By Yinka Kolawole
The housing sector is the bedrock of the economy of most developed nations, an important tool for stimulating growth. Housing construction indices are some of the most common measures used by analysts to gauge economic trends in OECD countries. In more advanced countries like the United States of America, Britain and Canada, the sector contributes between 30 percent and 70 percent of their Gross Domestic Product (GDP). Investment in housing accounts for 15 percent to 35 percent of aggregate investment worldwide and the sector employs approximately 10 percent of labour force worldwide.
However, the housing and construction sector in Nigeria accounts for only about 3 percent of the country’s rebased GDP. The country has an extremely low ratio of credit to GDP, and of the little credit provided by banks, only a fraction of it is for mortgages. Despite the size of the nation’s economy, mortgage debt to GDP is only about 0.5 percent.
The housing sector has the potential to generate employment, increase productivity, raise standard of living and alleviate poverty. This is because investment in housing affects all facets of life through its multiplier effect on economic development through forward linkages to the financial markets and backward linkages to land, building materials, tools, furniture and Labour markets. For example, the construction of a medium sized (2/3 bedrooms) bungalow is capable of directly creating employment for an average of 76 workers.
The number goes up significantly when the forward and backward linkages are factored into the process. Therefore for 1000 housing units scheme of two bedroom bungalows, up to 76,000 workers will be engaged for a period of between 12-18 months. Accordingly, if in a year we build a 1000-housing unit estate in each of the 36 States of the federation and FCT, we would create a workforce of 2,815,000 per annum.
Contribution to GDP
Speaking at a World Bank forum in Washington, last year, former Minister of Finance/Supervising Minister of the Economy, Dr. Ngozi Okonjo-Iweala, highlighted the potential contribution of the housing sector to national development in three possible ways. According to her, the sector can serve as an important contributor to economic growth, adding that the housing sector has a tremendous multiplier effect on the broader economy.
“Housing contributes to GDP through two main channels, namely: private residential investments, such as, construction of new homes, and also via the consumption spending on housing services. For example, in the USA, private residential investments contribute about 5 percent of GDP, while housing services contribute another 13 percent of GDP, summing up to a total housing sector contribution of 18 percent of GDP.
There are also secondary economic impacts of the housing sector. Housing wealth is often a large component of net personal wealth (about half of net personal wealth in the USA). And in developed countries, housing wealth/assets can often be used as collateral to stimulate additional private consumption and investments,” she stated.
Furthermore, Okonjo-Iweala noted that the housing sector can support job creation and economic inclusion. “The job creation potential for the housing sector is enormous in Africa and other developing countries. In India, each new housing unit generates 1.5 direct and 8 indirect jobs. In South Africa, each housing unit creates 5.62 direct jobs and 2.5 indirect jobs. But the key point is that the sector can also help promote economic inclusion by creating jobs for our craftsmen and artisans such as masons, plumbers, welders, electricians, painters and so on,” she said.
In addition, she noted that the sector also provides social benefits by contributing to community – and nation – building. “We know that home-ownership often gives citizens a true stake in their communities. After owning a home, many citizens tend naturally to be concerned about the provision of public goods in their communities – from schools, to clinics, to security. These are intangible social benefits which a strong housing sector can help to generate,” remarked.
Homeownership is a measure of household wealth and GDP. It is generally accepted that the standard of housing in a nation indexes its effective economic development; standard of living and its height of civilisation. Therefore, the housing sector has a tremendous impact on job creation, employment, security, socio-political stability, effective economic growth and development of societies.