ADDRESSING HOUSING AFFORDABILITY IN NIGERIA

ESV Odunaiya, Ibironke Elizabeth
Housing is a fundamental right as citizens cannot enjoy other rights without it. However, a “roof over people’s head” is not enough to promote social inclusion: housing assistance should be integrated with proximity to other public services at local level such as transportation, health care, education, jobs and training opportunities. A household’s expenditure on housing is usually the one which takes the largest share of its budget. Affordable housing is a service of general interest and an important pillar for a social, sustainable and inclusive society.

While housing is often the largest expense most families face, concerns over its affordability have traditionally not seen commensurate reflection in national public policy debates. Indeed, in most developed countries, housing affordability has joined more traditional housing issues such as fair housing access and substandard quality units as a focal point of discussions about housing policy only since.

Housing is affordable when housing of an acceptable minimum standard can be obtained and retained leaving sufficient income to meet essential non-housing expenditure. Affordability (and lack of affordability) is not an inherent characteristic of a housing unit (in itself) it is a relationship between housing and people. For some people, all housing is affordable, no matter how expensive; for others, no housing is affordable unless it is free.

Affordable housing cost overburden rate is defined as the percentage of the population living in a household where the total housing costs (net of housing allowances) represent more than 40% of the total disposable household income (net of housing allowances).

Concept of housing affordability

The concept of housing affordability tends to focus on either low-income families or median households. Housing affordability broadly refers to the cost of housing services and shelter – both for renters and owner occupiers – relative to a given individual’s or household’s disposable income (Bieri, 2014). While there is no universal definition for this term, housing affordability is an easy concept to grasp in general. At the same time, affordability can be hard to pin down in practice, especially in terms of defining the appropriate geographic scope for housing markets, suitable definitions of representative reference individuals and households, and their changing circumstances over time.

Overall, the complex nature of the term housing affordability is reflected by the fact that affordability is both a function of housing demand and supply factors. On the housing demand side, affordability primarily depends on household income and the accessibility and cost housing credit. On the supply side, affordability depends on factors such as the cost of construction, local land-use regulation (e.g. zoning restrictions, growth boundaries), and rent controls.

Affordability generally is a measure of ability and capability of consumer to pay for goods and services to be consumed. In a market economy, price will not only allocate quantity, but also, the quality of goods and services that each household will consume based on their level of affordability.
However, in a mortgage-based housing delivery system, housing affordability can be conceptualized as the ability and capability of household to access and meet their periodic mortgage obligations without jeopardizing their health or reducing their family nutrients intake. Finally, renter housing affordability specifically measures the ability of renter to pay the rent of a minimum standard housing without jeopardizing the ability to meet other non-housing needs. All these variants of housing affordability only further confirm the complexity of housing affordability and its implications for various segments of the population.
Measuring housing affordability is thus complicated by the inability to determine whether household spend more than 30 percent of their income on housing by necessity or by choice. They further identified other measurement problems with housing affordability to include the definition of income, whether permanent or transitory, liquid or illiquid, personal or household and the definition of housing expenditure, whether voluntary or involuntary, total or per unit of housing services, nominal or real rents, mortgage payment or down payment. Similar view had been expressed by World Bank (2018) that statistical studies of what individual household can afford often considerably underrate the ability of the households to improve their housing circumstances over time.
Therefore, affordability is viewed broadly as the ability of the household to meet condition for ownership and or occupation, which will include ability to pay the purchase price of a house, meet rental obligations; and down payments requirements, meeting periodic mortgage repayment obligation without sacrificing the household’s health and nourishment.
Measuring Housing Affordability

While the affordability of rental housing is usually directly captured in rent-to-income ratios, economists argue that – in addition to real interest rate that measures the user cost of housing capital – an equivalent affordability measure of owner-occupied housing also depends on taxes, depreciation and capital gains. Affordability measures depend both on housing costs and incomes, developments in the distribution of income are likely to be of particular importance when explaining changes affordability experienced by lower-income households. While the housing-cost-to-income ratio approach has the longest history and widest recognition, economists have recently re-emphasized an opportunity-cost based definition of affordability in terms of “residual income”; according to this definition of affordability, a household is viewed as having an affordability problem if it cannot meet its non-housing at some basic level of adequacy after paying for shelter.

A. Alternative Measures

In addition to the housing cost-to-income ratio, structural changes in mortgage markets have given rise to the notion of “purchase affordability” (the ability to borrow funds to purchase a house) and “repayment affordability” (the burden imposed on a household from repaying housing debt) as important metrics for policy makers. Taking into account the debt-servicing ratio leads to a different assessment of current house prices than do developments in the rent-to-income ratio itself.

B. Housing Affordability and Quality of Life

Economists have long raised concerns about an affordability metric that combines both income and housing costs, thus potentially conflating issues of income inequality with problems in the housing market and households’ consumption choices of nonmarket goods, such as amenities or local public goods.

C. Wages, Rents and the Quality of Life

Urban economists generally think about quality of life in terms of the relative importance of different factors to household well-being, usually expressed as utility. The key insight of this observed that location differences in wages and (land) rents should compensate for the differences in nonmarket characteristics, such as natural or cultural amenities that increase the attractiveness of a given locality.

D. Housing Affordability with Local Wage and Price Variation

Locations with the highest quality of life tend to be places ceteris paribus with above average housing cost and below average wages. As a result, local housing affordability conditions and quality of life tends to be negatively related as the most desirable locations are likely to have the highest rent-to-income ratios.

Existing approaches to understand housing affordability and gaps

The existing approaches to explain housing affordability stem from neoclassical economics and are also explained with policy analysis and geographical approaches.
Mainstream classical economics underpinned by (housing) demand and supply equilibrium principles assert that housing affordability is a matter of housing costs and household income. Those approaches primarily informed that housing welfare policies aimed at low-income households (e.g. housing benefits) and facilitate the integration of housing policies and subsidy arrangements with labour market (i.e., flexibility and portability). These approaches depend on ratios between a household’s monthly income, housing costs and non-housing costs to determine the level of housing affordability in a locality or for a selected cohort of households, based on normative assumptions of costs and behaviour. For this purpose, the widely established affordability ‘norm’ was that housing cost should be no more than a certain benchmarked percentage of the household’s housing income (e.g., 30%–40%; Perera and Lee, 2021), or non-housing costs of households should be sufficiently met after the household incurs the housing costs.
Conclusion

It has been revealed that affordability is a critical issue that has impact on housing demand and production in Nigeria. With different concept and theory of housing, it was revealed that there is need to assist some Nigerians particularly the low- and medium-income earners to have adequate access to affordable and habitable housing. The mortgage institutions need to quickly intervene in ensuring housing are affordable to the Nigeria populaces.