Making affordable housing a reality

OCTOBER 28, 2014 BY IFE ADEDAPO 

   

 

 

Despite strategies aimed at increasing the housing stock, the deficit is still wide. IFE ADEDAPO writes on cost effective ways of improving access to accommodation

Nigeria is one of the developing countries with housing deficit estimated at 17 million. According to statistics from the World Bank and the Federal Mortgage Bank of Nigeria, the amount needed to provide adequate housing for Nigerians is N56tn.

To bridge the housing gap, the government has embarked on housing projects all over the country and is also making mortgage available to low and middle income earners for easy access to affordable houses.

In January, the Nigerian Mortgage Refinance Company, a new mortgage scheme, was introduced to provide about 200,000 mortgages annually. It was reported that about 66,402 applications was received for the first 10,000 mortgages under the scheme targeted at first time home owners.

Experts say decent, affordable housing is fundamental to the health and well-being of people and to the smooth functioning of economies, yet around the world, especially in developing and advanced economies, cities are struggling to meet that need.

Some experts have said if current trends in urbanisation and income growth persist, by 2025 the number of urban households that live in substandard housing – or are so financially stretched by housing costs that they forego other essentials, such as healthcare – could grow to 440 million, from 330 million.

This could mean that the global affordable housing gap would affect one in three urban dwellers, about 1.6 billion people.

A new McKinsey Global Institute report, defines the affordability gap as the difference between the cost of an acceptable standard housing unit (which varies by location) and what households can afford to pay using no more than 30 per cent of income.

The analysis draws on MGI’s Cityscope database of 2,400 metropolitan areas, as well as case studies from around the world. It finds that the affordable housing gap now stands at $650bn a year and that the problem will only grow as urban populations expand. The current trends suggest that there could be 106 million more low-income urban households by 2025, for example.

The report titled ‘A blueprint for addressing the global affordable housing challenge,’ adds that in order to replace today’s inadequate housing and build the additional units needed by 2025, it would require $9tn to $11tn in construction spending alone; coupled with land, the total cost could be $16tn. Of this, the report estimate that $1tn to $3tn may have to come from public funding.

However, experts say four approaches used in concert could reduce the cost of affordable housing by 20 to 50 per cent and substantially narrow the affordable housing gap by 2025. These largely market-oriented solutions – lowering the cost of land, construction, operations and maintenance, and financing – could make housing affordable for households earning 50 to 80 per cent of median income.

Unlocking land supply

Since land is usually the largest real-estate expense, securing it at appropriate locations can be the most effective way to reduce costs. In even the largest global cities, many parcels of land remain unoccupied or underused.

Some of them may belong to government and could be released for development or sold to buy land for affordable housing. Private land can be brought forward for development through incentives such as density bonuses – increasing the permitted floor space on a plot of land and, therefore, its value; in return, the developer must provide land for affordable units.

Reducing construction costs

While manufacturing and other industries have raised productivity steadily in the past few decades, in construction it has remained flat or gone down in many countries. Likewise, in many places residential housing is still built in the same way it was 50 years ago. Project costs could be reduced by about 30 per cent and completion schedules shortened by about 40 per cent if developers make use of value engineering (standardising design) and industrial approaches, such as assembling buildings from prefabricated components manufactured off-site. Efficient procurement methods and other process improvements would help, as well.

Improved operations and maintenance

Twenty to 30 per cent of the cost of housing is operations and maintenance. Energy-efficiency retrofits, such as insulation and new windows, can cut these costs. Maintenance expenses can be reduced by helping owners find qualified suppliers (through registration and licensing) and by consolidated purchasing. For example, buying consortia in the United Kingdom have saved 15 to 30 per cent on some maintenance items for social housing.

Lowering financing costs for buyers and developers

Improvements in underwriting would help banks safely make more housing loans to lower-income borrowers. Contractual savings programmes can help such buyers accumulate down payments and therefore finance purchases with smaller and less risky loans. Such programs can also provide capital for low-interest mortgages to savers. Governments could help cut the financing costs of developers by making affordable housing projects less risky – for instance, by guaranteeing buyers or tenants for finished units.

The report notes that the successful application of these approaches depends on creating an appropriate delivery platform for housing in each city. It adds that policy makers, working with the private sector and local communities, need to set clear aspirations for housing throughout their cities.

Critically, a minimum-standard housing unit must be defined in each of them. But an excessively ambitious minimum can discourage the construction of affordable homes and force more low-income households into informal housing.

A better solution is to set standards that reflect rising aspirations – a housing “ladder” that can start with something very basic that might, for example, have communal kitchens and baths and serve as transitional housing for new arrivals.

Experts are of the opinion that affordable housing could represent a significant opportunity for the global construction and housing-finance industries while building homes for all the low-income households added in cities by 2025 could cost $2.3tn. this, they add, would represent a construction market of $200bn to $250bn revenues annually, or about 10 per cent of the global residential real-estate construction industry.

Source :Punch