During the first week of this month (1st – 6th October) I attended a five day intense Housing Finance Course at the University of Cape Town (UCT): Graduate School of Business. The program is a joint venture between UCT and The Wharton School of the University of Pennsylvania. The Centre for Affordable Housing Finance in Africa and the African Union for Housing Finance were the main sponsors.
The course was absolutely captivating, in that it clarified the entire spectrum of the housing process, inclusive of all the role players. I come from a town planning background and it was a breath of fresh air to have a course that sheds light on how the entire built environment is essentially one machine. To answer the question ‘why housing matters?’ is a PhD report on its own, but with my new learned knowledge I will try and give my account as to why I think this sector is so important.
We all live in some form of shelter. Whether it is a 23-bedroom mansion, a simple suburban house or even a shack constructed with the most basic of cheap materials, the fact remains that shelter is one of humanity’s most basic needs. It is important therefore to not think of housing as an end product, but rather as part of what is termed- ‘a housing chain’. This housing chain is made up of: Property Rights, Land, Infrastructure, Development finance, Construction and the End User (housing finance). Each of these parts is equally important and none can function without the other. So when we speak about housing, and in extension about housing finance, it is imperative to keep in mind all of these components and be mindful that each components needs to also function well on its own.
Africa is currently experiencing exponential urban population growth – it is the fastest urbanising region in the world. With this growth comes increased demand for services, jobs, land, housing, etc. The problems that most African cities are experiencing now will be more than trebled if we, as built environment practitioners, do not tend to the problem with increased urgency. As the numbers stand now, about a billion people are estimated to be living in slums. One way of decreasing the backlog is to scale up the construction of new urban housing, but unfortunately no government has the capacity to carry out such a task on its own. Even in South Africa were the government has built about 3.2 million housing units, the demand for housing is simply insurmountable unless alternative ways are explored.
Apart from housing being a basic need, it can also form a large part of the economy with regard to its contribution to Gross Domestic Product (GDP). For example, in South Africa the mortgage market is worth about 26.4 percent of GDP in 2011, whereas in Tanzania it is only worth 0.21 percent of GDP in 2012. The potential for growth thus remains vast for many African countries to improve their mortgage sector.
Well informed government policies are an important aspect for determining housing outputs and in extension the country’s GDP. Policies can impact upon a variety of spheres, and if those policies are not well aligned with the private market then it can have an adverse outcome upon the entire housing chain. That’s not to say the housing market is simple, in fact the housing sector can be inherently complex as it is driven by so many factors. One need not look further than the US subprime mortgage crisis to realise just how complex the mortgage market can be. That being said, in the ‘housing chain’, housing finance is often the weakest link, and in most African countries it still is today. There is simply not enough investment in housing finance especially within the affordable (middle to low income groups) income bracket. The situation has worsened since the financial crisis, and this has severely hampered the growth of housing finance in emerging markets.
Governments throughout have tried and are still trying to come up with effective ways of making housing accessible and affordable to those who otherwise, cannot afford to access a house on their own. Some of the ways governments have responded include: funding state-finance institutions, for example in Egypt they have the Egyptian Mortgage Refinance Company (EMRC); Direct construction of housing projects, such as South Africa’s Reconstruction and Development Programme (RDP). A key challenge that many government initiatives face is how to avoid creating inefficiencies within the housing market.
Housing matters simply because everyone deserves to live in a decent, well-planned environment with access to amenities and services. We cannot accept the fact that about a billion people reside in informal dwellings, when we know that something can be done about that if we put the right mechanisms in place. Not to mention that housing can contribute to improved livelihoods by creating wealth and security so that low income households are not trapped in the same cycle of poverty. A great example of this was a story presented during the course, of a woman in Soweto who received an RDP house and she was able to open up a ‘spaza shop- tuck shop’ on her property. The revenue she received from the ‘spaza shop’ she invested in building three backyard rooms with sewage and she was able to rent these rooms and get additional income from that.
The 2012 Housing Finance Programme for Sub-Saharan Africa was attended by 31 delegates from across Africa. Seventy five percent of the delegates came from across the African continent. The programme covered a range of topics: Housing markets, profitability and risk, funding models, valuation of mortgages, infrastructure, rental housing, and extending mortgage lending down market.