Calculating Mortgage and Housing Affordability in Africa: 2021

Housing affordability is generally a function of three things: (1) a household’s income, (2) the price of the house that is available for sale, and (3) the terms of the housing loan (whether a mortgage or an unsecured housing loan) for which the household qualifies.

In this dashboard, we have focused on mortgage affordability. We have taken mortgage lending data that we collected from major banks and lenders across Africa, and household income estimates using consumption data in PPP$ from C-GIDD, and used these to calculate an estimate of housing affordability by country. The dashboard has four tabs which allow you explore housing affordability and mortgage lending terms from different angles:

1. Starting with the house price, what must I earn?: You can input a “house price” and downpayment amount (%) to see what it would cost to service a mortgage loan for that house in each country, depending on the mortgage instrument that exists.
2. Given my monthly income, what house can I afford?: You can input a monthly income amount in USD to see what price of house a household with that income could afford with a standard mortgage in that country.
3. Mortgage interest rates: What is the average mortgage interest rate in each country?
4. Lending terms by region: Select a region and view available information for each country on: number of mortgage providers, estimated number of mortgages, average downpayment, mortgage term (in years).

This dashboard was originally published in January 2017, but has been updated to reflect the most recent data available as of October 2021, collected as part of the publication of 2021 Housing Finance in Africa Yearbook. These calculations make use of: the average costs of an affordable housing unit in each country, prevailing minimum mortgage rates, typical mortgage terms, and the distribution of household incomes in both urban and rural areas. The house costs, downpayment and household incomes are all valued in PPP dollars using exchange rates drawn from the World Bank database. For more information on PPP dollars and why they are used to compare affordability across African countries, click here.

Suggested citation: Centre for Affordable Housing Finance (CAHF). 2021 Dashboard: Calculating Mortgage and Housing Affordability in Africa. http:///housingfinanceafrica.org/

Notes on the methodology and data used in this dashboard:

Income: Estimates of household income are sourced from C-GIDD and are based on declared household expenditure (or consumption) rather than declared incomes. Household expenditure data takes account of informal income and is generally regarded as a more accurate measure because survey respondents are less inclined to undercount their expenditure than they are their incomes.

Mortgage lending: The dashboard assumes that households could have access to mortgage finance. However, these calculations based on household consumption may not translate into mortgage access. Lenders still need to learn how to underwrite for informal incomes and are more likely to determine mortgage affordability on the basis of formal wage income.

Calculations: We all think comfortably in US Dollars and in Local Currency. PPP$ are hard to get one’s head around. To use the PPP$ household income data, therefore, we had to do the following:

For the first calculator “Starting with the house price, what must I earn?”:

1. The user enters the house price in US$.
2. We convert this into the PPP$ equivalent for each country, using the World Bank PPP$ Exchange Rate.
3. We then calculate the mortgage repayment amount in PPP$ on the basis of the PPP$ house price.
4. Finally we calculate the percent of households who can afford such a repayment against the PPP$ income distribution.

For the second calculator “Given my monthly income, what house can I afford?”: Similar to the first calculator, these calculations make use of: the average costs of an affordable housing unit in each country, prevailing minimum mortgage rates, typical mortgage terms, and the distribution of household incomes in both urban and rural areas. The house costs, downpayment and household incomes are all valued in PPP dollars using exchange rates drawn from the World Bank database.

1. The user enters the household income in US$
2. We then convert this into the PPP$ equivalent for each country, using the World Bank PPP$ Exchange Rate
3. We then calculate the PPP$ house price that a household with this PPP$ income could afford
4. And then convert back into US$ the house price that is reflected on the map

Exchange rates: US$ conversions are very time sensitive, and so, are the weakest link in the calculator. In time, we will have a live converter, but in the meantime, we do it as often as possible.