Restructuring the housing sector
A new initiative by the Central Bank of Nigeria to strengthen mortgage financing in the country highlights the crisis in the country’s housing sector. Though short on details, the bank said it was collaborating with the Nigerian Mortgage Refinance Corporation specifically to address challenges in delivering affordable housing in the country. Bridging the huge housing deficit requires a new multi-faceted approach by the three tiers of government.
The Deputy Governor, Financial Systems Stability of CBN, Aisha Ahmad, says the collaboration with NMRC targets effective mobilisation of credit for housing. Efforts to remove the constraints in the provision of cheaper homes would also be crystalised alongside the expected passage into law of the Model Mortgage and Foreclosure Bill. This seeks, among others, the dismantling of some of the administrative and legal constraints in achieving the goal of housing for all Nigerians, a target set by the government four decades ago but missed. Instead, the gap has widened.
From only a few million units short in the 1970s, the World Bank puts the current deficit at 17 million housing units. In contrast, faced with similar housing shortage in the wake of rapid urbanisation, South Africa delivered over three million housing units between 1994 and 2017 to fill the gap, establishing itself as a country with one of the world’s most ambitious housing programmes. Egypt, Africa’s third largest economy after Nigeria and South Africa, identified a national emergency situation when, by 2011, it had a deficit of 1.5 million housing units!
According to Ahmad, Nigeria currently has a stock of only 13 million housing units for a population variously put at between 180 million and 193 million, while eventual demand is estimated at between 38 million and 44 million units.
Housing is critical in every economy and usually assumes crisis dimension in emerging economies where rapid urbanisation often outstrips the capacity of cities to provide new housing, according to economists. Shelter is a basic necessity after food and clothing. A report in South Africa’s Mail & Guardian newspaper said inadequate housing posed both security and development threats to the society. The United Nations Development Programme says housing is central to human development and impacts on health and productivity. Provision of housing or lack of it has also been linked to poverty and is adopted by the United Nations as a poverty-reduction strategy.
With poverty rate variously put at over 61 per cent by the National Bureau of Statistics and 80 per cent by the African Development Bank, Nigeria’s housing deficit is not surprising. Think of Lagos, where 86 persons are said to relocate to every hour and swelling its 23 million-strong population. Other cities like Abuja, Onitsha, Port Harcourt and Kano are feeling the pressure for new housing. State provision of housing is patchy and lending rules are prohibitive.
Confronted with urbanisation, responsive governments adopt multi-pronged approach. In South Africa, all of the central, provincial and city governments are involved. Government’s assistance targets low-income earners. Durban, a major city in South Africa, provided 174,000 new units between 1996 and 2014.
The United Kingdom provides a template to be emulated. There, private investment provides housing, while local councils supply the bulk of low-income housing with the central government’s support. Housing associations are also formed as non-profit organisations to provide housing for low-income earners and the needy. Like the UK, India has also been promoting strong mortgage financing through reforms sector to house its 1.2 billion people.
Apart from sheer incompetence, successive Nigerian governments miss their targets through wrong strategies and lack of the needed political will and strong regulation to see through good ones. A repeated blunder is the forlorn attempt by the Federal Government to build houses directly. Without unlimited funds and by the sheer magnitude of the logistics, this is ridiculous. A current plan to build 2,736 units across 33 states is typical: how can this redress the 17 million deficit? It is the states and the local governments that are better placed to do this. The United States city and county councils are constantly partnering private developers to provide affordable housing through regulations, policies and subsidies.
The Federal Government should strengthen its partnership with the states and LGs, who in turn should enter into corruption-free arrangements with the private sector and non-profits. Land acquisition and building approval processes should be streamlined and home ownership made easier for the low- and middle-income segments through less red tape, low licensing fees and low-interest credit. State governors should stop building houses for civil servants alone: they are elected to serve all, not a few.
The government should muster the political will to implement the National Housing Policy and make the National Housing Fund and NMRC effective. Non-enforcement crippled the mandatory subscription of 2.5 per cent of every worker’s pay to the NHF specified by law. The system has also been assailed by the prevalent culture of corruption and nepotism, translating to low repayment of the low-interest credit provided by the Fund through primary mortgage institutions. Solving the problem will require a thorough reform of the mortgage finance sector that currently contributes less than one per cent to Gross Domestic Product, unlike OECD countries where it averages over 50 per cent.
But the daunting task is how to tackle the macroeconomic environment side where interest rates to the productive sectors average 22-28 per cent and lending rates to the real estate sector range between 28 and 36 per cent. Statutory requirements that banks and insurance firms reserve a percentage of their credit and investment respectively for real estate are ignored.
Construction is a major job creator and housing provision alleviates poverty: with this in mind, the three tiers of government should rouse themselves today to reform the housing sector.
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