HOUSING FINANCE AS A TOOL FOR ECONOMIC DEVELOPMENT (II)
By ROLAND IGBINOBA
In Nigeria, the organisation for housing and housing finance is not radically different from the prevailing situation in other Third World countries. Several governments in Nigeria since independence have highlighted housing as a major focus.
Unfortunately for over five decades, the country has failed to develop a vibrant housing and housing finance market. Supply of housing is mostly through individuals who acquire their housing through incremental methods of buying land and building it over a number of years.
With 14 million units of deficit at an average unit price of N2, 500,000 (US$ 16,666), the estimated size of the mortgage market is N35 trillion (US$233 billion). This amount is nearing five times the capitalisation of the Nigerian Stock Exchange (NSE). These numbers show tremendous opportunities waiting to be tapped in the Nigerian housing market.
Housing and housing finance can and do contribute positively to national development by attracting and receiving investments, creating jobs and generating wealth. Unfortunately, the state of Nigeria's housing markets today cannot act as engines of economic development and national prosperity.
The unattractive policies are not linking local and international markets, nor are they attracting significant investment relatively to the potential of the market. A wide gap exists between housing needs and housing supply. This is further compounded by a complete lack of finance mechanisms for housing, and the failure to deliver enough houses is not just a social problem but a huge repercussion in terms of economic development.
These myriad of challenges still exist because there has not been any detail work done to show the linkages of the housing and housing finance sector to economic growth and development. Furthermore, there has not been any comparative analysis with other emerging countries who have successfully harnessed the linkage to develop their economies.
This linkage needs to be demonstrated and the Jonathan administration should consider this as a priority to determining how to efficiently resolve the perennial housing problem in the country.
An understanding of the interrelationships between housing finance and economic development is essential for the harnessing of the various ways in which interventions could be made in housing finance in Nigeria. This inter-relationship is well understood in Thailand.
The current Thai government views the real estate sector as a major driver of economic stability and growth. During the past four years, it has enacted numerous new policies to stimulate the economy and at the same time addressed the housing requirements of the less privileged. These policies have played significant part in helping Thailand's economy recover from the 1997 economic crisis and have been the key drivers of sustainable economic development.
Like Nigeria, Thailand has been experiencing rapid population growth and continuous urbanization has created numerous demands for housing over a wide-range of income levels. Upper-middle and higher income level housing needs are however, currently well-serviced by the private sector who have largely avoided providing lower-income and lower-middle income housing.
In large urban areas such as Bangkok, various governments have implemented a wide-range of housing finance policies to address the housing needs in urban slum and squatters' areas, as well as adequate housing for laborers who have migrated to urban-based manufacturing and services industries. Some of these policies culminated in the creation of the Government Housing Bank of Thailand (GHB).
After the crisis in 1997, the overall financial system faced tight liquidity problem and increasing cost of funds, forcing most of the financial institutions to stop lending, which included home lending. However, GHB continued to provide home loans with the lowest lending rates in the market because of the importance of the housing tool to develop the economy.
GHB's created special housing finance programs for the relief of real estate crisis and stimulation of economic growth. GHB was able to do this because the government of Thailand recognizes that housing development is one of the key drivers to economic growth and thus need to provide policy support to GHB and utilize GHB as a key instrument to fostering an enabling environment for the housing industry.
Since the crisis years, the Government has introduced various instruments, particularly through taxation and housing finance measures, to relieve the real estate crisis as well as to stimulate economic growth.
How can Nigeria begin to tap into and benefit from the linkage of housing finance and economic development? What needs to be done? What kind of leadership is required to drive this process? As the new Minister of Lands, Housing and Urban Development settles into office in the next few weeks, She must begin to answer the following critical questions viz: What is the state of supply and demand of housing in Nigeria?
Are there current regulations for housing and housing finance in the country? How can we review existing policies and develop new ones that will attract finance to housing both at primary and secondary market levels in the country?
How can we develop strategies that will support public private partnership and assist in attracting capital, capacity and resources to both the supply and demand side of housing? What sustainable subsidy policies that are effectively targeted and well timed for the lower income segment of the market can we provide?
How can we create a framework that effectively maximizes the backward and forward linkages associated with housing? How can we create a framework for the setting up of a national real estate information center? Can we immediately develop a methodology for measuring the impact of the housing and housing finance on the economic development of the country?
I dare say that any attempt to answer any of these questions will clearly direct us in the path to go in the provision of affordable housing for our populace and this ultimately will reduce unemployment, reduce poverty and reduce inequality in Nigeria.
*Mr. Igbinoba is President/CEO of PISON HOUSING COMPANY, a Lagos-based commercial real estate and housing finance advisory firm