Over the past 3 decades, the housing gap in Nigeria has grown more than 300% from 7 million units in 1991 to an estimated 28 million units in 2023.
This was largely due to the country’s growing population, albeit without a corresponding growth in the housing development mix.
With a population of 200 million people and an estimated household size of 5 persons, this data suggests that 70% of Nigerians do not have access to adequate housing.
Historically, the economic landscape in Nigeria has not been very encouraging in terms of deploying private capital to affordable housing.
Leading to a heavy reliance on the government to provide housing for the low to medium-income population. In this article, we will be discussing some of the reasons for the dearth of institutional-led investment in the lower end of the housing market, and ways to incentivize the private sector to participate.
Before we dive deeper into the conversation, here are some key facts:
- More than 70% of the houses that most people live in Nigeria fall short of the definition of adequate housing.
- Housing is inadequate if its occupants do not have safe drinking water, adequate sanitation, energy for cooking, heating, lighting, food storage, or refuse disposal.
- In the past 5 years, the Family Homes Funds Limited (FHFL), (which was established to tackle the housing needs of low-income families in Nigeria) has only facilitated the provision of 14,000 affordable homes across Nigeria. Approximately 2,800 new houses per year.
- There is a desperate need to make the low end of the housing market attractive to private institutional investors. This requires a public-private partnership to close the housing gap in Nigeria.
- According to the Office of the United Nations High Commission for Human Rights, adequate housing must provide more than four walls and a roof. Several conditions must be met for a shelter to qualify as “adequate housing.” For housing to be adequate, it must, at a minimum, meet the following criteria:
1. Security of tenure:
Housing is not adequate if its occupants do not have a degree of tenure security which guarantees legal protection against forced evictions, harassment, and other threats.
2. Availability of services, materials, facilities, and infrastructure:
Housing is not adequate if its occupants do not have safe drinking water, adequate sanitation, energy for cooking, heating, lighting, food storage, or refuse disposal.
Housing is not adequate if its cost threatens or compromises the occupants’ enjoyment of other human rights.
Housing is not adequate if it does not guarantee physical safety or provide adequate space, as well as protection against cold, dampness, heat, rain, wind, and other threats to health and structural hazards.
Housing is not adequate if the specific needs of disadvantaged and marginalized groups are not considered.
Housing is not adequate if it is cut off from employment opportunities, health-care services, schools, childcare centres, and other social facilities, or if it is located in polluted or dangerous areas.
7. Cultural adequacy:
Housing is not adequate if it does not respect and consider the expression of cultural identity.
How big is Nigeria’s housing deficit?
Going by these definitions, especially from a service availability and affordability standpoint, more than 70% of the houses in which most people live in Nigeria fall short of the definition of adequate housing.
The federal government has crafted and executed several programs aimed at driving investment in Nigeria’s housing sector.
One of the most prominent and recent was the establishment of Family Homes Funds Limited (FHFL) in 2018.
According to a report by the World Bank Group, the fund was aimed at kickstarting the mission to provide affordable homes for low-income families, with the complimentary responsibility of creating jobs and promoting local production of building materials.
In the past 5 years of existence, the Family Homes Funds Limited (FHFL), in partnership with state governments and private developers, has only facilitated the provision of 14,000 affordable homes across Nigeria.
An annual equivalent of 2,800 new houses. Although these numbers are impressive on their own, they are not anywhere close to what is needed to fix the housing deficit.
But why does the deficit persist after decades of government investments in the housing sector?
How can low-end housing projects be delivered sustainably to close the housing gap?
Why are private institutional investors not interested in the low-end segment of the housing market? The government alone cannot meet the housing needs of the country.
Easing accommodation issues in Nigeria requires strong partnerships, especially with the private sector. Private investors have been focused more on the high-end market, neglecting the low-end market due to its unattractiveness.
The first step is to make the affordable housing segment attractive for the private sector to participate in.
Logically, with the current trends, no commercial real estate developer would want to invest in the affordable housing business in Nigeria.
The objective of every commercial player is to maximise profit, and the margin on low-to-middle income projects, especially in cities like Lagos and Abuja, is very low and can sometimes turn out negative.
Land, labour and building materials are more expensive in those cities. This drives up the cost that goes into a project, ultimately making the finished product unaffordable for the low to middle-income earner.
But what can the government do to incentivize the private sector?
In May 2023, the Minister of Works and Housing, Mr Babatunde Fashola, launched the National Housing Strategy Blueprint at the ministry headquarters in Abuja.
The 10-year strategic blueprint document according to him, was designed to harmonize previous housing initiatives by various stakeholders into a single strategy.
The reason for this is not far-fetched. Despite the numerous housing programmes initiated by the current and past administrations for affordable housing, the private sector still leads the radar in providing housing for Nigerians.
If anything, the previous 30 years have shown us that it is important for the government to reconsider its strategy for addressing the housing shortfall, particularly regarding private sector involvement.
If this housing shortfall continues, the consequences for people and the environment will be severe and extremely expensive to reverse.
Here are some suggestions for how governments may encourage private investment, particularly from local sources.
Firstly, the government needs to make the affordable housing segment attractive to local private investors. This is a rather hard nut to crack.
It will require solving some of the longest-standing economic challenges that the country has been facing. Economic parameters like high-interest rates, foreign exchange, and inflation have made it impossible to build affordably.
- “By creating a stable and predictable policy environment for affordable housing development, the government can direct private capital to build affordable houses.
- Frequent changes in policies can discourage institutional investors. Long-term policies that promote affordable housing can provide a more favourable investment climate.”
Secondly, the government needs to focus on providing adequate infrastructure through partnerships. Infrastructure is critical for successful housing projects.
Over the past few years, the lack of infrastructure in many areas of Nigeria has increased the costs and risks associated with affordable housing projects.
The low-income segment is a very price-sensitive population. When developers spend so much capital to build infrastructure, it increases the price tag on completed projects.
To attract institutional investors to Nigeria’s affordable housing segment, policymakers and stakeholders need to address these challenges.
This could involve creating more favourable investment conditions, developing financial instruments that align with institutional investors’ preferences, improving infrastructure, and establishing clear and streamlined regulatory processes.
Collaborations between the public and private sectors can also help create a more conducive environment for institutional investment in affordable housing.