The Rise of Housing Public-Private Partnerships in Africa

As Sub-Saharan Africa urbanizes at rates the continent has never experienced before, normal private sector delivery of quality affordable housing is not keeping up. As a result, as many as 200 million Africans live in slums or inadequate housing, and the number is rising fast. African cities are estimated to add over 40 000 people every day, and they will live where they can.

Markets “work” in that these newcomers do find places to sleep and live, and for which they pay periodic rent, but the market’s solution to scarcity and cost is to sacrifice quality. For the urban poor, that means living in informal settlements with self-built or informally built dwellings. These houses typically lack proper infrastructure (mainly water, sanitation, and to some degree electricity) and tenants have no prospect of tenure security, much less of obtaining formal land title.

In many respects, the situation is out of control. Affordable Housing Institute (AHI) reports that in most Sub-Saharan African countries, on average no more than 2-5 percent of all households can afford the cheapest formally built house. As African cities continue to grow, land becomes more scarce, with titled land going at a premium. Available land is subject to land-use economics that favor more profitable assets such as hotels, commercial centers, and luxury housing. Affordable housing, or houses for the workers that make a city function, are often considered last, if at all. What little new supply can be created by the purely private market is nearly always targeted at the highest-end customers (including expatriate workers and companies who use the housing as their interim offices) and infrequently reaches the middle class, much less the impacted poor.

Governments quite rightly see this as intolerable situation which must be urgently addressed, and where government must take the lead. Therefore governments often think in terms of big direct production: design small but decent formal flats, identify suitable land, announce large-scale developments with ambitious targets, and expect flats to appear. In Ethiopia, the government launched a truly remarkable program that has delivered 300 000 high-rise flats, most in metropolitan Addis Ababa, at low prices. Those flats have been delivered but the program is out of cash, the waiting lists are rising, and the flats sold have been subleased to the middle and upper classes. The program functions more effectively as a poverty reduction initiative than as a “housing” program. Other countries’ large announced developments exist mainly on paper and press releases as government struggle to allocate sufficient resources to support their implementation.

Instead of direct government production, some countries are turning to public-private partnerships (PPPs) in the housing sector, with the intention of combining government’s macro resources (land, reliable title, and potential aggregated effective demand) with the private sectors’ technical and financial resources. For instance, Cameroon, Cote d’Ivoire, and Senegal are all moving forward with large scale programs in coordination with the private sector. Kenya recently announced the ambitious plan to deliver 500 000 affordable housing units over the next five years in a to-be-implemented public-private partnership.

The first step in a PPP is government delivery of land. Quality serviced land must be made available at a concessionary price on condition that it be developed for affordable housing of a stipulated type and price point (under USD 25 000 in Cote d’Ivoire and USD 40 000 in Cameroon) to add to the stock of affordable formally-built housing. Furthermore, governments can use these programs to shape the urban landscape by creating greater density. In Rwanda, the government is urging its urban residents to adopt vertical living, has established strict zoning city-wide in Kigali, and is providing zoning exemptions for targeted housing projects.

Development companies are always on the lookout for opportunities to access large-scale serviced land in markets with high demand, and in Sub-Saharan Africa the governmental notices have attracted significant interest from major regional and global developers from China, Morocco, South Africa, and Turkey, to name but a few. They are drawn to the opportunities by what seems a natural fit, because each party has things the other needs:

  • Governments can offer well-located, serviced land at scale, and can facilitate necessary approvals. But governments are often slow to make binding decisions, slow or uncoordinated in execution, lack financing capacity, and are risk-averse.
  • Developers are nimble, sophisticated in both construction and development finance, speedy in execution, and risk tolerant (at least of risks they understand and believe they can control). But they often lack understanding of local markets, are new to the political and policy challenges, and sometimes under-appreciative of the differences in cultural norms and expectations of quality housing.

The housing public-private partnership structure enables the parties to combine their individual strengths and mitigate their individual weaknesses, while also allocating certain types of risk to the party best able to assess, bear, and mitigate each one. For instance, in housing developments the greatest risk is often aggregated offtake: the ability to sell all the completed homes to suitable buyers, reliably and quickly. Knowing this, lenders that may offer development or construction finance want guarantees not just that the homes will be built, on time and on budget, but also that someone will buy them all. So if a government chooses as its housing PPP partner a general contractor that is not ready to assume the offtake risk, or financially too weak to be bankable, the PPP will never actually go forward, even if the agreements are signed with much fanfare.

This is the case in Cote d’Ivoire, where despite promising 60 000 homes, only 10 percent of them have been built. For the others, development or construction is stalled due to the lack of financial capacity of developers. Other countries such as Benin, Togo, and Cameroon also lag behind stated goals. Though these programs have some components that are essential to PPPs, they often lack structure around roles and specific responsibilities of each party. If developers are to be held accountable for bringing financing, building homes, and selling them, governments must likewise be contractually accountable for delivering the land, clearing any clouds on the title, completing the trunk infrastructure, and giving the regulatory and construction approvals to break ground.

Housing PPPs must be true partnerships; which means they require trust, transparency, and competency to be successful. PPPs need well-designed contracts, international calls for solicitations from professional developers, established responsibilities, and good communication between all parties. The structure of the partnership should be detailed, but flexible, and incorporate the following elements:

  1. Shared responsibilities: Responsibilities between the public and private sectors need to be shared and bracketed over time. Partnerships need to go beyond the delivery of land to the private sector to complete the development but involve continuous efforts by both parties to ensure the success of the project.
  2. Shared control: Since responsibilities are shared, control must also be common to both parties and decisions (or decision making capacity) should be taken together.
  3. Shared economics: Both parties should have a stake in the project. The government needs to buy-in and receive part of the profits in return for its contributions.

Governments can only deliver large-scale housing PPPs if mutual commitments are ensured. Well-designed housing PPPs can leverage public sector land and private financial sector resources, catalyzing markets and stimulating growth. Though governments have met with mixed success in engaging with the private sector, these models need refinement, incorporating best practices over time. If every sector of society can work together to achieve these goals, then countries in Africa may be able to deliver the housing that people desperately need.

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