February 21, 2011

Intervention funding: A must for affordable housing in Nigeria

By YINKA KolaAwole
Housing is one of the most basic human needs. However, 50 years after independence, access to affordable housing largely remains a mirage to the vast majority of Nigerians.

Nduese Essien, Minister of Housing

The housing challenge facing Nigeria is multifarious in dimension, ranging from a huge housing deficit due to imbalance between supply and demand, rapid urbanisation, steady population growth, high cost of construction, paucity of housing finance, restrictive access to land, poor state of infrastructure, shortage of building materials, under investment in low-income housing to unaffordability by over 70 per cent of the Nigerian population who are categorised as poor and low-income group to have decent housing accommodation.

There is lack of effective demand for housing owing to the type of financing, or the lack of it, available for end users – high interest rates, lack of long term funds, Low levels of income and, lack of affordable housing.

There is also a lack of affordable supply, with prohibitive financing available to developers – cost of building materials, planning/building regulations, high cost of infrastructure and, lack of skills/capacity.

Of the many reasons that have been adduced for the current huge housing deficit in the country, estimated to be about 16 million units, the dearth of finance is no doubt a major factor.

The International Finance Corporation (IFC) estimates that about N30 trillion would be required to finance the country’s current housing deficit, with 720,000 new houses required every year

It is true that successive governments in Nigeria since independence have highlighted housing as a major priority, leading to the formulation of various policies culminating in the establishment of a ministry of housing and other related agencies to tackle the problems of housing.

However, even the creation of a housing ministry does not seem to offer any solution to the problem, because the bulk of the small amount of money allocated to the ministry is expended on things not directly connected to housing development.

For instance, out of the N4.236 trillion budget proposals of the federal government for 2011,
N20.624 billion (or 0.49%) was allocated to the housing ministry. Of this amount, only N9.73
billion, representing 42.4% of the ministry’s budget, is devoted to housing development and
research, with N8.75 billion going into ongoing and new housing projects, while N979.82 million
is for Research and Development (R & D).

It also very clear that government needs to be involved in other areas of housing development
outside financing. World Bank estimates the structure of a typical housing project financing in
Nigeria as 20% of costs for land acquisition, 30% for infrastructure, while the remaining 50%
goes to the actual housing construction.

The grim housing finance situation in the country, in the face of a virtually non-existent mortgage
market, along with the hindrance of bureaucratic bottlenecks of government agencies, has
necessitated the calls by many stakeholders for the creation of an intervention fund to boost the housing sector.

The Central Bank of Nigeria (CBN) revealed that statistics obtained from 77 active primary mortgage institutions (PMIs) as at June 30, 2010 shows an aggregate shareholders fund of N54.8 billion.  This represents less than 0.2 percent of the N30 trillion required to finance the housing deficit.

Given the funding challenges, it becomes clear that the dearth of long term deposits coupled with low level of capitalization of the PMIs are key militating factors in the drive to consistently finance long_term loans on a sustainable basis. Thus, the need for a liquidity/re_financing facility is imperative and paramount.

The Mortgage Banking Association of Nigeria (MBAN), umbrella body of primary mortgage institutions (PMIs) in Nigeria, in a memorandum submitted to the Committee on Finance of the Lagos State House of Assembly, preparatory to the passage of the Lagos mortgage bill, noted that the bill will be ineffective unless the state government creates an Intervention Fund to drive long term mortgage financing.

“Owing to the high population growth, Lagos State needs well over 250,000 new housing units per annum for the next 20 years in order to reduce the current deficit. However, going by the average income of the Lagos State middle_class citizens, this feat cannot be achieved without infusion of Intervention Fund to drive long term mortgage financing. MBAN welcomes the idea of the state government aimed at regulating mortgage and related matters, through the Mortgage and Property Bill 2009.

However, in the absence of Clear Intervention Funding for Housing Development from the Lagos State government, through the Lagos State House of Assembly (LSHA), perhaps in partnership with the private sector, the bill becomes of no effect,” it stated.

The CBN recently disclosed plans to set up a National Housing/Mortgage Intervention Fund, expected to be in the region of N200 billion, as part of efforts to increase access to affordable housing in the country. Mr. Kola Durojaiye, Deputy Director, Other Financial Institutions Department (OFID), in the apex bank, disclosed that the proposed housing/mortgage intervention fund would come into effect only after the reforms of the sub_sector.

Speaking in an interview with Vanguard, Mr. Fortune Ebie, former Managing Director of Nairobi, Kenya-based Shelter Afrique, said that there is no country in the world which is doing well in housing where the interest rate in housing is not subsidized for a particular group. “You don’t need to ask the capital market to reduce the interest rate, that is not the issue.

The prevailing rate of interest in the market, let’s say for borrowing from primary mortgage institutions (PMIs) is 19 percent. What is done elsewhere, and what should be done here is that the state government or the federal government now decides that I want my citizens to have this money at 9 percent.

So, the government pays the difference between 9 percent and 19 percent as subsidy. If you want your citizens to be housed, you must develop mechanics which will not affect the operations of the capital market and the open market. So you must have methodologies that can enable you subsidize the people,” he said.

Ebie, also a former General Manager of Federal Housing Authority (FHA), remarked that “the other way the state governments can handle this housing thing is build them and give them out on owner-occupier basis, and that was what was done by the way we handled the FESTAC Town project. And the occupier continues to pay “rent”. When you have paid rent, for say 25 years, the house becomes your own. That is another form of mortgage.”

Most governments both in developed and developing countries adopt a system of affordable housing such that the segments of the income strata classified as low_income groups are protected from the vagaries of the housing market, which often preclude these individuals to have decent housing in wholesome environment due to insufficient finance.

It is with these people in mind that the concept of social housing interchangeably referred to as public housing in other countries was practicalised through the provision of housing subsidised by government in order to make the dwellings affordable for purchase or rental.

The variants of social housing subsidies in many a country include housing investment subsidy (Poland), public aid granted to institutions which build accommodation for low_income (Germany), home improvement grants (Belgium), home ownership loan with concessionary interest rate (Spain.), housing benefits (U.K.), zero per cent loan (France), household housing aid (Finland), housing voucher (U.S.A.) tax credits (Kenya), block grants for neighbourhood improvement (Sweden.), mortgage_backed securities (Austria) and sundry methods of subsidy as applicable in various countries.