Alternative approaches toward affordable housing in cities with specific reference to Uganda Presented by Samuel Mabala Future Cities Africa, Country Team Leader Uganda Cities Alliance

Outline Introduction Conceptual Framework Overview of the situation Key Issues Housing Supply Housing Demand Institutional Framework Conclusion

Conceptual Framework Affordable housing refers to housing options that do not take more than 30% of one’s income whether in form of rent payments or servicing of the mortgage. Housing: Shelter providing accommodation; A market where housing units are supplied and purchased; A process leading to the delivery of housing units; The totality of built environment synonymous with human settlement / habitat A product resulting from the process

4 Introduction Housing is a basic human need that provides shelter against elements of nature Housing sector is very important in the overall social economic development: Housing has numerous multiplier effects contributing to economic growth, Fixed Capital formation, employment creation. Ensures macro economic stability Enhances quality of life and productivity of the population, and Contributes to poverty eradication.

Review of the past trends Government divested itself from housing public servants with exception of certain public institutions The delivery system is dominated by individual developers for home ownership, sale or renting. The formal housing market mainly caters for the middle and high- income groups. The informal housing market caters for the majority of the low income earners and the poor.

Overview of the Situation Shortage of affordable and decent housing particularly for the low income earners Volume of mortgage-able quality stock is too small to support significant primary mortgage industry Housing delivery is a privatized function with exception specific institutional housing for the Security forces, education institutions and Health units. Prevalence of slums and informal settlements that account for more than 60% of the households Rental Housing is predominant in urban areas constituting > 60%

Population Pyramid –55% of the population arebelow 18 yearsMedian Age – 15.2Dependence ratio - 103

Key Issues Inadequate financing sources aggravated by low propensity for long-term domestic savings Inadequate institutional capacities for land use planning, administration, management and development High levels of poverty manifested by unemployment, underemployment and informality Limited access to planned and serviced land High costs of inputs into housing development Policy, legal, and regulatory weakness

Challenges to Meeting Housing Gap Demand for Housing Lack of long term funds Credit Risk Informality/low incomes High interest rates Foreclosure system Lack of affordable housing Financial literacy Lack of Effective Demand Availability of Developer finance (debt and equity) Planning and building regulations Cost of infrastructure Access to Land Titling/Registration system Lack of Affordable Supply Supply of Housing

Slum proportion in Africa High prevalence of slums and informal settlements is a manifestation of inadequate access to affordable housing.

Urban Sprawl on the outskirts of Kampala

Sub-divisions by Real Estate dealers

Naalya Housing Estate - NHCCL

A poorly functioning land market Increases cost of doing business Land Speculation Inefficient Urban Development Pattern Slums and Squatter Settlements Environmental deterioration Affects the Urban Economy Disincentive to Investors Poor Infrastructural Services High Social Costs

Lengthy & costly Procedures of processing development, building and occupation permits affect access to affordable housing

Corruption Corruption occurs when: the probability of being caught is small, the penalties are mild, and the rewards are great Systems that breed Corruption can be identified using the following formula:

Corruption Formula S - Self M - Monopoly D - Discretion C - Corruption is a function of the following parameters: A - Accountability T - Transparency E - Ethics

Providing means to finance housing demand Expanding access to housing finance to increase the effective demand for housing Cash Purchase Mortgage Housing Microfinance High Income Low Income Objective Rental/savings/subsidies Incremental Construction

Housing Market Distortions Exclusion of the majority from participation in the formal housing market Emergency of the Informal Housing Market to cater for the poor & low income earners Access to market information is limited Limited sources of finance including small primary mortgage finance sector Affected by distortions in the land market, finance market and labour market.

How to enable housing market to function Modernize affordable housing supply Strengthen the housing demand (affordability) Develop the institutional framework for effective coordination and regulation

Enable Housing Market to function for all Develop property rights DO DON’T Privatize public housing stock Carry out massive evictions Institute an efficient reliable titling systems Nationalize land Establish effective property taxation system. Discourage Land transactions

Develop Mortgage finance DODON’T Allow private sector to lend.X Allow interest rate subsidies Lend at positive market ratesX Discriminate against rental housing investment Enforce foreclosure laws.X Neglect resource mobilization Ensure prudential regulationX Allow high default rates Introduce better loan instruments. Introduce secondary market

Rationalise Subsidies DO DON’T Make subsidies transparent Target subsidies to the poor Subsidize people and not houses Subject subsidies to review. × Build subsidized public housing × Allow for hidden subsidies × Let subsidies distort prices × Use rent control as subsidy

Provide infrastructure DO DON’T Coordinate land development Emphasize cost recovery, Base provision on demand Improve slum infrastructure. × Allow bias against infrastructure investments × Use environment to rationalize slum clearance

Regulate land and housing development DO DON’T Reduce regulatory complexity Assess costs of regulation Remove price distortions Remove artificial shortages. × Impose unaffordable standards × Maintain unenforceable rules × Design projects without link to regulatory reform

Organize building industry DO DON’T Eliminate monopoly practices Encourage entry by small firms Reduce import controls Support building research. × Allow long building permit delays × Institute regulations inhibiting competition × Continue public monopolies

Develop appropriate policy & institutional framework DO DON’T Balance public and private sector roles Create forum for managing entire housing sector Develop enabling strategies Monitor sector performance through market research × Engage in direct public housing delivery × Neglect Local Government role × Retain financially unstable institutions

28 Re-engineer the Housing market Providing Incentives to attract private sector housing investment: Infrastructure Development by the public sector Employers and Employees to increase access to affordable housing Savings Mobilization: to promote long term savings from depositors Housing Finance Mobilization: to increase finance for developer financing and end-buyer financing Capital Markets Resource Mobilization Housing Development Process and Slum Improvement

Processes in housing development PLANNING SERVICING BUILDING OCCUPATION MANAGEMENT Formal Informal

Increasing affordability of the poor Effective community mobilization and Organization into Slum Dwellers Federations Empower stakeholders through Urban Development Forums Promote daily savings to instill a savings culture among the urban poor and improve access to credit Support skills development and knowledge enhancement for gainful employment Promote business enterprise development to create employment, enhance specialisation, and build capacity to benefit from economies of scale. Promote Housing cooperative development to increase long term housing finance mobilization Increase access to land and security of tenure Promote affordable housing development through PPP, land sharing/readjustment, and mixed use high density options

Re-engineer housing finance system Increase the role of public sector in resource mobilization for housing development Create a housing provident fund with long term monthly contributions from workers and business community The funds so generated should be on lent to the developers for mass housing development as well as provide end-buyer mortgage financing. This will lower the interest rates and enable the contributors to access affordable housing The role of Government is to put in place relevant institutions, regulate the process, and undertake land banking This will stimulate the housing market and attract private sector investment in housing

Conclusion Increasing access to affordable housing calls for modernizing the supply of affordable housing to meet the needs of all households. There is need for incentives to attract private sector investment in affordable housing supply. The housing finance system needs to be re-engineered to enhance mobilization of domestic long term savings for housing development as well as mortgage financing. Strengthening of the institutional framework is critical for effective coordination, planning, regulation and enforcement. Mobilization and organization of the urban poor into productive assets will enhance their potential and access to choices, opportunities and security. It will therefore be necessary to forge PPP for delivery of affordable housing.