Nigerian houses are not affordable. It’s neither news nor a mystery. With our growing population, we simply haven’t built enough homes to keep up.
For the poor, it means either not having a home or staying in bad living conditions. And for the middle class, it's a housing market that lacks the right type of houses, especially in the desired location, as well as payment plans that don’t work for most.
The government has battled these issues since our independence; and recently, startups have tried their hands at offering new solutions.
In Lagos, where the housing problem is more acute, many will be familiar with the likes of Spleet, Fibre, and Muster whose target market is the many young workers in the megacity.
Spleet, for instance, understands that there is a constant flow of professionals looking for a particular type of home: studios and one-bedroom units.
The company plugs this gap by partnering with homeowners to think differently about how they rent out their properties. Akintola Adesanmi, CEO of Spleet explains. “We have been able to convince homeowners that they can earn higher margins by breaking down their 3 or 4 bedroom spaces into rooms, allowing people to share, [and then house owners can] earn monthly, which inherently results in a higher return on investment.”
Spleet, and other real estate startups, also provide a monthly payment service. This opens payment access to those without savings for a one year down payment, even when the rent isn’t necessarily cheaper over a one year period.
Real estate developers and service providers are now focusing on products and services more in tune with consumer demand.
As Northcourt noted in their 2020 real estate outlook: “Developers are more flexible on payment plans and have significantly revised their product types and prices to accommodate their target market.”
The real estate investment firm acknowledges that an informal emergence of a co-living trend exists. According to them, it is a response of tenants to the insufficient supply of studio and 1-bed apartments.
The government is also chipping in
The Federal Minister of Housing, Babatunde Fashola, has put forward a similar solution as a plan for housing; one where young professionals can rent co-living spaces and pay monthly.
The policy is combined with addressing the problem of unoccupied houses in Nigeria - an issue the minister has recently been vocal about.
It’s a different tune from the conventional government-assisted housing practices, which are often found on mortgage loans and lease-to-own agreements. While other housing solutions have been targeted at helping first-time property buyers become homeowners, the newly proposed monthly rental solution is for a different rental market—particularly those without the ability to pay mortgage deposits.
Going by the 500,000 number of young graduates Nigerian universities produce annually, there’s a sizable market that this new scheme could appeal to.
“Now, young people need houses, but they don’t have funds for three-bedrooms. So, we will bring them together and rent each of the rooms, and the rents are collected monthly,” Fashola explained to the Senate Committee on Housing, back in March.
Cities where vacant properties have been a cause for concern—Lagos, Rivers, Abuja—have been targeted. Already, the minister’s team has begun a census of the number of unoccupied properties in these areas.
However, counting the total number of vacant houses is one thing, convincing house owners to lease them out is another. Even more difficult might be the need to persuade them to accept monthly payment plans for those occupants who opt for it.
One solution is to use taxes.
In Lagos, the updated Land Use Charge Law (2018), tax owners all properties, vacant or occupied, the same charge. To stop landlords from having vacant homes, the government could adopt something similar to the UK, where properties that are vacant for two years pay double the council tax fee.
Dolapo Omidire, Founder, Estate Intel explains “[The policy] was introduced to force landlords to let out their properties and alleviate the housing crisis.”
Even if the government is able to solve that, other issues remain.
Pricing details are yet to be announced by Fashola’s proposed policies, but the targeted unoccupied properties are located in the highbrow areas of the states, which will influence the rent rates.
The prices may be out of reach for many. This is the case with monthly rates provided by the private real estate startups.
Currently, the lowest rent fee on Spleet in a shared home is ₦110,000 per month in Lekki Ikate. And this is exclusive of other additional charges such as the ₦5,000 service charge (to cover light, cleaning and repairs), and the ₦60,000 to ₦100,000 refundable damage deposit.
You’ll need a salary double the rent for it to be a financially viable option. Given Nigeria’s current job market, not many companies provide that luxury.
1004 Estate, Lagos
Source: Tola4luv2001 via Flickr
Supply and demand: bridging the housing gap
The direct way to deal with Nigeria’s housing affordability crisis is to build more houses. There is no getting around that.
Nigeria has a housing deficit of over 17 million homes. Four years ago, the World Bank advised that for Nigeria to avert a housing crisis by 2020, 720,000 houses were needed per year.
The Federal Government hasn’t even come close to reaching that.
We don't get news reports of a hundred thousand houses being built. The most recent news was an update on plans to construct 3,000 houses across 34 states in Nigeria, which has been ongoing since 2017. Only 1,094 have been built so far.
The most ambitious plan of the government can be found in the now-expired Economic Recovery Growth Plan (ERGP) 2017-2020. The government proposed the Family Homes Fund to build 2 million housing units by 2020.
According to the World Bank, early stages showed that less than 10,000 homes were planned for completion for the start of 2019. Late last year, a new board was inaugurated, and the plan is now to build 500,000 homes by 2024.
The government quietly changed its objectives, having missed its targets by a significant amount.
The hard truth is that the government lacks the resources to address the 17 million housing gap. While it seems like the private sector is the only option, the government must also play its part.
Because the private returns for developers are less than the social benefits of housing, the private sector will not fill the gap on its own. It’s a similar situation to education and health. Economists call this a market failure.
So the government has to ensure that the needs of society are met while creating an environment in the housing market that demonstrates a successful (and profitable) model for private investors.
Nigeria’s mortgage market
One area where the government's assistance is needed is mortgages.
These housing loans are one of the most accessible ways for people to become homeowners. Yet it hasn’t taken off in Nigeria. The ratio of mortgage loans to GDP is less than 1%, compared to 34% in South Africa. Fellow strugglers, Ghana and Senegal, have a rate of 4% and 2% respectively.
Left to the private sector, Nigerian mortgages are not a viable option as interest rates are in the double digits. If you’re paying 15% interest on a 30-year mortgage, you would have paid around five times the original value of the property.
That’s why government solutions like the Federal Mortgage Bank of Nigeria’s long-running National Housing Fund, established in 1992, are needed. 30-year mortgages are available at a maximum of 6%.
The scheme is not perfect, though. There are problems with low contributions and its requirements which mean both low and high-income individuals have issues accessing the funds.
For the rich, the ₦15 million limit isn’t enough to use the scheme, and for the poor, labour unions have complained that low-income earners are unable to meet the conditions to borrow from the fund.
Still, with some more work, the fund shows how the government can provide cheaper (subsidised) options that can work in tandem with the private sector.
Using transport to create space
There is an argument that there isn’t enough space to build sufficient homes. Particularly in Lagos, which has a housing deficit of around 2.5 million homes.
Indeed, Lagos is both the smallest state by landmass and the largest by population in Nigeria.
The city did create more space to build Eko Atlantic, which is planned to accommodate 250,000 people. But the project follows a trend in the market where priority is placed on more houses for the rich.
More space can be created for the middle class as well - without having to use the Atlantic ocean. This is where, again, the private sector needs the government's support. Housing policy needs to be complemented with good urban planning and reliable transportation. There are development opportunities areas such as Badagry or along the Lagos-Ibadan expressway as long as there is easy access for commuters.
A well functioning rail system combined with buses can unlock the potential of many undeveloped spaces on the outskirts of Lagos, and its neighbouring states.
Given that the city has now spent over a decade building an urban rail system, that reality is still far in the future.
But there isn't time to waste. Comfortable housing is not just essential for life but is also vital for Nigeria to make the most out of its large population. Investors see our 200 million people as an attraction, but poor infrastructure, including the scarcity of housing, puts many off.
Without the basics, Nigeria’s population will continue to be a burden to development. You can’t turn Lagos into a Dubai if 70% of people live in slums.
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