Photo credit: Sudha Bala Krishnan.
During 2018, CAHF worked with the World Bank and the International Finance Corporation (IFC) to develop a ‘Deep Dive’ report on the catalytic role the affordable housing sector could have on Rwanda’s future economic growth. This will be used to identify and implement a plan of action for the World Bank Group’s future engagements and investments in Rwanda.
This study–to be released in March 2019–has served as a key component of a new World Bank Group diagnostic process, the Country Private Sector Diagnostic (CPSD). Initial research into Rwanda’s prospects for future growth indicated two high potential sectors: affordable housing and agribusiness. Detailed reports on the status and potential of these two sectors were drafted, with a CAHF-led team undertaking the Affordable Housing Deep Dive. In January 2019, CAHF joined the visit by the World Bank and IFC to Kigali to meet with government, private sector and donors to discuss the preliminary findings of the CPSD report and its implications.
The Affordable Housing Deep Dive confirms the close ties that the housing construction and rental sectors have to Rwanda’s future economic and social development. Because of this, there is a high potential for Rwanda’s affordable housing sector to be a driver of future economic prosperity in the country. Using CAHF’s Housing Economic Value Chain assessment methodology, Rwanda’s housing economy is estimated to directly contribute 9.5 percent to Rwanda’s GDP (RWF724 billion / US$ 841 billion). Approximately 40 percent of this amount is gross value added in the housing construction sector, and 60 percent comprises intermediate inputs into house construction (materials and services). The importance of Rwanda’s informal housing development sector (SMMEs and households themselves) is also identified as an important element for future growth.
The study also identifies key constraints in the housing value chain. These include: legislative and policy constraints; a limited and under-developed housing finance sector; very low housing affordability for the majority of Rwandan households; and a growing mismatch between the demand for housing and the cost of products most readily being developed by formal developers. This underlines the need for intermediate-sized housing products, more dense developments and greater focus on slum upgrading and serviced land release for housing.
It is imperative that Rwanda’s future housing strategy drives the development of more affordable and appropriate housing for purchase and rental. This will require a combination of reducing the relatively high costs of housing development in Rwanda in comparison to other African countries, and providing more appropriate housing typologies, sizes and densities of housing that are better aligned with Rwanda’s projected rapid urban expansion. CAHF’s cost benchmarking study of standard house types found that a 55m2 house in Johannesburg was still less expensive than a 35m2 house with similar finishes in Kigali. Construction costs comprise 46 percent of the total cost of a fully completed 55m2 house in Kigali, and the balance comprises other inputs including land, infrastructure and compliance costs. This study also identifies certain intermediate inputs to housing construction that are up to 40 percent more expensive than in Johannesburg.
In order to capitalise on the catalytic role of affordable housing, Rwanda must maximise the value added by the local housing construction sector as well as improve the quantity and quality of intermediate inputs from the secondary (manufacturing) and tertiary (services) sector that are produced in Rwanda, thus minimising import leakages. In order to do this, Rwanda must create a sustainable and growing housing sector with enhanced opportunities for local participation along the value chain, rather than focusing on a few large developments driven by expatriate companies. This will require development along Rwanda’s housing construction sector.
The continued enhancement of developer-friendly legislative, policy and incentive frameworks will also have a positive effect on land, finance and housing. Further, specific attention is required to streamline the identification, zoning, servicing and release of land in cities. The ability of Rwanda’s households to raise end-user financing for housing is an important but under-developed link in the housing finance system. Improving access to mortgage and microfinance products is an important priority. The development of local developers and contractors, as well as the improvement of artisan and professional skills in the construction sector are also recognised as important contributors to the future housing economy.
There is also a need for a coordinative structure through which public, private and community partners in the housing sector in Rwanda can engage and coordinate their functions and roles. This also includes the need to clarify the roles and relationships between national and municipal government, specifically in respect of the financing, development and maintenance of infrastructure at the city level.
The CPSD Rwanda report, as well as the contributing Affordable Housing Deep Dive Report, are to be published in March 2019. Based on this report, future opportunities for the World Bank Group to enhance the economic growth prospects of the housing sector in Rwanda will be developed and implemented to augment the technical assistance and investments that the World Bank Group has already made in Rwanda’s housing sector. Current interventions include: the establishment of the Rwanda Mortgage Refinance Corporation (RMRC) which will improve the liquidity of Rwanda’s housing finance banks; co-financing the 10,000 unit Kinyinya Affordable Housing Project in Kigali; partnering in the upgrading of slums; and assisting to develop public-private partnerships for the release of serviced land in Rwanda’s secondary cities. Moving forward, CAHF will also be engaging with government stakeholders in Rwanda towards the realization of interventions identified in the CPSD Rwanda report to support the affordable housing sector in the country.