Innovation in affordable housing: Making the pieces fit together
This blog originally appeared as the introductory essay to the 2023 edition of the Housing Finance in Africa Yearbook.
For as long as we’ve been thinking about the problem, the challenge of affordable housing in Africa has been that the pieces don’t fit. Textbook expectations of supply chains and construction methods, delivery processes and classic project management cannot be realized in resource-constrained environments where the basic ingredients of land, infrastructure, materials, and finance don’t exist, or only exist in part. Each step in the housing delivery value chain comes with pre-conditions: scaled delivery demands that the developer have sufficient equity and debt, over time, to maintain the momentum that will achieve economies and allow for margins that support growth. Newly-built houses need to be connected to existing bulk infrastructure that delivers sufficient water, sanitation services and power, not to mention road networks, to support the density anticipated to make the project work. Health, safety and sustainable land use management needs to be ensured by a municipality able to engage in, regulate and support delivery processes so that they keep to time, meeting their commitments to investors and realizing expected returns. Mortgage finance can only be offered against secure title and to people with demonstrable, regular incomes that are dependable for the long term of the loan. Notwithstanding the expectation for greenfield housing development projects, very few fields are actually green – land rights are encumbered, plots are occupied with densely-packed buildings, services are informally connected or don’t exist at all, and the links in the chain to deliver finance, materials, labour and customers are broken.
The challenge of affordable housing is that, in the way housing processes are classically configured, the developer cannot actually afford to deliver it, the lender cannot afford to finance it, the municipality cannot afford to govern it, and the household cannot afford to buy it. With unmanaged risk in the system, and lack of information to help the players navigate their engagement, the pieces don’t fit together.
Over the years, governments and affordable housing advocates have contemplated subsidisation as the answer to this problem. Whether subsidisation from the state, or cross-subsidisation between target markets, the problem has been thought to be a financial one – overcoming the gap, fitting the pieces together, with a financial glue. Money is certainly a problem – but where and how to place how much and what type of capital is the bigger one. It is into this space that niche-targeted innovation is needed, supported by a nuanced understanding of the problem and where it exists along the value chain. This is where examples of technological innovation are finding expression.
In the compilation of this year’s Housing Finance Yearbook, we invited authors to report on innovation that they had seen in their countries – one box per country, with no limits to the definition of ‘innovation’. We received reports about large-scale housing projects with innovative partnership arrangements; innovative targeting and finance arrangements; housing delivery approaches to accommodate the most poor; new areas of focus, such as self-construction and supported incremental delivery, and the connection with health; alternative tenure arrangements; and a range of public delivery initiatives. Most of the cases presented incorporated some aspect of green while very many were explicitly about green – green building materials, green and blue finance, green settlements, green energy and green design.
It is worth noting that not all innovations were high-tech. That which made an initiative innovative was, in some cases, the uncommon acknowledgement of a reality (i.e. that households build incrementally), or the successful alignment of interests (i.e. in a public, private partnership). In Senegal, a legal intervention to separate ownership of buildings from ownership of land has been implemented in an effort to ensure longer-term affordability. In Benin and Botswana, we found two examples of worker-related housing, with a trade union and an employer getting involved in the assurance of affordable housing for a particular target market.
Of course, these are just a sampling. They are neither representative nor comprehensive. It is possible, however, that they are indicative. There is tremendous creativity in affordable housing across the continent, and not just in the usual places. The cases captured in the country profiles shine a light into how the very common challenge of affordable housing is being tackled in so many very different ways.
Fintech, Proptech, Contech, Urbantech, SMARTech, CityTech, ePlanning
In recent years, the potential associated with technological innovation has received more attention, changing the parameters of the housing sector across the globe. Enabled through advancements in digital technology, artificial intelligence, data collection and analysis, the internet of things and Big Data, satellite imagery and geolocation data, advancements in technology are fundamentally transforming the way the housing planning, delivery and management process is contemplated and pursued.
There is a lot of hype, and with much of the literature focusing on real estate in Europe and North America, its relevance to affordable housing is often seen with skepticism. This is a mistake – new technological applications in the property, finance, construction, and urban management sectors can change not only what and how we deliver and manage affordable housing, but also how we think about it and what we can contemplate achieving. Technology offers the opportunity to change the structure of supply chains, breaking them down and reconfiguring them in more efficient ways. The use of technology in finance can broaden the market, making products and services more accessible to a wider array of people, with better pricing, more appropriate payment terms, and more intelligent risk management interventions that seek to include rather than exclude people. With technology we can imagine economies not only of scale, but also of process – and this allows for smaller players to participate in what some have been calling a ‘massive small’ delivery approach.
The field is wide. From Fintech to Proptech, to Contech, the financing and delivery of housing is increasingly being supported by niche-targeted applications that are giving rise to start-ups being supported by venture capital and private equity. Habitat for Humanity International’s Terwilliger Centre for Innovation in Shelter has created ShelterTech, a platform to provide catalytic funding, investment, collaborative opportunities and mentorship, knowledge and evaluation, to the Proptech industry and its start-ups in particular. In 2022, ShelterTech established an accelerator programme in Sub-Saharan Africa, investing in companies focused on affordable housing through architecture, building systems management, insurance, alternative energy and cooking products, flooring, green construction, water and sanitation services, analytics, resources management and other aspects of the housing delivery chain.[1]
Some cities are beginning to improve their use of technology in what is being called UrbanTech[2], the use of information technology to improve city life and sustainability, operating in multiple sectors including civic administration, transport mobility and logistics. ePlanning involves the use of information technology such as Geographic Information Systems (GIS) linked with other city administrative databases to manage urban planning, development and monitoring processes. As land titling is being addressed across the continent, opportunities for distributed ledger technology, or blockchain, are being found in overcoming backlogs and resolving tenure security challenges.
In one way or another, all these examples seek to improve efficiencies in housing planning, delivery, management, and finance, which ultimately reduce the time to get to market and the costs associated with delivering a product, while broadening the market that can access them.
Every saving is important because the affordability challenge is serious. Perhaps the most sought-after indicator each year that CAHF produces this book, is the price of the cheapest newly-built house. This year, a US$7 111 unit can be found in Kenya. The Pangani Affordable Housing Project is part of the Affordable Housing Programme (AHP) of the Government of Kenya.[3] Built by a private sector developer, the AHP units are highly subsidised – though, by how much is currently not quantified. The 1562-unit development includes both market and subsidised units and the one-bedroom units available at this price are sold out.
The next up in the scale is a US$ 7 312 unit delivered by MFF Housing in Abuja, Nigeria.[4] This unit has been listed as the cheapest newly-built house for three years running. After Nigeria, we have two houses for less than US$10 000, in Malawi and Mozambique. The Malawi house is as reported by the Head of Valuation Section and Deputy Commissioner for Lands from the Ministry of Lands but is not verifiable online. The house in Mozambique is the product of Casa Real[5], a developer who has championed innovation in search of sustainable affordability, working together with Empowa[6] in also developing a sustainable financing mechanism that enables rent-to-buy for affordable housing.
Houses priced in the region of US$10 000 and below are not expensive in any sense of the word – and yet, even these houses are not affordable to the typical, lower-middle income earner such as a police officer or a teacher. Just looking at the four countries with the cheapest house available this year, in Kenya, neither a teacher nor a police offer can afford a mortgage for what is this year, possibly the cheapest house in Africa. And that unit is tiny – a one-bedroom apartment that might only barely accommodate a small family. Similarly, in Nigeria, Malawi and Mozambique, teachers and police officers do not earn enough to afford a mortgage at the going rates in those countries to buy the cheapest housing unit on offer. Stretching the analysis further, in Rwanda, where the cheapest newly-built house this year was reported as costing US$10 762, a teacher’s salary would cover a mortgage for only a fifth of that price; and a police officer’s salary, a third. It is simply untenable.
Of course, we know that. When we look at the GDP per capita across the continent (an inferior indicator at best, but all we have, to allow for continent-wide comparisons), incomes are very low. Profoundly so. This reality then reverberates into the figures relating to mortgage distribution – as a percentage of GDP, mortgages constitute only a fraction of most economies. The number of mortgages extended in different economies, similarly so, is paltry in comparison to the number of households who might afford something and who would certainly want to invest something in housing they could afford. This is not only an access to finance question, but also a question of mortgage market development. How can mortgages work without foreclosure practices, and how can there be foreclosure practices when access to mortgage finance is so limited there will be few buyers to relieve the lender of their asset in case of default?
Together with the Nigeria Mortgage Refinance Company (NMRC) and 71point4 Consulting, CAHF is currently working on the development of a housing market information portal to showcase mortgage lending data in Nigeria.[7] As part of that exercise, it has become visibly apparent in the data that aside from affordability and possibly also regulatory constraints, a key barrier to the growth of the mortgage market in Nigeria is the actual supply of mortgageable stock. According to the Nigeria Living Standards Survey of 2018, there are about 41 million households in Nigeria, of which about 16.2 million live in urban areas. The majority of these live in homes where the main material of the outer wall and floors is cement or concrete, and where the main roofing material is corrugated iron sheets. Just over five million of these households access water from a borehole, and only 554 678 urban households live in homes where the main source of drinking water in the rainy season is piped water into the dwelling – the majority of these (303 674 households) are in homes that they own. Just over 3.5 million urban households access flush toilets with a septic tank that they do not share with other households, and another million access a flush toilet connected a piped sewage system, that they do not share. The mortgageable housing market is relatively small.
This situation is not uncommon – African property markets are relatively new and still quite small. The majority of housing currently occupied was built incrementally by households themselves, or by small-scale builders, often unconnected to municipal services even if such exist. Formal developers are in the minority among those that develop housing. And yet that is who the products and services that exist in the affordable housing sector expect. The innovation challenge (and opportunity) therefore, is to adapt mortgage market to accommodate how people build, or to shift to non-mortgage finance. There are examples of both.
An important growth area in terms of adapting the mortgage market, is in the field of underwriting for informal incomes. Syntellect is an Indian company that has been making inroads into the Kenyan and Nigerian markets, facilitated by Reall. They have developed a methodology known as “RightProfile TM” which uses survey and big data to develop alternative credit scoring techniques, enabling loan officers to undertake what they call “Advanced Credit Risk” assessments based on the customer segment in which they work. The system is powered by AI, using machine learning to establish customer risk profiles and score their loan applications on the basis of having analysed the lender’s legacy data.[8]
In this past year, Housing Finance Bank Uganda launched their “Zimba Mpola Mpola” incremental housing loan, a new housing microfinance product offering loan amounts of up to UGX 50million (about US$13 000), repayable over three years.[9] The product requires that the borrower provide some form of security, not necessarily linked to the property (for example, chattels). Borrowers need to demonstrate their housing construction plans on application, providing approved building plans and a bill of quantities for the planned work, as well as photographs of at least four elevations of the building. The loan can also be used for the purchase of land, solar installation, rainwater harvesting and utilities connections.
Some lenders are exploring the rent-to-buy model of housing financing to avoid the underwriting requirements of a mortgage loan but nevertheless assist households access finance to purchase a unit rather than build it incrementally. Family Homes Funds in Nigeria calls the product “Help to Own”. In Mozambique, Empowa calls it Rent-to-Buy, and they have plans to extend the product across the continent. The team has developed a payment system, “Empowa Pay”, to accommodate the particular characteristics of the informally employed market.[10] The web-based platform uses Cardano blockchain technology to hold customer data and track payments, ensuring the collection of verifiable data that can support funding applications. Developers can use the system therefore to raise capital for their projects, while also securing buyers who are inaccessible to the traditional mortgage market. Empowa has further developed Empowa Trade, a marketplace for the trade of Non Fungible Tokens (NFTs), and the development of the EMP digital token to build an ecosystem to improve the flow of finance to affordable housing in markets that cannot satisfy mortgage requirements.
While financing addresses an important part of the equation, product cost is also important – and innovation in this area is also evident across the continent.
Interrogating the cost of the cheapest newly-built house
This year, in addition to collecting the price of the cheapest newly–built house, we collected data on the price of typical building materials: the cost per square metre of ceramic floor tiling, steel profiled roof sheeting, roof tiling, and a 50kg bag of cement. When we compare these prices across all the countries in Africa, and against the price of the cheapest newly-built house in each country, the lack of a pattern is striking.
The house prices range from US$7111 (Kenya) through to US$99 842 (Sudan), with the bulk clustered between US$15 000 and US$40 000. Building materials prices on the other hand are all more or less in the region of about US$10/m2, reaching up maybe to US$25/m2, but irrespective of the price of the cheapest newly-built house in that country. Even in countries where the price of the cheapest house is more than US$30 000, the building material data we collected was more or less aligned with building material prices in areas where the cheapest house price was half that amount. (Look at Cameroon versus Uganda, for example, where building materials in Cameroon are lower than prices in Uganda even though the price of the cheapest house in Cameroon is more than double that in Uganda). Clearly, the cost of building materials (assuming tiling, sheeting and cement is indicative) is not the only cost driver.
Zooming out from the cost of the building material, we can look at the choices made in the construction process and consider what cost drivers exist in this domain. In a study undertaken this year as part of the Open Access Initiative, the housing development costs for three different types of housing unit in Kenya, were compared.[11] The analysis found that low-rise apartment blocks cost less to develop than high-rise apartment blocks, and from a per/m2 perspective, the significant differences related to the economies achieved by apartments versus the stand-alone unit in terms of land and infrastructure.
The stand-alone dwelling (CAHF House 55m2) used more land – 1/8th of an acre per plot. Even though the land price per acre was higher in the apartment blocks, the density achieved lowered the price per unit considerably. In terms of infrastructure, the stand-alone dwelling was serviced with its own electrical connections, its own borehole and its own septic tank. These services were shared in the apartment blocks, again reducing the cost per unit. Higher costs on the apartment blocks included finance, as well as compliance and approvals, and professional and project management fees. The report explains that this has to do with longer finance timeframes, how municipal fees are structured and imposed, and the technical requirements of high-rise structures versus a cookie-cutter approach in the design of the stand-alone units.
This is where technological interventions can begin to change the affordability equation, by channeling innovation into the specific blockages and inefficiencies that undermine the housing delivery value chain at particular points. Already, players are building businesses with this niche focus. Together they are creating a whole new ecosystem that is changing the face of affordable housing, what it involves and how it is done.
Of course, there is a risk in being over-enamored with these initiatives. While technological innovation often presents as a silver bullet, the truth is, there’s no such thing. Each of these interventions depend quite fundamentally on the existence, operations and success of the others. They also depend on people and processes that align with the new ways of doing things that these innovative evolutions have allowed.
Disruptive technology becomes destructive when it fails to engage with and change-manage the evolution of existing systems and processes. This is particularly important in the context of affordable housing, where existing systems and processes are work-arounds for a formal delivery process that has become increasingly irrelevant.
One area in which this needs explicit attention is in the regulatory framework. Current statutory processes as they exist at the national, state and local level were designed in an earlier age when the value chain was conceived as being clearly connected, facilitated by the developer as a single player, and financed within a regulatory framework that allowed for banks to access capital and on-lend this to borrowers whose obligation was underpinned by their title. That textbook definition of the housing ecosystem does not exist however. That so few houses are built in this way is testimony to the fact that the system doesn’t work and that it is inappropriate for so many local contexts and people. The emergence of the various value chain innovations addressing challenges of tenure security, building materials costs, limited labour markets and so on, shows clearly that there is demand for new approaches. The regulatory environment therefore, needs to adapt.
Many have acknowledged the need for regulatory evolution in the area of data protection – and the recent emergence of protection of personal information legislation is relevant in this regard. Regulation that protects personal privacy while nevertheless broadening market understanding in support of better targeting of products and services, is critically needed. Regulation will also be needed to ensure consumer protection and quality control for processes that do not result in a finished product but are just parts of a process for which multiple players are responsible. It is not clear how such accountability can be structured or ensured, but this will be critically needed to ensure the flow of finance, if not also the participation of other players in the chain.
At the same time, industry standards in favour of transparency on the part of market players would also support growth and development of the sector, far beyond the impact of potential commercial risks associated with data sharing. This is the vision of the Open Access Initiative (OAI), an initiative being spearheaded by CAHF with the support and active participation of FSDAfrica Investments, FSD Kenya, Reall and International Housing Solutions.[22] The OAI is a joint venture market systems intervention to reduce the information asymmetry in the housing space by harnessing the collective experiences and learnings produced by Development Finance Institutions, governments and private sector players through their investments in affordable housing. The data and subsequent knowledge products are applied towards:
- Supporting housing investments in overcoming any blockages they face;
- Developing tools, frameworks, and baseline research to support both the investee and other market players in addressing the challenges that they confront in delivering affordable housing;
- Showcasing the activities of market players engaging in affordable housing, demonstrating their focused attention on both opportunities and risks; and thereby
- Encouraging greater investment into the affordable housing sector, given the clear attention to delivery risks, and the identification of niche market opportunities enabled through this effort.
Currently being piloted in Kenya, the OAI will soon also engage with investors in Nigeria. Robust data collection templates have been developed and tested on several private sector projects and are able to capture bespoke and live project data throughout the project delivery process.
This live project data becomes valuable only when it is turned into usable knowledge outputs. To do this, operating under a Data Sharing Agreement, CAHF receives data and structures it into a master database that standardises data fields to allow for cross-project comparisons and linkages. The OAI proposes to collect data and produce knowledge outputs on key data questions that relate to the nature of the product, its composition and associated costs; the process followed, including steps, time and cost, the blockages that arise and the implications these have on overall affordability and the delivery timelines; details relating to people, the target market and the labour market, their affordability and livelihoods, other financial pressures, housing needs; the performance of the investment, whether this is a worthwhile venture, how it might be improved; and the practice of the best ways to do things and opportunities for cost savings through replication.
This data and analysis are critically needed – for there is very little information available to guide investment decisions. In reviewing the countries profiled in this book, profile authors struggled to access the most basic data. The Angolan profile mentions the need to segment demand to understand specific market cohorts, while in Botswana and Cabo Verde the need for disaggregating available data is expressed. Virtually all countries seek disaggregation of the data by gender, and this is explicitly mentioned in Comoros, Ethiopia, Lesotho, Zambia, and South Africa. The profile for Mozambique mentions the need for aggregating municipal data to give a national picture – this is an issue in most countries where the data collected by municipalities as part of their normal land development management role does not find its way into publicly available datasets. This data would be invaluable for investors seeking to deliver more relevant and better -affordable housing. By making it available, governments would be improving the ecosystem in which investors operate, thereby reducing the associated risk and hopefully also improving affordability. The profiles for Zimbabwe and Uganda both mention the need for property market data and for Angola, mention is made of the need for geo-referenced land and housing data.
Understandably, perhaps, the profiles for Zimbabwe and South Sudan recognise the need for data relating to informal markets – but this is something that should be stressed in every jurisdiction across the continent. Without looking at the activity of informal markets, it is likely we are missing the majority of what constitutes the residential property market.
Virtually every country profile mentions that one or more indicators or datasets are out of date. In Nigeria, the last available census is from 2008; the current census, planned for this year, has been stalled. Similarly, Liberia and Burundi only have census data from 2008, Botswana from 2011, Mozambique from 2017. Census data from Kenya for 2019 is very usefully compared with the 2009 census, offering insights into changing delivery patterns, housing tenure circumstances, and household composition.[23]
Our demand of technological innovation is in how it targets affordability – affordable housing markets are looking for improved efficiencies in the housing process followed, as well as in the application of sustainable infrastructure services. They are also looking for improved access to finance, development capacity, land, markets and information, enabling a wider array of players on the demand and the supply side to participate in ways that are appropriate to their immediate needs and conditions. Responding to these two needs together will create the conditions for scale. With new and better-connected markets at lower costs, the opportunities for more players to deliver will increase substantially.
The opportunity to be found in technology is not that we use it to shape the world to our expectations, but rather that we use it to engage in the world as it actually is, with tools and processes that can accommodate the diversity of local contexts and target markets, while overcoming the shortcomings of our current forms of supply, and making the pieces fit together.
[1] See ShelterTech’s portfolio for Africa at https://www.habitat.org/sheltertech/portfolio (Accessed 25 October 2023).
[2] See https://medium.com/urban-us/what-is-urbantech-bbb1bc9d4ef3 (Accessed 24 October 2023).
[3] See https://www.bomayangu.go.ke/project/23 (Accessed 24 October 2023).
[4] See https://mffhousing.com/grandluvu-3b-estate/ (Accessed 24 October 2023).
[5] See https://casareal.co.mz/ (Accessed 24 October 2023).
[6] See https://empowa.io/ (Accessed 24 October 2023).
[7] The Housing Market Information Portal is currently being developed as a contribution to Nigeria’s National Housing Data Centre, an initiative of the NMRC, Central Bank of Nigeria and Nigerian Bureau of Statistics. The dashboard will be available in the coming year.
[8] See http://www.syntellect.co.in/ (Accessed 25 October 2023).
[9] See https://www.housingfinance.co.ug/mortgage-development-finance/incremental-housing-mortgage/ (Accessed 25 October 2023).
[10] See https://empowa.io/ and https://empowa.io/ecosystem-how-it-works/ (Accessed 25 October 2023).
[11] Pienaar, J (2022). The Open Access Initiative: Housing Development Cost Benchmarking in Kenya. https://housingfinanceafrica.org/documents/report-housing-development-cost-benchmarking-in-kenya/ (Accessed 20 October 2023).
[12] Opportunities listed in this section have been drawn from various sources: see https://blogs.worldbank.org/psd/what-can-ai-do-affordable-housing-emerging-markets, https://www.habitat.org/emea/newsroom/2022/habitat-humanitys-sheltertech-reveals-10-startups-joining-its-sub-saharan-africa
[13] Note, the examples provided in this list are neither exhaustive nor do they constitute any sort of recommendation – simply an illustration of efforts currently underway to address the challenges being experienced. In some cases, one initiative may span multiple links in the value chain. As much as possible we have highlighted the activities of members of the African Union for Housing Finance. Links to these companies can be found on www.auhf.co.za
[14] See Gram-Hansen, BJ et al (2019). Mapping Informal Settlements in Developing Countries using Machine Learning and Low Resolution Multi-Spectral Data. In AAAI/ACM Conference on AI, Ethics, and Society (AIES ’19), January 27–28, 2019, Honolulu, HI, USA. ACM, New York, NY, USA, 8 pages. https://doi.org/10.1145/3306618.3314253 (Accessed 20 October 2023).
[15] See https://unitac.un.org/news/unitac-x-ethekwini-using-ai-map-informal-settlements-ethekwini-south-africa (Accessed 24 October 2023).
[16] Gavaert, C et al (2016). Opportunities for UAV mapping to support unplanned settlement upgrading. Rwanda Journal, Vol. 1 No. 1. https://www.ajol.info/index.php/rj/article/view/140825 (Accessed 24 October 2023).
[17] Moyo, A (2023). FNB mulls blockchain tech to digitize title deeds. ITWeb, 21 September 2023. See https://www.itweb.co.za/content/LPwQ57lbRWOqNgkj (Accessed 25 October 2023).
[18] See https://www.burnstoves.com/ (Accessed 25 October 2023).
[19] See https://sites.research.google/open-buildings/
[20] Kostakis, V; A Pazaitis; and M Liarokapis (2023). Beyond high-tech versus low-tech: a tentative framework for sustainable urban data governance. Big Data & Society, June 2023. Sage Publications. https://journals.sagepub.com/doi/10.1177/20539517231180583 (Accessed 24 October 2023).
[21] See https://www.businesstoday.in/latest/corporate/story/hey-chatgpt-finish-this-building-this-advertisement-takes-a-wicked-dig-at-ai-enthusiasts-384375-2023-06-06 (Accessed 24 October 2023).
[22] See https://housingfinanceafrica.org/projects/open-access-initiative/ (Accessed 25 October 2023).
[23] For more information regarding CAHF’s Data Agenda for Housing in Africa, visit: https://housingfinanceafrica.org/projects/a-housing-finance-data-agenda-for-africa/