Affordable Housing – Fundamental Development Considerations to Ponder on

Apart from being one of the items that absorb a large portion of household expenses, housing plays a special role in the social, political and economic discourse of most societies. As a matter of fact, housing has been known to be a major component of creating stable and healthy communities.

The Nigeria National Housing Policy defines ‘Housing’ as the process of providing functional shelter in a proper setting in a neighborhood, supported by sustainable maintenance of the built environment for the day-to-day living and activities of individual and families within the communities. Quite fundamental to the attainment of affordable housing goals in any nation is for stable housing policy, presence of political will and proper implementation of sustainable housing policies.

For a country to meet its affordable housing expectations, there must be a stable macroeconomic environment. In Nigeria, the situation is not helped by high inflation rates and nominal interest rates. Not only does a volatile economy like Nigeria reduce affordability of mortgages but also affects the supply of funds and the types of mortgages offered by lenders. In a volatile economic environment, lenders are more concerned about liquidity risk and are reluctant to offer long term loans. Arguably, the volatility of the Nigerian Economy affects the supply of funds available to house developers and this inhibits the growth of the housing sector. Lenders, more often than not, are concerned about liquidity risk and are reluctant to offer long term loans.

Over the years, construction costs have risen due to the relentless inflationary pressure on building materials and increased demand for labour. Discontinuity of the previous government policies on affordable housing has also not helped matters. The challenges associated with securing and perfecting land titles have also militated against the delivery of efficient and sustainable housing delivery in Nigeria.

The Nigerian Housing Sector The inability of various policies and programmes between 2006 and 2017 to adequately resolve the backlog of housing problems in the country reveals the need for more pragmatic solutions. Given the importance of housing in the national economy, the federal government of Nigeria has continued to develop policies to aid housing delivery.

The Affordable Housing Initiatives by the present administration include the following:

• The Federal Integrated Staff Housing (FISH) Programme (2016); and
• My Own Home scheme (2017)

The Federal Integrated Staff Housing (FISH) Programme (2016)

The FISH Programme is an initiative of the Head of the Civil Service of the Federation (HOS) in line with the Federal Government’s housing policy. It is designed to provide affordable housing for Federal Civil Servants through an integrated strategy involving group land allocation, site services, infrastructure development, inter-ministerial collaboration and utilization of expertise residual in the Service.

The federal government has in the regard of providing housing loan to the Federal Civil Servant across the Country signed many Memoranda of Understanding (MoU) enabling direct participation of the private sector in the provision of houses as well as with ministries, agencies and departments. It has equally entered into partnership with developers to build moderate and affordable houses for its staff. One of such MOUs was the N13 billion mortgages refinancing under the government backed Federal Integrated Staff Housing (FISH) progamme signed to facilitate approval of loan to some civil servants to facilitate their purchase houses under the programme.

The mortgage refinance agreement was signed at the FISH Summit between Federal Government Staff Housing Loan Board (FGSHLB) and Nigeria Mortgage Refinancing Company, while the second MoU was entered between Family Homes Funds, which is another government institution meant to provide affordable housing, and the Federal Mortgage Bank of Nigeria.

My Own Home scheme (2017)

The federal government had signed an MoU with Shelter Afrique and the Real Estate Developers Association of Nigeria for the construction of about 100,000 housing units across the country for N610 billion. That came under the National Housing Programme and each state is entitled to certain units of houses. Part of the agreement is that a total of $200m would be used for the construction of about 10,000 houses nationwide on a yearly basis and that the project would span some 10 years, thus making a total of 100,000 housing units and has a cost profile of $2bn. The scheme, which has the World Bank and AFDB as contributors to the fund, affords real estate developers focused on social housing development, the opportunity to borrow 80 per cent of cost of project and source the remaining 20 per cent.

Key Issues affecting affordable housing in Nigeria

1. Property Registration and Title Documentation Uncertainties regarding the status of land documentation and delays in the process slowed the development of land and property markets and made the development of lending difficult to advance or sustain. It was for theses reasons that the growth component began to work with a number of registries. Nigeria’s reforms have led to a reduction in the time required to complete the process of property registration from 274 to 80 days, but a lot still needs to be done because it takes only 1 day in some other countries such as Norway and Singapore. It is worth noting that part of the reduction in time is can be attributed to improvements in property registration which has been implemented in Abuja and Lagos. Other state governments will do well to replicate the improvements achieved in the Abuja Geographic Information System (AGIS) and Lagos State in their various states. Investors are generally comfortable in environments where registration is automated and procedures are minimal.
2. Land Use Act The Land Use Act of 1978 (LUA) has become an obstacle to making land available for housing development. The LUA meant to make land easily available to all Nigerians has indeed become a major constraint to home ownership in Nigeria. The process of obtaining a Certificate of Occupancy and the consent provisions of the LUA makes transaction in land tedious, time consuming and expensive.
3. Infrastructural Inadequacy Another major challenge to providing affordable housing is the lack of primary infrastructure such as roads, water, electricity etc, which accounts for about 30 percent of housing costs. In most cases, developers have to provide the infrastructure which invariably increases the cost of the houses they produce. This ultimately results in such houses becoming unaffordable. There is a lot to be done by both the private and public sector in the provision of primary infrastructure if the goal of providing affordable housing is to be achieved. Lack of access roads still remains a major challenge and explains why the suburbs and hinterland are not attractive and while land prices in the cities are quite high. According to the Infrastructure Concession Regulatory Commission (ICRC), Nigeria has only 195,500km of roads of which 135,000km are in disrepair. Compare this with India 3.4m km of roads. Today, Indian road network is still expanding at the rate of 9 km of new roads daily.
4. Paucity of Long Term Funds Presently, the prime lending rate in the banking sector remains as high as 17.5% (CIA World Factbook) and it is impossible to use such funds for housing development. It is pertinent to note that the government has realized this and is reviewing the entire process of accessing mortgages, so as to bring it within reach of beneficiaries.
5. High Cost of Building Materials Due to the high import dependence of the sector and the over reliance of our construction sector on imported materials, the construction cost if far exorbitant than normal and has made housing unaffordable. A key factor that has led to the high construction cost in Nigeria has been the high cost of cement which by account constitutes about 40 percent of building materials. Various reasons have been adduced for the high cost of cement, with cement manufactures arguing that the harsh operating environment such as lack of constant electricity, high cost of fuel, bad road network. Also, the devaluation of the naira, scarcity of foreign exchange, multiple tax, and inconsistent government policies are additional reasons which are affecting the cost of cement. The price of cement has continued to rise steadily, hitting an all time high of N2, 700 from per 50kg bag in 2017.
6. Enforcing Foreclosure The absence of a foreclosure law has been cited by some investors and local banks as the reason for not investing in the housing sector. Though the incidence of foreclosure in most countries (especially with regard to low-and middle-income families) is generally quite low, it is important for investors to know that they can take possession of their collateral and recover their loans as quickly as possible. Investors can even live with a lengthy foreclosure process, but they must have confidence that the laws will be enforced fairly and in a transparent manner. Land Use Act and the Lagos.
7. Nigeria Taxation System One of the greatest barriers to large-scale provision of affordable housing is the tax burden. The imposition of value added tax (VAT) at various levels of the housing-development process adds significant costs as much as 35 percent to the cost of a house, even before title fees and stamp duties are taken into consideration. Tax holidays, deferrals or tax exemptions on materials or home sales, or similar tax-related provisions have been used successfully in other countries for low- and moderate-income families. These incentives can be used successfully in attracting investors into the housing sector. Other countries have proven that when they reduce the tax burden on housing, the number of transactions increases, and total housing related fiscal revenues either increase or remain the same.
8. Construction methods Reliance on the traditional methods of construction has also not helped the sector. Industrialized building systems, which are very cost and time efficient for mass housing projects is still not common in Nigeria. Industrial construction products include: Panelized units produced in a factory and assembled on-site to produce a three dimensional structure; Volumetric construction to produce three-dimensional modular units in controlled factory conditions prior to transport to site; Hybrid techniques that combine both panelized and volumetric approaches; Floor or roof cassettes, pre-cast concrete foundation assemblies, pre-formed wiring looms, mechanical engineering composites.
9. Construction Permits Issue There are usually delays in receiving permits for construction. The procedures are complex and expensive. The complexity and cost of regulatory processes in dealing with construction permits is also a key criterion that entrepreneurs consider in making investment decisions. Jigawa State, a North Western state, provides the best platform (i.e. ranks first) in dealing with construction permits in Nigeria. Lagos State, a South Western state, is the most difficult place to deal with construction permits in Nigeria (ranks 36th, requires 18 procedures that may be completed within 106 days, and could cost 53,504.9 per cent of the per capita income).

Reforming licensing requirements in Nigeria – particularly by reducing the processing time as well as decreasing the costs – would not only increase the size of the formal construction sector but also reduce the costs of housing construction, thereby increasing the availability of homes to a broader segment of Nigerian society. 10. Household income and wealth. Income is the primary factor—not price and availability, that determines housing affordability. In a market economy the distribution of income is the key determinant of the quantity and quality of housing obtained. Therefore, understanding affordable housing challenges requires understanding trends and disparities in income and wealth. Housing is often the single biggest expenditure of low and middle income families. For low and middle income families, their house is also the greatest source of wealth. The most common approach to measure the affordability of housing has been to consider the percentage of income that a household spends on housing expenditures. Another method of studying affordability looks at the regular hourly wage of full-time workers who are paid only the minimum wage (as set by their local, regional, or national government). The hope is that full-time workers will be able to afford at least a small apartment in the area where they work. The income level of most Nigerians could not sustain the present housing delivery model.