How do you assess the efforts of the public and private sectors to reduce the housing deficit?
MUWOWO: The availability and cost of housing require a specific and measurable redress policy. The federal government is taking the initiative by embracing public-private partnerships (PPPs). This model recognises that a key component of affordable housing is the cost of land, which may range from 30% to 60% of the total cost of a housing unit. To address this, all branches of government must make their various parcels of land available at zero cost. This will enable private developers to deploy the requisite technology and expertise to develop large-scale housing programmes on government-provided land. Lastly, sufficient capital must be mobilised to unlock financing for developers and mortgage banks to provide an affordable housing supply.
The Federal Housing Authority has leveraged the PPP structure to improve the provision of affordable housing units at an average cost of $20,000 in Abuja and other states. Ultimately, providing land is a prerequisite to creating a liveable community, and the government can deliver the building blocks to provide more public and affordable housing for the more than 70% of the population living in informal housing.
What are the most crucial elements for a funding structure to expand access to affordable housing?
MUWOWO: The first element is the cost of securing funds. Development finance institutions (DFIs) typically have different funding sources, including shareholder capital and financial markets. While we hope to increase our paid-in shareholder funds, such capital is only a lever. We must raise funds from financial markets, which consists of money from African and international multilateral development banks (MDBs), such as the Islamic Development Bank. Given their high credit ratings, MDBs can mobilise capital at a rate below 1%, and we subsequently borrow at less than 3% on average. We then lend to regional governments and the private sector at a competitive rate of 4% on average. Extending credit at a cheaper rate enables more economical housing construction, assuming other cost inputs such as land are equal.
Funding also comes from local currency bonds, which we buy on regional capital markets. However, there are limitations given the current level of development of capital markets in Africa, as well as the elevated cost of borrowing for DFIs, whose benchmark lending rates are tied to federal government securities, regardless of the DFI’s credit rating. This means that funding is often not available for affordable housing, as evidenced by our June 2022 bond issuance in Nigeria. Innovative strategies such as a blended rate could help to address the demand for public and affordable housing.
Ultimately, funding structures must be underpinned by a robust affordable housing policy to address the imbalance between supply and demand. This may require lowering import duties and value-added tax on building materials to reduce construction costs. We can also stimulate demand by increasing our support for businesses such as the Nigeria Mortgage Refinance Company to enable the provision of long-term housing finance at below-commercial-market rates. This will encourage large-scale developers to dedicate more resources to the affordable housing segment.
To what extent can affordability be targeted to ensure the viability of housing projects?
MUWOWO: There is no universal concept of affordability given the various levels of socio-economic development in Africa. However, there is a practical tool called the affordability calculator that analyses data points such as average household income and the cost of food – to yield a baseline range for an affordable house. This translates into between $10,000 and $20,000 for a suitable house depending on the context. A rule of thumb is that a household should not spend more than 30% of their income on rent or mortgage payments.
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