Why local authorities can be part of the solution

As news emerged last week that Vision City project was set to deliver 500 housing units to Kigali City residents by April 2016, I had mixed thoughts. First, like any future first time home-buyer, I was delighted that this announcement was a step in the right direction in addressing the current significant gap between the high demand for housing units and their low supply.

As news emerged last week that Vision City project was set to deliver 500 housing units to Kigali City residents by April 2016, I had mixed thoughts. First, like any future first time home-buyer, I was delighted that this announcement was a step in the right direction in addressing the current significant gap between the high demand for housing units and their low supply. But, as it turned out, my joy was short lived after realising that neither I nor someone I know whose income is not in the top 1 percent in the country has the means to afford a home at current exorbitant prices without breaking the bank or quite simply foregoing almost all of other life’s basic necessities.

Notably, however, I also realised that much as I may find myself or my generation priced out of ever purchasing a first home anytime soon, I thought to myself, surely Vision City project must have its target buyers who are more than comfortable to fork out anywhere between Rwf 134.4 million – Rwf 420.6 million for a housing unit in Kigali, after all, if current prices are anything to go by, it seems like to these targeted buyers money is not an issue and perhaps the inadequacy in supply of luxurious housing units is their only constraint. And that being the case, such buyers are prepared to pay the asking price to whoever can deliver readily available units that equal their preferred specifications.

But, how on earth does a housing unit cost between Rwf 134.4 million – Rwf 420.6 million in a country whose large majority are lower-to-upper-middle income earners who take home anywhere between Rwf300, 000 – Rwf500, 000 a month on average? How is it plausible that the efforts to bridge the demand and supply gap of housing units in Rwanda, and Kigali in particular, are spearheaded by such inconceivable expensive units that do little to ease the transition from tenancy to home ownership? Such questions become important when you consider that lower-to-upper-middle income earners who represent a majority of the overall workforce still have to depend on at least one other source of income to be able to pay utility bills, send children to school, and afford a healthy balanced diet, which are all representatives of living a decent life. So, to this section of society, news of soon-to-arrive expensive housing units provides no reason for excitement.

In any case, if we take into account Rwanda’s high population density, high rate of urbanisation, high house prices with a small fraction of equally ready-to-pay-buyers, exorbitant interest rates that don’t seem to go away, low wages for the majority of earners - what are the alternative measures available to us to bridge the gap between high demand and low supply of housing units with the sole purpose of giving priority to the lower-to-upper-middle income clientele? In Rwanda, the government through several initiatives has demonstrated that it does indeed believe in the idea that everyone should have the opportunity of a decent home, which they can afford. This was first demonstrated at the initiation to get rid of Nyakatsi.

However, since we also know that the government can do little to affect market forces where if demand for housing exceeds supply, the excess demand will lead to increase in prices, then perhaps alternative intervention measures should be considered. We must acknowledge that Rwanda is not the first country to experience factors of rapid urbanisation leading to excess demand, and with that, instead of reinventing the wheel, we should perhaps borrow a leaf from countries that have had similar challenges. For instance, in most developed nations with unprecedented levels of urbanisation, the shortage in provision of affordable housing has been met with public investment in the form of local authorities stepping in to provide housing units to those unable to find something on the market due to their limited income.

To elaborate, local authorities commit to deliver affordable homes using revenue they accumulate in various ways including taxation. In the provision of the units, they ensure that at least two thirds are designated for social rent, shared ownership, and only a fraction sold at market price value. Social rent allows tenants to save up and move up to shared ownership, and ultimately onto private buyers. The reason why local authorities such as the City of Kigali would find it relatively cheaper to build, rent, and sell housing units at an affordable rate is that besides taking advantage of economies of scale available to them, they have access to unused land which can be used to build estates. Additionally, local authorities are also in a much stronger position to negotiate for lower interest rates beyond local markets because of the assets they hold.

Likewise, collectively, local authorities have the means to set up factories to produce construction materials locally without having to rely on expensive yet feeble imports, something that can also help boost employment prospects and improve skills. Markedly, this particular option can be sustained simply because all of the profits accumulated by this scheme can be redistributed back into the communities where it is generated from, whether it is to construct more homes or facilitate other venture, which is contrary to private providers who have the burden to first pay off the costly bank loan, pay dividends to shareholders, pay taxes, which may ultimately drain funds if units are not sold.

Ultimately, as we continue to explore ways to bring affordable housing to the market and make a reasonable dream to own one’s home a reality, there are other simple adjustments we can make to ease this process. For instance, it always puzzles me why as a country with a population of over 11 million people and territorial size of 26,338 sq km, we still insist on constructing two or three-storey buildings yet the obvious solution to maximise the use of our land is to focus on high-rise apartments that take less space and accommodate more people. We just have to be innovative and the solutions will surely emerge.

junior.mutabazi@yahoo.co.uk

 

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