Affordable housing: Is price the only factor?

It is not a secret that we need to build more homes in Rwanda. In fact, if we want young families to have a chance of a home of their own, then we need to build more homes in the right locations and at an affordable price. But, is the issue as simple as affordability as some people have claimed, or are there several underlying factors that should be accounted for when devising solutions? Frequently, when it comes to shortage in housing units, many people look to politicians for answers especially when the question centres on affordable housing. They ask the government to step in and either help directly or persuade private firms to invest in affordable units. Perhaps, this explains why two weeks ago, this paper reported that the Ministry of Infrastructure (MININFRA) plans to ease pressure on the availability of affordable housing in the country by initiating a new Housing Fund to the tune of Rwf206 billion ($250 million) to help speed up the construction of affordable housing units so that Rwandans earning between Rwf300,000 and Rwf700,000 a month would at long last be able to afford a decent home. But, given that for now we cannot realistically rely solely on public spending programmes to boost or provide affordable housing (in part due to limited public funds and also because there are many more pressing priorities), I believe that now is the right time to have a discussion about other approaches that could bring in multiple players both private and public all geared towards easing the supply of affordable housing. Before that, however, we must first try to comprehend some important issues concerning the supply of affordable housing. For instance, we could begin this process by acknowledging that unless comprehensive studies are done to persuade private investors that the affordable housing market is profitable, many will continue to view the market as less attractive because of the income of the target market. In fact, as much as the size of the market is attractive, what investors want to know above all else is the ability of that market size to pay for a good or service. And at a per capita income of around $700, investors need to be shown how this level of income is projected to rise, and how there are other opportunities across that investment spectrum, particularly with regards to the need for materials, services, labour, and aftercare services. Opportunities aren’t just in the initial construction of affordable units; there is a strong multiplier effect. Second, we should have a serious conversation about our growing population. You see, currently, Rwanda’s population is just over 11.8 million people, representing a 2.3 percent increase from last year. And as the EDPRS II report indicates, population growth remains an important issue due to limited land and increased rate of urbanisation. Perhaps, it is worth noting that while forecasts indicate that on the African continent the average population densities are set to increase to 79 persons per square kilometre in 2050 from 34 persons per square kilometre in 2010, in Rwanda, between 2002 and 2011, population density increased from 321 persons per square kilometre to 416 persons per square kilometre. This is astronomical and requires urgent attention. But beyond encouraging family planning programmes, in view of housing shortages, we need to start building vertically rather than the usual horizontal construction where a piece of land that could accommodate, say a block of 20 flats, is planted on a four bedroom house. We need to start making a few smarter changes that don’t necessarily require spending money. And while acknowledging that a direct transfer of housing policies from other countries to Rwanda may be impractical due to differences in economic context, for instance, it is perhaps worth noting that in many countries that have somewhat successfully delivered affordable housing units, local authorities have played a key role in that success. To elaborate, local authorities commit to deliver affordable homes using revenue they accumulate from taxation and other revenue streams, and this is achieved because when they construct housing units, they sale a fraction of them at market value prices while the majority are put on the market for low income earners. The goal here isn’t necessarily to make profits, although profits don’t hurt. In such countries, social-housing tenants can be encouraged to save money so that when time comes, they can move up the housing ladder. The reason why local authorities such as the City of Kigali could find it relatively cheaper to build, rent, or sell housing units at an affordable price is because of the possibility of taking advantage of economies of scale available to them, and access they have on unused land. In addition, when it comes to borrowing, local authorities are also in a much stronger position to negotiate for lower interest rates beyond local markets because of the assets they hold. In terms of the supply chain, local authorities also have the means to set up factories to produce construction materials locally without having to rely on expensive imports, something that can also help boost employment prospects and improve skills. Ultimately, as we continue to explore ways to bring affordable housing units to the market and make a reasonable dream to own one’s home a reality, there are other factors that need to be considered beyond finances. In fact, the sooner we recognise that a population of over 11 million people needs to live and work more innovatively on a territorial size of 26,338 sq. km, the sooner we will be on track to solve the affordable housing conundrum. Email: junior.mutabazi@yahoo.co.uk

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Affordable housing: Is price the only factor?