By Roland Igbinoba

Housing has the ability to be a leading sector for stimulating economic growth and development in a depressed or stagnant economy and raising the standard of living of the people.

It is a key driver of social and economic development and there is evidently a positive correlation between such indices as home ownership rates, contributions of housing sector to GDP, proportion of total mortgage loans to bank lending on the one hand, and a country’s level of development on the other.

The example of the United State of America, which attained rapid socio-economic development through its proactive policy of aggressively pursuing home ownership for her citizens, is most instructive.

The US real estate industry is a major contributor to the national economy, providing millions of Americans with jobs (1.7 million paid employees in 2001), and generating hundreds of billions of dollars of economic output every year.

The effectiveness of housing sector policy and performance go beyond just the housing sector. Indeed, the relationship between the housing sector and the broader economy is reciprocal.

If housing market and housing finance systems fail to supply the kinds of services that are requisite, the entire economy suffers. For instance, the recent failure in the US housing and mortgage markets, which are the most active in the world, resulted in a slowdown in the US economy and the world at large.

GDP growth in 2007 which was estimated at 2.2 per cent was a mere 0.9 per cent in 2008, down from the 10-year average of 2.8per cent. The case of a developing country like Nigeria, where currently, total housing contribution to GDP is about 0.4per cent, shows how poor performance of the housing sector can inhibit the growth potentials of the economy.

Housing can be highly labor intensive, thus providing employment for a substantial part of the labor force.  It has the potential to stimulate industrial activity through its strong backward and forward linkages to equipment, building materials and other consumer durables.

A large proportion of the population depends directly or indirectly on real estate for their means of livelihood making it a significant determinant of rate of economic growth and development.

In the Nigerian housing sector, many factors have been identified as constraints on the ability of most Nigerians to achieve their desired housing goal.

Some of these factors are: increasing land cost; high financing cost (manifested in the high interest rates and service charges); inadequacy of mortgage loans; coupled with zeal for higher standard of dwellings among Nigerians.

More importantly, however, is the fact that Nigerian housing finance system over the years has remained largely undeveloped and ill equipped to mobilize and channel savings to the housing sector and as such could not significantly facilitate the purchase, rental, construction and improvement of homes for the population as a whole.

Housing and housing finance is a veritable source of a continuous stream of income for government and its agencies. Income generated through taxation of the value of housing constructions and services can provide substantial revenues to government with which social welfare and economic development programs are financed.

Construction of new homes expands the tax base and so increases property tax revenues. In the United States, 70 per cent of all tax revenues raised by local municipalities come from property taxes.

Aside from tax revenues to governments, the desire to purchase housing is a primary motivation for the generation of household savings in the financial system.

This is a sure and effective way of promoting the habit of saving among low-income earners, which in the long run contributes to their welfare and the growth and development of the economy.

In Nigeria, the organization for housing and housing finance is not radically different from the prevailing situation in other Third World Countries. Several governments in Nigeria since independence have highlighted housing as a major focus.

Unfortunately for over five decades the country has failed to develop a vibrant housing and housing finance market. Supply of housing is mostly through individuals who acquire their housing through incremental methods of buying land and building it over a number of years.

With 14 million units of deficit at an average unit price of N2, 500,000 (US$ 16,666), the estimated size of the mortgage market is N35 trillion (US$233 billion). This amount is nearing five times the capitalization of the Nigerian Stock Exchange (NSE). These numbers show tremendous opportunities waiting to be tapped in the Nigerian housing market.

Housing and housing finance can and do contribute positively to national development by attracting and receiving investments, creating jobs and generating wealth. Unfortunately, the state of Nigeria’s housing markets today cannot act as engines of economic development and national prosperity.

The unattractive policies are not linking local and international markets, nor are they attracting significant investment relatively to the potential of the market. A wide gap exists between housing needs and housing supply.

This is further compounded by a complete lack of finance mechanisms for housing, and the failure to deliver enough houses is not just a social problem but a huge repercussion in terms of economic development.

These myriad of challenges still exist because there has not been any detail work done to show the linkages of the housing and housing finance sector to economic growth and development.

Furthermore, there has not been any comparative analysis with other emerging countries who have successfully harnessed the linkage to develop their economies.

This linkage needs to be demonstrated and the Jonathan administration should consider this as a priority to determining how to efficiently resolve the perennial housing problem in the country.

An understanding of the interrelationships between housing finance and economic development is essential for the harnessing of the various ways in which interventions could be made in housing finance in Nigeria.

This inter-relationship is well understood in Thailand. The current Thai government views the real estate sector as a major driver of economic stability and growth.

During the past four years, it has enacted numerous new policies to stimulate the economy and at the same time addressed the housing requirements of the less privileged.

These policies have played significant part in helping Thailand’s economy recover from the 1997 economic crisis and have been the key drivers of sustainable economic development.

How can Nigeria begin to tap into and benefit from the linkage of housing finance and economic development?  What needs to be done? What kind of leadership is required to drive this process?

As the new Minister of Lands, Housing and Urban Development settles into office in the next few weeks, She must begin to answer such critical questions as: What is the state of supply and demand of housing in Nigeria? Are there current regulations for housing and housing finance in the country?

* Igbinoba is the President/CEO of Pison Housing Company, a real estate and housing finance advisory services firm based in Lagos.