The Role of Financial Markets in Plugging Nigeria’s Housing Gap
According to the world bank there lies a great potential in the Nigerian housing market to offer high economic value, and secure employment for workers of varying skill sets, especially the unskilled ones. Invariably, the Nigerian housing sector holds viable solutions to the numerous socio-economic challenges faced by the country. The financial sector has a crucial role to play in unlocking these solutions.
As defined in a paper published by the CBN, Housing deficit refers to the number of shelters which do not have adequate conditions to be habitable added to the number of housing units that need to be built to shelter all families who currently lack one and as a result, share a shelter with another household in overcrowded conditions. It can be measured in a particular location over a specified period.
In Nigeria, the housing sector faces numerous challenges, culminating in an evident housing gap. Nigeria’s population has continued to grow year by year. In 1950, there were 35 million Nigerians. Today, the population has 222 million Nigerians according to the World population review. However, the increasing Nigerian population has accompanied a high rate of poverty, inequality and endemic urban migration. It is said that every minute, 86 migrants enter Lagos, the country’s economic capital. Subsequently, this has further widened the housing gap, leaving the poor in the bread line with inadequate shelters and exorbitant rents for the middle class who barely have adequate housing.
In 2003 it was estimated that 75% of the urban population in Nigeria lived in inadequate settlements. This catch-22” situation is bound to grow worse as the UN estimates that by 2050, 75% of the country’s population will be living in cities, compared to the current figure of 52.75%. This implies that to keep up with the growing population and urban migration for the housing needs of Nigeria to be adequately met, there must be at least 700,000 new housing units every year for the next few decades.
A chart by the UN population division shows that Nigeria’s urban housing needs have grown from below 200,000 in 1955 to about 800,000 units in 2023. At the same time, rural housing needs have declined from about 100,000 units in 1955 to less than 10,000 units in 2023.
Nigeria’s Housing Deficit
Currently, Nigeria’s housing deficit stands at 20 million units according to the former Vice President, Yemi Osinbajo and up to 28 million units according to the Bank of Industry. In Nigeria’s major cities like Kano, Lagos, Abuja, and Ibadan, it is estimated that the housing gap grows by 20 per cent yearly. There are government housing ministries, departments, and agencies both at the federal [Ministry for Power, Works and Housing], state and local government levels which have the responsibility to implement policies to close the housing gap.
Nigeria’s history has recorded different government interventions in the country’s housing gap. While the act of history-keeping in Nigeria is substandard, this particular historical phenomenon cannot be forgotten as cities across the country have pockets of housing estates initiated and built by the federal and state governments. The federal government and state governments still make these interventions in the present day. An example is the National housing program of the Buhari-led federal government which is said to have built 4,652 housing units in the first six years of the government.
Vice President Yemi Osinbajo, in his address to a group of financial market experts in 2021, acknowledged that the housing gap in Nigeria cannot be effectively plugged without the intervention of financial markets. The vice president tasked the market experts to develop an adequate financial model that will significantly transform the housing sector on a large scale, as opposed to what is obtainable with the current interventions by the government. Reports from government agencies show that 21 trillion Naira is required to adequately address the Nigerian housing gap. In spite of the acknowledgement of the huge amount of investment needed to turn the housing sector around, the government only budgeted a meagre 470 billion Naira for housing in the 2020 budget.
All indications point to the fact the situation of the Nigerian housing sector is one in which no progress can be made without the intervention of the financial markets. As such, the organised private sector must have an enabling environment to create the adequate financial market needed to transform the housing sector. The central bank of Nigeria identifies the inability of the domestic mortgage market to provide sustainable long-term loans to borrowers as a major challenge to the intervention of financial markets in the housing sector. This, according to the CBN, is caused by the domestic mortgage market’s lack of access to long-term funds.
The Nigerian Mortgage Market and the Housing Sector
While the housing gap in Nigeria can be daunting, it is not all gloomy for the housing sector and real estate industry in the country. According to the financial derivatives company (FDC), in 2023 the performance of the sector is expected to witness a 5.2% expansion and make an increased contribution of 6.5 per cent to the country’s gross domestic product. These projections can only be actualised through the robust participation of the financial markets in the housing sector, which is hinged on the type of policies enacted by the government, especially with the recent change in government and the appointment of ministers of the federation.
In order to accentuate the impact of the financial markets in righting the historical and present wrongs of the Nigerian housing sector, certain operational and legal obstacles must first be surmounted. First among these challenges arises from the 1978 Land Use Law, which prohibits private ownership of land in Nigeria. Also, under the law, the governor of a state must give consent and issue a Certificate of Occupancy (C of O), before a private body can use a land for the purpose of housing or another. It is therefore crystal clear that decisively addressing this bureaucratic burden on the process of housing delivery in Nigeria will further enable financial markets to participate in the sector and make significant impacts on Nigeria’s incorrigible housing numbers.
The Nigeria Mortgage Refinance Company (NMRC), a public-private agreement between the federal government and the private sector, was set up primarily to bridge the cost of residential mortgages and ensure that affordable housing is available to Nigerians. It does this by encouraging financial institutions to increase their mortgage lending by providing them with long-term funding, increasing the maturity structure of mortgage loans and assisting to reduce mortgage lending rates. As it relates to the financial market and its role in Nigeria’s housing sector, the NMRC provides long-term liquidity to financial institutions, which in turn, allows the financial markets to refinance liquid mortgage assets. This operation ensures that Nigerians can access mortgages from financial institutions to secure housing, thereby contributing to bridging the housing gap.
Despite the relatively developed banking system in Nigeria, the Nigerian mortgage market performs low when compared with other African countries with similar economic situations as ours. Ghana and South Africa are countries to reference regarding this. With a 34% increase in the size of the market between 2006 and 2011, the mortgage market is assessed by experts as being largely underdeveloped. Recent data from the CBN puts Nigeria’s present housing stock at 10.7 million, out of which only 5% is formal mortgage. With Nigeria’s well-developed financial market, the ratio of mortgage loans to the Gross Domestic Product (GDP) is only 0.8%. From the aforementioned, one can infer that the current state of the involvement of the financial market in the housing sector has lots of room for improvement.
To End With
In conclusion, as the country is set to become the world’s most populous country by 2050, the problem of housing in Nigeria is exigent and must be met with a determination to find lasting solutions both by the government and the private sector. While the housing gap and other issues relating to the housing sector are primarily premised on government policies, the financial sector has a cardinal role to play in resolving the persistent housing crunch in Nigeria not only by providing mortgages to home buyers but also by providing funds to developers to build housing units fast so they can provide them at affordable rates to the public.
