Across the world, people are being asked to stay at home and practice social distancing, to stop the spread of the COVID-19 virus. This first strategy against the global epidemic brings the home into sharp focus – is it indeed a place where someone can stay? This is the point made by Leilani Farha, UN Special Rapporteur on the right to adequate housing:
“I am deeply concerned about two specific population groups: those living in emergency shelters, homelessness, and informal settlements, and those facing job loss and economic hardship which could result in mortgage and rental arrears and evictions.”
Current housing conditions have a very real impact on the ability to cope in this current context. As Mark Weston notes in the Mail & Guardian, and Diana Mitlin notes in her blog, staying at home in an informal settlement can itself be a risk. Informal structures are often poorly ventilated and overcrowded – a recipe for infection. The informal settlements in which they exist are dense, with extremely limited access services and health facilities. Sanitation is often compromised, with shared water sources and toilet facilities (if these indeed exist), so that any handwashing at all is a luxury, much less at every instance for 20 full seconds. The recommendations offered by both authors speak to a context-specific approach in managing the impact of infection (access to healthcare, for example), given that curbing it altogether is unlikely.
Meanwhile, a recent Guardian article notes the tension between a policy focus on densification – a critical environmental sustainability intervention – and the health imperative of social distancing. Working from home may be the current mantra, but when home is a 12m2shack in an informal settlement, or even a 60m2flat in a highrise building, this comes with its own risks, a point Luis Triveno and Olivia Nielsen make in a recent blog on the World Bank website.
And then there is the economic impact, and the risks to the financial sector and to credit active consumers. Our partners at 71point4, have posted an excellent blog that explores this in some detail and illustrates measures taken by mortgage lenders and finance ministries around the world to protect against the risk of massive defaults (a second blog looks at the South African credit response).
Given our experience with the global financial crisis of 2007-2008, the trajectory is fairly predictable: as consumers suffer losses in income, their ability to pay their mortgages or their rental instalments will decrease. This will have a knock-on effect: lenders will see a rise in non-performing loans (NPLs) which may lead to an increase in foreclosures, and an overall decline in the value of their mortgage lending book. As house prices go down, consumers will have less ability to leverage property values to support their income constraints, and lenders will have less ability to leverage their portfolio to access capital. So, access to capital will decrease, and lenders will be more conservative in how they extend what capital they do have.
There is an argument to be made that this is the perfect opportunity for shifting lending attention to low value markets – smaller loans on lower value properties mean a decrease in the potential loss given default, while spreading the credit risk across a wider base of consumers. It is a perfect opportunity, in other words, to make the mortgage market work for the poor – targeting new mortgages at low and lower-middle income earners who have been largely overlooked by mortgage lenders. This is the gist of a paper by 71point4, which argues that this niche might bring South Africa’s mortgage markets to life, overcoming lackluster performance since the Global Financial Crisis. Beyond the mortgage market, limited access to capital also creates an argument for promoting incremental housing opportunities and housing microfinance, as households with constrained affordability or limited access to mortgage finance will need to take smaller steps, improving their housing incrementally.
The challenge is that a functional housing finance market (whether for mortgage or non-mortgage finance), especially for low-income households where margins are thin, depends on an ease of transaction and the ability to quantify risk – something that South Africa’s low value residential property market does not enjoy. The Transaction Support Centre that CAHF supports together with 71point4in Khayelitsha, Cape Town, has captured many of these lessons, which resonate even beyond South Africa’s borders:
- South Africa’s title deeds backlog fundamentally undermines households’ ability to transact formally and disqualifies the application of mortgage finance – while this relates primarily to state subsidised properties in South Africa, it is a common situation in very many cities across the continent;
- Unresolved deceased estates mean that heirs may not be formally registered as property owners of their newly inherited properties – this means that they cannot access mortgage finance against those properties;
- Cumbersome transaction requirements, relatively expensive fee structures, and the lack of appropriate facilitative mechanisms militate against formal transactions and encourage informal transactions, such that property assets become ‘sterile’ with “owners” not being reflected on the deeds record;
- A pre-emptive clause in South Africa means that properties subsidised by the state cannot be sold within eight years of original occupation, which ultimately means that households sell informally in order to realise a transaction before that time. Again, this means that the buyer cannot access mortgage finance against the property;
- Poor credit records undermine the ability of some buyers to access mortgage finance
Many of these issues and the risks they create relate to administrative constraints – whether with the deeds registry or the subsidy management system, or indeed even the mortgage system. Shifting mortgage lenders interest down market will require that these issues are addressed across the continent.
It is in this space that we can begin to think of a COVID-19 response that truly does change the world as we know it. If the pandemic shrinks markets, can we use our response to shift attention down market by investing our energies in improving transactional capacity and better quantifying risk? If we have learned one thing from the world’s response to the COVID-19 pandemic, it is the power of technology. Applying this lesson to making housing finance markets work in Africa, offers some interesting opportunities.
The power of technology creates efficiencies that significantly improve the potential to realise economies of scale, especially important when dealing with low value transactions
As the Transaction Support Centre has demonstrated, a very real challenge faced by mortgage lenders, housing practitioners, and indeed households themselves, is the failure to adequately demonstrate property rights in a way that facilitates the flow of finance. According to the World Bank’s Doing Business Indicators, only three countries in Africa (Rwanda, Mauritius and Kenya) have fully digital deeds registries. A further six countries have deeds registries for which records are scanned by computer; and the remainder continue to have deeds registries recorded only on paper. Where these registries are not efficiently managed or easily accessed, property owners find their ability to prove their property rights is undermined, and this further undermines their ability to access mortgage finance. Together with 71point4, we’ve been working with Seso Global in Khayelitsha, to build a blockchain-based property register that holds residents’ property-related documents in an immutable database, so they can prove their rights in the absence of formal title. Seso Global works in other countries as well. In Nigeria, they’ve built a land registry management and query portal that feeds a property and mortgage marketplace and a land service provider marketplace – their experiences have been documented in a Harvard Case Study. Seso is now expanding into Ghana, exploring the opportunity for a similar land registry management system and property portal.
What a blockchain-based property registry system does is create a framework for certainty. The creation of the registry necessitates collecting and verifying documents and ensuring that these are up to date, in a way that is much more efficient (and cost effective) than traditional conveyancing approaches. Once this is established, it becomes much easier to maintain the evolving status of a property – events in the life of the property, for instance, the death of the property owner, a divorce, a sublet, can all be recorded as they happen. This means that the registry can also accommodate interim status changes before they’re formally recorded on the deeds registry. And this gives lenders comfort that they know what is happening with the property, who is currently responsible, and what their rights are – all elements against which they can structure a loan product.
At the same time, technology can also support municipal governance capacity, which will improve the transaction environment for investment in low income housing
A blockchain-based property registry system also creates a framework and basis for good governance. Once the relationships of residents to their properties are clearly established and confirmed by all the relevant parties, the registry can become the mechanism through which the state engages with the resident. This creates the basis for improved administrative systems – for example building plan approval, rates clearance certificates, subsidy administration – which then support, stronger and more efficient transactions, household and private sector-led local investment, and improved housing asset value. Whether blockchain or not, there is a very strong argument to be made, especially in low-value properties and with low income households, to go digital.
At the same time, from a public sector and governance perspective, this virus is forcing us to see the connections between sectors and act intersectorally in a way we typically do not. As Diana Mitlin recommends, establishing effective partnerships between key stakeholders in the public, private and non-governmental sectors is critical – health care workers will need to work with municipal housing officials who will need to engage with those responsible for providing essential services, who will rely on the support of local community groups, and so on. Technology like what we’ve been exploring with our Khayelitsha blockchain project, and data collection efforts like SDI’s KnowYourCity data campaign,could go a long way towards creating a common platform through which everyone can cooperate.
Technology can also help package smaller scale housing investments for investors, which will be critical when affordability for mortgage finance is further constrained as a result of the pandemic.
For the vast majority of households across this continent, mortgage finance will not be the answer – and indeed title may be an elusive aspiration. Especially, but not only in informal settlements, we will need to develop mechanisms for financing incremental home improvements and housing delivery approaches that work at a much smaller scale than is seen as viable by the traditional investor. iBUILD changes the equation, using technology to aggregate multiple small projects into an investible whole. Asoftware application, iBUILD creates a local marketplace for housing contractors and consumers to find one another, bid for projects, access finance, and manage the construction process. By collecting data through the app, iBUILD also creates a database that quantifies the opportunity at the macro level, while enabling project-level accountability that assists to de-risk the investment. In this, iBuild makes it possible for investors to contemplate investments in incremental, housing delivery projects, without secured housing finance. The potential market is enormous – indeed, it is likely to be the vast majority of urban households across Africa. Addressing the challenge of aggregating all of these individual, household and small scale builder efforts into a marketable whole is iBuild’s genius. Currently, iBuild is operating in Kenya. In South Africa, iBuild has partnered with Sofala Capital and iBuild Homeloans, and in Nigeria, iBuild is building a base for a joint venture partnership in West Africa.
Still, the ability to shift investor interest towards affordable housing in Africa is dependent on investors’ ability to quantify the opportunity and frame the risk with good data.
Especially in the context and aftermath of the COVID-19 pandemic, investors are looking for safety and predictability. While the investment argument for affordable housing is clear, without the data to substantiate risk and predict the potential return, it is little less than a romantic wish. And, even though we can argue that housing is at the centre of our ability as a species to cope with this global health crisis, we can be sure that the world is going to be demanding capital for very many other and more easily quantifiable targets.
And so, now more than ever before, we must improve the availability and reliability of market data that highlights the investment opportunities and gives investors comfort that they can proceed, knowing the risks. This is goal of CAHF’s Housing Finance Data Agenda for Africa, which seeks to build a broad-based database and (over time) portal of indicators that shine the light on investment opportunities across the continent.
As the world pulls in and stays at home in an effort to stop the spread of the coronavirus, a real risk to affordable housing in Africa is that it falls of the radar of addressable concerns. Today, investors seeking opportunities rely heavily on site visits and personal interviews to make up for the data gaps they face when assessing potential investments. While the need for such case-specific exercises in due diligence will not fall away, the ability to build a stronger virtual picture will help motivate for location-focused attention when resources are scarce. The data for this does exist, in a myriad of public and private administrative and other datasets. What is lacking, is an initiative to bring it all together in way that makes a coherent argument for investment in housing. This is CAHF’s goal as we look towards the next five years.
It is well understood that the world has already changed fundamentally from what we knew, as a result of the coronavirus. We mustn’t waste what we’re learning in this crisis. To start, we have the opportunity right now, to draw attention to affordable housing, and the place where health happens: the home. And from here, we can leverage what we’ve learned about technology to work with the public and the private sector to improve the transactional environment in which affordable housing operates and the data and information that supports our understanding.
Press release issued 18 March 2020 and posted on the OHCHR website: https://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID=25727&LangID=E
Weston, Mark (2020), How to tackle Covid-19 in informal settlements. Mail & Guardian. 27 March 2020, https://mg.co.za/article/2020-03-27-how-to-tackle-covid-19-in-informal-settlements/
Diana Mitlin (2020) Dealing with Covid-19 in the towns and cities of the Global South. Global Development Institute Blog. 25 March 2020. http://blog.gdi.manchester.ac.uk/dealing-with-covid-19-in-the-towns-and-cities-of-the-global-south/
Shenker, Jack (2020), Cities after coronavirus: how Covid-19 could radically alter urban life. The Guardian, 26 March 2020. https://www.theguardian.com/world/2020/mar/26/life-after-coronavirus-pandemic-change-world
Triveno, L and O Nielsen (2020) Home Sane Home. World Bank Blogs, 18 March 2020. https://blogs.worldbank.org/sustainablecities/home-sane-home
De Beer, A and I Melzer (2020) Maybe a holiday is just the medicine we need? 20 March 2020. https://www.71point4.com/maybe-a-holiday-is-just-the-medicine-we-need/
De Beer, A and I Melzer (2020) A nation working together. 25 March 2020. https://www.71point4.com/a-nation-working-together-part-1/
Melzer, I and C Hayworth (2018) Bringing Life to Mortgage Markets in South Africa. Prepared for the Centre for Affordable Housing Finance in Africa. https://housingfinanceafrica.org/documents/bringing-life-to-mortgage-markets-in-south-africa/
Vallee, B and Y Yu (2020) Seso Global: Building a Blockchain-enabled Property Marketplace in Nigeria. HBS Case Collection, February 2020. https://www.hbs.edu/faculty/Pages/item.aspx?num=57630