How Public, Private Collaboration Will Address Housing Deficit

By Babatunde Bayo-Lawal

Recent monetary and fiscal policy reforms have continued to bear significant impact on various sectors of the Economy.

Over the last five months, this has recorded high inflation, foreign exchange volatility, soaring price in the cost of items, decline in purchasing power and income and a proportionate increase in cost-of-living.

Aside from the capital and money market that continue to benefit from greater inflow in foreign portfolio investment and money market instruments such as fixed income and treasury bills, most of the other critical sectors of the economy have mostly struggled and are unable to keep up with the macroeconomic headwinds.

The housing and real estate sector has not been insulated from these challenges. The sector has also been impacted by rising inflation leading to low purchasing power, currency volatility and depreciation leading to increase in cost of construction materials. This has discouraged housing investments.

The country’s headline inflation rose to as high as 33.2percent in March 2024, making it the highest in about 27 years.

The implication is that Nigerians now lack the disposable income required to make investments in sectors such as real estate and housing and this has significantly slowed down real estate sales.

No doubt currency depreciation also has a significant impact on the real estate sector this year, leading to an increase in the cost of construction materials.

According to Bloomberg, the Naira has reversed its gains from March 2024, by over 26.8percent in April. In March, the Naira recorded significant gain against the dollar, but has since receded, exchanging for as low as N1456 to a dollar at the National Autonomous Foreign Exchange Market (NAFEM).

Financial data company, Nairametrics reported in February that the price of a 50kg bag of cement rose to as high as N9500 from N6000 in January. While the federal government has since intervened, the price of building materials continues to rise, as a result of the currency depreciation and the interplay of market forces.

This has impacted the final cost of housing projects, which is then eventually passed to consumers at higher prices.

There is a sense that the increase in construction costs could expand the current housing gap and increase the spate of homelessness in the country.

Mortgage has also remained a key issue that has adversely impacted the housing and real estate sector recently. With Nigeria’s outsized interest rate currently at 24.75percent, the situation has made mortgage expensive in the region of 27 percent and above. The high interest rate has discouraged mortgage lending and has made a significant number of Nigerians halt their home ownership dreams. While one can argue that the high interest rate is part of efforts by the monetary policy authorities to address inflation, the trade-off is that lending becomes more expensive for individuals and businesses. Therefore, without addressing the issues around mortgage, closing the housing gap will become increasingly difficult.

The combination of a rise in inflation, currency depreciation and high interest rate are some of the key factors impacting the Nigerian real estate sector today and with the current realities not likely to change anytime soon, what these developments have established is the need for Nigeria to achieve strong macroeconomic fundamentals, that can support the growth of critical sectors such as real estate and housing.

Other factors such as population growth which is expected to hit 400 Million by 2050, and the housing deficit of more than 20 million, suggest that the housing sector must be at the forefront of the government’s agenda. Private and Public Sector collaboration will be required to address some of the key challenges and chart a new path for the sector.

Many Nigerians are looking to meet their housing dreams, but the current economic fundamentals suggest that that dream may remain elusive for some time now, until the government is able to get the economy on the path of recovery and stability to deliver prosperity and progress.
Bayo-Lawal is Co-founder of Dukiya Investments.