This article has been drawn from our 10th anniversary Yearbook on Housing Finance in Africa, launched at the AUHF Conference in Cape Town, South Africa, on 6 November 2019.
The cheapest house in Africa is found in Luvu-Madaki, in Nasarawa State, close to the Nigerian capital of Abuja. Built by the Millard Fuller Foundation (MFF), the 32m2 one-bedroom semi-detached units sell for US$8040, through the Family Homes Fund (FHF) who bulk-purchased the project from MFF.
The 400 unit project includes 200 one-bedroom semi-detached units, and 200 two-bedroom semi-detached units in blocks of two units each (1 no. 1-BR and 1 no. 2-BR), all built in 2018. One modified block was built in 2019. Each unit is finished externally with a rough cement tyrolene finish with coloured panels above and below the window openings. Internal finishes consist of a cement screed floor, painted internal walls, a PVC ceiling, and a tiled wet room and kitchen. Electric wiring is run through conduit pipes in the wall. Electric and plumbing fittings are also provided. The roofing is longspan corrugated aluminium on a wooden structure, and the windows are made of glass louver panes on a wooden frame.
The MFF also managed the infrastructure provision, bringing in electric power themselves, carrying this to the site through high tension cables, stepped down via a transformer to a low tension network spread across the estate. Water reticulation is also provided on site, and includes water boreholes feeding into ground and overhead tanks. Solid waste is run into group septic tanks. The internal roads are not tarred but are provided with storm water drains. These services and this approach is standard in the estates that MFF builds.
The sales price of US$8 040 covers all costs including the construction of the unit, infrastructure, land, overhead and other costs, and includes a modest profit element of 20 percent. To date, no subsidies have been involved in their pricing.
The 400 units were financed by milestone payments from FHF. The first milestone was financed upfront by MFF from its own equity, raised through profits accruing from the sale of an earlier batch of homes (212 units) financed entirely by Reall in 2016. Off-take financing is provided by FHF, who took over the homes in August 2018 as part of their plan to deliver up to half a million homes over the next five years. FHF’s Help-to-Own product targets first time home buyers who do not own property, and who can provide a minimum deposit of 10 percent of the purchase price. The borrower then gets a 50 percent mortgage from a mortgage lender at the regular rates, while FHF provides a 40 percent loan with no repayment obligation for the first five years. In the sixth year, payment to FHF begins at a subsidised interest rate of 3 percent, which then grows over the term of the loan to 15 percent in the 20thyear.
In addition to the above, MFF provided a US$4 580 expandable studio ‘shell-finish’ apartment in 2016. This is still available for US$5 550 although none were built in 2019. MFF has a pipeline of further projects for which they are seeking funding. The major constraint that MFF has been facing is in identifying a credible source of off-take finance, to ensure a ready and effective demand for their products so they can create a sustainable pipeline and deliver to scale.
What percentage of the urban population might afford the MFF house in cities across Africa?
Housing affordability is a function of three things: household income, the price of the house, and the terms of the finance.
Across Africa, the confluence of low urban household incomes, and high mortgage interest rates and short tenors (where these exist) or no finance at all, results in very low housing affordability. There are very few countries where the cheapest newly built house by a private sector developer serves the majority of the population. If the MFF house were available for sale across the continent, financed by local mortgages, what percentage of the urban population might afford to enter the property market? The answer varies by country: 53 percent of urban Kenyans, versus only seven percent of urban Tanzanians. Even in Nigeria, only 27% of the urban population can afford this house. A US$8 040 house is a good start, but clearly it is not enough.
The challenge is therefore also about improved macro-economic conditions that reduce the cost (and increase the availability) of mortgage finance, and thereby enable a wider population to access affordable housing. While finance subsidies might address affordability in the short term, these are unlikely to be sustainable.
The affordable housing challenge is also about creating the economic, policy and regulatory conditions for the supply of non-mortgage housing finance that can support incremental housing processes. In very many places, this is all that households will be able to afford.
(Note: the calculations in the map say nothing about scale: The Millard Fuller Foundation’s project comprised 400 units – this, in a country with a purported housing backlog of 22 million units.)
Unless otherwise stated, the information in this blog has been provided by Sam Odia, CEO of the Millard Fuller Foundation, by email correspondence (15 October 2019), as well as from the Millard Fuller Foundation website – see https://www.mffhousing.com/index.php/our-projects/gallery/4-grandluvu-phase-two(accessed on 17 October 2019).