The Home and Finance Sector

Housing can unlock Africa’s private and national wealth

In developed economies, housing is the ‘uber’ asset, influencing consumption and investment patterns broadly. Housing-related items (property taxes, rentals or mortgage repayments) or services (electricity and water, maintenance and repairs, and furniture purchases) typically account for a higher share of consumption expenditure than any other category.

Beyond shelter, housing also enables people to access services such as electricity, water and sanitation, which are critical for health and wellbeing.

In developed economies with high home ownership rates, housing and pension assets typically account for the bulk of assets on the household balance sheet. Households leverage this value to support investment in education and businesses.

Meanwhile, housing also underpins the liability side of the balance sheet, with mortgages dominating consumer credit markets. And it is via interest rates on variable rate credit dominated by mortgages, that central banks influence expenditure patterns in the household sector.

Housing also plays a critical role in city financing and budgets. Taxes on residential properties and service charges are a significant source of revenue, allowing cities to provide and maintain public infrastructure. On the basis of such infrastructure, cities are in turn able to support and attract even more economic activity, and deliver services that increase the benefits of housing to households, in a virtuous circle.

Housing Finance, a significant determinant

Housing finance plays a vital role in the housing delivery value chain. This is due to the fact that finance is needed for both the demand and the supply of housing. On the demand side, the availability of and access to housing finance is a significant determinant in a household’s decision to acquire, build, or rent a house. Similarly, on the supply side, developers need financing to build the mass housing projects that are needed to address the continent’s housing deficit. Housing finance, being an essential part of financial systems, contributes to the development and deepening of financial markets and has some potential impact on the financial and economic stability of a country. Therefore, it contributes to deepening and broadening the financial sector, increasing financial access, and promoting financial inclusion. However, the development of housing finance on the continent has not kept pace with the backlog in housing demand.

Africa’s rapid urbanization and economic growth have led to an increasing demand for housing finance. The dearth of long-term finance, weak credit markets, an unstable macroeconomic environment, and limited or inexistent housing finance systems are major obstacles to the continent’s housing market development. Moreover, the housing deficit and the lack of adequate housing finance instruments are even more acute for lower income groups, who by definition are the majority excluded from formal financial systems. Therefore, it is important not only to focus on how to develop housing finance systems, but also to focus on how to leverage financial systems to go “down market” in order to ensure that low-income groups have access to decent housing. There is a general belief that only government-related financing schemes could contribute to serving low income households.