Is ‘affordable’ housing in Sub-Saharan Africa being appropriately addressed?
Is the current supply of ‘affordable’ housing within Sub-Saharan Africa appropriately addressing the housing deficit?
The issue of housing affordability is a source of concern for most countries across the African continent. Given the current pace of population and urbanisation growth, the shortage of housing is expected to increase dramatically in the coming decades, potentially entailing a barrage of social and economic problems. While our intent is to cover the whole Sub-Saharan Africa region, the countries upon which we have focused our analysis are primarily South Africa, Kenya, Nigeria, Ghana and Tanzania.
Assessing the demand for affordable housing in Sub-Saharan Africa
To assess the demand for housing, one should start by analysing major demographic trends such as the population and the household structures. The segmentation of households by income bands and the consideration of mortgage accessibility would then serve to frame the depth of the affordable housing segment in particular markets.
According to the United Nations, at the end of 2016 the Sub-Saharan Africa region was home to 990 million inhabitants with 187 million of them living in Nigeria alone. South Africa and Tanzania have a population of approximately 55 million while 47 million people live in Kenya and 28 million in Ghana. At a regional level, the population is expected to grow by 2.3% per annum until 2050 to reach 2.07 billion inhabitants. In parallel, the continent is experiencing one the fastest urbanisation growth rates with an estimated 40% of the population living in urban areas in 2014, projected to reach up to 56% in 2050. As an “upper-middle income economy”, South Africa has more than 11 million households earning less than USD 10,000 per year, representing approximately 70% of the country’s population. With a growing middle class, Nigeria has more than 25 million households earning less than USD 10,000 per year, representing almost 65% of the country’s population. However, the income levels observed in other countries of the Sub-Saharan Africa region stand significantly lower than those of Nigeria and South Africa with the proportion of Kenyan and Ghanaian households having an income below USD 10,000 per year standing at 84% and 90% respectively.
Also, although access to mortgage for property purchases is theoretically possible in most of Sub-Saharan Africa countries, it is rendered very difficult by the high interest rates charged by banks. Indeed, while in South Africa the prime interest rate will be 10.5% per annum from 18 March 2017, in Ghana private purchasers are not able to borrow at a rate lower than 30% per annum. As a result, with the exception of South Africa, the vast majority of property purchasers in Sub-Saharan Africa are self-funded or co-financed via the support of relatives, therefore limiting the solvable demand for housing.
Understanding the factors limiting the supply
While the housing shortage is a recurring political theme and stands on the agenda of all Sub-Saharan Africa governments, the initiatives taken remain insufficient to cater for the growing demand of the populations. Some countries such as Tanzania have decided to subsidise the construction of large scale affordable housing schemes while other countries such as South Africa or Kenya tackle the problem through the provision of government-backed loans to home buyers or tax cuts for developers.
Even if we observed a growing number of Public Private Partnership initiatives aiming to develop large scale affordable housing schemes such as the Saglemi Housing Project in Ghana, overall the private developers have been somewhat reluctant to tap into the affordable housing segment for various economic reasons:
a. The construction costs remain too high to match the actual purchase power of home buyers
b. The cost of land in urban areas is generally too high to incentivise the development of affordable units
c. The returns provided by the construction of other asset classes are perceived as more attractive
d. The competition introduced by public sector involvement
As a result of the above, the supply of affordable housing remains insufficient to cater for the substantial demand witnessed in the sector while the price points at which affordable housing units are marketed actually exclude the low and middle income classes of most countries.