Early in November, the International Finance Corporation (IFC), together with the World Bank (WB), Family Homes Fund (FHF) and FMDQ, hosted the Nigerian Affordable Housing Roundtable that brought in players from both the demand and supply side of the industry, as well as government representatives, to debate the issues concerning Affordable Housing in Nigeria.
The first session began with individual presentations’ by the IFC, WB and the FHF. Olaf Schmidt Regional Industry Manager for The IFC Africa kicked off by listing out the key constraints they face financing affordable housing projects in Nigeria.“It’s important that we learn from the past,” stated Olaf as he gave case studies from other emerging markets. In Mexico, the IFC was able to achieve 600,000 mortgages a year for homes costing between 20-30,000 USDall thanks to a government subsidy scheme. However, once the subsidies ceased, the industry tanked. Subsidies are not sustainable, explained Olaf and it’s important to identify a sustainable model for Nigeria. He provided key examples including affordable homes in mixed economic classes for cross subsidisation, utilisation of technology to achieve scale, and masterplans for energy efficient processes. “We cannot wait for conditions to be perfect,” declared Olaf.“We need to start now with projects that can create a demonstration effect.”
The next presentation was from the World Bank Team lead for the Nigeria Affordable Housing Project FeyiBoroffice, who echoed similar sentiments. Feyi highlighted the advances made thus far in the demand side of the equation, most notably NMRC and FHF who are seeking to address the financing challenges. The focus should now be on the supply side which has significant constraints including the complex land regulatory environment (land acquisition and registration process), high construction costs due to importation demands,a lack of economies of scale, poor existing infrastructure, lack of skilled labour and limited access to developerfinancing. The World Bank is seeking to partner with both the public and private sector to address these challenges. Steps include the land reform plan to facilitate the development of affordable homes, skills and capacity development for the developer and construction sectors, and initiatives to maximize financing for development given the government’s funding constraints.
Following his colleagues from the IFC and World Bank was Femi Adewole CEO of the Family Homes funds (FHF), who highlighted FHF’s involvement in addressing some of these challenges. The FHF is the housing component of the government’s social intervention program aimed at improving quality of life and targeting the 70% of the population who earn less than $200/month. The FHF has been set up by the Ministry of Finance and Nigeria Sovereign Investment Authority (NSIA) with 500 Billion Naira, but this only represents 30% of the capital needed to address the social housing issue. Their key objective is to work with partners to create 500,000 homes by 2023 and 1,500,000 jobs by 2023. According to Femi, 600 units are already under commitment with another 20,000 homes expected by the end of the year.
Closely following these sessions was a lively debate by the demand and supply side professionals, moderated by Ifeoma Ezeokafor IFC Principal Investments Office Services Sector. Issues such as, what tasks should take priority (demand vs. supply focus) and the short-term vs. long term role of government were debated with some key themes emerging.
To begin with, the demand vs. supply focus by the government was challenged with industry players questioning the expectation or notion that resolving the financing issue for off-takers will result in tickle down financing for the developers. Nonetheless all agreed that financing as a whole was an issue for both sides. More focus now should be given to the supply side financing with the FHF leading the way via funding to the developers.
Another challenge debated was the role of government in the short-term vs. long-term. The government representatives argued that it was challenging for governments to provide subsidized choice lands to developers of affordable housing as this meant a loss in revenues and made it difficult to complete infrastructure projects. Private sectors participants disagreed stating that the government should consider subsidies as a short-term solution to jump-start the industry. There are also ancillary benefits for the government in the form of increased development and investment which result in additional tax revenues and jobs for its citizenry. There were also alternatives to subsidies such as payment plans or infrastructure bonds that the government could explore.
In spite of these varying views, some generally accepted principles were agreed upon. For instance, a general consensus on the need for an enabling environment as a cost effective solution was established. By removing the current bottle-necks, the government can streamline the process and reduce costs for land acquisition, titling, and custom duties. This will result in greater cost efficiency and speed to delivery for developers thus addressing the economies of scale issue facing affordable housing. Developers can also leverage new technologies that can deliver mass housing solutions that are finally economical to the mass market.
Breaking the existing deadlock in affordable housing will require a collaborative effort by the various stakeholders. Silos don’t work. Collaboration instead will ensure that weaknesses within the value chain are highlighted and addressed; establishing in the process, a seamless enabling environment needed to deliver economically viable solutions for affordable housing in Nigeria.