The need for housing across Africa is immediately visible. In virtually every city across the continent, evidence of informal and inadequate housing conditions can be found in the proliferation of informal settlements, slum areas, and overcrowding. African cities have among the highest urbanisation, population and household growth rates globally – in some cities as high as 6 percent per annum. Without the supply of adequate, affordable housing at scale, housing backlogs continue to grow almost to the point of absurdity: Nigeria claims a backlog of 17 million units; in Kenya, the housing backlog is estimated at about two million units, growing at over 200 000 units per annum as the formal supply sector fails to meet new family formation. Angola’s backlog is also estimated at just under 2 million units and growing at 100 000 units per annum; Cameroon and Côte d’Ivoire both claim backlogs of over 700 000 units; and in South Africa, notwithstanding its ambitious subsidised housing programme the backlog persists at an estimated two million units. Annual delivery rates of formal, developer driven housing, don’t even begin to match growth, much less chip away at the backlog. As a result, most households build and finance their housing independently – and often poorly. Governments are at a loss of how to address the challenge and the private sector looks away, towards other opportunities. And yet, the market opportunity, if the housing ecosystem were to function effectively, is tremendous.
We know that the production and consumption of housing stimulates economic growth and job creation, and that growing property markets support enhanced financial intermediation contributing to the efficient development of national economies. We know that good housing can have a profound effect on household living conditions, addressing very many of the Sustainable Development Goals by providing access to basic services, contributing towards inclusive growth, and supporting the development of a sustainable future. And housing assets, whether geared with finance or not, can act as a financial springboard to micro and medium enterprise and human capital development. For the African Development Bank, housing sits quarely within the Bank’s high 5’s.
Explicitly addressing an improved quality of life for the people of Africa, a productive affordable housing sector would also contribute towards industrialising Africa (with domestic housing supply chains contributing substantially to economic growth), while drawing substantially on the outputs of the AfDBs objectives to light up and power Africa, and to integrate Africa. The AfDB has an In the context of low growth figures in countries across the continent, investment in housing creates an important and strategic opportunity to change the narrative and drive growth domestically, from within. Housing finance – investment capital, construction capital, end user finance, and all the facilitative interventions (guarantees, insurance, subsidies, etc.) that happen in between – is a critical ingredient to addressing the housing challenge in Africa. Across the continent, this section of the financial sector is underdeveloped for two reasons. First, financial sector development initiatives focus largely on other sectors: insurance, agriculture, small business development, and mobile money. The notion of a housing sector in the African context is still very new and the financial sector is unfamiliar with its dynamics. This is possibly because of the second reason: that housing finance is dependent on a much wider array of activities and sectors that together comprise the housing value chain – activities that are beyond the financial sector’s reach. So, whether in the public or the private sector, among government officials or investors, housing has commonly been considered without its financial imperative – that it must be paid for. In this, a key opportunity for improving the efficiency and effectiveness of the sector to meet the growing and pressing needs of urban Africans and contribute critically towards economic growth, has been lost. African Development Bank 7 This has been changing, however, and in the past ten years, investor interest in affordable housing has grown considerably1 .
A rapidly urbanizing, young and growing middle class has suggested an important investment opportunity at the same time as opportunities in other sectors have declined. While conventional investors began to explore residential property in general, investors looking for impact opportunities have taken this further towards affordable housing, supported by development finance institutions wishing to leverage their interest. More recently, conventional investors are also looking down market into what they call the ‘affordable space’. Their interest has become particularly evident in the past five or so years, as the myriad of property conferences increasingly include or explicitly focus on affordable housing. The argument for affordable housing has long been a social one, highlighting the massive need, and framed in the context of key global agreements such as the Sustainable Development Goals (SDGs). More recently, it is also becoming an economic one. The public sector is recognizing the link between housing and economic growth, and that not only can good housing contribute to the twin goals of economic growth and poverty alleviation, but that the opposite is also true: poor housing can undermine economic growth and exacerbate poverty2 . Increasingly, therefore, the public sector housing conversation has broadened to also be prioritised within central banks and finance ministries, in addition to within the housing, planning and land ministries. Meanwhile, housing backlogs persist and African cities are struggling under the pressure of informal, household-level, privately-financed efforts to meet housing needs. While we track investment activity across the continent, we can see that only a fraction goes into residential real estate3 . Investors still favour the seemingly bottomless consumer-focused sectors (including food and beverages, healthcare and pharmaceuticals, and retail), agriculture and agribusiness, manufacturing and industries, financial services, and green energy / clean technology. In East, West and Southern Africa, real estate and construction feature far lower down on the priority list for the private equity sector – rising, but still very low down4 . The next frontier for the growth of affordable housing in Africa, therefore, is to build the investment argument – because this argument will ultimately create potential for affordable housing at the scale required. Over the past ten years, we’ve seen an improvement in many of the metrics framing national and local housing sectors: in many jurisdictions, cement prices have come down, administrative processes have become more efficient, land is being titled and tenure regularized, efforts have been made to address liquidity in mortgage markets, and policy has aligned itself in favour of affordable housing.
Most importantly, perhaps, is the careful but progressive effort by the private sector – individual companies and households themselves – to identify niche market opportunities along the value chain, in some cases despite the lack of an overall enabling environment. This effort must be closely monitored and shared, because the investment argument is found here. With information, each successful investment begets further investment, crowding in market players seeking new opportunities. Without information, each failed investment builds a stereotype that militates against further investment, and shifts investors’ sights elsewhere. In 2019, investors are desperate for information about the affordable housing market, its opportunities and its risks. Very many have bought into the impact investment argument for housing – even while seeking competitive financial returns – and increasingly they note their contribution towards the SDG’s, while they report their progress against ESG (environmental, social, and corporate governance) targets. This enthusiasm, ripe for the picking, will dissipate if specific opportunities cannot be identified and quantified in sufficiently reliable ways. We can see that current investment in affordable housing in Africa, while growing, is still grossly insufficient. Taking it to the next level will require a concerted effort to demonstrate what is possible to the investors who have real capital to place.
