Solving The Housing Problems in Nigeria… Part 2

Last week, I started a three-part series on the subject matter, with this first piece. Below is the continuation.

Enjoy and kindly share your comments and feedback.

Here goes:

5. Knowledge Gap

Some call it lack of capacity but I want to refer to this challenge as knowledge gap which I believe are in three folds.

The first segment being lack of skilled manpower required to take the mortgage industry from its infancy stage to the next level. Over the years, we have not built capacity in Mortgage Finance because the sector was practically non-existent and the conditions were not favourable for long-term lending because it would have resulted into asset-liability mismatch. There is urgent need to build capacity in all aspects of mortgage by acquiring the latest knowledge in housing finance sector. This can be done by partnering with established institutions in the developed world for knowledge transfer. Also, CBN, PMBs and other concerned finance professional associations in Nigeria should collaborate on institutionalizing training and certification programmes to improve on the knowledge gaps in Mortgage and Housing Finance sector.

The second aspect of knowledge gap is dearth of technical skilled manpower used in our Building and Construction Industry. With the amount of unemployed population in Nigeria, it is very sad that we now import technicians from neighbouring countries for building and construction works mainly because our people lack the requisite knowledge to carry out those functions. There is an urgent need for extensive training and retraining of man power on technical skills in the housing sector of the country’s economy. Government should as a matter of deliberate policy open all closed vocational and technical colleges and go further to establish new ones to train the necessary manpower in this area.

The third is what I call Housing Education. Currently, there is inadequate proper education for practitioners in the building and housing construction industry. Housing is not only about building methods but also the vast array of factors which make housing construction possible under conditions which ensure best results. It is therefore not enough to have the technical skills required for building construction but practitioners must be concerned about how their skills work in the interest of those who benefit from them — house owners. It is very important that trainees in building construction programmes are familiar with all of the social, economic, legal, political and psychological factors which may affect his/her work either in the long or short run, to achieve efficiency and effectiveness in the sector.

Housing education must go beyond the orthodox training being received by all professionals in the housing field at the moment and should include the art and science of living within the home and community.

In addition to all of the above, there is need for knowledge acquisition on the side of our political actors too. They are the ones responsible for policy formulations. How would they be able to legislate laws if they lack proper understanding of how things currently work in the sector and how it should work in a normal world?

Lastly, there is a need for Real Estate Information Centre that will warehouse data and information on the real estate and housing market to be established. The centre will be the repository of market information on key data in the housing sector.

6. High Cost of Building Materials

One of the major challenges affecting affordability and availability of housing is the high cost of building materials. Fifty to sixty percent of the total construction input goes to building materials and with the tumble of the Naira to the dollar this year it is expected that the price of construction would increase due to a large majority of material imports. For example, there are inadequate large-scale manufacturing companies for items such as doors, windows and door knobs; and there are insufficient artisans and workers with skills such as carpentry and plastering.

Cement, a very major component of building accounts for over forty percent of materials used for building construction in Nigeria. The price of this commodity has fluctuated over the years reaching over N2,000 per 50kg bag. Even though the biggest manufacturer, Dangote has dropped its unit selling price, cement still remains very expensive in Nigeria selling at about 300 percent more than what is obtainable in other developing economies of the world.

In addition to cement cost, the cost of other materials used in building construction such as steel, timber, gravel, roofing material have also gone through the roof leaving poor and low income earners in a position of hopelessness when it comes to home ownership.

A key factor that has led to the high construction cost in Nigeria has been the restriction on the importation of cement. There is a urgent need to free up the market by allowing some level of imports that help drop the local prices to reasonable level.

However, in addition to removing the restriction on cement importation, I believe we must encourage healthy competition in the Cement Industry by setting up an antitrust institution to protect consumers from predatory business practices. This body that will carry out regular investigations in the sector and force decisions on the players in the industry. For example, in the United Kingdom, according to this report, the four big players in the cement sector were forced to create a fifth player to increase competition. In South Korea, the antitrust watchdog fined six cement manufacturers US$168m for fixing the prices of cement products. Here is another story of antitrust activity in India. Nigeria needs a watchdog in our cement industry.

Basic building materials should be given tax and duty relief and government should develop incentives to encourage both the public and private sectors to use indigenous building materials.

In the long run, another alternative that we should consider is, more research into new building technologies and practices to reduce land, cost, energy usage and time taken in building houses such as prefabrication, container housing, Polycon glass fibre, 3D technologies etc. You might also want to consider adapting Tiny House Movement strategy to suit our local use.

7. Licensing and Permit Issues

According to the Doing Business in 2015 report, in getting a licence such as construction permits or approvals in Nigeria it takes 17 procedures which take an average of 116 days (using Lagos as the example — it could be higher in other states). The approval process is too cumbersome and also very expensive, encouraging what Hernando De Soto refers to as “Extralegal System” in his book “The Mystery of Capital”. He defines Extralegal as a situation where people decide to live outside the official law because “it is as difficult to stay legal as it is to become legal”. People do not so much break the law as the law breaks them thereby making them to opt out of the official system.

The complexity of the approval process encourages illegal building constructions and squatter settlements all over the country and they come with attendant health, sanitation and environmental issues.

There are just too many red tapes for so many things in Nigeria. In a totally unrelated example, a friend was just joking about obtaining Tax Identification Number (TIN). He said “Banks ask you for TIN to open corporate account, while Federal Inland Revenue Services (FIRS) asks you for bank account details when filling forms to obtain TIN”.

It is imperative that for us to move forward in solving housing deficits in Nigeria there has to be reforms in the licensing processes and requirements by reducing the cost and procedure it takes to get building construction permits. This will help to increase the size of formal building construction sector, reduce building construction cost and ultimately increase availability of affordable homes to the broader segment of Nigeria.

Also, there has to be proper education for the civil servants working in the various licence and permits offices on the recent technologies used in building materials and constructions techniques. I was told by a participant at an event that approaching licensing authority with latest building technology other than brick and mortar will never get the requisite approval because people working in licensing offices do not know about such technologies.

8. Inadequate Infrastructure

Infrastructure and social amenities is another major challenge hindering the housing development in Nigeria. Primary infrastructure such as road, water, electricity etc which accounts for about 30 percent of housing cost are usually provided by the developers with the cost built into the price of housing units. Thus making the houses more unaffordable.

The government must as matter of urgency invest heavily in different infrastructure not only to support the Housing sector but the economy in general. The importance of adequate infrastructure cannot be overemphasized. We don not have a choice, we MUST get these things done and urgently too, for our economy to develop.

Investors can work in difficult environments in the short-term if there is convincing evidence that reforms that will improve the investment climate will be implemented as quickly as possible.

In conclusion, the above enumerated factors are by no means the only issues hindering the development of our housing sector but I considered them the major problems we MUST confront to ease the problem as we prepare for population surge over the next foreseeable decades.

Remember the World Bank estimate that says Nigeria will be the third largest country by population in 2050? Time is ticking — tick tock, tick tock…

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I will leave with the words of Kelvin Fisher, Founder & President of Dartmouth Research & Consulting:

“Although this topic has been studied over the years, and there has been specific programs designed for immediate impact, the need for social housing and affordable quality housing remains unmet. This can be seen throughout the world. It is not to say these efforts have been in vain, but with the things that have worked well in the past always seem to fall short on scalability.

There are probably three themes which have affected the outcomes to date: a lack of leadership and understanding among stakeholders, top-down programs focused on roofs-over-heads, and an inadequate financial infrastructure to fully mobilize capital in the marketplace.

Housing is about people. It is not about structures/buildings or about financial transactions. It is about addressing basic needs of a population so that people can become fully engaged as productive citizens.

Donors (whether governments or NGOs) have long served as the catalyst for social/affordable housing. However, this donor model is not sustainable and more often than not, face many political risks.

The social housing and affordable housing industry must move from donor driven funding models to comprehensive social integration models that encompass sustainable financing that addresses the fundamental needs of a
community. This is not growth for growths sake but growth that generates measurable outcomes and broader participation of all stakeholders including investors. Today, social housing is threatened by social and funding problems.
Expediency in provisioning, and tactics that push for short-term profitability are crippling countries’ ability to attract enough capital and sustain financing for the long-term.

There needs to be a model for social housing that articulates a Hierarchy of Collaboration for Efficient and Sustainable Growth”

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‘Bisi Ogunwale is an Infrastructure Finance professional,an agroprenuer and wannabe photographer. He tweets at: @bisiogunwale

This opinion piece is the second in a three-part series that hopes to steer the current housing deficit debate as towards a focus on addressing the issues hindering the the growth of housing stocks drawing from history, and evidence from Nigeria and other countries as I discussed at The Play Forum event with theme “if we were the government” in Abuja on Saturday 22, 2016. The authors hope that those concerned and relevant authorities will read these pieces and start the process of moving the country in the direction of genuinely reducing the housing deficits.

The third and final piece of this three-part series will talk about RENT.