AfDB Chief Economist Complex examines Housing Market Dynamics in Africa

24/04/2015
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On April 8-9, the Chief Economist Complex of the African Development Bank organized a Bank-wide seminar on the Housing Market Dynamics in Africa at the Bank’s headquarters in Abidjan. The objective of this seminar was to share preliminary findings of the forthcoming study on the continent’s housing market dynamics. Day one of the seminar was co-chaired by Charles Boamah, Finance Vice-President, and Steve Kayizzi-Mugerwa, Acting Chief Economist and Vice-President, while Alex Rugamba, Director of Energy, Environment and Climate Change, chaired the second day session on behalf of the Vice-President for Infrastructure, Private and Regional Integration, Solomon Asamoah.

With an urbanization rate of 3.4%, African cities are experiencing the fastest urban growth rate globally. The continent’s rapid urbanization and growing population has sharply increased the demand for affordable housing across the continent. However, this increasing demand has not been met by a proportionate increase in supply, resulting in widespread shortages of affordable housing units in Africa and the proliferation of informal settlements across the continent. The related consequences and challenges are enormous not only in economic and financial terms, but also in terms of human development and social dimensions. The Bank’s Research Department investigated the key issues and produced a comprehensive analysis of housing market dynamics on the continent. The housing market dynamics seminar was organized to share some of the preliminary findings of this initiative, with a full report to be released in September.

The first day of the seminar focused on housing finance and land and infrastructure issues. During that session, Boamah underscored the importance of housing finance as well as the political economy of housing including governance-related issues. For his part, Steve Kayizzi-Mugerwa, emphasized the importance of finding credit enhancement schemes in enhancing the flow of private capital into low-income housing. He also highlighted the need to better plan housing-related infrastructure, including drainage systems and how to avoid retrofitting.

Housing affordability – particularly for poor and lower middle-income families, including those with irregular incomes in the informal sector – remains a key challenge to the continent’s housing finance market, according to Issa Faye, Manager of the Bank’s Research Department. He cited Morocco’s guarantee scheme, Fonds de garantie pour populations à revenus modestes et non réguliers (FOGARIM), India’s GRUH Finance and Colombia’s Fondo Nacional de Garantías as successful business models, which demonstrate that lending to informal sector workers may be feasible.

Land supply for affordable housing also emerged as a key constraint inhibiting the supply of affordable housing. It was noted that only about 10% of land in Sub-Saharan Africa is formally registered to individuals as private property.

Zekebweliwai Geh from the Bank’s Research Department argued that the unsecured land tenure and weak property rights in many African countries inhibit the active participation of the private sector in the provision of low-income housing. It was also recommended that stakeholders should do more to reduce the unequal access to land for women.

During the second day, construction and slum upgrading issues were discussed. As per housing construction solutions, Alex Rugamba highlighted the importance of considering regional approaches in order to provide housing construction materials at scale. He also stressed the need to ensure that the link is made with the Bank’s Ten Year Strategy and other core strategic priorities of the Bank.

El-Hadj Bah from the Research Department noted the rising costs of labour and material for construction as a key challenge. In Kenya, for example, direct building costs account for an estimated 60% of the total construction costs for formal housing. Regional approaches in terms of industrialization, standardization and financing were recommended as possible solutions in order to leverage economies of scale.

Given that over 200 million Africans live in informal settlements, slum upgrading and affordable housing development must be part of a broader sustainable urban development framework. Rental housing, public-private partnerships, as well as site and service schemes offers an affordable means of housing for low-income families.

The supply of affordable housing in Africa has the potential to contribute to inclusive growth, create thousands of jobs, develop the construction industry, and improve the living conditions of the majority of Africans.

Some proposed measures to narrow the housing deficit included: supporting credit enhancement schemes for both formal and informal sector workers, as well as the diaspora; strengthening the legal framework and governance issues around land; and providing equity to developers and technical assistance programs to build capacity across the housing delivery value chain, including at local government level.