The fact that the Nigerian housing sector is currently hobbled by a plethora of challenges is no longer a matter of debate. With a weak legal and regulatory framework, high costs of land and building materials, high inflation, a weak value of the naira, a lack of critical investment in the sector, and an infrastructure deficit, the list of challenges appears almost endless.
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“As it stands today, more often than not, owning a home in Nigeria requires the capacity to pay outright, but the figures show that only 10 percent of Nigerians who desire to own a home can afford it.”
In addition to all the challenges already highlighted, a major challenge is the lack of an efficient mortgage and credit system that can support low-income earners to be able to afford a home. As it stands today, more often than not, owning a home in Nigeria requires the capacity to pay outright, but the figures show that only 10 percent of Nigerians who desire to own a home can afford it.
This reality is not in any way surprising, especially in the face of the current economic realities: about 63 percent of the population is in multidimensional poverty, the middle class is fast thinning out, wages are low, purchasing power continues to be eroded on a daily basis as a result of fiscal and monetary challenges, and the naira continues to face depreciation compared to other currencies, especially the dollar. All of these challenges combined clearly suggest that more people are falling below the poverty line daily.
The current housing gap of 28 million units has grown progressively from 2 million housing units in 2007 to 14 million in 2010, 20 million in 2018, and more recently, 28 million housing units. Since housing constitutes a critical social demand, improving access has become an urgent priority. This is also corroborated by the fact that the country’s population is projected to double by 2050; this will predictably lead to a proportionate increase in the housing gap and potentially an increase in the number of homeless Nigerians. I reckon that this is not the future we want to build.
The current rural-urban migration, currently growing at 4.3 percent, is also expected to double by 2037, leading to more demand for housing in urban centres. If we must meet this demand, access is key, especially in finance, which comes in the form of mortgages and credit. This would not be far different from the practice globally, everywhere in the world. Because of their nature as capital-intensive assets, houses are purchased on mortgage, with sometimes people paying for the rest of their lives, and I reckon Nigeria cannot be left behind if we must put an end to the current level of homelessness.
The challenge with mortgage and housing finance in Nigeria is that it is not only inaccessible; it is also expensive, with very short tenors, sometimes less than 10 years. How does one explain that interest rates for mortgages usually range from 18 to 27 percent? With the current realities, it is simply out of the reach of many Nigerians. However, in fairness to the banks and other lenders, the high cost of borrowing does not exist in isolation; it is in part the result of the country’s monetary policy rate (MPR), set by the Central Bank as part of efforts to ease inflation.
For example, in February, the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) raised the Monetary Policy Rate (MPR) by four hundred basis points to 22.75 percent from 18.75 percent, making it the highest increase in MPR in over two decades. The effort was to stem the growing inflation, which currently stands at an average of 31 percent. Simply put, when MPR goes up, the bank lending rate to consumers also goes up, including mortgages. These are the key and knotty issues.
I believe that if we do not address the issues around mortgage and housing finance, it would be impossible to close the housing gap, because even if houses were available, Nigerians would still not be able to afford to own a home without access to a mortgage. It has been long established that countries with a higher mortgage penetration rate can close their housing deficits faster.
Therefore, if Nigeria must close the housing deficit, there is a need to immediately reform the mortgage and consumer credit to be accessible, optimal, and affordable, preferably at a single-digit interest rate and a longer tenure. This might require some form of government intervention and arrangement with lending institutions for people to access mortgages at a special rate, other than obtaining an interest rate at any time.
The Federal Mortgage Bank of Nigeria (FMBN) also has a role to play in this regard; its National Housing Fund, a contributory scheme for workers to access mortgage loans, is a laudable idea. The challenge with the scheme is that it has been largely inefficient, compared to the number of people it should cover. As of 2019, the scheme had only disbursed mortgages to less than 19,000 workers; that is too inconsequential. The government must take a look at the scheme again to make it more efficient in such a manner that it can deliver public goods to the greatest number of people.
Improving mortgage penetration has become an urgency now. The government must immediately work with private sector players, especially the banks and key players in the housing sector, to draw up a plan for creating an efficient mortgage system for the people. This would be consistent with global practice; Nigeria would not be the first.
Babatunde Bayo Lawal is co-founder of DukiyaInvestments.
