What Characterizes the African Housing Market today?

As African cities continue to grow rapidly, investors, financiers, and developers are increasingly interested in the opportunity: what does it look like?  where can it be found?  what are the risks? and how can they be managed?  The potential impact of investment in housing is obvious.  Good housing makes for good economies and healthy families, and the need is significant. Housing affordability continues to be the key challenge, on both the finance and construction side.  How do we bring the cost of housing closer to the affordability of the market? The answers can be found along the entire housing value chain.

Five things characterize the African housing market today.  We see increasing investor interest, with a number of funds being established and projects being pursued, both by international and domestic capital.  However, investors are tentative and continue to focus on higher value housing.  Poor targeting has resulted in some projects not achieving their return expectations, as developers struggle to sell units.  Whether this is dampening enthusiasm for the market is not clear, but the real loss is in the opportunity that exists.  In this space, scale is insufficient: the housing projects currently underway across the continent are not even beginning to address the breadth of potential demand.  One area in which there are interesting developments is in the residential rental sector: investors and developers, as well as governments are increasingly recognizing the importance of rental housing to support labour market mobility, within the bounds of affordability.  The untapped opportunity in the affordable market is significant – if we delivered to the potential demand of households, who, in their current economies with existing finance could afford a US$7500 house, this would translate into 52 million houses across the continent, generating almost US$400 billion of economic activity just with the construction.  This is an important number around which policy makers, investors, lenders, and developers should focus their minds.  What will it take?

We know it will take a lot: weaknesses exist all along the housing value chain.  These are things that need to be addressed by both the public and the private sector.  In terms of policy, we can already see changes – improvements in the policy and regulatory frameworks across Africa are evident.  On the private sector side, a number of initiatives this year are demonstrating the opportunity to be found in aggregation: Real Estate Investment Trusts, and the SACCO movement are interesting mechanisms to aggregate the breadth of the demand into investable initiatives create new opportunities.

To support further developments in these areas, however, we need data: public data, private data, openly available for tracking and analysis over the long term.  The housing investment imperative in Africa is clearer than ever, and the opportunity is becoming increasingly real.