A new study of the housing crisis in Namibia by the Integrated Land Management Institute (ILMI) suggests that market economics is at the heart of the problem. The question is: how do we solve this problem?
The study, entitled ‘Housing in Namibia: The challenges and prospects for adequate future provision’, shows that over 90 percent of Namibian households would not qualify for a mortgage from any commercial bank and suggests the way to overcome the housing crisis is by simply allocating serviced land to the poor to build their own homes.
To follow the line of argument taken by the author, Dr Blessing Chiripanhura, one has to take into account a number of factors, including the level of income inequality, high unemployment, low average incomes, the lack of financing options, and the exorbitant cost of housing in Namibia.
Identifying the problem
Chiripanhura found that many households lack adequate finance to buy or rent houses, in part because the existing housing stock is far less than what is needed, and is too expensive. The extent of the backlog is variously estimated to be between 85,000 and 110,000 houses.
Secondly, house prices have risen sharply in recent years, with the rate of price increases estimated recently to be second in the world only to Dubai. Thirdly, the poor, the unemployed and those on low incomes are effectively excluded from the housing finance market.
Against a macroeconomic backdrop of gaping inequality and rising unemployment, he notes that in 2016 nearly 90 percent of households earned less than N$2,700 per month, meaning they would not qualify for a bank mortgage for an average priced house.
The combination of the above-mentioned factors pushed up the demand for cheaper houses, but property developers tended not to concentrate on this needy section of the market, partly because the poor — as noted — are excluded from the mortgage market.
The housing backlog is attributed mainly to the slow pace in the supply of houses and rapidly rising demand due to the growing number of urban households.
The income gap between the rich and the poor sections of the population has been growing since 1993. This is evidenced by the fact that in 2017 Namibia was rated the second most unequal country in the world on the World Bank GINI Index — with South Africa leading the way.
The data further indicate that there is greater income disparity in urban than rural areas and that rising unemployment, low average incomes, and the rapid rise in the cost of accommodation further contributed to the growth of extreme inequality in urban areas.
Low household income makes it impossible for many families to afford decent accommodation and thus ‘the high cost of houses and the shortage of affordable accommodation have forced households to move down the housing structure … which has contributed to the proliferation of informal settlements,’ the IMLI study found.
Growing number of households — and shacks
The number of urban households has risen due to natural growth, rural-urban migration and a shrinkage in the average size of households. The average household size in Namibia shrunk from 5.7 persons in 1995 to 4.4 persons in 2016 and the overall number of households rose from 63,426 in 1994 to 80,853 by 2016.
Over the same period, the number of shacks relative to formal brick houses rose by a staggering ratio of 4:1.
The study found that ‘competition for cheaper housing is intense, causing low-income groups to face relatively higher rents’ and forcing those on low income into high density areas and shanty towns. The problem is exacerbated by the lack of serviced land on which people can build their own houses.
In the informal settlements, there’s limited to no provision of electricity, potable water or toilet facilities. The general lack of basic services undermines the quality of life of residents and increases the risk of the outbreak of poverty-related diseases, such as cholera, polio, and — most recently — Hepatitus E.
The high rate of growth in the number of urban households is due largely to people moving to towns and cities from rural areas in search of better services and jobs, and by internal reproduction and household formation within the urban areas.
According to World Bank figures, in 2007 around 39 percent of Namibians lived in urban areas. By 2015 the proportion of urban residents had risen to 46.7 percent, but the growth in the urban population has not been met with corresponding growth in housing units.
Chiripanhura worked on the assumption that 50 percent of Namibia’s population would be urbanised by 2020, but the latest revised data of the United Nations Department for Economic and Social Affairs (World Urbanisation Prospects 2018) indicate that Namibia’s urban population would in fact cross the 50 percent threshold this year and will likely increase to over 60 percent by 2030, and to 72 percent by the year 2050.
This strongly suggests that solving the urban housing question is of key importance to a growing number of citizens and is central to addressing the overall problem of landlessness.
Unemployment and low incomes
A notable feature of life in Namibia is that many young adults are not able to afford their own accommodation and live with their parents late into adulthood, partly because of the cost of accommodation, but also because youth unemployment remains stubbornly high.
Prior to the job losses caused by the onset of recession in the construction and retail sector in 2017, according to the 2016 Labour Force Survey (LFS), unemployment among Namibians between the ages of 20 and 24 years already stood at a worrying 54.9 percent.
The situation was generally worse for women: the percentage of unemployed women in that age group stood at 64 percent in 2016. And while the average unemployment rate stood at 34 percent in 2016, for women it was 38.3 percent.
The unemployment rate also tended to be higher in rural areas, thus contributing to rural-urban migration — and the consequent pressure on the lmited urban housing stock.
The IMLI study notes that 55.1 percent of wage earners surveyed in 2014 earned less than $1,000 per month and that 2.23 million people were in households that had average household incomes below N$6,000 a month.
The most recent data contained in the Fifth National Development Plan (NDP5) released in 2017, show that only 14 percent of the population earned more than a domestic worker’s minimum wage of N$1,353.
For this reason, a large number of households were simply unable to secure mortgages to purchase their own property or afford to rent in the formal housing sector.
Land costs and bottlenecks in supply
A study on the housing question conducted by Chirinpanhura and Herbert Jauch in 2015 found that on average, the cost of land in Namibia constituted up to 40 percent of the cost of a new house.
They say this shows that the cost of land is at the heart of the housing crisis, and that despite the many factors affecting housing supply, ‘it is smarter to focus on the supply of serviced land’.
They propose that ‘instead of burdening poor households with monthly loan obligations, housing initiatives must prioritise allocating serviced plots to poor households so that they can … build their own houses on an incremental basis with no binding mortgage obligations.’
Several studies have shown that the land delivery system is too cumbersome as it requires several approval processes by the local authorities and central government.
Besides prohibitive prices, given the slow rate of supply of serviced land, it often takes ages for applicants to be allocated plots by local authorities. The problem is compounded by bureaucratic inefficiency.
In June, for example, The Namibian reported that Windhoek Municipality ‘is sitting on about 31 single residential plots, valued at N$14,4 million, that have been serviced, but were never advertised to buyers.’
Incidentally, the above figure would render an average price of N$414,516 per residential erf, which further demonstrates the point of the high cost of land.
The local authorities in turn argue that they lack the resources to speed up land servicing. In response, some municipalities opted to allocate land through the auction system, which in practice meant that the supply of new houses was increasingly dominated by speculators and property developers, who then built houses for the middle- to high-income target market.
Chiripanhura argues that the auction system perpetuates social inequality, as it tends to favour established property developers and high-income households, to the detriment of low-income groups.
Research on the housing market, commissioned by the Bank of Namibia in 2011, further suggested that ‘developers engage in speculative activities by hoarding unserviced land … while waiting for house prices to appreciate somewhat [to] ensure hefty profits from their investments.’
Private developers drive up property prices
In recent years, local authorities have tended to outsource land servicing to the private sector, or contracted private sector operators to service land in exchange for land elsewhere, in lieu of payment, but these public-private partnerships have been blamed for driving up house prices.
In June 2015, for example, the then outgoing CEO of Swakopmund Municipality, Eckart Demasius, revealed the scale of profiteering by private developers, whom he said were selling serviced land at 17 times the actual cost of construction.
He said the decision to outsource the servicing of erven had cost Swakopmund Municipality hundreds of millions of dollars in lost income.
When the municipality serviced its own erven, it could offer subsidised plots to poorer residents for as little as N$6,900 for a 300 m2 erf. The cost of servicing the plots was a mere N$69.35 per m2. They were then sold at a subsidised rate of N$23/m2, but in some areas plots were being sold by private developers at a cost of N$505,000 for a 600 m2 erf, effectively placing it beyond the reach of those households most in need.
Role of the banks
Chiripanhura says the lending policies of commercial banks are downright discriminatory, as they generally target formally employed persons and make mortgage finance available mainly to high-income groups. Given the low average household income, over 90 percent of households would not qualify for a mortgage.
He explains that banks work on ‘the assumption that the individual allocates a maximum of 30 percent of monthly income to housing/servicing the loan. This percentage determines the amount that the bank advances as a mortgage, which in turn determines the type of property an individual can afford.’
With a 2014 average household income of N$6,626, the average household would have afforded monthly mortgage payments of N$1,988 per month. Assuming a 25-year mortgage, the average household would have been able to secure a mortgage loan of only around N$596,340 at a time when the average house price was N$700,000.
The situation has greatly worsened since.
According to the FNB Housing Index, in 2015 the median house price was N$868,000 nationally, and by December 2017 the average house price stood at N$1.1 million, while in the central areas it rose to N$1.5 million, far outpacing average household income, given that 86 percent of wage workers earned less than N$1,353, as noted in the NDP5 in 2017.
The failure of market economics
In light of the above, Chiripanhura observed that ‘the market tends to be ruthless, failing to take cognisance of social justice and power imbalance issues’ and ‘does not take into account the initial resource allocation’ — in reference to the historical injustices and imbalances that resulted from the colonial dispensation and expropriation.
He partly blames the rapid growth of shanty towns and the housing crisis on the dominance of market economics (no doubt a euphemism for unregulated capitalism), arguing that it created ‘a shortage of housing units, especially in urban areas, and led to the proliferation of informal settlements.’
In essence, the majority of Namibians are excluded from the housing market ‘by the market mechanism,’ and as a result the poor find it difficult to buy homes or to afford to rent and are forced to the margins of urban areas and into crowded informal settlements.
It is estimated by the Shack Dwellers Federation of Namibia that 25 percent of the population (some 500,000 people) live in shacks.
One shortcoming of the IMLI study is that it does not look into the deregulation of the housing market and financial sector, or the abolition of Rent Control Boards after 1990 — in short neoliberal economic policies — as major contributory factors to the unchecked rise in house prices and rental costs, and the consequent housing crisis.
From a housing to a humanitarian crisis
As noted, the main challenge poorer Namibian households face is the mismatch between the low level of income and the high cost of houses, as well as the fact that sufficient and affordable housing is simply not readily available on the market.
The low and middle-income groups are hardest hit by the shortage. The consequent growth of shantytowns without basic services has resulted, as we have seen, in the outbreak in recent years of so-called ‘Third World diseases’, poverty-related epidemics, such as cholera, polio and Hepatitus E.
Shack-fires are also a daily occurrence and countless shack dwellers have tragically lost their lives in shack-fires in recent years, while the quality of life for the majority has been decimated by the dire conditions of life in the shantytowns.
The simple fact is that the housing crisis in Namibia is a product of the crisis of inequality: a man-made humanitarian crisis — and for many of the urban poor it is an inescapable nightmare.
There is no land scarcity
It needs to be taken into account that land is not a scarce resource in Namibia, with its tiny population of some 2,3 million people, given that Namibia is about the same size as Nigeria, which has a population of 173,6 million.
So, it is quite conceivable that a lawful solution outside the market-based mechanisms is possible, if there is the political will to tackle the painful historical legacy of racial inequality and colonial injustice, by simply allocating serviced land to the poor to build their own homes.
The IMLI study does not say so explicitly, but the obvious implication is that land should be allocated to the poor freely, at no cost — as a basic human right.
Conclusion: give land to the people
Thus, there’s merit in the conclusion reached by Chiripanhura that the best way to effectively tackle the urban housing crisis and rising inequality is to allocate serviced land to the poor to build their own homes.
As I have argued elsewhere, it makes sense for local authorities to charge only for the cost of servicing the land (and not for the land itself) in order to have the resources to continue the land servicing process until all household erven are adequately serviced. It is also possible to impose rates and taxes on the rich to subsidise the servicing of land to meet the needs of the poorest.
This would solve the housing problem for the vast majority of the landless urban poor. And to attract people to smaller towns, those municipalities can offer larger residential plots than in the bigger, more congested cities.
In this way, by giving land to the people — not on the basis of affordability and market economics — but as a measure of social justice and to address the injustices of the past, Namibia can within one generation end the crisis of homelessness and break the back of inequality.
Given that rent and mortgages constitute the largest expenditure in most households, a fair redistribution of land for residential purposes would drastically reduce household poverty and relieve the massive psychological stress and financial burden on the poorest.
It may mean large farms bordering the cities may have to be expropriated in the public interest, but it’s clearly a far worse sin to force the poor to live in unhealthy, crowded concentration camps on the outskirts of our cities, while there is so much under-utilised land in the hands of the privileged few.
Of course, such a radical policy shift will mean challenging the logic of the market and constraining the worst proclivities of the banking sector. But a failure to do so will undoubtedly lead to a more broader challenge to the system itself, and possibly to its total collapse, as the majority of people — particularly the youth — increasingly cannot find any reason to defend a system that denies them the basic right to shelter, security and a decent life.
That said, it may be necessary to amend the Constitution itself, to inscribe the right to housing as a basic and inalienable human right.