Meeting demand: Efforts get under way to increase housing supply

One of the biggest opportunities and challenges for the construction sector over the next decade will be the provision of affordable housing to a rapidly growing and changing population. While the government’s main focus in the short term is on infrastructure development, in the medium to long term housing is likely to become the most pressing issue for the country.

The provision of residential units for Nigerians has already become a significant challenge for the country. According to the World Bank, the housing gap throughout Nigeria currently stands at 12m-16m units, with the organisation estimating that 720,000 houses per year need to be built to meet demand. Moreover, the UN has estimated that some 200m new residents will be added to the country’s cities over the coming 40 years due to continued urbanisation. This will have a significant impact on the workload for contractors and construction companies.

OPPORTUNITIES ABOUND: While continued urbanisation will create many challenges in terms of waste collection and disposal, water supply and transportation, for example, it will also generate more demand and thus more opportunities for business. Much of this demand will undoubtedly be concentrated in the housing segment, which has come under significant pressure to meet the needs of the growing population. During a presentation at the Lagos State Economic Summit in April 2012, Michael Wong, a senior private sector development specialist at the World Bank, estimated that housing demand in Lagos is growing at an annual rate of 20% and that the housing gap as a whole has a financial value of $200bn.

With such promising potential, lucrative construction contracts may be in the pipeline; however, progress is slow. According to Gboyega Fatimilehin, a partner of real estate firm Diya, Fatimilehin & Co, “There is a big need for affordable housing. Nigeria has the technical and financial capacity for up to 2m homes and 300,000 units are currently in the pipeline, but clearly there is still a long way to go. This number is set to rise rapidly as the population continues to grow, the middle class rises and employment ratios improve. Moreover, there is a cultural shift as young people are looking to move out of their family homes earlier than they used to.”

OWNERSHIP: Property ownership remains out of reach for most Nigerians due in part to a lack of affordable housing and low household incomes. Gross national income per capita was $1200 in 2011, below the sub-Sahara African average of $1254. A survey by Russian investment banking firm Renaissance Capital found the vast majority of Nigeria’s middle class (those earning $480-645 a month) would buy property or land if they had a large sum of money to spend immediately.

With few cash buyers and demand suppressed by low-income levels, construction firms and developers do not have enough customers to make large housing schemes viable. In addition to this, with lower-end residential construction costs averaging between $600 and $1200 per sq metre in Lagos, it is difficult for firms to build housing that most Nigerians can afford. Most construction companies in Lagos are therefore engaged in the upper end of the real estate market.

TIMES OF CHANGE: However, Fatimilehin is confident that things are changing. “The key is a viable primary and secondary mortgage market, given that the high interest rates going through the commercial banks are often not feasible. The Federal Mortgage Bank has very little capacity, so the World Bank and the International Finance Corporation (IFC) are therefore supporting a private discounting house overseen by the Ministry of Finance and the central bank, with part guarantees from the IFC. The hope is this will be set up before end-2012.” The government is starting to look at public-private partnerships to finance housing projects. “Things are moving in the right direction,” Fatimilehin said.

If these plans come to fruition and the funds are used effectively to meet the housing need, contractors will likely be very busy over the coming years. This will be good news not only for the industry, but also for Nigeria’s social and economic development on the whole.