By Marja C Hoek-Smit (Wharton School, University of Pennsylvania (Retd.) HOFINET)
Core Messages
Current string of economic shocks battered emerging market
economies hard
With major impact on housing programs, affordability and supply
But housing offers enormous opportunities
To stimulate economic recovery and generate employment
And improve social, community health and educational outcomes
Requires policy incentives that address the macro and fiscal challenges
Expand and derisk financial/capital markets for housing
Reform poor, costly policies
Rethink measures to unlock supply in underserved markets
Key: how to bring policy-makers together around common platform?
Multiple Crises Hit Emerging Markets
Strained finances/high debt levels due to Coronavirus pandemic
Soaring global inflation: supply chain issues and War related shortages
Tightening of monetary policy in advanced economies
Resulting in:
Deceleration of economic growth – EMDEs GDP per capita growth and
expected growth 2 to 2.5% from 4% pre-pandemic
Investors shift away from EM bonds –
Benchmark index of dollar-denominated EM sovereign bonds down
-JPMorgan Global Diversified- total returns -18.6% in 2022
What does this Mean for SSA’s Housing Sectors?
Macro-economic Volatility and Housing Make Poor
Bedfellows
Increase in interest rates/ interest rate volatility:
Reduces demand for loans => lower demand for houses or home-improvement
Impacts supply of loans- most mortgage lending is in fixed rate for life of loan; lenders cannot bear
interest rate risk => mortgage issuance sharply reduced; same for developer loans;
Banks hold highly priced sovereign bonds (risk free)- negative for mortgage market development
Danger of stagnation in the housing sector
Effects on house-prices relative to incomes:
In advanced economies: higher interest rates often lead to house-price decreases
In EMDC: mortgage sector is small; concerns focus on price increases – building materials
(imported) + higher interest rates; impacting affordability if incomes lag inflation
Effects on Fiscal Space: debt servicing costs higher; lower tax revenue; limits ability to invest in basic
infrastructure and services; or stimulate demand or supply of housing – limit current subsidy programs
But Housing Sector Offers Enormous Economic
Opportunities in Times of Downturn
Best way to reach sustainable debt levels + fiscal balance is economic growth
Housing sector is large part of economy ~ 16% to 20% of GDP in EMDC
Through consumption and investment
Housing Sector can (quickly) stimulate economic growth and in the process–
Generate employment (skilled and unskilled)
Improve urban productivity and environmental sustainability
Improve household productivity
and social, community health and educational outcomes
How can this Potential of the Housing Sector be
Achieved During this Period of Uncertainty?
Three core areas for action in SSA, given current macro constraints
Urgently expand financial sector for housing to deal with new financial
risks: primary lending and capital markets
Scale up housing supply through targeted private + public sector
actions using innovative methods without adding fiscal stress
Create common housing platform for public and private decisionmakers
to achieve speedy actions
Unleashing the Housing Sectors Potential –Policy
Actions
- Macro policies + public/private policies to expand housing finance
Loan level – lending in times of uncertainty
New mortgage instruments to deal with inflation (indexation)
Credit guarantees for developer lending and mortgages
Ease regulatory requirements for mortgage lending (cap requirements, etc.)
Reform/close poorly structured + expensive mortgage subsidies
Investors- Capital market expansion to reduce risks
Expand capital markets for housing instrument to alleviate interest rate risk/+ALM
New cap market debt instruments backed by residential property; attract new investors
(domestic/foreign)
New ESG compliant bonds to attract new foreign investors
Africa has several Refinancing Facilities — Nigeria, West African Monetary Union, Kenya,
Tanzania, Egypt that can take the lead to implement these policies urgently
Unleashing the Housing Sectors Potential –Policy
Actions (2)
- Scale up supply! Urgently
Finish ongoing projects (access to debt finance; subsidies)
Expand access to titled land (reforms) – new land surveying/registration
technologies
Use land value capture mechanisms to pay for infrastructure and cross subsidies
Facilitate permitting; use realistic sustainable and affordable standards
Increase domestic production of building materials
Etc.
Most of the panels in this large and famous housing show focus on supply-side
innovations, which is critically important. I leave that topic to others.
How to Bring Policy-makers from Public, Private,
Non-Governmental Sector Together around
Common Housing Platform?
Create urgency around housing sector in current downturn
Build coalition among top decisionmakers at national, state/local
level
Include private/NGO/DFI players – lenders, investors, developers
Focus discussions on top priorities for housing sector to reach scale
Understand what went wrong in past approaches to activate the
housing sector – lessons?
Create understanding and political will at highest political level to
make housing sector a national priority
Conclusions
String of economic shocks have battered SSA economies
With negative effects on economic growth
Housing has the potential to drive economic recovery
With a targeted approach on priority policy areas
Derisking developer and mortgage finance
Scaling up supply through regulation, innovation, etc.
Requires buy-in from high level public and private policy-makers
The Africa International Housing Show brings all players together
Great opportunity to start the action now!
