8 November 2012

Rwanda: Kigali's Housing Crisis

Nearly half of city residential houses are in a poor state.

Despite Kigali's discernible expansion in most aspects over the recent past, housing remains one of the visibly challenging realities that the city dwellers currently slightly above one million continue to face.

The cost of housing in the City of Kigali (CoK) far exceeds other needs, such as transport and food but the quality of most houses remains poor compared to their cost especially those available for rent.

The insanely high cost of housing rises from the limited number of houses in relatively good conditions, hence leaving city dwellers with no choice but to reside in costly places even when the houses are poor and do not give value for the money spent.This reality was one of the pointers highlighted by a survey that was released on the October 25 by the Kigali city council, in which it was identified that 48.8% of the 223,000 existing houses or 108,803 units are in poor conditions and thus need to be replaced with better ones while 71,487 houses, or 32.1% of the existing houses are in demand of upgrading in order for them to be fit for providing the human basic need of shelter. Apparently, below 20% of the houses in the city are in good condition.

"There are still very many people living in poor housing facilities. But now that we have the details of the situation and how much we need to do in order to change it, we believe that half of the job is done and the rest will also be possibly accomplished," Kigali City mayor Fidele Ndayisaba voiced his expectations.According to the study, Kigali needs 350,000 house units between 2012 and 2022 in order for the city dwellers from different classes of incomes to be housed. However, about 78% of the demanded houses that the city requires to fill the existing housing gap should be built for the class of households earning a monthly Rwf300, 000 and below.

"This is where the challenge lies because many of the developers in the city have put more of the emphasis on building for the premium class which is more profitable," highlights Marco Antonio Cuevas Juarez, the architect who was behind the survey.

Marco says that the challenge of ensuring Kigali residents and later on Rwanda in general access affordable but good quality housing, calls for the efforts of both the public and private sectors but the former ought to invest more efforts.

"If these required housing units are to be achieved, beyond everything, it calls for the efforts of the government not only in directly investing in construction of the houses but also packaging and marketing the investment opportunity to the private sector to boost activity in the sector," Marco further notes.

Marco continued to say that the best way to finance the required houses in Kigali is through a rent and own provision and this highly requires government intervention. This he borrowed from experience elsewhere around the world where he has undertaken similar ventures for countries mostly in Latin America, from which he thinks Rwanda should draw examples.

He says that with the efforts employed in marketing and packaging the opportunity in the housing sector, private investors can easily be lobbied and hence reducing need for public funds investment. "The housing market in Rwanda is very interesting and has a high business potential but will call for a high level of marketing in order to interest the private sector."

Despite a high need for the efforts of the private sector in providing solutions to the housing situation, some players in the sector find the government as less supportive to them hence leaving them no choice but to concentrate on constructing premium quality houses for the upper class, which easily give profit returns than "wasting time" on low cost housing.

"I don't see the government being that supportive to developers in regards to construction of low cost housing. For instance during the reading of the budget for the current financial year, there was an increase on taxes levied on imported construction materials, a move that one would consider as self suffocation from the government," says Charles Haba the managing director of century real estate and the president of Real Estate Association of Rwanda.

In the financial year 2012/2013, the import tax on construction materials was increased by 5% to 15%, a move which is expected to yield increased revenue of Rwf1billion into the government coffers.

Also increasing the import duty on construction materials aimed at ensuring that locally produced goods become of interests to the investors while enabling the economy to bridge the big trading deficit that continues to exist between the country's imports and exports.

"I am not sure if the increase is applicable on all construction materials, but at times we tend to import everything, even materials that are available on the local market, yet there has been an up-spring of factories manufacturing some of the goods within the country" a government official said in June during the budget reading.

However, developers continue to express their dissatisfaction that materials produced locally despite being poor in quality are most often more expensive compared to imported ones. "There is a misconception that locally available materials are cheap but the truth is far away from that. This is why most developers continue to construct costly houses even though the high need is affordable units."

As per the study, the construction of the extra 350, 000 units required for the sector to be 100% sufficient in accommodating Kigali dwellers will require building materials including 200,000 tons of cement; 13,000 tons of steel, 1.7 million square meters of roofing material among others.

In the next ten years, the need for housing units is expected to have cost more than U$2.6billion of which $1billion will require maximum government intervention to construct houses for low income earners while $1.6billion can be done by the private sector mainly through availing mortgage facilities to the upper classes of the society. This implies an annual expenditure of Rwf62.3billion and Rwf91billion on constructions for the two categories respectively.

Government extending support to the private sector to best undertake the implementation of the outcomes of the demand survey, it needs to understand that the need for the houses is far high and thus accordingly.

"Tax holidays, subsidies on acquisition of materials and other incentives like partnership in the development of other required infrastructure like roads in neighbourhoods which are often left out to developers are necessary," Haba explains.

Besides, there are yet other bottlenecks that meeting the demand of housing in the city still faces having land shortage at the forefront. The shortage of land for developing some of the needed infrastructure is the main challenge.

According to the ministry of infrastructure (MININFRA), more than 50% of the land in Kigali cannot be utilized for accommodation as a result of the topography while more half of the remaining portion has also already been used.

But MININFRA agrees that the need for housing can no longer be delayed. "if we are to achieve our vision 2020 as a country, good and affordable housing is a necessity and as government we have only two options; acquiring the land that is needed to build the houses in the places of preference for the residents or else commit to extending adequate infrastructures identical to what is in the city elsewhere in the neighbourhoods outside Kigali," says Albert Nsengiyumva, the Infrastructure minister.

Land scarcity increases the risks of spending much more in the processes of expropriation of people while developing new neighbourhoods but according to CoK, the study poses a better method; where instead of relocating people, residents of an area to be developed will be incorporated and integrated into the new housing other than relocating them.

To verify the applicability of the proposed formula, a pilot project where this procedure of incorporating and integrating is going to be rolled out in the next few months for a new residence that is going to be developed in Nyamirambo. In this development, the city doesn't plan on relocating any of the residents.

Among other challenges is acquiring the big sums of money required, the acquisition of other required infrastructure of water, electricity and transport plus the ability of the construction sector to be able to deliver on the task. This pessimism mainly takes root from the inadequacy of skilled personnel in the construction sector to provide manpower that will be required for the project.

About 50, 000 skilled personnel are required for the execution of the construction of the required house units. "Here is a very big challenge too since we identified a big gap existing in the human resources of the sector," says Marco.

Considering the high requirement for construction experts, room is being offered for Rwanda's Technical and Vocational Training (TVT) strategy to prove its worth.

The government received a low interest loan of U$34.5million to enable the TVT to produce highly required skills by the market where construction was a priority sector.

Going beyond the challenges towards attaining the required house units, the benefits of having a well housed population are in themselves far reaching. At the heart is the provision of jobs to the residents and none residents of Kigali.

As elaborated in the CoK study, more than 60,000 employment posts will be created along the period of implementation. Basing on an estimate by construction experts in the US, every single post has a potential of employing about 4 people which implies that more than 240,000 jobs are expected to be created by the construction of these house units thus enabling individuals to raise living standards and lessen poverty.

Economic development for many more sectors is yet another point for probable benefits of developing the housing sector. This is as a result of not only the taxes from the sector but also the involvement of other sectors hence benefiting a larger scope.

Housing finance, building materials and technology, the construction industry, land and infrastructure are the main areas that are affected by the housing development hence achieving affordable and quality housing results into the growth and developments of these components.

In as much as the need for the houses continues to remain high and the available ones having a big portion in no good shape to provide quality shelter, the success of bridging the demand and supply gap remains to rely on the steps the government is to take in the short run; for instance being able to make construction of affordable houses a profitable destination for the private sector.

Major highlights of the study

223,000: The number of existing houses in Kigali of which include:

48.8% needs to be replaced

32.1% needs upgrade

Close to 20% in good shape

350,000: The number of houses Kigali needs by 2022 to bridge the demand gap

78%: The percentage of new houses should be should be built for a class of people with a monthly income of Rwf300, 000 and below

US$2.6 billion: The amount of money needed to construct 350,000 houses by 2022 for the different classes. However this does not capture the expense of additional infrastructure needed like roads, sewage system among

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