The World Bank has commissioned several studies on what needs to be done if Africa is to meet housing demands of ever-growing urban populations.
Austen Ratsauka
TO date, the subject of low-cost housing delivery has been well-researched both locally and internationally.
The World Bank has commissioned several studies on what needs to be done if Africa is to meet housing demands of ever-growing urban populations.
Several Non-Governmental Organisations (NGOs) and individuals have also offered a number of solutions to this immense problem.
At continent level, the African Union for Housing Finance (AUHF) meets annually and brings together regional and international experts to discuss the housing plight of low income earners which is common in almost all countries.
There is a general consensus amongst stakeholders that low-cost housing is a multi-billion dollar business where demand continues to exceed supply, not only in Africa but in the rest of the less advanced economies.
What is apparent, however, is that a systematic and coordinated realisation of opportunities embedded in low-cost housing delivery has remained elusive.
My intention in this article is to focus on the Zimbabwe situation with an estimated 1,5 million housing backlog, and attempt to lay bare the hard facts which impede low-cost housing development.
Drawing from this, it is hoped that stakeholders in the entire low-cost housing delivery value chain will share a robust common approach to the challenges.
In addition, it is intended that potential international partners will appreciate and refresh minds on factors that currently impact negatively on low-cost housing in Zimbabwe.
Over the years that this writer has been head of mortgage business at a leading commercial bank, clients have always asked the question: “How much mortgage can I get?”
The standard response has been: “It depends on your income.”
We would then extend this to include two exogenous variables outside the control of the intending beneficiary –– interest rate and loan tenure.
The three factors, therefore, of income, interest rate and tenure are the absolute determinants of the mortgage quantum one can access.
The current discord in the Zimbabwean economy at large, with its negative impact on the financial services sector, does not produce conditions that are sympathetic to advancing mortgage loans anywhere near the ideal five percent per annum interest rate which, at a monthly income level of US$200 will see the beneficiary accessing a mortgage value of US$6 322 over a tenure of 15 years (180 months).
Current mortgage rates, without in any way faulting financial institutions, hover in the region of 15 percent to 18 percent per annum, resulting in an applicant with a monthly income of US$200 having absolutely no chance of accessing a mortgage of any meaningful value.
As the table shows, at any income level affordability decreases as interest rates increase. This unfortunate scenario has seen low-income groups desperate to own houses falling prey to unscrupulous developers.
Dubious housing cooperatives and land developers offer residential stands sometimes on wetlands where the gullible, unknowingly, have no chance of getting title to that piece of land. This is a position which the Ministry of Local Government and National Housing has vehemently condemned as insane.
In order to place into broader context the subject of low-cost housing discussed so far, it is pertinent to consider the cost build-up of residential land servicing, as this is a critical component in the housing delivery chain.
Rightfully or wrongfully, a substantial amount of housing land in Zimbabwe’s urban centres is in the hands of middlemen and, in some cases, outright speculators.
This position was noted with great dismay by delegates to the 2009 Housing Conference held in Victoria Falls.
A speculator who owns in excess of 300 hectares of residential land on the outskirts of a major city, indicated that he was selling undeveloped stands at a “modest” price of US$6 per square metres (sq/m). A 300sq/m stand would, therefore, sell for US$1 800.
Servicing (installing off-site and on-site infrastructure plus a thin “developer’s” margin) a sq/m costs US$20, giving a total servicing cost of US$6 000 for the 300 sq/m stand. The total cost of this fully-serviced stand therefore amounts to US$7 800.
Given that some residential stands are disposed of through real estate agents who place a mark-up in addition to the statutory Value Added Tax (VAT) and Urban Council endowment charges, the final cost will be around US$9 000.
Looking at the table below, it becomes quite apparent that even at an income level of US$550 per month, one does not have the ability to service a mortgage for just a 300sq/m stand at the current interest rates. Based on this observation, the delivery of a low-cost housing unit becomes extremely challenging.
The question now is: “How can this low-cost housing jigsaw puzzle be solved?”
We are aware that in the early 1980s the Government of Zimbabwe partnered with World Bank, urban councils and USAID to deliver substantial numbers of low-cost houses. Mortgage rates and tenure were structured to easily accommodate the low-income earners.
Circumstances have since changed and such partnerships are currently not in place.
We are, however, cognisant of the fact that low-cost housing is not only an impetus for economic development, but is also a wealth creator for the low income segment since, with title to land, opportunities for borrowing open up.
While policy suggestions have been advanced at different fora, to address the low-income housing challenges, this author puts forward the following recommendations:
a) Financiers, suppliers, developers, contractors and architects must meet regularly in order to devise coordinated, end-to-end real low-cost housing programmes.
We have witnessed, on the local market, low-cost units being priced way out of reach of the intended beneficiaries.
While the developer and contractor will inevitably move on to the next project, the financing mortgagor will be left behind with a “near-dead asset”, resulting in postponement of potential shareholder value.
Some years ago, the South Downs project for middle income residents in Gweru went for a considerable period of time with no takers, as potential house owners initially shunned the architectural design.
The press recently reported that a leading financier is struggling to offload housing units under the Budiriro project in Harare. A mortgagor with a weak financial base would have gone bust!
b) At an AUHF conference held in Dar-es-Salaam, Tanzania, an Oxford University professor who was presenting a paper, pointed out, to the delegates’ astonishment, that the demise of African low-cost housing programmes is due to the fact that African governments have adopted rigorous building bylaws created in the 1880s by the British in order to curb slum construction in London. These bylaws have proven to be costly in post-colonial Africa. What is needed, the professor suggested, was to adopt newer, less expensive building models in order to address low-income requirements. This requires concerted educational campaigns so that the target beneficiaries change attitudes and appreciate a move away from traditional and costly brick and mortar houses.
A recent World Bank report has pointed out that the solution to low-cost housing challenges in Africa lie in the adoption of new construction methods, commonly referred to as Alternative Building Technology (ABT).
On our part, it is worth noting that across the Limpopo River, South Africa, initial consumer resistance to ABT houses is being overcome through the fact that major financial institutions are raising mortgage bonds on the units, thus giving comfort and guarantee of workmanship to beneficiaries.
c) It has already been alluded to, that low-cost housing is a multi-billion dollar market. To this extent, corporates with financial muscle and a keen social responsibility in countries like India have resolved to participate in low-cost housing development, resulting in enhancement of shareholder value.
One can only give thumbs-up to CFI Holdings for the decision it has taken, as recently reported in the press, to develop houses for the low-income earners.
To conclude, one can state that the passion for low-cost housing delivery should, by necessity and due to its social purpose of uplifting standards of living, surpass unwarranted profit-making motives by all stakeholders.
Austen Ratsauka is an alumni of the University of Strathclyde in Glasgow Scotland. He is a consultant in coordinated end-to-end housing development/structured mortgage finance. He is currently with Chendumba Coordinated Mortgage Services (Pvt) Ltd. He writes in his personal capacity and his thoughts and ideas are not necessarily reflective of those of Chendumba.
Email: austen.ratsauka@gmail.com