for the long-term prosperity and resilience of Mongolia’s urban areas. Access to public Very Good Low equipment Access to Good Good public facilities Figure 59. Qualitative comparison of Sites and Services versus High Rise Development scenarios 88 Addressing the Missing Middle: Housing Solutions for Mongolia Sites and Services Raw Land Allocation ERDENET GHG SCENARIOS Total annual GMG emissions [kgCO2/housing unit(hu)] 9,584 -27% CO2 13,044 Access to basic infrastructure & services 100% 0% Cost per housing unit [MNT/hu] 120.5 million -62% 313.7 million Figure 60. Comparison of GHG emissions between Sites and Services and Raw Land Allocation in Erdenet. 89 Addressing the Missing Middle: Housing Solutions for Mongolia 90 Addressing the Missing Middle: Housing Solutions for Mongolia 6 Implementing and financing “Missing Middle” Solutions Numerous barriers hinder access to housing finance for ger households, including high down payment requirements and informal incomes. Develop new housing finance products and a comprehensive implementation roadmap to roll out ‘missing middle’ solutions. Deploy home improvement financing products in order to upgrade ger homes. Missing middle solutions are more affordable and require less fiscal expenditure than current government housing programs. Subsidies for missing middle solutions are half the amount of those for current high-rise projects. Reform the Housing Finance Program according to smart principles to enable access for ger households while limiting fiscal exposure. Crowd in private sector funding to ensure scale and sustainability. 91 Addressing the Missing Middle: Housing Solutions for Mongolia Implementing ‘missing middle’ solutions (good quality, green homes within the existing urban fabric that are smaller than Residents FGD results high-rises but offer greater density than The consultant team carried out Focus Group Discussions (FGD) in the two cities in April existing khashaa developments) will require 2024 to present the results of the Technical Assistance and the various solutions developed significant community engagement, as well throughout the course of the feasibility study: as the development of strategic housing finance products that are affordable, fiscally sustainable, and impactful. • The primary sources of dissatisfaction • The willingness of respondents to divide among residents regarding their housing their land exhibited significant disparity The GoM recognizes this need and has adopted conditions are typically attributed to the between the two cities, with residents Resolution 483 in December 2023, which substandard quality of housing and the of Erdenet showing greater reluctance redirects part of the country’s housing strategy absence of access to essential services. compared to those in Darkhan, either for towards retrofitting and building better homes in building a new house for their family or ger neighborhoods. With this policy shift already • Over 95% of respondents expressed their for selling purposes. When questioned in place, program design and implementation readiness to undertake essential energy about their willingness to divide their can now happen more efficiently. retrofitting to enhance their residences. land for constructing a new house Among them, a majority of households independently, the responses varied (56% in Erdenet and 61% in Darkhan) are between the two cities. In Erdenet, inclined towards conducting comprehensive only 35% of respondents expressed energy retrofitting throughout their homes, approval, whereas in Darkhan, this figure covering areas such as walls, foundations, increased to 58%. roofs, and windows, rather than opting for individual retrofitting works, such as • Survey findings from both cities validate focusing solely on walls. residents’ readiness to secure loans for either retrofitting their existing houses • When considering various housing types, or constructing new ones in accordance the majority of respondents expressed a with updated typology standards. Over preference for two-story detached houses half of the respondents demonstrated (44% in Erdenet and 46% in Darkhan), the capacity to allocate up to 30% followed by single-floor detached houses of their income towards servicing (36% and 23% in the respective cities). hypothetical loans, with figures reaching 55% in Erdenet and 76% in Darkhan. 92 Addressing the Missing Middle: Housing Solutions for Mongolia 6.1 6.2 Engaging the community Supply side 6.2.2 Certification via BestGER Rating System The findings from the focus group emphasize implementation: ensuring greener and more The BestGER rating system, currently being robust community support for transformative developed by the Mongolia Green Building housing solutions in Mongolia’s ger areas. This community-driven readiness not only bolsters resilient construction Council, can be employed to guarantee that construction adheres to top-tier standards the viability of proposed enhancements but An essential element of this strategy involves of quality and sustainability. This certification also showcases the potential for effectively the rollout of comprehensive training system evaluates and certifies homes according implementing sustainable housing initiatives that initiatives targeting both households and local to criteria like structural soundness, energy resonate with residents’ aspirations and financial contractors. These programs will concentrate efficiency, and environmental footprint. capacities. Sustained community involvement on imparting knowledge of seismic retrofit Certification offers assurance that the homes will be vital in guaranteeing the program’s methods and energy-efficient construction are constructed to endure local environmental success, involving households in program techniques. Households will be trained on adversities and are tailored for long-term design, ensuring construction quality control, and effective construction monitoring, while sustainability. Furthermore, this system facilitating access to financial services. contractors will receive instruction in technical incentivizes contractors and households to skills for retrofitting existing homes and uphold best practices in construction and constructing new ones that are resilient and retrofitting. energy-efficient from the outset. 6.2.3 Community engagement 6.2.1 Development of housing Prototypes Engaging with the community is crucial for the success of these initiatives. Collaboration To streamline the construction process with local leaders, community organizations, and ensure high standards of safety and and residents will promote the adoption of sustainability, a range of pre-designed housing these new building practices and designs. prototypes are developed and distributed. Workshops, informational sessions, and These prototypes are designed to be resilient, demonstration projects can be conducted to green, and affordable, catering to the needs showcase the benefits of green and resilient of diverse family sizes and preferences. The homes. Involving the community in the planning designs include single-family units, two-story and implementation stages fosters a sense of buildings, and expandable options that can ownership and commitment to building safer grow with the family. Providing ready-made and more sustainable neighborhoods. designs simplifies the construction process for households and contractors, ensuring that new homes meet high standards of resilience and energy efficiency from the outset. 93 Addressing the Missing Middle: Housing Solutions for Mongolia Population living in formal high-rise housing Commercial Loan size: 100 million MNT Income Banks deciles Housing Finance Program disburses ~10K loans per year 8-10 Demand is mostly being met Population living in ger areas: self-built housing NBFIs with proper construction Income deciles 6-8 Loan size: 50 million MNT No targeted financial products Need for tailored housing products Population living in ger areas: self-built very low- quality homes Income Loan size: 10 million MNT deciles 1-5 ~2,700 outstanding microfinance loans disbursed for housing upgrades (high rates, short tenors) Figure 61. Current housing finance sector (and subsidies) focuses on top 3 income deciles. 94 Addressing the Missing Middle: Housing Solutions for Mongolia 6.3 Demand side implementation: financing ‘missing middle’ solutions The development of “missing middle” housing remain excluded due to their low income profiles solutions in Mongolia underscores a parallel and lack of formal incomes. Non-banking need for innovative housing finance products financial institutions (NBFIs) offer small and tailored to this unique segment. Traditional expensive home improvement loans in ger areas housing finance mechanisms, often geared and manage to reach lower income deciles. towards high-income deciles living in high- However, there lacks appropriate products to rise buildings, may not adequately address the target middle-income households who wish to financial realities and needs of those seeking build a well-constructed house in a ger area as middle-ground housing options. New financial neither formal mortgage products nor home products should be designed to offer flexibility, improvement loans are tailored to this need. affordability, and accessibility, aligning with Furthermore, greater incentives are required the economic capacities and preferences of a to extend access to green and resilient home diverse urban population. improvement loans in ger areas, which remain very expensive and thus undesirable. While upper income deciles have access to traditional banking, commercial mortgages as well as the advantageous terms of the Housing Finance Program (HFP), most ger households 95 Addressing the Missing Middle: Housing Solutions for Mongolia 6.4 from NBFIs which typically offer loans with Support to both communities and financial higher interest rates and shorter repayment institutions is crucial to enhance their capacity to underwrite ger households and offer green Identifying current periods. Ger households often turn to NBFIs to bypass the onerous administrative financing options. Downpayment assistance is financial barriers requirements of banks and instead opt for needed to support ger areas in accessing loans. the convenience of the modern and user- By linking finance to BestGER certifications, It is imperative to tackle barriers in the housing friendly mobile app-based systems provided adherence to Mongolia’s Green Taxonomy³⁴ finance market to advance missing middle by NBFIs. However, no NBFI is presently can be ensured. solutions. Currently, several issues hinder involved in the MET’s green loan subsidy access to housing finance for green and resilient program, and only one NBFI provides upgrades and new construction in ger areas. insulation and retrofit loans to households in ger areas. 6.5 Unaffordability: Households in the ger areas generally exhibit limited financial capacity, Lack of Market Incentives: At present, Expanding access to with the majority falling within the low and households lack direct market incentives home improvement loans low-middle income brackets. During the cold to upgrade their homes into energy- winter months, they face increased heating efficient housing, aside from the green Ger households are not uniform and are costs compared to apartment residents. loan subsidy provided by the MET. Given composed of a variety of income levels, job Around 20% of households have savings, that the subsidy is limited and exclusively types, and different housing needs. Given the but 50% of them carry outstanding loans, provided by three commercial banks, most heterogeneity of ger households, a menu of resulting in over-indebtedness. Despite an ger area households cannot access its financial packages can be developed to support average monthly household income ranging benefits. Alternative market incentives such ger households, ranging from insulating roofs between 1.2 million MNT and 1.4 million MNT, as credit scores, differentiated terms, tax to full home upgrades with infrastructure half of this income is dedicated to loan discounts, energy performance contracts, connectivity. Banks and non-banking financial repayment.³² Few have the capacity to afford participation in voluntary carbon markets, or institutions can create targeted products to high rise energy efficient housing solutions demonstration projects have the potential help households improve their homes and on the market today. Introducing missing to bolster demand. unlock their value. While some NBFIs have middle housing solutions will enable more developed home upgrade products, they lack ger households to afford better homes. Low Awareness: 40% of surveyed ger area access to incentives and technical assistance to households reported having heard or being ensure homes comply with construction quality Inaccessibility: Numerous ger households, aware of green loans for insulation, whereas and energy efficiency standards. with minimal savings, face difficulty 35% were aware of green loans specifically accessing formal mortgages because of the for energy-efficient housing.³³ A large-scale Short- to medium-term financing options steep 30% down payment requirement. awareness-building campaign addressing through NBFIs or commercial banks are Since they cannot utilize their existing climate disaster, safety, and health concerns needed. Tailored loan products, based on the homes as collateral due to their substandard could serve as a signal to the market, distance of residents’ khashaa to the nearest quality, their access to collateralized lending potentially stimulating demand for energy- substation, including short-term consumer is limited. Instead, they rely on financing efficient housing solutions. loans, can enable even the lowest-income ³² Demand for Green Loan Survey, ERI 2023 ³³ Demand for Green Loan Survey, ERI 2023 ³⁴ Mongolia Green Taxonomy, implemented in 2019. 96 Addressing the Missing Middle: Housing Solutions for Mongolia deciles to afford grid connection. Low-income Low-middle Middle-income High-income Despite the lack of seismic retrofitting loans Starting from income Starting from Starting from from Mongolian NBFIs, such products could decile 1 Starting from decile 5 decile 8 be developed with technical support and decile 3 incentives. To succeed, retrofit products must be strategically marketed since households may Affordability of solutions by income deciles not initially seek them. Effective programs raise awareness about seismic risks, offer technical assistance for structural strengthening, and Roof insulation Full housing retrofit New green and Green and provide financial incentives, such as bundled and basic seismic and connection to resilient housing energy efficient loans for various housing upgrades. Once retrofit infrastructure construction apartments in structural resilience is achieved, housing high-rise buildings becomes eligible for further energy-efficient upgrades. Roof and attic-only retrofits offer a cost-effective solution and provide substantial CO2 savings over a 20-year period. Financing for green retrofit projects can be facilitated through NBFIs offering short- to medium- term loans at preferential rates. Last mile • 2 million MNT / • 12 million MNT / • 63 million MNT / • 142 million MNT / connectivity can also be supported via NBFI 580 USD 3,500 USD 18,000 USD 41,000 USD loans. Supporting financial institutions in • Microloan via NBFI • Microloan or • Mortgage via bank • Mortgage via bank developing adequately targeted and priced mortgage products will be crucial in ensuring that households can access the funding they need Figure 62. Affordability, costs and financing of proposed solutions by income decile to improve their homes. 97 Addressing the Missing Middle: Housing Solutions for Mongolia 6.6 Commercial mortgage Commercial low-rate GoM Housing Finance Program Loan tenor 20 years 20 years 20-30 years Expanding access to 20.5% 15% 6% (previously 8%) mortgages via HFP Average market rate based Based on housing finance According to the Government reform Interest rate on 9 banks and 1 NBFI’s terms and conditions for mortgage terms for energy efficient houses or green buildings. Resolution on Housing, No.483 December 2023. financing (June 2023)¹ Financing new housing typologies in ger areas can be facilitated through the national Housing Downpayment 30% 30% 30% Finance Program (HFP). HFP offers subsidized LTV 70% 70% 70% interest rates and longer tenors than traditional mortgages by commercial banks and has been DTI 40% 40% 45% a key tool in the financing of green high-rise Requirements on downpayment, loan-to-value, and debt-to-income ratio are based on developments in the capital. Housing Finance Guidelines by BoM (2016) The planned expansion of the HFP with General assumptions applied for all three scenarios additional funding from a new National Discount rate 12% Policy rates as of March 2024 Sovereign Wealth Fund, as per the draft Law on National Housing (May 2024) offers an Including OPEX, risk premium, and credit Lender’s margin 4% default insurance premium. opportunity to expand the program into ger areas and bring mortgages down-market. Figure 63. Existing mortgage product terms. Source: World Bank, 2024. Expanding the HFP to ger areas and introducing new housing solutions provides Billion MNT affordability benefits for households and cost 1,000 Commercial banks savings for the government. The current HFP product is fiscally expensive and primarily Provident Fund (newly established) applies to developer-built housing units, which are unaffordable for most ger residents. The Government of 500 Mongolia economic cost of a single mortgage subsidy Bank of Mongolia is 52 million MNT³⁵, a substantial cost that is accessible only to the top income deciles of Total subsidized HMP financing the population. In contrast, the cost of a well- 0 built, energy-efficient home in a ger district Financing as of Q1 2017 2018 2019 2020 2021 2022 2023 2024 is less than half that amount. Using the same plan HFP program terms, the economic cost to the government would be only 23 million MNT. Figure 64. Financing and subsidies for HFP. Source: World Bank, 2023. ³⁵ Full cost of subsidy discounted at today’s policy rate of 12% 98 Addressing the Missing Middle: Housing Solutions for Mongolia However, the HFP program is challenging for Ger Housing Ger Housing ger households to access due to its high 30% Typologies Typologies downpayment requirement, which many ger households cannot afford. Additionally, banks currently lack the capacity to underwrite Home Price MNT 142.9 MM MNT 63.3 MM informal households. While the interest rate subsidy significantly reduces monthly Loan Amount MNT 100 MM¹ MNT 44.3 MM payments, it needs revision to protect the state from overspending as household incomes GoM Perspective typically increase over the mortgage term. To address the needs of ger residents, supply- Fiscal Cost (80% funding) MNT 80 MM MNT 35.4 MM side solutions alone are insufficient; the HFP program needs reform. Economic Cost of Subsidy over 20 years (on Net Present Value MNT 51.9 MM MNT 22.9 MM of 12% - 2.5 %) Market Distortion Impact NPV MNT 89.2 MM MNT 39.5 MM (20% - 6% ) Household Perspective Downpayment MNT 42.9 MM MNT 19 MM Monthly Installment (EMI) MNT 716,431 MNT 317,431 Figure 65. Comparative Analysis of Ger Housing Solutions vis a vis Multi-Story Unit under HFP. Source: World Bank, 2024. 99 Addressing the Missing Middle: Housing Solutions for Mongolia Mortgage subsidy best practices In order to redesign a smart mortgage program, • Provide a Subsidy Where the Private Sector • Promote Innovation and Competition: By several core principles should be applied. Cannot: Subsidies should fill gaps that the fostering a competitive market environment, These principles are intended to ensure that private sector is unable or unwilling to address the subsidy can help spur innovation in both any financial support provided is equitable, due to various risks or lack of profitability. This financial products and housing construction efficient, transparent, and effectively promotes helps in leveraging private sector capabilities technologies. This not only improves the market expansion. while ensuring public resources are used quality and diversity of housing options where they are most needed. available but also makes the market more Equity resilient and adaptable to changing needs. Transparency • Larger Subsidies for Lower Income Groups: This principle suggests that subsidies should • No Hidden Liabilities: All aspects of the The HFP can be improved by adopting best be proportionally greater for lower-income subsidy program should be clear and practices, such as converting the interest households to ensure that financial support openly documented. This transparency is rate subsidy into a downpayment subsidy, is more impactful where it is most needed. crucial for maintaining public trust and for implementing a monthly payment buy-down This approach helps in addressing the the effective monitoring and evaluation of that decreases as household income increases, significant disparities in housing access and the program’s impact. and ensuring that subsidies are available quality across different economic strata. through a variety of financial institutions. • Housing Finance Market Expansion: The This approach will help households overcome • Equal Access for Different Employment subsidy should aim to not only address downpayment barriers without being over- Groups: Subsidy programs must not immediate housing needs but also support subsidized in the long term, as their incomes discriminate based on employment type the long-term development of the housing and affordability increase over the course of or income informality. This inclusivity is finance market. This includes encouraging the loan. Allowing the subsidy to be available essential in ger areas, where many residents new entrants into the market and promoting through the financial market ensures it is not lack formal employment but still need access competition among financial institutions. distortive and leverages existing private sector to quality housing. Market Non-distortive Design resources, thereby limiting fiscal spending. Efficiency • Leverage Private and Household Resources: By adhering to these principles, the subsidy • Minimize All-in Subsidy Cost per Household: The subsidy design should leverage additional design for Ger housing finance can be The subsidy design should aim for maximum resources from both the private sector more effective, equitable, and sustainable, effectiveness at the lowest possible cost. This and the households themselves. This could contributing significantly to the overall goal of requires careful consideration of the subsidy include matching funds, where the subsidy improving housing conditions in Mongolia’s ger structure to provide necessary support encourages additional private investment by areas. These principles ensure that the financial without wasteful resource allocation. reducing the risk and increasing the potential support not only addresses immediate housing returns for private investors. needs but also contributes to a broader economic and social impact. 100 Addressing the Missing Middle: Housing Solutions for Mongolia 6.6.1 Implementation • Consider Longer Tenor: Ensuring that homes are built to a standard considerations • Extending the loan repayment period that is marketable and maintains their value is crucial for banks to feel secure in When implementing a revised housing can make monthly installments more extending financing. program, it is equally important to consider manageable by spreading the cost over the adequacy of the product through the a longer period. However, consideration • ProvideTechnical Assistance to Support perspectives of both the household and the should be given to the overall cost of Underwriting of Non-formal Income Segment: financial institution. borrowing and the economic lifecycle of the property being financed. Banks often struggle with loan underwriting Ger Households’ Perspectives • for individuals with non-formal, irregular Banks’ Perspectives incomes—a common scenario in ger areas. To ensure households can access housing Providing banks with technical assistance finance for middle-income solutions, it is To assist banks in extending loan financing to develop methodologies for assessing important to: to households in ger areas, the following these types of incomes can expand access programs may be necessary: • Provide Support for Down-payment Assistance: to credit for underserved populations. • Use of Credit Default Guarantee: Well-designed subsidies could transform • The typical 30% down-payment requirement is a significant barrier for ger • To encourage banks to lend to lower-income the housing sector in ger areas by making it area residents, many of whom have limited and informally employed individuals, credit feasible for more residents to build quality savings and equity from existing homes. default guarantees can be provided. These homes, thereby unlocking wealth and economic guarantees help mitigate the perceived risk development. • The proposed subsidy could either lower banks face when extending loans to less the percentage of the down-payment traditionally ‘bankable’ customers. required or offer direct financial assistance • Ensure 6.7 to cover a portion of the down-payment Quality Construction of Housing in order to make housing more accessible. Units: • Align Capacity-to-Pay with Design: • High-quality construction ensures the Conclusion property’s longevity and maintains its value • Loan designs should consider the variable over time, providing reliable collateral for Developing affordable and accessible housing and often lower income levels typical of ger the bank. This is crucial not only for loan finance solutions will be critical to implementing area households. Innovative loan structures security but also for ensuring that housing missing middle housing solutions in ger areas. such as installment buy-downs or adjustable remains safe and sustainable. Changes to current housing finance subsidy payment schedules can help align monthly programs will deepen access to households in payments with household income, reducing • Ability to Enforce Collateral (Value for Resale) ger areas while ensuring efficiency and fiscal financial stress and risk of default. & Marketability: sustainability of subsidies. Subsidies will need to be deployed alongside private capital, technical • Step-up payment options can be • Banks need assurance that the properties assistance, and community mobilization to considered, where monthly payments they finance can be effectively used as ensure the widespread adoption of affordable, increase gradually in line with expected collateral, which implies an ability to green and resilient housing solutions. increases in household income. foreclose and sell the property if necessary. 101 Addressing the Missing Middle: Housing Solutions for Mongolia 102 Addressing the Missing Middle: Housing Solutions for Mongolia 7 Proposed roadmap Creating a detailed roadmap for implementing “missing middle” housing solutions in Mongolia requires a comprehensive and collaborative approach. This roadmap outlines the steps necessary to address the unique challenges and opportunities associated with developing and financing these critical housing solutions. By following this detailed blueprint, Mongolia can effectively address its “missing middle” housing challenge, creating more inclusive, sustainable, and liveable urban environments. 103 Addressing the Missing Middle: Housing Solutions for Mongolia Proposed 1 2 3 roadmap Establish a Working Engage Local Address Roadblocks on Group Stakeholders the Supply Side By following this detailed blueprint, Mongolia can Form a technical Host public forums and Conduct a regulatory review effectively address its “missing multidisciplinary working workshops to engage to identify barriers to middle” housing challenge, group with clear roles and and gather inputs from all development including land creating more inclusive, responsibilities to plan and stakeholders. use policies, zoning laws, and sustainable, and liveable urban oversee the implementation others. environments. process. Potential Implementing Formalize housing prototypes Agencies: and develop construction Potential Implementing City Governments, Ger guidelines and training for Agencies: Redevelopment Authorities, Ger resilient housing typologies. All key Government agencies, communities, NGOs city administrations, IFIs Institutionalize and implement BestGer Simple Rating Certification system. Potential Implementing Agencies: MUDCH, MGBC 104 Addressing the Missing Middle: Housing Solutions for Mongolia 4 5 6 Support Financing of Identify Pilot Implement and Refine Ger Housing Projects Solutions Collaborate with lenders to Secure potential sites for pilot Monitor the program create loan products. projects. implementation and adjust design and approaches based on feedback Optimize the HFP that may Secure funding, necessary from communities and stakeholders. include guarantees and approvals, technical assistance, incentives to accelerate and capacity building toolkits Host workshops to share adoption of resilient ger for the communities. experiences and promote adoption housing development. for other ger areas. Potential Implementing Agencies: Potential Implementing Agencies: Potential Implementing City Governments, Ger MUDCH, MFLSP, City Governments, Agencies: communities, NGOs National Housing Committee BOM, MUDCH, MFLSP, MIK, Banks, NBFIs, IFIs 105 Addressing the Missing Middle: Housing Solutions for Mongolia 106 Addressing the Missing Middle: Housing Solutions for Mongolia 8 Conclusion Historical land allocation practices, rapid urbanization, and the growth of ger areas have resulted in urban sprawl, low population density, inadequate infrastructure, a significant housing deficit, and has exacerbated environmental and disaster risk. Missing middle strategies can tackle these urban challenges. 4 solutions to develop missing middle housing: housing upgrades, adopting new housing typologies, densifying neighborhoods with infrastructure in place, and adopting ‘sites and services’ schemes for city expansion. Missing middle solutions will help target the housing crisis and curb pollution while increasing the affordability and livability of ger areas. Implementing missing middle solutions will require both demand- side (housing finance) and supply-side (housing construction) interventions to ensure that ger households have both the means and know-how to improve their homes and neighborhoods. The insights and recommendations provide a roadmap for policymakers, urban planners, and stakeholders to transform Darkhan, Erdenet and other cities in Mongolia into thriving, green, and resilient urban centers with a high quality of life for residents. 107 Addressing the Missing Middle: Housing Solutions for Mongolia Based on the extensive analysis and proposed sites and services initiatives can provide a solutions presented in this report, it is evident cost-effective alternative to traditional raw that a multi-faceted approach is necessary land allocation practices, ensuring essential to address the complex ger district upgrade infrastructure and services while promoting and re-development challenges faced by incremental housing development. Mongolia’s cities. The historical raw land allocation practices, coupled with rapid However, the success of these solutions urbanization and the growth of ger areas, hinges on developing affordable and targeted have led to a myriad of issues, including urban housing finance products, while addressing sprawl, low population density, inadequate the barriers present in the housing finance infrastructure, and a significant adequate and market. Redesigning the national Housing affordable housing deficit. Finance Program will be necessary to include funding for ger households and crowd in the To tackle these challenges and promote private sector, while limiting the fiscal impact sustainable urban development, the report of housing subsidies. Financing missing middle proposes four key solutions on ger areas where housing will be fiscally cheaper than the existing basic infrastructure investments are status quo of subsidizing expensive high-rise in place: seismic retrofits, green and resilient developments and will offer numerous other retrofits, resilient housing construction and environmental and quality of life benefits. densification, and sites and services initiatives. Seismic retrofits are crucial to mitigate the By implementing a comprehensive strategy risks posed by potential earthquakes and that includes seismic retrofits, green ensure the structural integrity of existing and resilient retrofits, land and housing housing stock. Green and resilient retrofits, densification, and sites and services such as improved insulation and energy- initiatives, while also addressing housing efficient upgrades, are not only affordable finance barriers, Mongolia can foster but also essential in reducing greenhouse sustainable, resilient, and inclusive urban gas emissions and enhancing the overall living development in its secondary cities. The conditions in ger areas. insights and recommendations in this report provide a blueprint for policymakers, urban Land and housing densification strategies, planners, housing stakeholders and ger such as infill development, land consolidation, communities to collaboratively work towards and land readjustment, offer promising transforming Darkhan and Erdenet, and methods for optimizing land use, increasing other cities into thriving, green, and resilient access to affordable housing, and creating urban centers that offer a high quality of life vibrant, socially sustainable communities. for their residents. When carefully planned and implemented, 108 Addressing the Missing Middle: Housing Solutions for Mongolia REFERENCES Asian Development Bank. (2024). Mongolia : Household waste and health risks affecting National Statistics Office. (2023). 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