Why do we need data to support investment in affordable rental housing in Africa?

Rental markets will develop (and have developed) with or without data. However, data on rental markets provides a basis for evidence-led engagement on rental market development with policy makers, investors and landlords. The current dearth of information prevents stakeholders from properly understanding demand dynamics. It obscures market performance, making investments into the sector seem riskier than they may be. It prevents local authorities and national governments from establishing effective incentives and regulations for the sector. Without data and information on the structure and performance of markets, and the site of opportunity, investment in rental is undermined and inhibited.

It is conceivable that rental markets in many large cities on the continent have developed not only in spite of, but because of, the absence of policy, targets and visible data. In the absence of an attentive policy and regulatory environment, for example, landlords may face few restrictions on how they develop and manage rental stock, and they would be unconstrained by any formal regulations in their negotiations with tenants. While external parties (including researchers, policymakers, financiers and investors) may not have access to useful data to characterise the sector at a broad level, local market participants may have access to sufficiently robust, on-the-ground evidence on which to base specific investment decisions.

However, in such an environment – typically characterised as ‘informal’ –  the rental sector is likely to work sub-optimally, characterised by imbalanced landlord tenant relationships, poor quality housing and service provision, limited access to finance to enable rental stock development and few supporting services. It may also undermine a broader urban development or formalisation agenda. For instance, where governance is poor, landlords may contravene by-laws or impinge on the rights of neighbouring property owners. Where properties are poorly maintained or over-crowded, the sector might engender lower levels of shared responsibility or citizenship on the part of tenants, and might introduce social instability to an area. In such a scenario, landlords may be better characterised as slumlords, who create negative externalities and contribute to urban decay. This appears to be the case in many African cities, and the bias in favour of home ownership in the policy domain no doubt emanates in part because of evidence and fears of this outcome.

Still, the incidence of rental demonstrates that pathways to ownership are not accessible for many, particularly newer migrants and lower income earners. In addition, rental markets can offer a wider array of housing options, including small units and units with shared facilities that may be occupied for relatively short time periods. Beyond this, while rental market participants can and do create negative externalities, they can, if supported, do the opposite. Recent case studies in Cape Town, South Africa, highlights the visible role small scale landlords can have on upgrading poor neighbourhoods as they invest in rental stock to generate a stable income stream and asset base  for landlords. In addition, the participation of formal financial institutions who require land to be formally registered and buildings to comply with regulations, increases the incentives of landlords to comply with by-laws, and helps integrate these properties into city processes and revenue streams. This investment also potentially creates a base of active citizens invested in property who actively engage with municipal government to improve governance and service levels.

Better data could enable informed oversight, improved service delivery and more strategic engagement with the sector by cities and other external entities such as financiers and large investors. This can potentially curtail negative externalities that might be associated with informal rental market activity, but also leverage rental as a mechanism to improve governance, create wealth and provide a diversity of housing solutions for a young, urbanising and mobile market.

This article is excerpted from a full report, setting out a Methodology for Understanding and Quantifying Residential Rental Markets in Africa.  

See CAHF’s recent Focus Note series, highlighting rental data for Tanzania, Uganda, Côte d’Ivoire, and Senegal, and setting out a methodology for quantifying residential rental markets in Africa.