Case for Stronger National Housing Fund Scheme

Ahmed Musa Dangiwa

Terungwa Isaac

Recent calls from housing industry stakeholders for more aggressive government action towards tackling the rising housing challenge are timely and necessary.

The advocacy, which includes increased funding of strategic government housing agencies such as the Federal Mortgage Bank of Nigeria, has gained additional momentum since the unveiling of the 2020 budget proposals.

From the National Assembly to professional bodies like the Real Estate Development Association (REDAN) to housing policy analysts and practitioners, there is now a growing consensus that in the wake of the spiraling housing deficit, estimated by experts to be around 22 million housing units, there could be no better time for stronger action than now.

Underpinning this unanimity is the time-honored fact that housing is a social responsibility, a human right and a social development issue and the government has a strong role to play in promoting affordable home-ownership.

In fact, the social development aspect of housing is recognised by Goal 11 of the United Nations 2030 Agenda for Sustainable Development which emphasises that governments, “Make cities and human settlements inclusive, safe, resilient, and sustainable”, a pact that Nigeria is a signatory.

A key target is that governments should prioritise and take more aggressive action to ensure “access for all to adequate, safe and affordable housing and basic services and upgrade slums.”

This is because research has established clear links between housing conditions and social outcomes, including health, social belonging, education outcomes, social security, and satisfaction with living conditions.

Housing, Necessary But Expensive Venture

At the crux of the challenge is the practical reality that owning a decent home is a necessary expensive venture. Typically, the cost of 2-bedroom apartment could range between N5 million to N8 million, while a decent 3-bedroom bungalow may require upwards of about N10 million to build. And this, excludes the cost of land, which varies depending on the location.

For majority of Nigerian workers, raising such finance to own their dream homes remain a tough task. At least, not from salaries as the case of federal civil servants illustrates. The average consolidated salary for a level 4 staff of a federal ministry is slightly above N20,000 less tax deductions while that of someone who is on level 14 is just around N100,000 monthly.

Noteworthy, is the fact that from levels four to 14, the salary increments range between N7,000 to N10,000. All things considered, even with the recent increase, this pay package still ranks as poor.

The implication is that it is near impossible for civil servants to survive on these abysmally low paybacks talk less of saving from them to build or purchase their own home even after 30 years of service.

This, in large part, explains the prevalence of rented accommodation in cities such as Abuja and Lagos as well as the rapid expansion of slums on their outskirts.

NHF as Solution to Housing Finance Challenge
It was this stark reality of the generally poor wage structure of civil servants, the vital need to help Nigerian workers own their homes at prices and terms they can afford as well as the strategic importance of housing to overall national development that underpinned the decision to establish the National Housing Fund (NHF) Scheme in 1992.

Twenty-seven years later, the NHF scheme has made decent and affordable homeownership possible for tens of thousands of Nigerian workers in every state of the country. Despite challenges, the scheme has proven to be one of the few effective tools that can be further empowered and strengthened in the drive to deliver the Buhari Next Level Agenda for housing.

Recent statistics from the Federal Mortgage Bank of Nigeria (FMBN), which manages the scheme on behalf of the federal government, show that the scheme has enabled the provision of housing loans to 48,454 beneficiaries totaling over N228 billion, financed construction of 27,721 housing units for low – to – medium income earners at cost of over N102.6 billion inclusive of the disbursed amount. An objective analysis of similar government programs shows that the NHF Scheme’s profile of impact – in the size of finance and depth – is unmatched.

Affordable Housing Requires Stronger Institutions

However, it is important to note that the scheme could have done and achieved a lot more if it was structurally, financially and institutionally empowered as originally conceived and outlined in the law that established it in 1992.

As a program that was designed to function primarily as a pool of cheap and long-term funds for tackling the housing affordability challenge, the framers of the NHF law had clear ideas on its catalytic role in championing affordable housing delivery. They also understood in practical terms the pivotal role of ensuring sustainable flow of funds, maintaining a robust financial base to power delivery of its mandate and indeed, mapped out unambiguous sources of finance that would drive its operations on scale.

The first sustainable source of finance for the NHF was monthly contributions from workers who are potential beneficiaries. The scheme stipulated that workers in the federal and state civil services register and contribute 2.5 per cent of monthly salary to the pool as a basis for qualification to access affordable housing loans from the Federal Mortgage Bank of Nigeria (FMBN) at interest rates as low as 6 percent and for payback periods of over 30 years.

Second, the NHF law provided that financial institutions invest in the scheme to boost its financial strength. Commercial and merchant banks were required to invest 10 per cent of their loans and advances portfolio in the scheme while insurance companies were also mandated to commit 40 per cent and 20 per cent of life and non-life funds. Thirdly, the federal government was also required to make periodic injections of funds through direct interventions to bolster the financial standing of the bank.

Underlying these key sources of much need financial inflows into the NHF Scheme was the need to go beyond the poor budgetary provisions for housing, the emphasis on sustainability and the need to promote financial leverage as a prerequisite to growing a robust pool of housing finance to support growing need for expansive housing delivery.

Unfortunately, only a fraction of these sources necessary for driving FMBN’s affordable housing delivery programs has been tapped, albeit sub-optimally.

Speaking recently at an interactive session with the House of Representatives Committee on Housing and Habitat, Rahimatu Aminu-Aliyu, the Executive Director Loans and Mortgages re-stated a sad but known fact that has compromised the capacity of the NHF for greater impact: contributions from civil servants and workers have constituted the main active source of finance for the FMBN since the scheme commenced 27 years ago. Even so, she emphasized that many states including Lagos, Kano, Oyo, Ondo and Kebbi are not contributing to the scheme as required by law.

Commercial and merchant banks basically have invested next to nothing. Same with the insurance companies. Injections of funds from the federal government through direct interventions as enshrined in the NHF Act have also been marginal and largely insignificant.
This chronic widescale non-compliance to the provisions of the Act and inherent weaknesses that make enforcement difficult has denied the scheme, and indeed, the FMBN of necessary liquidity to scale its housing delivery programs so they reach more low-and-medium income earners. Housing Policy Analysts suggest and other stakeholders familiar with trends and development in the industry hold the view that the sum of probable investments from the financial institutions in the past 27 years would have added over N500billion. With such level of funding, the FMBN would have been in a greater position to leverage trillions in long-term finance from the private sector, international development finance institutions and created far more mortgage loans for Nigerian workers.

Stronger NHF for Affordable Housing Finance
Despite these setbacks, the NHF can be said to have had a historic catalytic impact on the Nigerian housing market at many key levels. Noteworthy is the strategic role that it has played over the decades, long before the creation of a Secondary Mortgage Market with the coming of the Nigeria Mortgage Refinance Company (NMRC), as the leading provider of long-term, low-cost affordable housing finance for the country’s mortgage banks and developers.

As a wholesale mortgage institution, FMBN has over the decades deployed the low-interest, long term funds from the NHF to boost liquidity in the mortgage industry and finance the construction of affordable housing stock by real estate developers. Mortgage loans that it lends through primary mortgage banks attract interest rates as low as 6% with tenors of up to 30 years. The bank also gives estate development loans and cooperative development loans running into hundreds of millions at unmatched interest rate of 10% with tenors of up to 24 months. Indeed, the bank ranks as the leading development partner to those who build houses for Nigeria.

It is against this background, that it is important for stakeholders to rally round and support efforts to revise the National Housing Fund (NHF) bill that is under consideration at the National Assembly. The amendments which broadly seek to increase the flow of sustainable finance to the scheme so it can do more are timely and necessary. The introduction of stiffer penalties to ensure investments by commercial and merchant banks and insurance companies will help create a larger pool of resources that can be used to provide more low cost, longer term housing loans to Nigerian workers, especially those within the low-medium income class.
With a housing deficit which is estimated to be over 22million now and requiring trillions to fix, what the country has is a national housing emergency that requires the collaboration of both government and the private sector and Nigerians to fix. A well housed population enhances productivity, strengthens security and prevents crime. Without cheap funds, it will be impossible to give housing loans at single digits and for long periods of time.

Recent calls from housing industry stakeholders for the strengthening of the Federal Mortgage Bank of Nigeria (FMBN)’s operational and financial capacity underscore the pivotal role of the bank to addressing the country’s housing deficit. They should spur the government into taking bolder and radical steps towards resetting the country’s foremost mortgage bank on the path of greater and more expansive impact.

Isaac is a housing policy analyst based in Abuja