Why we need to start financing resilient housing in Africa

In the best-case scenario, a home is where a family goes to seek shelter from a storm – real or metaphorical. Stable housing and access to property can also protect families from economic shocks, but only if that shelter is resilient to physical shocks such as floods and cyclones. Disaster resilience has become increasingly important as the impacts of climate change continue to batter the world’s most vulnerable communities.

Of the 15 countries identified as the most vulnerable to disasters, 13 are located on the African continent. Floods harm more people across the continent than any other type of disaster. Floods and droughts taken together account for 80 percent of deaths and 70 percent of economic losses linked to disasters in sub-Saharan Africa. In parts of the continent, the risk of landslides and cyclones are also significant, with lengthy recovery timelines. Mozambique is still rebuilding after Cyclone Idai in 2019, which killed over 830 people, damaged more than 100,000 homes and caused an estimated US$1 billion in damage.

Temporary shelter, housing repair, reconstruction and the replacement of household goods represented an average of 50 percent of total post-disaster recovery costs globally over the last 30 years. A flood or cyclone harming communities also impacts the construction supply chain, such as the ability to procure materials and labor needed to repair damaged houses. Similarly, earthquakes can destroy homes and communities in a matter of seconds.

Disasters pose the greatest risk to families who are precariously housed, including those in informal settlements – an estimated 55 percent of the population in sub-Saharan Africa. Often, these communities are situated in locations with higher exposure to natural hazards – in flood zones, on steep slopes, or in other hazard-prone areas – and face the compounding challenges of insecure tenure and limited access to safe water and sanitation infrastructure. In most African countries only the wealthiest 5-10 percent of the population can afford the cheapest house on the formal housing market and most home construction is self-built over time. In Cameroon, for example, 93 percent of homes are built through owner driven construction, while in Senegal’s capital, Dakar, the figure is 80 percent.

So how can we reach the majority of households in the informal market with resilient solutions? Despite its size and influence on the housing market, the financial sector has largely been overlooked as a partner to promote resilient housing. We can approach resilience through financing from two angles: new construction and retrofitting existing homes.

First, let’s consider how investors and mortgage providers can help ensure that new homes under construction will be capable of withstanding a variety of hazards, from wind to water. Particularly with the growing impact of climate change, there remains much work to be done to ensure new construction meets sufficient standards to withstand potential disasters. Most countries across Africa do not have definitive building codes nor apply sufficient quality controls, leading to instances of new buildings collapsing during heavy rains. In addition to helping save lives, promoting improved construction practices will benefit investors by strengthening their portfolios and decreasing the risks their assets face. The potential in improving resilience at the time of construction is immense, given the high rate of urbanization for many countries across Africa and that 75 percent of the global housing stock that will exist in 2050 has yet to be built.

Secondly, and perhaps more importantly, we must continue to invest in the existing housing stock. Maintenance, building retrofits and upgrades are often prohibitively expensive for the families who are most at risk during disasters. Investing in resilience needs to be made accessible and very affordable. Fortunately, new technologies and construction methods, from PP bands to bamboo, show a lot of potential to bring costs down. But these households also need appropriate financing solutions and microfinance institutions have a critical role to play, particularly across the African continent. These institutions have grown their portfolios by serving low-income clients, but still often lack the capacity to offer housing solutions due to numerous factors including insufficient access to long-term liquidity,  technical expertise and market data.

Of the global US$124 billion credit portfolio, only about 1% has been directed towards housing  despite the critical role of housing in global economies. Across the continent, housing construction, rental income and housing services contribute as much as 14 percent to GDP, while creating formal and informal employment opportunities. Limited access to long-term finance, combined with lack of engineering expertise among both financial intermediaries and homeowners, make products for  housing upgrades too few and far between. African markets need financial products paired with engineering solutions to effectively address access issues for housing retrofit financing. Segmenting the target population and mapping them to their financial service providers can help identify investment risk, laying the groundwork to design creative mitigation strategies and scalable market-driven solutions.

Credit guarantees bundled with access to technical assistance for human-centered housing finance solutions can help build investor confidence. More robust, reliable, and accessible data can assist all actors along the value chain to design interventions that bundle construction technology, resilience solutions from the lens of climate and energy, and increase access to financial services. As institutions start building more resilient housing finance structures, investors will gain greater confidence in both primary and secondary markets because these assets will better withstand shocks, ultimately improving the sector’s efficiency.

That virtuous cycle contains more good news: every dollar invested in improved climate-resilience leads to six dollars in savings. Though the journey will be long, we should invest now in construction and financing to make sure that the housing stock is built to last and more homes across Africa truly are that shelter from the storm.