Housing delivery requires that a number of systems work; finance, land and infrastructure. Housing microfinance works even when many of these systems do not work well. For example, certain segments of the population build and improve housing circumstances incrementally, because of the high cost of housing and lack of affordable finance. HMF is tailored to match this staged build process, financed by these relatively small and less predictable incomes streams. Another example is that many people reside on land that may not have clear land title. HMF has the ability to work with various shades of tenure security, many that a mortgage provider would not even consider.
There is likewise a big problem of lack of infrastructure and services to support housing delivery. This includes water, sanitation, electricity and roads. This problem curtails housing supply particularly affordable housing, and is at the heart of slum formation. How does HMF work in the context of this shortage, and does it possibly offer some solutions?
Households have long adapted to poor provision of infrastructure by deploying, as far as possible, off grid alternatives that are not reliant on state services, as well as incrementally improving the services with time. Water and sanitation provision is a good example, with household and neighbourhood level alternatives such as boreholes, wells and pit latrines. Such small, targeted interventions are well suited to the structure of HMF. There are already examples whereby a combination of HMF and household savings, through community driven housing projects can develop new housing with a regular supply of water, localised waste treatment plants, and solar powered houses. This can also happen incrementally in areas already settled informally with no services. Such development involves initial build of on-site infrastructure through household based improvements (single pit latrines, septic tanks wells), and is then extended to network based common neighborhood systems across the settlement. Recent improvements in technology have increased the possibility of delivering certain infrastructure without reliance on the state. Examples are alternative sources of power generation such as wind and solar power as well as localised waste treatment.
Many would argue however that this kind of project driven, settlement level infrastructure delivery is unsustainable in the long run. Off-grid service provision has its limitations. Sinking boreholes for households for example cannot be a long term solution to water provision- growth in demand with population expansion will ultimately challenge the water table. Also, there is a good reason that much of this infrastructure is traditionally delivered by state associated institutions. Its provision is often a natural monopoly, suited to large government agencies. The state, in delivering these services can benefit from economies of scale and negotiate affordable financing to develop what are often large, highly capital intensive projects. Also, the state in providing these services can over time, discount the costs of the infrastructure and distribute them more evenly through tariff policies. The issue of cost is critical, as project driven infrastructure delivery can make the final housing product much more expensive, especially if it does not benefit from state negotiated affordable financing, and discounted costs among many more users over longer periods. This means a solar powered house delivered by a private developer while not reliant on state infrastructure, will contribute a substantial once off cost to the house borne by the first time buyer and contribute to un-affordability. There is also the loss of cross-subsidisation of the costs of services. This happens when the state provides lifeline free basic, water and electricity services to the very poor through the infrastructure it builds and maintains. Finally, by controlling supply of infrastructure, the state can strategically plan and guide city development.
Household initiatives to provide infrastructure and services offer some solutions to the problem and HMF can finance these, particularly smaller scale, household and neighbourhood incremental infrastructure. Further, technological developments are increasingly showing that households and neighbourhoods can produce and manage their own services through off-grid solutions. However, we cannot discount the role of the state, particularly in ensuring that services are affordable and equitably distributed. This is something that is often not feasible if households and the private sector are the sole providers of services. For example private sector driven service provision in many urban areas on the continent is creating islands of privately well serviced, insular and inward looking high cost mixed commercial and housing settlements inaccessible to the majority. Examples include Raphta City in Tanzania Dar es Salaam, Konza Technology City and Tatu City in Nairobi Kenya, and other so called “neo-cities” on urban fringes in Zambia, Nigeria and Ghana. These few settlements, with the full complement of infrastructure and services can only offer expensive housing, catering for a very small exclusive elite. Further, because of their localised and largely private sector project driven infrastructure provision, they are not sustainable. .
The state, particularly at a local government level is therefore still crucial, and needs to be capacitated, financed and lobbied to develop and deliver critical infrastructure and services especially for lower income and affordable housing. HMF can complement not replace these efforts.