Uganda’s Financial Sector Development Strategy (FSDS) estimates the country’s housing deficit to be 1.6 million units, with an annual requirement between 180 000 and 210 000 units. Given rapid rates of population growth and urbanisation, a widening housing need may overwhelm cities in the near future. Uganda has the third highest population growth rate in Africa (at 3.6%), while the country’s urbanisation rate is projected to be 5.6% per annum. Urban households are expected to grow to 3.8 million in 2025, from 2.9 million in 2020 – a 31% increase. Uganda’s urban areas are therefore poised for a rapid increase in households, implying a huge demand for adequate, affordable housing. Only 44% of the urban population own their dwellings, while the 2018 FinScope Survey indicates 19% of adults aspire to acquire a house.
In 2020, the price of the cheapest newly built house by a formal developer, in Uganda, was found to be USh183 million (US$49 900) – affordable only to 4.4% of the urban population with finance. Therefore, most low- and middle-income households, with gross monthly incomes anywhere between USh50 000 (US$13) and USh600 000 (US$163) per month lack the financial capacity to access market delivered housing. The threshold for affordable housing in Uganda is typically well below USh100 million (US$27 327). Expanding access to adequate and affordable housing and financing mechanisms would need to cater to the working class and low income earners.
The most effective approach to tackling the housing crisis is through strategic partnerships, which unlock the housing value chain, to scale affordable housing supply, while enhancing sustainable economic growth. The Centre for Affordable Housing Finance in Africa’s (CAHF) Housing Economic Value Chain research provides evidence of the significance of housing to Uganda’s economy. The study estimates that housing construction and rental activities contribute considerably (11% in 2018) to Uganda’s gross domestic product. Adequate housing not only improves household living conditions, it stimulates economic growth and job creation. Housing also enhances asset accumulation which builds the long-term resilience of households. This is in turn central to achieving several sustainable development goals, consistent with the aspirations of Uganda’s Third National Development Plan (NDP) and National Housing Policy of 2016.
Despite the dire deficit in housing units and the clear importance of housing to the economy and urban households, housing development in Uganda remains constrained. These constraints emanate from policy issues as well as both demand and supply side factors. Housing development costs are a critical barrier on the housing supply side. Applying the Housing Cost Benchmarking model, CAHF’s study finds that Kampala’s construction costs (US$58 596) are the third highest among five comparator countries, emerging higher than Pretoria (US$40 199) and Lagos (US$52 103). Construction related activities constitute 43% of housing development costs, while land, compliance, infrastructure and other costs, combined, contribute significantly (57%) to total costs. At 14%, both Value Added Tax (VAT) and infrastructure are key drivers of development costs, followed by overhead costs (10%). High housing development costs impact housing affordability, leaving many urban households in substandard and crowded dwellings.
The challenge of informality in Uganda is crucial to recognise, as it hinders households’ ability to effectively engage with the formal housing market and access credit for home acquisition. Informal incomes, coupled with land titling constraints in Uganda, have resulted in low penetration of traditional housing finance products among middle- and low-income households. Addressing affordability issues in the housing market should therefore drive consideration for alternative interventions and products. As CAHF and Financial Sector Deepening (FSD) Uganda have documented, the lived experiences of residents in the Greater Kampala Metropolitan Area (GKMA) show that many households resort to self-construction, incrementally building their homes as and when financial resources become available, thus avoiding the burden of large upfront construction costs. Housing microfinance products tap into this reality, adjusting to the constraints of affordability and cash flow of borrowers, to improve the housing asset.
Critically, housing finance products and other related credit facilities (including mortgages and housing microfinance) need to be funded with medium- and long-term capital that considers the structure and term of the loan. A mismatch between housing finance products and sources of funding often results in unaffordable products that do not meet the needs of the market. The pool of available capital to fund housing loans should therefore be strategically sourced to mitigate risk and create a more favourable lending environment for low-income earners.
Although projected population growth and the effects of urban sprawl present a challenge for housing, these dynamics should also be perceived as a huge market demand potential, and an opportunity for all stakeholders involved in the housing sector to develop targeted interventions that address systemic constraints at different nodes of the housing value chain. Inspired by the need to support the development of a working housing and housing finance market, FSD Uganda and CAHF sought to leverage their collective knowledge base on Uganda and convene stakeholders on Wednesday 17 February 2021. The two institutions jointly hosted a webinar under the theme “Affordable housing as a pathway to economic resilience,” bringing together 50 stakeholders from government ministries, financial institutions across all tiers, and the built environment, as well as development agencies. The session unpacked the current and potential economic contribution of Uganda’s housing sector and engaged a panel of experts around bridging the financing gap in the affordable housing market, to meet the needs of 2.1 million households.
Leveraging housing to strengthen Uganda’s economic development agenda and the resilience of its communities calls for strategic collaboration and long-term partnerships between and across a diverse set of sectors and market players that make up the housing value chain. It is therefore recommended that a multi-stakeholder approach be adopted and prioritised to unlock the potential of housing construction and rental markets and improve efficiencies along the value chain. Within this, there is real possibility for engagement to ensure better coordination of efforts that seek to improve security of tenure, prioritise the availability of bulk infrastructure, reduce housing construction costs and support long-term and end-user finance markets in Uganda.
The “Affordable housing as a pathway to economic resilience” webinar presentation and recording are available here.