Exploring the economic benefits of affordable housing development can help the nation come out of its present economic challenges, writes Obinna Chima
Food, clothing and shelter are traditionally referred to as the basic needs of mankind. So the housing sector satisfies an essential need.
Housing is also of course an important component of investment and in many countries, housing makes up the largest component of wealth. For instance, a Deputy Managing Director at the International Monetary Fund (IMF), Min Zhu, in a 2014 report titled “Housing Markets, Financial Stability and the Economy,” had pointed out that in the United States, real estate accounts for roughly a third of the total assets held by the nonfinancial private sector. The majority of households tend to hold wealth in the form of their homes rather than in financial assets: in France, for example, less than a quarter of households own stocks but nearly 60 per cent are homeowners.
Indeed, housing also plays other key roles in developed economies. For instance, mortgage markets are important in the transmission of monetary policy. Adequate housing can also facilitate labour mobility within an economy and help economies adjust to adverse shocks.
In short, a well-functioning housing sector is critical to the overall health of the economy. And as economies develop, a corresponding deepening and growth of housing markets are expected.
That is why as policy makers in the country continue to search for ways to lift the nation out of its present state of economic recession, experts have advised the federal government to invest in housing schemes.
The Nigerian economy is in recession. The National Bureau of Statistics (NBS) recently revealed that the country’s gross domestic product (GDP) contracted by 2.06 per cent in the second quarter of 2016, compared to the negative growth of 0.36 per cent recorded in the first quarter of 2016.
The housing deficit in Nigeria is estimated at between 17 and 18 million units. Today, millions of families are living under sub-optimal living conditions and in order to cover this deficit the government needs to create a housing scheme that facilitates housing credits for households that otherwise would not be able to have access to regular credit institutions.
Housing deficit is the lack of government’s ability to house its citizenry in properly fitted houses with the necessary modern infrastructure for basic needs like running water, electricity and sanitary needs. The need to address this shortfall is a good means of stimulating a country’s economy.
Exploring Opportunities in Housing
The Head of Research at SCM Capital Limited, Mr. Sewa Wusu advised the federal government to focus on the development of housing projects as one of the ways to stimulate Nigeria’s ailing economy.
Wusu noted that the housing sector is very important, saying that it has significant multiplier effect on the economy in terms of employment, in terms of raw materials utilisation and other materials that are very important in building project.
“It is one area that has the potential to ensure that funds circulate particularly among the low and middle income earners. The housing deficit in this country is so huge and so investing in housing is one of the positive ways to stimulate the economy.
“This is because by the time you invest in housing in strategic areas across the geo-political zones of this country, you will discover that more people would be employed, more unskilled labourers, semi-skilled labourers and even professionals would be employed. That by itself would help boost purchasing power of workers across that value chain,” he added.
Such housing scheme can create over one million new jobs in the construction sector and states and local government authorities can even participate through financial resources, land donations, infrastructure, tax reduction and registration of demand.
Continuing, Wusu said: “If government can latch on the situation to make sure that they spend more on housing development, it would significant help to boost purchasing power. Not only that, it would also boost activities of cement manufacturing companies.
“That again can also help rejig the economy. Although it would take some time, but I think it is one of the sectors that have the potential to create activities, help open up the economy for employment as well as to stimulate growth.
“That is why I keep saying economic recession is not a bad thing, but an opportunity for government to explore other areas in the economy and then recalibrate the structure of the economy.”
According to another financial market analyst who pleaded to remain anonymous, investing in housing can stimulate an economy by pushing a lot of money into circulation.
“Every recessive economy needs a stimulus as we can see from around the world; an injection of cash into the economy in the hands of spenders. This acts as a stimulus. Money being spent at all levels at the same time does this and will move the economics of buying and spending to revive the economy.
“This ability to spend creates the necessary needed monetary activity in the country. Construction of houses will initiate growth which will assist in creating jobs. The economy is stimulated which will translate invariably to GDP growth.
“It creates jobs. Creation of jobs in any country is a very vital function of government. The issue of job creation is a tool used to evaluate the health of a country. The employment rate is key to national growth and efforts must be constantly made to keep the work force constantly employed for nation building,” he added.
In addition, he pointed out that construction of houses is the most effective way of stimulating an economy as it has massive employment abilities, adding that housing development enhances nation-building initiatives.
“Housing is not just a tool for the housing ministries’ Ministers of Labour, and productivity, Finance, internal affairs should join hands in creating the right atmosphere that will enhance nation building,” he said further.
As Tool to Mitigate Economic Challenges
Also, the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele recently advocated for sustainable investment in housing development to mitigate the economic challenges the economy is presently facing. Emefiele suggested sustainable investment in housing to grow it from its dismal 1 per cent contribution to the Gross Domestic Product (GDP).
According to him, if the housing sector can contribute over 80 per cent to GDP in the United States of America (USA), it can also be used to improve the economy significantly.
He said: “If you look at the housing market in Nigeria and in Africa, compared to the more developed economies, you will find that the housing markets in Africa are indeed largely underdeveloped.
“The contribution of the housing market to the GDP in Nigeria is less than one per cent, compared to that of the U.S, which accounts for over 80 per cent.”
According to him, the housing sector in the US represents the highest financial assets class in the world as it is the highest contributor to its capital market combined, adding that it represents a higher subsection of that country’s economy.
He advised African governments to use the housing sector as stimulant to grow the economy thereby increasing its contribution to GDP.
“If you look at Nigeria’s one per cent contribution of housing to GDP, imagine what the economy will look like when it is grown to 80 per cent.” the CBN governor said.
Indeed, the provision of affordable homes for millions of families and improvement of the standard of living of the general populace makes the housing initiative a win-win project for both the government and the populace. Housing is a basic need of life and therefore increases demand for services and infrastructure accompanied by the steadily growing urban population.
Also, to provide housing and improve quality of life for low-income families across the country, a housing initiative can start partly as response to the rapid urbanisation seen over the last few decades. Depending on the location and context, these houses can come fitted with sustainable features that benefit residents, creating the much needed jobs and therefore stimulating a nation grappling with budget deficit and recession.