NIGERIA HOUSING CRISIS, WHAT'S THE WAY OUT?

1. THE PROBLEM:
Nigeria currently has a Housing Deficit of about 16 million. Lagos alone accounts for 30% of that deficit. Let’s look at the state of Housing in Lagos:  according to recently released statistics, Lagos has about 4.75 million Houses against a population that is in excess of 20 million. Statistics also show that out of these 4.75 million Houses, only 3.15 million are residential, while the rest are offices, churches and mosques. And over a third of the remaining 3.15 million houses are in slumps and areas which clearly need urban renewal. 

One may not appreciate how bad the issue of housing deficits currently is until one considers the size and the age distribution of the Nigerian population and the population growth rate, which is put at a year on year average of 2%  against the low rate of growth of the real estate market, especially at the lower end of the market.  World Bank statistics  puts Nigeria at 168 million people with 70% of the total population below 40 years of age.  From the total population therefore,   about 118 million people are below age of 40 years with the median age at 17.9 years . Now if that statistics  is placed against other key indicators such as rate of migration from rural to urban centres, it becomes palpable that beyond the current 16 million Housing deficit, there will be a major Housing Crisis in less than 20 years from now.

2. FINDING A SOLUTION:
The question to ask is how do we resolve this problem? An easy answer will be to say that Government should prioritize the building of low cost houses. But Government already has a lot of issues it is battling with, such as Education, Health and other Social Amenities, so where is the money for mass low cost housing going to come from? Another hurried answer will be to use the PPP model? The question then arise, how do we do this successfully since the PPP model already adopted by some State Governments like Lagos appears to be failing, with the cost of the houses delivered through PPP's being out of the reach of the people it is meant for.

 With minimum wage pegged at 18,000 naira it will be near impossible to get people of low income brackets to buy houses delivered at over 5 million naira even if they were expected to be allotted on owner occupier basis with repayment made through deductions from their salaries over a twenty year period. Now the next solution will be to prioritize Medium Income Housing through PPP’s while we rethink low cost housing. The current reality is that the interest on  Mortgage loans in Nigeria averages 19%  and equity contribution is about 20 - 40%. Now if a medium housing unit which is delivered at an average of 20 million naira through a PPP is put on the market for 22 million naira at 10% profit (which is below the rate of inflation, put at 12.3% in 2012); how will a medium income earner be able to access  a mortgage facility at 19% interest and an equity contribution of between 5- 6 million based on national income averages? 

Of course some will say why not access the Federal Housing Loan through the Federal Savings Bank that has a 6% charge attached to it? But then, the maximum available is 15 million naira, and how many people are able to access that? 

3. SO WHAT IS THE WAY OUT?

a. CRASH THE COST OF MORTGAGES
The way out is to get the banks out of mortgages first of all because the current interest structure from the Banks defeats the essence of Mortgages. The question then arises; where will the average person desirous of owning a home get funding? Some will quickly say through the Pension Funds. But we all know that all Pension schemes in Nigeria before the Obasanjo Pension reforms – from National Provident Fund to the Nigerian Social Security Trust Fund - have been embezzled with the consequence being the lack of real long term funds within the economy for projects such as mass housing.  So how can Pension Funds bail us out of this Housing quagmire?

My recommendation will  be to first of all build more transparency into Pension Fund Administration and the next step will be to encourage Pension Funds and Insurance Companies to pull together long term Funds for Mortgage lending through the a National Savings and Loan Scheme which is Privately run by different operators and regulated by a National Mortgage Commission to be set up by Government.

b. ENCOURAGE LARGE HOUSING OFF TAKERS TO ACCESS THE PULL OF FUNDS FROM INSURANCE AND PENSION FUNDS 

i. ON THE SUPPLY SIDE - Large Real Estate Off-takers can  be encouraged to take advantage the pull of funds from the Pension and Insurance funds with preference given to those with low cost designs and cheaper source of building materials. These Real Estate Off-takers will be licensed on a Regional basis based on proven capacity to deliver cheap and durable housing under a National Mortgage Policy akin to what is be is obtainable under the Power Reforms. Allocation of land for this purpose will be done through State governments under a land swap arrangements which will give marginal equity to State Governments for housing projects under their jurisdiction. If this process is fine-tuned and backed by relevant legislation, there will be a huge interest by credible foreign and local participants on the supply side and selected Off-takers will be able to leverage scope and scale advantage to lower their cost and have a good spread in terms of margins.

ii. ON THE DEMAND SIDE - Prospects will be encouraged to form thrift associations to buy into such housing projects. And this thrift system will further reduce cost as subscription will be done on group basis in order to drive down cost.

It is my sincere belief that if this strategy can be fine-tuned, with other Fiscal policy measures which will encourage cheaper building materials and more cost effective housing solutions taken by government, Nigeria will begin to tread the right path to reducing her huge Housing deficit, while putting plans in place to arrest the looming burst should Nigeria's population begin to age.