‘Spending Over 60% of Disposable Income on Rent is Bad for Economy’

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Participants at a colloquium, held alongside the 10th Abuja Housing Show, expressed grave concern that most Nigerians spend over 60% of their disposable income on home rentals instead of the 20-30% advocated by the United Nations, reports Bennett Oghifo

Most families find it difficult to take care of other needs after paying their rents, according to participants at the just concluded 10th edition of the Abuja Housing Show. The reality of the present day, they said it that rents keep increasing while disposable income remains the same or does not come as and when due.
According to the housing sector practitioners, “There is the growing need to expand access to housing in Nigeria and Africa. The implications of the high deficit in housing stork is that tenants now pay over 60% of their disposable income on housing instead of the 20-30% advocated by the UN.
“The need exists for effective mortgage system with indigenous technical inputs and private participation. There are serious barriers to housing provision in Nigeria and there is the need for proper amendment of the laws and the constitution in this regards. Commercial banks’ lending is unaffordable. The Land Use Act of 1978 needs to be repealed.

“There is no quick fix to Nigerian housing problems – we need to address all the challenges. Master plans have indicated development problems, and development standards and procedures are due for reform, hence, the creation of slum settlements. There is no doubt that Nigerians can and are building houses. What is needed is access to affordable housing. But, there is need to define affordable housing, knowing that a 100% home ownership is a utopia.”

Affordable housing…
Affordable housing can create jobs as it has a large market in millions. It is a potential growth sector. We need measures in place to prevent the rich from buying off potential low income houses. There is need to involve government at all levels of housing provision deliberations. Government should and need to be involved, because only 54% equity contributed has worked. Government can provide land cheaply to reduce cost by 25%. Government can provide infrastructure to reduce cost by another 25%. Mortgage loans can be amortized successfully when deducted from source.
They said, “Most Nigerians are living in slums with no access roads, water and light. We need urban regeneration not newly built houses. For example, in 1977, roofing loan was introduced. “Since it takes 15-25 years to build a house due to lack of finance and, not land, then massive urban regeneration through instruments like home completion loan can help. Cooperatives can also come in because there is no collateral but membership of a cooperative society.”
There is mutual benefit in housing provision, but that the present format of housing delivery cannot work. “We are not creative enough. Nature of funds in Nigeria is incompatible with current realities. We should move from building to producing houses, with clear regulatory processes.

Regardless, there was consensus among participants that affordable housing needed to be clearly defined, saying that “generally, affordability depends on a number of factors. A starting point hints that affordability is limited to income brackets.”

Some suggested that affordability should be with consideration to cultural values, while another view holds that affordable housing may not be fully dictated by culture as it may then exceed income brackets.
Affordable housing has also been viewed as that housing which about 50% of the population can acquire. Practically, this means that affordable housing needs to cut across a greater number of the people, thus making it more inclusive. In line with this, there is need to rethink the philosophy of housing. Housing should be seen as shelter, offered as a right not a privilege.

“We must also differentiate between Affordable Housing, Social Housing and Low-income Housing. Affordable Housing can only be defined by each community based on its income levels, and there cannot be one national definition.”
They said, “The FMBN housing contributions and NHF’s 2.5% of income, interest at 6%, worked so fine for 20 years after inception. However, contributions from beneficiaries are meager. Other constraints include the fact that institutional contributors like banks, insurance do not pay directly to the FMBN. Also, prolonged loan processing and associated charges have become problematic.”

They said the role of government should be limited to creating enabling environment. “Take away cost of land, wave charges and focus on the full implementation of the National Housing Fund (NHF) Act. There is need to enhance labour productivity through paradigm shift and building technology with job creation. Everything is not done efficiently.”
The participants said, “One solution cannot fix the problem. Different institutional approaches are needed at different levels. Still there are many solutions that have no bearing with research and rigorous analysis. Housing experts should be recognised and consulted. Since legislation is not the problem, there is no need to revoke the Land Use Act. We only need to enforce it and put a cap on it.”

Finance schemes…
The housing stakeholders also want the federal government to re-establish its home completion loan schemes to cut the housing deficit and reflate the economy. Many people in Nigeria still use the traditional phased method in housing development, except they disciplined enough to save most of the money they need or have a windfall of none taxable income.

It is based on the prevalent method of housing development in phases that stakeholders, at a confab held during the 10th Abuja Housing Show, advised the federal government to revisit the home completion loan schemes. The belief is that it supports the new paradigm for unlocking Housing Microfinance and leverages on incremental development that most Nigerians use in acquiring new homes as well as renovate and upgrade existing structures.
Mortgage stakeholders, the confab participants said should consider a programme to renovate existing homes, as they may be of great consequence in solving the problem of land for development.
They said, “Empty existing structures may be reconfigured for mass housing instead of mansions, for highest and best use.”

Another area that needed clarification was mortgage. Mortgage has been misunderstood as loans for new builds or home completion, they explained. “Recent surveys show that over 70% of sampled populations in Nigeria do not know how a mortgage works, and about 50% could not mention one mortgage bank, hence 100% of homeowners who built houses did not take out mortgages. A simple definition for mortgage is – there is a completed house that I want to buy. Meanwhile, possibilities of home completion loan to reduce housing deficit has been stressed.”