With one of the world’s lowest homeownership levels at 25 percent, Nigeria’s burgeoning population coupled with its high urbanization rate means the housing crisis in the country will continue to rise.
While finance constraints remain a crucial issue, analysts say improved access to private funding along with public sector reform to ease sectoral appetite for affordable loans, might be the shot in the arm needed to jump-start the much-needed housing progress.
Targeted funding initiatives will ameliorate incremental construction or self-funded construction problems, according to the Group MD/CEO of Shelter Afrique, Andrew Chimphondah.
“This would ease pressure on the public sector, leaving room for governments to address appropriate town planning, building standards, the provision of land title issues, and infrastructure trunk lines for water and power,” Chimphondah said.
Nigeria’s housing challenge borders on the insufficient stock that meets the demand of low-income earners, low ownership level and lack of demand enablers in terms of a mortgage or low-rate housing finance.
The United Nations Human Settlement Program (UN-Habitat) reports that 238 million people in Sub-Saharan Africa live in slums. The situation is evident in major Nigerian cities like Kano, Lagos, and Ibadan, where housing demand can increase by 20 percent annually.
The limited housing supply exacerbates the already dire situation, with the housing pool availability versus demand ratio pegged at 10 percent. The situation is further compounded by developers struggling to complete their projects, bogged down by largely unfavorable lending rates, compared to the rest of the world.
According to analysts, the fact that 42 percent of Nigerians live on less than a dollar a day also impacts the official housing market’s accessibility.
Data by Graeme Blaque Group put employed Nigerians who can buy affordable housing at only 5 million (the total number that earns a salary of N3 million and above per year). This represents 10.75 percent of the total employed population of 46.49 million reported by the National Bureau of Statistics (NBS) in Q4 2020. This implies that as much as 41.49 million people who earn less than N3 million will find it difficult to afford their own home except of course there is an increase in their income level.
“We found that less than 5 million Nigerians earn up to N3 million a year, and when we first brought out the data a lot of people shouted, so when you put that into consideration and look at affordable housing; if I give you a house at zero interest rate for even 50 years, what type of house will you be able to afford?” Zeal Akaraiwe, CEO of Graeme Blaque Group said.
For instant, if one of the employees earning N3 million per year (N250,000 per month) was to save towards acquiring a house, such person would have to set aside N83,333 per month (the one-third of total earnings allowed by HR). This will amount to N1 million in a year, and to buy a four-bedroom semi-detached house in Lekki worth N75 million such a person would have to save for 75 years.
Even if the person was to acquire a property in Ikorodu, Ebute Metta, both in the mainland axis of Lagos, or Choba in Port Harcourt, which has similarities with Wuse in Abuja, he or she would have to save for at least 20 years.
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“The major issues that continue to affect housing delivery in Nigeria, which also account for the wide demand-supply gap, include constraints related to the high cost of securing and registering secure land title,” said Nasir El Rufai, Kaduna State governor.
According to the Association of Housing Corporation of Nigeria (AHCN), the underdevelopment of Nigeria’s mortgage sector in driving homeownership is worrisome as more than 90 percent of new homes utilize funds from personal savings for incremental construction.
“The biggest problem of the mortgage sector in Nigeria is the high cost of the very limited mortgage that is available. If they can develop a policy to ease housing finance, it will be impactful,” Wole Olabanji, the CEO of CoBuildIT, a real estate firm, said.
By channelling resources towards easing demand- and supply-side pressures, Shelter Afrique, one of the organizations working to address the staggering housing deficit across Africa, said Nigeria’s real estate sector focus could help address some of the major issues highlighted in the recent World Bank report, ‘Stocktaking of the Housing Sector in Sub-Saharan Africa’ including little formal savings, limited access to loans and the reliance on informal or micro-lending.
However, for international agencies such as Shelter Afrique, making inroads into new territories like Nigeria can be difficult. Exchange rate volatility and sky-high interest rates make financing projects a dicey game, but innovative industry players are finding ways to mitigate the challenges.
Issuing local currency bonds backed by its US Dollar balance sheet is a route Shelter Afrique plans to take as it seeks to deliver on its mission to help provide greater access to affordable housing within the country.
The organization has finalized plans to issue bonds of up to N250 billion in Nigeria, commencing in early 2022. This represents an attractive investment opportunity for savvy institutional investors such as pension funds, insurance companies, asset managers and banks. In turn, housing developers, construction companies and mortgage providers can obtain Naira loans from Shelter Afrique at more competitive interest rates.
“It is a particularly thorny issue for the public sector to address, with restricted public funding incapable of keeping pace with population growth and the subsequent housing demand,” Chimphondah said.
Acknowledging that homeownership is one of the most significant markers of a country with healthy growth, Shelter Afrique said the housing deficit in Nigeria presents an opportunity to include housing-led economic expansion as part of a diversification strategy for the most populous nation in Africa.
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