Housing finance as a tool for economic development (I)

By Roland Igbinoba
HOUSING provision is an important measure of social welfare and economic development in any nation. Some argue that access to adequate housing is an international human right. History reveals that governments of developed countries at every level have at different times played active roles in housing and economic development.

In Nigeria, the government has, at different periods, incorporated various policies aimed at affordable housing into its economic development plans. But the state realises that the sheer weight of housing delivery for the country?s vast populace cannot be borne by mere politicking.

Every country that has succeeded in its housing finance policies has had to engage housing finance experts and professionals at the highest level of policy making.

Housing has the ability to be a leading sector for stimulating economic growth and development in a depressed or stagnant economy and raising the standard of living of the people.

It is a key driver of social and economic development and there is evidently a positive correlation between such indices as home ownership rates, contributions of housing sector to GDP, proportion of total mortgage loans to bank lending on the one hand, and a country?s level of development on the other.

The example of the United State of America, which attained rapid socio-economic development through its proactive policy of aggressively pursuing home ownership for her citizens, is most instructive. The US real estate industry is a major contributor to the national economy, providing millions of Americans with jobs (1.7 million paid employees in 2001), and generating hundreds of billions of dollars of economic output every year.

If we must understand the potentials inherent in housing and housing finance in the national economy and, especially in fighting unemployment, it is expedient to understand the various perspectives of economic development.

According to Prof. Tunde Agboola, in Nigeria, various governments since independence have come up with different poverty alleviation/eradication programs and projects, the latest being Poverty Alleviation Program (PAP) and National Poverty Alleviation Program (NAPEP).

Various Institutions have also been created to solve the problem of poverty, unemployment and inequality. These include the River Basin Development Authorities, National Directorate of Employment (NDE), the Directorate of Foods Roads and Rural infrastructure (DFRRI) etc.

Unfortunately, these programs and projects would seem not to have solved the problems of poverty, unemployment and inequality as this trio seems to be on the increase in Nigeria.

The effectiveness of housing sector policy and performance go beyond just the housing sector. Indeed, the relationship between the housing sector and the broader economy is reciprocal. If housing market and housing finance systems fail to supply the kinds of services that are requisite, the entire economy suffers.

For instance, the recent failure in the US housing and mortgage markets, which are the most active in the world, resulted in a slowdown in the US economy and the world at large. GDP growth in 2007 which was estimated at 2.2 per cent was a mere 0.9 per cent in 2008, down from the 10-year average of 2.8per cent.

The case of a developing country like Nigeria, where currently, total housing contribution to GDP is about 0.4per cent, shows how poor performance of the housing sector can inhibit the growth potentials of the economy.

Housing can be highly labour intensive, thus providing employment for a substantial part of the labour force.? It has the potential to stimulate industrial activity through its strong backward and forward linkages to equipment, building materials and other consumer durables.

A large proportion of the population depends directly or indirectly on real estate for their means of livelihood making it a significant determinant of rate of economic growth and development.

In the Nigerian housing sector, many factors have been identified as constraints on the ability of most Nigerians to achieve their desired housing goal. Some of these factors are: increasing land cost; high financing cost (manifested in the high interest rates and service charges); inadequacy of mortgage loans; coupled with zeal for higher standard of dwellings among Nigerians.

More importantly, however, is the fact that Nigerian housing finance system over the years has remained largely undeveloped and ill equipped to mobilize and channel savings to the housing sector and as such could not significantly facilitate the purchase, rental, construction and improvement of homes for the population as a whole.

As a result the problem of housing in Nigeria has remained enormous and complex with the country?s housing need put at 14 million units.

Housing and housing finance is a veritable source of a continuous stream of income for government and its agencies. Income generated through taxation of the value of housing constructions and services can provide substantial revenues to government with which social welfare and economic development programs are financed.

Construction of new homes expands the tax base and so increases property tax revenues. In the United States, 70 per cent of all tax revenues raised by local municipalities come from property taxes. Aside from tax revenues to governments, the desire to purchase housing is a primary motivation for the generation of household savings in the financial system.

This is a sure and effective way of promoting the habit of saving among low-income earners, which in the long run contributes to their welfare and the growth and development of the economy.

*Roland Igbinoba is President/CEO of PISON Housing Company, a Lagos-based real estate and housing finance advisory firm.

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Source: http://www.vanguardngr.com/2011/10/housing-finance-as-a-tool-for-economic-development-i/

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