The housing delivery system in any country is a complex network often called a ‘housing ecosystem’ meaning that the activities in one section of the network works its way through the chain to affect other variables. No one central figure creates or coordinates this system, instead all participants define the system and influence each other. The main levels of this ecosystem in the housing market are often identified as finance, affordable housing, rentals and homeownership. There are also many players that have various parts to play in defining the market. These include home buyers and renters, developers, builders, property managers, land owners, governments (local, state and federal), investors, suppliers, and mortgage financiers.
When there are gaps in the ecosystem of levels and players as well as a lack of alignment and coordination of goals, the result is a housing market that does not adequately provide housing for the population. This is the current case in Nigeria where the national housing deficit was last measured at 17 million and continues to grow along with the country’s rapid population growth.
As levels of this ecosystem go, there are many reasons why finance is often regarded as the foundational level; all the other levels depend on this one for their changes and growth. And on the basis of Economics 101 – supply and demand determines the market equilibrium – then finance is also key as the activities of financial institutions in the housing market determine both sides.
The market depends on the capital flows from financial institutions through loans to developers for supply of new homes and demand is determined by the ability of consumers to afford to become home-owners which is based on financial creditworthiness and access to loans. The homeownership level depends on the ability of families to gain access to homes that align to their financial circumstances as this continues to change over time. This also applies to those seeking homes for rent.
Affordable housing for lower income households is perhaps the most poorly accounted for amongst the 4 levels as provision of this kind of housing does not just happen when left to be purely decided by market forces. Laws and policies created by the government are needed that makes provision of this kind of housing attractive for sponsors and developers. Most real estate developers in developing markets like Nigeria’s do not have enough capital for the large scale projects needed to make money from building good quality, low-cost housing so they tend to build houses for high income home seekers creating an imbalance in the market with over supply of over-priced housing and very few options for middle and low income earners.
Bringing together the finance and affordable housing levels is key in correcting this imbalance. Financial institutions need to work to close the gap by providing the capital needed for large scale housing development projects that will create benefits for both average Nigerians and property developers – the average Nigerian family can live in their own quality home at a low cost while property developers will make profits from the venture as many units are created rather than just a few. Financing will be boosted by a link between investors and these developers which can be achieved when agencies, bank, micro-finance institutions, primary mortgage institutions as so on can create a breeding ground for investment that is strategically channeled to the affordable housing market. One of such agencies in the Ministry of Finance initiative – Family Homes Fund – which is a public-private partnership that brings key stakeholders such as the Ogun State Property & Investment Corporation (OPIC), Millard Fuller, the Nigerian Sovereign Investment Authority, the Nigerian Mortgage Refinance Company, participating state governments as well as various investors seeking opportunities in the Nigerian housing market to the table in achieving the common goal of providing access to financing home ownership. With more funds like these channeling investments in a way that takes advantage of economies of scale and coordinates activities, a little will go a long way in starting the process of building the homes that the nation needs.
Housing must be provided in the form of an efficiently functioning ecosystem for success in the long term if we aim to develop more large-scale affordable housing projects. The right incentives also need to be identified and provided to ensure that all parties act as they should to achieve this overall goal. Obviously, the government must play a major role through strategic subsidies & tax cuts, policies, land provision to move this process along. Development finance institutions will also need to be the ‘right hand man’; providing capital and encouraging developers and contractors to see the advantages they will get from providing large scale affordable housing especially when the government’s incentives are taken into account. They will also play a part in creating demand by marketing affordable mortgage plans to Nigerians in a manner that captures the attention of the majority of the audience. In this way the housing market will start to work as a cohesive ecosystem that is beneficial to all participants.