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tab-bola-disuProviding Mass Housing in Nigeria

Addressing the major challenges
In the heated ongoing debates in the various news media and other fora such as conferences and workshops about the acute shortages of shelter for Nigerians, especially in our urban centres, three major challenges are clearly identifiable.

These are availability of mortgages to potential and interested home-owners, availability of capital for investment in large-scale housing production, and the cost of construction – in descending order of importance.

However, the interplay between the three is so substantial that without the viable operation of all three simultaneously then scarcity of urban homes will continue to dog us relentlessly. Let us proceed to discuss why.

Just now, the availability of mortgages is the most critical issue in the housing sector.

The few mortgage banks that are offering genuine mortgages are doing so at such astronomical rates as to make mortgages utterly unattractive.

Most interest rates that accompany the available mortgages are at 15 percent per annum interest rate or more, accompanied by tenors as short as only ten years. Consequently, even if members of the public were keen to take up these mortgages, their inability to afford them automatically disqualifies a huge segment of the potential patrons. Although these mortgages obviously enjoy limited patronage from the public, most of these mortgage banks post annual performance results that flaunt impressive profits without revealing if these profits derive from their mortgage business – or otherwise.

In other words, they conspicuously fail to tell us how many mortgage loans they successfully make annually.

The only institution that offers a product that closely resembles a comparatively reasonable mortgage for homeownership is First Mortgages, a subsidiary of Nigeria’s largest bank by share capital, First Bank of Nigeria. At that Bank, interest rate on mortgages is no more than ten percent whereas tenor can be as high as 15 years. Still, this is not good enough if the housing sector is to reach its full potential.

There has been in operation the ingenious idea of the National Housing Fund (NHF), where workers contribute a small fraction of their income to a central pool of funds, from which mortgage loans are made to interested contributors who apply to use the loan to build or purchase homes. Interest rates for such loans are only 6% per annum, whiles the tenor applicable to the loan can be as long as 25 years. But the process of treating and eventually approving applications has become so notoriously cumbersome and protracted as to actually discourage potential applicants. In fact, the NHF managers have not in any particular year been able to boast of a significant number of successful applicants.

From another point of view however, there appears to be justification why the fund managers are exercising caution in the approval of such loans. There is clear evidence to show that, because of the very modest interest rate attached to these loans when compared to commercial loans, many applicants seek to fraudulently obtain these loans to eventually divert them to other uses. But the fact remains that to attract meaningful and substantial investment capital into the mass housing sector, a benchmark of the number of mortgage loans that the NHF will have to make every year must be set and rigorously observed.


Foreign Direct Investment (FDI)
The often widely peddled impression that capital invested in the housing construction sector holds a lot of promise of profitable returns for the investor has proved time and again in many capitalist countries to be true without a shadow of doubt. But because housing investment is long term, and the frequent policy inconsistencies that normal arise over the long term locally, the attendant risks resulting from such inconsistencies have continued to often deter potential investors in our peculiar local circumstances.

Government officials nevertheless stress that reforms are continually afoot to remove these policy hiccups thereby paving the way for sincere investors to plough their resources (especially Foreign Direct Investment (FDI) which hopefully will come in larger dollops) to mitigate the housing crisis – amongst the other sectors that are equally competing for this badly needed investment.

But this begs of the question; ‘Are the potential returns on popular housing investment in the current operating environment truly attractive enough to bring FDI into affordable mass housing production?’ From a cursory examination, foreign investors as a rule are interested in returns, especially over the long term, well in excess of 100% that the housing sector for mass-produced homes cannot now guarantee because of the twin issues of cost of construction and affordability. Otherwise, they will not consider such an adventure too risky to be worth their while. Most governments, federal and states repeatedly flaunt the prospects of public-private collaboration at these private investors – where the public contribution will be free land as their own equity participation in the collaboration. But is this still sufficient inducement to attract investors of any shade?

Taking a close look at the Export Processing Zones (EPZ) and the Free Trade Zones (FTZ) that have sprouted variously throughout the federation, one can see that the incentives intended to attract capital investment into these zones are enormous. Within these exclusive zones, manufacturers are treated to the benefit of very reliable amenities such as uninterrupted water and electric power supply that are otherwise unavailable to other manufacturers outside these zones. Besides, these business enterprises are tax free and are additionally exempted from various tariffs that should be applicable to their manufactured products since they are invariably meant for export markets. On the other hand unfortunately, the only benefits that accrue to the host country after such tremendous sacrifices are employment generation, skills acquisition and manpower development. These benefits are no doubt urgently desirable just now, but are they commensurate?

Under such circumstances, if we genuinely desire to have a vibrant housing mass housing production sector, why don’t we extend similarly attractive inducement, incentives, subsidies or whatever one may choose to call it, to potential housing investors? If we truly intend to attract the scale of investment, foreign or otherwise, substantial enough to meaningfully impact and mitigate the massive housing shortfall especially obtainable in urban centres such as Lagos, there does not appear to be any other option other than the provision of equally generous incentives similar to those available in EPZs and FTZs. For instance, in addition to free land, why for instance will a developer who wishes to execute no less than a stipulated minimum number of housing units on one site in one scheme not be exempted from development charges?

Again, why for instance would such a corporate entity not be able to enjoy a moratorium on the payment of various taxes for a specified period of time, say five years after completion and delivery of its housing project to recoup its investment faster? There are a whole range of financial motivations that the authorities can create, with necessary safeguards to avoid abuse that will stimulate the housing sector and drive it to an unprecedented level of vibrancy. Doing so will not only address the primary goal to mitigate housing shortage, but also bring about abundant employment and skills acquisition, as well as have beneficial ripple effects on other sectors of the economy with which building interacts.

Often than not, whenever public dialogue centres on investment in large-scale home-building exercises, the overwhelming emphasis falls on foreign investors as if they are the only ones that can solve our shelter crisis. Granted that if and when foreign investment does indeed arrive it normally comes on a scale that can make a substantial impact on our problems; but that is no reason why small scale investors (those developing ten housing units or less for home-ownership at once as well as those developing housing tenements for tenants to rent) should be ignored. After all, little drops of water make a mighty ocean. It is therefore imperative that a basket of incentives should be assembled that specifically targets this category so as to attract as many participants as possible. Ultimately, the overall output of this category of participants can easily dwarf that of the bigger investors if the bouquet of incentives is sufficiently compelling.

Government Intervention in Mass Housing Delivery
Over the past thirty years there has been a relentless and sometimes deafening public clamour for substantial government intervention in the provision of mass housing. Such interventions are intended to stop or slow down the rapid decline of our cities into swelling slums where the majority of urban denizens are being compelled to retire to because of the crippling accommodation scarcity.  Here they reside at average room densities already in double digits, and in detestable hygienic conditions. Government’s response to the outcry has and continues to be a never-ending series of broken promises that only helps to reinforce a conspicuous lack of will and ability to deliver onlarge-scale housing developments.

In fact, over the past sixty years, there have only been three memorable instances of governments, local or federal, producing truly large housing schemes in one fell swoop.  The first was the truly formidable provision of different types of housing units at Shitta and environs in Surulere, Lagos that was done by the Lagos Executive Development Board (LEDB) to re-house families displaced from Isale Eko in downtown Lagos – to decongest the settlement after various disease outbreaks. Following this was the emergence of Festac Town housing scheme, which actually was a conversion of homes meant to accommodate performers at the 1977 festival of African arts and culture into public housing, sold to interested members of the public. The last was the various housing estates built throughout Lagos State by Governor Jakande each made up of varying numbers of blocks of six flats of three bedrooms each, from 1979 – 83. Many other efforts pale into relative insignificance thereafter.

But the position being vigorously canvassed here is that despite the public outcry for greater government intervention in the construction of mass housing, governments should instead desist from direct involvement in the delivery of homes to the poor and middle class, or for any class whatsoever for that matter. The fact remains that governments at whatever level have simply proved too inefficient at housing production – to justify their continued participation in the sector.

By the time of the award of a housing construction contract by a government agency for instance, the contract sum is already bloated because of the rent seeking attitude of government officials who evaluate or eventually determine successful bids. Additionally, witness how all such project executions are attended by frequent cost overruns due to frivolous variations, fluctuations and delays in honouring certificates, not to talk of inexcusable disruptions that invariably lead to undeserved extensions of time. In the final analysis, projects are delivered long after projected completion dates. Consequently, the cost of the funds invested makes the eventual overall expenditure on each project unnecessarily exorbitant.

This exorbitant cost of constructing each home is usually well in excess of the market value of such housing units comparatively. Since government has to sell well below market price to increase the level of affordability to the general public that was the original goal in any case, this simply means that each unit put up for sale is substantially subsidized. Such a subsidy can easily be up to 50 percent. With the limited funds at government’s disposal for housing provision, their effort in housing provision therefore achieves limited impact, which is not good enough if we are seriously addressing the crisis of housing shortage. Whereas, if this subsidy is directed in the form of incentives at private capital who cannot afford the luxury of avoidable cost overruns, the impact they will make is best imagined.

Incentives and private capital investment in housing
This goes to reinforce my earlier assertion that the only solution to addressing the housing catastrophe besieging our cities is to adequately motivate private capital, who would assume the mantle of addressing the problem and do the rest to deliver- provided the motivation is sufficiently attractive. Mind you, in this arrangement government still performs its traditional role of oversight and supervision. Evidence of the ability of private capital (with a local flavor for that matter) in mass housing production has already been demonstrated by the effort of former Governor Otedola, who recently built and commissioned 400 units of housing at Epe, even though there is no evidence that this effort enjoyed the benefit of any official waivers.  And this is not his only contribution to this mass housing sector over the past five years.

In such circumstances why can’t, for instance, his model be carefully studied for sustainability and possible replication or adaptation throughout the other local government areas in Lagos state, instead of repeatedly seeking to import foreign inspiration for a problem that local initiatives can surely address?

In the many public debates about housing, one particular sector, though conspicuous, is frequently overlooked. There are several local entities such as religious organizations and business conglomerates that can boast of a huge pool of funds in their reserves (as evident in their annually published and audited performance statements) that can be persuaded to invest in housing. All that is required is targeting such organizations similarly with appropriately attractive bouquet of incentives to guarantee them handsome returns on their investment. It is an indisputable fact of capitalism that idle capital of whatever shade will irresistibly gravitate towards investments with low risk that promise handsome returns. Some examples of such institutions that readily come to mind include the major telecommunications companies, the large Pentecostal churches as well as the oil majors whose multitude of working and middle class members and staff are in any case also severely affected by this accommodation shortage.

Private capital and rental housing in low-income tenement
The vital role the private sector is playing in housing provision is more clearly seen in the homes in which the working classes of cities in Nigeria currently live.

Because of their limited resources consequent upon their generally low household incomes, families in this category are generally excluded from conventional home-ownership. The current cost of construction makes even the smallest one-bedroom self-contained home unaffordable to them if they desire a mortgage to purchase one, or even on a rental basis.

Consequently the bulk if not the entire working class who seek housing in the formal sector in cities are compelled to rent homes generally obtainable in the form of tenement blocks. Here they are able to rent one, two or three contiguous rooms depending on the quantum of household income each household has set aside for shelter.

On each floor of a tenement block, there is a double bank of equal number of rooms of roughly the same size sandwiching an access corridor, and the entire building can sometimes rise up to five floors. Amenities such as kitchens and toilet facilities located at the rear of the building on every floor are shared by all the tenants of every floor – with a balcony used to dry laundry usually on every floor in the front of the building.

For generations this is the type of housing that has invariably served the accommodation requirements of the urban working class. And this is entirely provided by private capital. There is no known instance of any government institution putting up or owning one of these, or even vague suggestions that they plan to address the shelter needs of this cadre of urban residents. Those who are unable to access lodging – and they are in their tens of thousands –  in these tenements for lack of availability or affordability are automatically consigned to the sweltering and overcrowded slums that are under constant threat of a public health outbreak such as the recent resurgence of lassa fever in Lagos after a long hiatus. Because of the slow investment in and the protracted time over which development of tenements take place – since most landlords are single individuals who build in installments as funds become available – demand has soared well in excess of supply.

Many critics and stakeholders view tenement housing as substandard and therefore unacceptable under any circumstances. In public debates on the shelter problem, discussants, especially public officials would not even broach the topic. They appear to consider the provision of tenements taboo. But the fact remains that this form of housing or its equivalent is widely obtainable in cities across the globe, even in the developed countries, especially for the lower cadres of urban populations. However, until such a tine when someone can come up with an ingenious solution that improves on this quality of living at the same or even lower costs to this cadre of urban residents, we will have make do with the reality and the need to even produce many more of such housing.

In any case, in the absence of tenements, most of the working class households will have no other choice than to retire to the much maligned slums, which a large number have and are still doing. Furthermore, because of the swelling room occupancy rates consuming many otherwise decent residential communities, they are rapidly degenerating into slums that deface the city due to overcrowding. This is all the more reason why all levels of government  cannot but recognize the invaluable contribution this category of developers are making to the housing crisis and should therefore endeavour to similarly devise a cocktail of incentives to stimulate investment in this sub-sector.


Last but not least are the twin issues of cost of construction and affordability. Even if bumper mortgages were to be suddenly available in conjunction with a deluge of private investment into the house-building sector, the affordability of the relatively high selling prices of the resulting units to the public may severely constrain access to many if not most of the needy. At the current cost of construction of 30,000.00 Naira per square metre using modest materials (such as wooden framed louvre windows, timber flush doors, Poly Vinyl Chloride (PVC) floor tile finishes, and plain long-span aluminium roofing sheets) a modest 60 square metres one-bedroom self-contained flat will cost roughly 1.8 million Naira for construction purposes only. This of course excludes other items such as land, power and water supply, sewage disposal etcetera.

By the time these other indispensable items are factored into the eventual overall cost, the average cost of such a unit would have exceeded 3 million Naira.  Even though one-bedroom flats may not be the most sought after type of accommodation, this kind of associated cost automatically excludes a large section of middle class households whose incomes will not be able to sustain the accompanying mortgage no matter how liberal the mortgage terms are(interest rates and/or tenor).

But why is the unit cost of constructing this common type of homes so high? Cement singularly constitutes at least 50 percent of all the materials input into the home building process. Cement is used in the concrete frame of multi-storey buildings, to make sand-crete blocks for wall infill, for cement plaster finishes, and cement/sand screed floor finishes. Consequently, the cost of cement is an important determinant of the unit cost of construction. Just now, the cheapest rate at which cement can be bought in Nigeria is 1,500.00 Naira per 50 kilogram bag offered by the cement conglomerate, Larfarge Wapco ex-factory.  The price of the same size of cement is more expensive from the rival cement major, Dangote Cement. Neither price compares favourably with the international market price for the same size of cement of no more than 900.00 Naira.

The ready-made excuse for this indefensible price is that demand far exceeds supply, even though some suppliers have since received licenses to import the material precisely to make up the shortfall, and to sustain supply at reasonable prices to the construction industry. Ironically some of the beneficiaries of import licenses also happen to be local manufacturers. Just this year, both major cement manufacturers have commissioned two impressive new ultra modern cement factories at Ibeshe and Lakatabu in Ogun State with enormous production capacities that are supposed to beef up supply progressively.

These plants occupy these locations to be close to large deposits of limestone with which Ogun state is naturally endowed. Both manufacturers predict that their new plants when fully operational by the end of this year will in conjunction with all the other operating cement plants in the rest of the country be able to satisfy the entire demand of the Nigeria construction market.

Unfortunately, in defiance of the laws of demand and supply, despite the increasing supply of cement, unit price of the material is not falling commensurately towards the international price of cement. Except of course we presume that demand is rising as fast as supply is improving, which is most unlikely in such a depressed economy! It is an amusing paradox that both major manufacturers are already boasting that they will soon start exporting cement by the turn of the year even without yet meeting local demand and despite the fact that current local prices of cement cannot remotely compete with the international market price of the commodity.

Stakeholders in the industry have made much ado about the need to resort to or experiment with traditional building materials to stem the inexorable rise in housing construction costs. But after almost one hundred years of use of cement in the building fabric of Nigeria, I don’t see why cement does not qualify to be classified as a traditional building material. How long does it take for a widely accepted practice to become traditional? This is even more so when you consider that the main raw materials used to produce cement, limestone and gypsum, are mined locally or regionally.

We can therefore see that not until the price of cement that is sustained at its current artificial level by the action of a cement cartel, falls to a more realistic level, will the cost of construction come down to enable the production and availability of more affordable homes.

Then, in conjunction with the investment inflow into the home-building sector and the availability of a raft of many more mortgages for home-ownership, falling construction costs will instigate rapid housing supply that cannot but bring relief to our acute urban housing crisis. Besides, the economies of scale deriving from mass production of homes will further depress costs to an even more investor-friendly level. And this is precisely what we have a design solution to.

George Williams – architect
Akivisions Design Team, Lagos, Nigeria

All reactions, especially criticisms are welcomed at [email protected]