Private sector participation to help resolve Algeria's affordable housing shortage

As with many emerging markets, Algeria faces a chronic shortage of affordable housing, which has concerned successive governments since 1999. Since the first five-year plan of 1999-2004, the country has built a total of around 2.4m low-cost housing units, according to the Ministry of Housing and Urban Development, but still has a national housing shortage estimated at 1.2m units in 2015.

Pipeline

To overcome the long-standing deficit, Algeria would need to build between 200,000 and 250,000 units per year. Reaching that target would require a significant increase in construction. At present, the public and private sectors combined are producing around 80,000 newly built housing units per annum. Under the current five-year plan, the government has earmarked public funding of €58bn to build 1.6m new homes by 2019.

However, based upon the country’ previous performance, reaching those targets, while challenging, certainly is possible. The ministry reports that some 810,000 housing units were built under the 1999-2004 housing programme and 912,326 under the 2005-09 programme. However, only 693,000 units were produced against the target of 1.2 million in the 2010-14 programme.

Bottlenecks

Land disputes over some project sites and mismanagement of funds contributed to this shortfall, according to the Centre for Affordable Housing Finance in Africa (CAHFA). Another factor is the limited capacity of the country’s public construction sector. Thousands of housing units have been built by the state-owned construction giant Cosider but of the estimated 1800 developers participating in the public housing programme, 1500 are local firms, with most working on smaller projects of no more than 500 units, according to CAHFA. The remaining 300 developers are foreign, contracted under bilateral agreements. In late 2012, for example, Algeria signed agreements with the governments of Portugal and Spain, commissioning a total of 100,000 homes to be built through joint-venture agreements with each country. This followed on from another 2012 programme to build 15,000 government rental units in the wilaya (province) of Oran, with contracts allocated to Chinese and Indian contractors.

Private Opportunity

Although Algeria benefits from sizable foreign currency reserves with which to help buffer state spending, even amidst the decline in oil prices, there is an increasing range of opportunities for private sector developers to tap into the high demand for low- and middle-income housing. Under the current market conditions, the public sector will be unable to meet current demand, let alone future demand growth, according to Mohamed Larbi Merhoum, owner of Algiers-based MLM Architects.

The solution, according to Merhoum, would be to create the right conditions for private property developers to participate in the state’s housing programmes. “There is no strategy to allow private property developers to become reliable industry players. If the state provided private property developers with access to land at the right price and in the right place, it could regulate the end price. Instead the government is creating unfair competition by offering to build property at a loss. What we have today is a private property market, which is left to its own devices and is creating property speculation, and a public housing market, which is failing to deliver in terms of quantity or quality and is overheating the economy since there are not enough construction companies or suppliers of construction materials to build 1m homes,” he added. Yet there are encouraging signs that the market will improve in the near term, with a better balance between supply and demand and a much greater role for the private sector contractors.