HOW TO REDUCE HOUSING DEFICIT IN NIGERIA

      By Olumide T. Agunbiade 

In development terms, the last few years of the 20^th century and the first few years of the 21^st century have been a total failure. Housing is one of the basic of human needs. The provision of houses through the creation of mortgages is taken for granted in developed countries; however, remains a major challenge in developing countries, especially in Nigeria.

                                                                

DEFICIT SPECIFICATION
YEAR	FIGURE	POPULATION	PERCENTAGE	CAUSE
1993	8M	98M	8.06%	Mortgage
2007	12-14M	143M	9.79%	Low supply
2010	16M	156M	10.25%	Overcrowding
2011	17M	160M	10.62%	Population
2012	18M	167M	10.77%	Slum housing
				Poverty

SOURCES: PROPERTYMAX DATA & STATISTICS

      IMF

                    CIA WORLD FACTBOOK

A recent research revealed that Nigeria and United Kingdom have two things in common – overcrowding and housing deficit. According to a report on Nigerian Housing Sector aired a few years ago on African Independent Television (AIT), it was stated that between 1973 and 2006, the Federal Housing Authority (FHA) built only 30,000 housing units nationwide.

In 2010, just 103,000 homes were built in England – the lowest since 1923 – though 232,000 was supposed to be built per year. Nigeria has a large and ever increasing housing deficit which stood at approximately 8 million housing units in 1993 and 12 – 14 million in 2007.

According to a recent BBC report, the UK government has agreed to build 3 million homes between now and 2020 with 1.8 million new homes set to be constructed on Greenfield sites, a target area for development. A recent estimate puts Nigeria’s housing deficit figure higher at 16 – 17 million. “At an average cost of N2.5 million per housing unit, Nigeria would require N35 trillion to fund a housing deficit of 14 million housing units.” said Olusegun Adeniji of Federal Mortgage Bank of Nigeria (FMBN).

Several factors have been identified as responsible for this shortage. According to Mohsin Khoda, a Land Acquisition Manager with Kings Land Global Investment Company based in Dubai, “Supply is limited while demand is high due to increase in population.”

In United Kingdom, the expansion of European Union (EU), migrant workers, increased divorce rate, longer life expectancy and overcrowding of the major cities had been identified as the reason for the shortage. Nigeria’s urban housing problem manifest in overcrowding, slum housing, poverty and widespread institutional mediocrity.

 According to a report from the House of Representatives, only 37% of Nigerians own houses and the country’s population has increased since 1991 from 88.9 million to 160 million. If we take the current population figure of 160 million and assume 30% of the population as working adults, we have 48 million estimated working adults; assuming about 40% or 19.2 million of the working adults qualify for mortgage loans, and assume an average house final selling price at about N3 million for a 2bedroom flat, the possible size of the mortgage market is close to N58 trillion.

By these statistics, it is obvious that there are tremendous opportunities in the Nigerian housing sector waiting to be tapped. One of the major housing policy initiatives was the policy on affordable housing that was initiated in 1979 by the Shehu Shagari Administration. The policy though laudable was unable to meet the nation’s housing needs because it was based on unsustainable tenets that houses will be provided by the government.

Apparently, it is necessary to leverage on the resources available in the private sector, while also encouraging foreign investment. The government (Federal and State) should focus on providing a favorable investment climate, infrastructure, and mortgage insurance to first time home buyers and low to middle income earners.

Though there are huge potentials in the Nigerian market, it is obvious that a difficult investment climate where laws to protect the sanctity of contracts and insecurity are far from adequate. Sadly, this hampers private participation and foreign investment.

Recently, Nigeria’s reforms have led to a reduction in the time required to complete the process of property registration from 274 to 80 days, but a lot still needs to be done because it takes only a day in some developed countries.

Obviously, investors are comfortable in environment where registration is automated and procedures are minimal, and will be glad to invest in such places. Automation though important, should be accompanied by changes in work culture in government registries. The time taken is definitely unacceptable if the nation want to attract private investment

  The fees paid to register property in Nigeria are extremely high and have some non-transparent components. These fees add to the cost of houses and usually take such houses out of the reach of people in the lower bracket. The government should devise ways of reducing fees paid by people at the lower strata of income.

Also, there is a shortage of skilled manpower that can take the mortgage industry to the next level. Capacity has not been built over the years because the mortgage sector did not really exist and the conditions were not favourable for long-term lending as it would have led to asset-liability mismatch.

Globally, lenders, investors, and borrowers prefer a stable economy where decisions can be taken without any apprehension. Inflation should be kept at manageable levels, interest rates must tend downwards, and other macro variables should be stable.

As inflation and interests rates decline, banks and pension funds will be encouraged to look less toward government securities and more towards the private sector to invest their assets. Hence, mortgage and mortgage-based investments would stand to benefit if the macroeconomic environment can continue to improve.

There are several reports on delays in receiving permits for construction. The procedures are complex and expensive. This encourage illegal construction and squatter settlements with its attendant health and environmental issues as visible in cities in Nigeria such as Makoko in Lagos and some satellite towns in Abuja to name a few.

Clearly, reforming licensing requirements - particularly by reducing the processing time as well as decreasing the costs – would not only increase the size of the formal construction sector but also reduce the cost of housing construction, thereby increasing the availability of homes to a broader segment of Nigerian society.

One of the major barriers to reducing housing deficit in Nigeria is the tax burden. The imposition of Value Added Tax (VAT) at various levels of housing development process adds significant costs as much as 30% to the cost of a house, even before fitting fees and stamp duties are taken into consideration.

Tax exemptions, deferrals and tax holidays on materials or similar tax-related provisions have been used successfully in other countries for low and moderate income earners. These incentives can be used successfully in attracting investors into the housing sector.

Lack of primary infrastructure such as roads, water, electricity etc, accounts for about 30% of housing cost. In most cases, investors have to provide infrastructure which invariably increases the cost of the houses they build. Government should provide it if the nation must achieve her objective of providing affordable housing.

A key factor that has led to the high construction cost and housing deficit in Nigeria has been the restriction on the importation of cement. While Nigeria does not produce enough cement domestically to meet demand, imports have been restricted and subject to a process of quota allocation. This has led to sharp increase in the price of cement.

In order to bring down materials cost and stimulate construction, as well as reduce housing deficit, the government should continue its reconsideration of restrictions on the importation of cement and other building materials or conduct more research on how our local materials such as clay and other materials can be of benefit to construction in Nigeria.

 Reducing housing deficit is achievable, but the necessary ingredients have to be in place. Investors can be attracted to difficult environments if there is convincing evidence that reforms will improve, the investment climate will be implemented and if government provides mortgage insurance to first time home buyers who do not have credit history and to low and middle income families.

The Federal Housing Authority (FHA) could be restructured to become the government sponsored entity that will be responsible for providing mortgage insurance while the Federal Mortgage Bank of Nigeria (FMBN) can pool the insured mortgages and sell them in the capital market to provide liquidity.

Besides, the absence of foreclosure law has been cited by some investors and financial institutions as the reason for not investing in the housing sector. Though the incidence of foreclosure in most countries is generally low, it is important for investors to know that they can take possession of their collateral and recover their loans as quickly as possible.

In conclusion, adequate shelter has always been one of man’s basic needs; it is a significant component for human survival and a useful barometer for gauging societal development. As a unit of the environment, it has a profound influence on the health, efficiency, social behavior, satisfaction, productivity, and general wellbeing of the individual and the entire nation. The need to ensure decent and affordable housing to the people, particularly to the low and middle income earners, is central to the achievement and improvement of both human living standards and national development.