How the Gap Fund supported the design of green, resilient, and affordable homes in Indonesia

Indonesia is facing a dual challenge: a growing housing crisis and increasing urban emissions.

With 67% of the population expected to live in urban areas by 2035, the demand for affordable housing is skyrocketing. Yet, nearly 20% of urban residents live in informal settlements, often in precarious and overcrowded homes. These self-built structures account for 70% of the housing stock in many cities, lacking resilience against natural disasters such as floods and landslides.

At the same time, Indonesia’s cities are contributing heavily to greenhouse gas (GHG) emissions. Between 1990 and 2015, the share of city-generated emissions in Indonesia rose from 31% to 44%. Poorly planned urban sprawl is making this issue worse, with new housing developments pushing to city outskirts, increasing commuting distances, and placing additional strain on the environment.

To address these intersecting crises, the city governments of Palembang and Lubuklinggau, the Regency of Musi Rawas, and the South Sumatra provincial government partnered with City Climate Finance Gap Fund (the Gap Fund), a partnership implemented by the World Bank and European Investment Bank, to find innovative solutions to tackle both housing and climate needs.

Tackling housing and climate change

From January 2022 to August 2023, the Gap Fund provided $225,000 in technical assistance to support sustainable housing development in the Palembang Metropolitan Area, Lubuklinggau City, and Musi Rawas Regency. This partnership focused on:

1. Sustainable Housing Tools: Developing a digital planning tool to identify areas suitable for housing projects, estimate greenhouse gas emissions from the residential sector, and calculate and compare the performance of urban housing.
2. Green Housing Guidelines: Drafting tailored guidelines for energy-efficient, resource-conscious construction suited to local contexts.
3. Home Designs: Developing designs for 100 affordable, green homes, enabling low-income families to densify and improve existing structures sustainably.
4. City Action Plan Recommendations: Providing recommendations to integrate energy- and resource-efficient building construction practices into local government housing programs.
5. Capacity Building: Training 80 local officials through workshops and case studies to apply tools and methodologies for urban planning and housing investment.

Empowering communities and local governments

To better understand where new green and resilient homes can be built, and which existing houses could be retrofitted or densified, the Gap Fund team worked with Capsus Mexico to develop digital tools.

First, the Gap Fund introduced a Housing Location Suitability Tool, which enabled local governments to analyze land based on various indicators, including environmental risks and social infrastructure. The tool created “suitability maps” to guide decisions on where to build or retrofit homes.

Second, the Gap Fund also introduced a Housing Calculator to compare different housing scenarios and assess economic, social, and environmental impacts. Four training sessions were held with Indonesian officials between October 2022 and July 2023, empowering stakeholders to use the digital tools to inform future planning, construction, and investment decisions.

To identify locations for affordable housing in each city, the team used the Suitability Index, cross-referenced with hazard exposure information, land zoning regulations and land-value data. The analysis had three main findings:

1. Affordable housing in central locations can be built by 1) adding rental rooms 2) constructing backyard housing 3) densifying neighborhoods, and 4) building mid-rise and high-rise apartment buildings.
2. Future affordable housing projects should prioritize land suitability to enhance beneficiaries' well-being. Subsidies should focus on developing housing in areas with high population, low hazard exposure, and good access to jobs and urban services.
3. Affordable housing policy should include retrofit considerations, focusing on areas with high housing precariousness. Spatial data and the Suitability Index can help identify and prioritize villages with poor access to clean water, electricity, and adequate housing materials.

One key obstacle was overcoming the perception that climate-smart housing is too costly. But by building strong relationships with local communities and governments from the start, the project demonstrated that green housing is not only affordable but can also yield economic and social benefits.

Using existing knowledge, the team identified three housing typologies: self-built units, developer-built housing, and low-rise apartments. The collaborative process led to the creation of Green and Energy-Efficient Housing Guidelines, offering practical advice on design, materials, and energy use.

As Ricardo Ochoa Sosa from Capsus Mexico noted:“Instead of developing tools and methodologies and then sharing them with local people, we did it the other way around. First, we learned which tools they are using to build housing. Then we built our training tools based on what people were comfortable working with. We adapted our methods to suit their needs. That made a huge difference.”

Real-World Impact: 100 Green Home Designs

On the ground in Indonesia, the Gap Fund worked with local homeowners and governments to draft plans to retrofit, extend, densify, and build 100 climate-smart homes.

The preservation of local architecture and the use of local materials and knowledge were integral parts of this process. The plans included details on how families could benefit economically, environmentally, and socially from:

• Retrofitting Homes: Adding vegetation, improving ventilation, and using energy-efficient materials could increase resilience and lower carbon emissions.
• Densifying Neighborhoods: Families could extend their homes to include rental units, creating additional income streams while increasing the housing stock.
• Building New Homes: Designed with local materials and architecture, these homes could offer resilience against climate impacts and generate economic opportunities through tourism.

Scaling Green Housing Solutions

The Gap Fund project has already influenced local and national policies. These include:

1. Local Integration: Palembang, Lubuklinggau, and Musi Rawas are now incorporating Gap Fund recommendations about green construction practices into their housing programs. The three pilot assessments, housing construction guidelines and recommendations provide a robust blueprint and data that could be scaled to other cities and countries.
2. National Ambitions: The project laid the groundwork for the Indonesia Green and Affordable Housing Program (IGAHP), which aims to build 1 million green homes by 2030. Recommendations from the project about energy efficiency, green materials and design, and densification to reduce sprawl will be piloted under the IGAHP.
3. Catalyzing Investment: The Gap Fund analysis informed a $175 million investment proposal with the Asian Development Bank to provide subsidies and technical assistance for green and affordable housing.
4. Scaling the Model: The urban planning tools and green housing concepts developed through this project are now being scaled up to other areas. These tools will be used in South Sumatra and Central Java to identify more neighborhoods for housing investment. Additionally, the project has led to the launch of green housing piloting in Central Java and West Java, where 100 green homes will be built or retrofitted with the support of credit-linked subsidies, and has trained stakeholders on improving sub-standard urban housing, informing future projects in Central Java.
5. Next Steps: The World Bank is providing follow-on technical assistance to Indonesia to drive the development of green and resilient housing in urban areas. These include housing finance subsidy design recommendations, green construction guidelines for  affordable housing, rental housing options, green certification assessment, and solar panel and renewable energy recommendations.

A Blueprint for Change

This collaboration has provided Indonesia with a replicable model for addressing housing shortages while mitigating climate impacts. By integrating green design, energy efficiency, and affordability into urban planning, it shows that sustainable development is within reach for low- and middle-income countries.

As Dao Harrison, Senior Housing Specialist at the World Bank, emphasized: "Indonesia is rapidly urbanizing, and needs effective and affordable housing solutions for urban centers. Working with low-income neighbourhoods, we can help households to improve their homes for better liveability, add rental units or start in-home businesses where feasible for additional income for the families. Household and community-led housing densification investment is one of the most affordable methods to deliver resilient and adequate housing for Indonesia.”

The Gap Fund's support has not only provided immediate solutions for green, resilient, and affordable housing in Indonesia but also established a scalable model that can be adapted to other communities and countries, paving the way for sustainable urban development worldwide.

Find out more about the City Climate Finance Gap Fund projects and technical assistance on the Gap Fund LinkedIn page.

This story was prepared by Rajeshree Sisodia, Consultant, World Bank and Sandrine Boukerche, Senior Climate Change Specialist, World Bank. It was funded by the City Climate Finance Gap Fund, a Multi-Donor Trust Fund with support from the Governments of Germany and Luxembourg.