Land and Poverty Conference, 2016 March 26 – 28, 2015 HOUSING MARKET DYNAMICS IN AFRICA El-hadj Bah, Issa Faye, Zeke Geh AfDB- Research Department

Africa’s rapid urbanization and increasing population growth has sharply increased the demand for affordable housing across the continent… 2 Source: Hofinet  Urbanization processes and housing dynamics are inter-related  Urban population growth and urbanization put pressure on institutional and resource capacities of urban authorities  Twin development process—‘formal’ and ‘informal’ settlements developing in parallel  Cities being built ‘back to front— building first and servicing afterwards, required infrastructure retrofitting Source: The Economist

…resulting in widespread shortage of affordable housing supply in Africa: we estimate a total deficit of at least 50 million units Kenya (pop. 44.4mn) Housing backlog of 2mn units; estimated annual deficit of 200K units Cameroon (pop. 25mn) Housing backlog of over 700k units Angola (pop. 21.5mn) Housing deficit of over 1.9mn; estimated annual shortage of 100K Ivory Coast (pop. 20.3mn) Housing backlog of over 700k units Ethiopia (pop. 94.1mn) Estimated deficit of 1mn units; 100k annual shortage Nigeria (pop mn) Housing backlog of 17mn; annual shortage of 700k units South Africa (pop. 53mn) Housing deficit of 2.1mn units; an estimated 1.5mn households live in slums Morocco (pop mn) Housing deficit of 800k units, growing 178K p.a. Uganda (pop. 37.6mn) Estimated annual housing deficit of 233k units Source: CAHF, UN-Habitat, National Sources

This lack of affordable supply has translated to the growth of informal settlements 4 Over 200 million Africans live in slums Cities accommodate 72% of slum dwellers across Africa The housing issues should be looked at under the broader perspective of urbanization Data sources: UN-Habitat

Housing Delivery Value Chain Construction Land and Infrastructure Finished housing unit Design Materials: Cement, Steel Aggregate, Finishing products Finance and Government Labor: Skilled and Unskilled Housing Developer Offtake

Four main issues to deal with to address the shortage of affordable housing finance on the continent 6 Major constraints to providing affordable housing at scale: Lack of access to finance for poor and lower-middle-income families, as well as real estate developers Unsecured land tenure and weak land governance inhibits the active participation of the private sector Rising cost of construction makes it difficult to build homes at an affordable price for the majority of households Inability to provide infrastructure and lack of human and institutional capacity across the housing delivery value chain

CHALLENGES & OPPORTUNITIES HOUSING FINANCE

Underdeveloped financial markets Low Level of Intermediation  Credit to the economy / GDP still low: 18% Lack of Long-term Finance and Inadequate Instruments  Lack of equity for developers  Untapped contractual savings industry– Pension Funds and insurance companies, etc.  Inadequate instruments :lack of secondary markets; few mortgage refinancing facilities (WAEMU, Tanzania, Nigeria, Algeria, Egypt), shallow capital markets including bond markets (highly driven by treasury bills) Source: African Market Initiative * CONSUMAF (cumulative issues ) **CREPMEF (market capitalization)

Underdeveloped financial markets : Low mortgage penetration rates 9 Residential Mortgage Loans outstanding as % GDP Source: AfDB, World Bank

Affordability Issue: double digits interest rates deter borrowers Source: Author’s observation, BCEAO, CAHF, Numbeo

Most of African Large Cities are unaffordable:

Areas to focus  Reducing risks of borrowers: deal with information asymetry  Development of financial sector  Deal with missing markets: refinaning, housing bonds  Innovative instruments/inclusion of informal sector  Equity and capaicty building for developers

CHALLENGES & OPPORTUNITIES LAND & INFRASTRUCTURE

Divided Cities: Multiple land tenure regimes  A majority of urban residents are unable to access or afford land or housing in the formal sector  On average, only around 10% of land is formally registered to individuals as private property  Diminishes security of land rights of housing consumers due to lack of clear land rights  Crowd out private investors from housing  Complicates land assembly for new housing projects. Clear challenge for urbanization  Contributes to rising housing prices, as formal land supply is constrained

Low density urban expansion comes at a cost for urbanization  Implications of urban sprawl include :  High cost of “retrofitting” infrastructure and services  Poor transport connections between residential areas and city centers/places of employment  Environmental damage  Accelerated loss of agricultural land  Urban Planning is a must Much of Africa’s urban expansion is occurring through unplanned and low-density consumption of rural land at a rapid pace

Making the Legal and Regulatory Framework related to Land Issues right: Strong Governments and Institutions needed  Three main priorities related to land supply for housing:  Reforming the land administration and allocation systems Improving land rights delivery system, including land formalization  Resolving the contradictions between customary and statutory tenure forms: Integrate traditional systems into land markets  Making land and property rights enforceable

CHALLENGES & OPPORTUNITIES CONSTRUCTION COST

Due to rising construction cost, only an estimated 15.7 million households, or 6.7 percent of all African households can afford an entry-level home supplied by the formal market with prices usually starting at USD 28,000 Source: AfDB, World Bank

High consutruction costs: Factors  Poor governance: delays in obtaining construction permits  High costs of building materials: monopoly power and high share of imports  Low productivity of formal construction companies due to low capacity and lack of project management skills  Low skills for artisans  No economies of scale-high level of customization

Construction costs vs time to get construction permit

Imports of building materials vs. Price per square meter

Local Production of Alternative/Building Materials: How to make it sustainable?  Sustainable local production of building materials: Industrialization approach  Harnessing economies of scale through regional integration. Need common policies, standardized building codes and methods adapted to local circumstances and realities.  Scale Production: lower cost of alternative/ building materials  Financing Mechanism: PPP approach with Government to provide the right incentives for private sector to invest in new industries

SOME KEY MESSAGES ROLE OF DEVELOPMENT FINANCE INSTITUTIONS/MDBs

Development Finance Institutions Roles  Development Policy Operations/programs (concessional lending) to support Governments Reforms and actions in Housing delivery:  Reforming land tenure systems including legal and regulatory frameworks  Promote good governance and digitized land registration systems  Promote Industrialization through local production of alternative/building materials (tax exemptions, seed provision of capital, set up incubators, etc.)  Improvement of the investment climate, including enforcing property rights  Ensure competition in the industries supplying building materials (e.g privatization)

Development Finance Institutions Roles  Catalytic Role to Crowd in Private Sector: A Housing Finance Facility to be put in place  Credit enhancement/guarantee schemes  Equity and long-term debt to support the development of the mortgage market through Banks, HFCs, HMFs, Refinancing facilities  Equity for Developers and Industries Issuance of housing bonds  Technical Assistance and Advisory Services:  Build capacity and skills for developers to enable them to build at scale  Build capacities at central and municipality level (tax administration, cadaster, land governance, building codes and standards, etc)

Thank You!