Government housing program in the Republic of Congo.
The government of Nigeria recently announced their intentions to build one million units per year. Though the plan is unusually ambitions, these types of promises are common in Africa, where governments often announce their intention to invest in large-scale housing construction programs. From Cote d’Ivoire to Ethiopia, governments have taken matters into their own hands and acted as both investor and developer. A quick browse through CAHF’s yearbook shows that forty one out of fifty four countries in Africa have announced large affordable housing construction programs, often to be led by the state-owned development agency. In fact, political promises to rapidly build thousands ( sometimes hundreds of thousands!) of units in relatively short time periods have become common across Africa.
The World Bank estimates that three billion people, or forty percent of the world’s population, will need new housing units by 2030. Indeed, Sub-Saharan Africa is experiencing a major housing crisis. As the continent urbanizes at a rate of 40,000 new households per year, cities are struggling to house their growing populations and the market has so far failed to keep up with growing demand and governments have stepped in to build major housing programs.
In practice these programs have met with limited success and, though a few outliers exist (in Morocco, Ethiopia and South Africa for example), most countries have not been able to keep their promises. When the state is behind such large schemes, financial and political problems tend to arise due to the following:
- States have limited resources. Construction always costs more than expected and funding is most often underestimated. Housing programs are highly dependent on the macroeconomic context and come to a halt in difficult times. For example, in Gabon, the slump in oil prices halted major housing construction programs, leaving thousands of units
- Partnerships often fail to leverage the resources and capacities of the private sector. In Cote d’Ivoire, 150,000 units were promised within five years, but only ten thousand have been delivered to date. Despite good intentions, partnerships often fail when too little due diligence has been performed by either party. Developers are selected without looking into their capacity to raise large investments and as a result project progress is slow. Many developers also expect the state to provide guarantees that the houses will be sold, thereby negating the value of leveraging private sector capacity to undertake sales risk.
- Beneficiaries of projects are not always well defined. Though governments often promise to house the poor, in practice housing prices tend to exceed expectations and are only available to the upper middle class. This leads to a conundrum: should States seek to make their programs financially sustainable or provide homes to their most needy? In Congo, over 1000 apartment units were built with help from China, but have yet to be occupied. Debates persist over whether to sell them at cost or provide them to victims of a major explosion that left thousands of families homeless. If beneficiaries are not well defined before a program begins, expectations can rise and lead to disappointments.
Fortunately, much can be done to improve these programs including:
- Don’t overpromise and be realistic. Few governments have managed to keep their promises and most programs have fallen short of their objectives.
- Define beneficiaries from the beginning. Be clear who is being targeted and what can they afford. Calculate the affordability gap and determine how much subsidy will be needed.
- Don’t try to do it all on your own.Solving the housing deficit will require as much collaboration as possible. Few African states have the financial or the technical capacity to engage in large housing programs. Instead, they should leverage the resources of the private sector to reduce government spending and dependencies on macroeconomic fluctuations.
- Construction is often the easiest part. Once a program is properly structured and financed, construction should be relatively easy. Instead of focusing only on supply side issues, governments need to make sure that there is enough financeable demand for the homes to sell easily. With small mortgage markets, many African countries simply cannot absorb large construction programs. The mortgage market needs to be supported too and only then will private investors support large scale housing projects.
It is encouraging to see so many African governments announcing ambitious housing goals. Solving the housing crisis and keeping up with political promises will require collaboration, innovation and leveraging as many resources as possible. Where there is a will, there is a way.