A 2017 report by the Centre for Affordable Housing Finance which sought to uncover the affordability of housing in different parts of the continent found that in most countries, less than 10 percent of residents may afford the cheapest newly built house by a private developer, under current mortgage financing arrangements in their respective countries.
Only three countries, Egypt, Morroco and Sudan had urban households with a probability greater than 90 percent of affording the cheapest houses under their current mortgage terms.
Exploring other alternatives, the study applied the use of a starter house, as developed by the Millard Fuller Foundation in Nigeria, which costs $7500, to create an affordability scenario which was used to enumerate the economic impacts at that level. The result was that the house would be affordable to more than 50 percent of the population in 24 countries, creating a mortgage demand for about 52 million housing units at the price of $7500 a house.
The housing think tank further estimates that delivering that number of units could generate nearly US$400 billion of economic activity in connection to the construction of the units and related infrastructure alone.
Given a delivery timeline of 10 years for the 52 million units, where each year results in the completion of 5 million units across the continent, the group projects that the economic impact could be equivalent to that of a US$40 billion investment annually.
To break it down, this could unleash US$22 billion directly into primary economic sectors such as manufacturing which would use as much as 80 percent of the funds, and US$18 billion per annum in the economic value added to the construction sector.
The resultant labour remuneration, estimated at US$6.6 billion per annum would create and sustain over 1.3 million jobs all over the continent, in the construction sector alone.
The composition of mortgage markets, and specifically the terms at which mortgages are offered, is important. However, Africa’s housing problems would still be far from the grave. In eight countries, it was established that even the US$7500 starter house would be unaffordable to more than 90 percent of the population.
Only five percent of the urban population in Ghana, for example, would afford a US$7500 house while in Malawi only 3 percent of the urban population would afford it. The common cause for this relativity in affordability between countries was the high rate of mortgages for low affordability countries. For instance in Malawi, the mortgage rate was 34 per cent.
With a few exceptions, economies with high mortgage interest rates were found to have a smaller mortgage to GDP ratios, and in most cases, a smaller GDP per capita. Generally, most countries in Africa have an average mortgage to GDP ratio of less than 3 percent and again most countries have mortgage interest rates of more than 10 percent.
Apparently, Africa’s silver bullet(s) for affordable housing will also need to address the high mortgage interest rates in many African countries.