19 November 2012

East Africa: Urban Housing Crisis, a Huge Investment Opportunity

Photo: Unhabitat
Urban housing project in Ilala, Dar-es-Salaam (file photo).

It's now a fact that the bulk of East Africans living in urban areas are sleeping poorly. All five EAC states are living with a huge urban housing deficit that needs to be sorted as soon as possible. But who will do it?

It's a problem for urban planners and governments yet at the same time, presents huge investment opportunities for property developers.

The facts are solid.

Kigali City needs at least 35,000 news dwelling units per year but currently developers are only supplying just 1,000 houses that are moreover for the high-end buyers leaving the real low-cost buyers unserved, according to a fresh report by UN-habitat.

Over the next decade, Kigali should have built 344,068 new housing units that would cost over US$ 2.5 billion, two entire annual city budgets.

The biggest threat to housing in the region is rapid birth rates which politicians say is good for the economy as it means a growth in consumer base but has been decried by experts as poor quality populations that only burden the development agenda.

In Kigali, an annual population growth rate of 5.7% would mean a population of over 2 million people from the current 1.1 million. It's the same story in the region and because these are largely poor people who are born into joblessness, on land under pressure from settlements, they are driven to the already full cities where the only option is to find space in the slums.

For instance, according to Tanzania's Ministry of Lands, Housing and Human Settlements Development, more than 30% of urban dwellers in Tanzania are living in dilapidated houses, 70% are living in unplanned and un-serviced areas, almost 50% of the houses in the country are grass thatched, 75% lack a proper base and 50% have no sanitation facilities.

Urban leaders globally endorsed the millennium declaration of achieving the 'cities without slums' goal which would see efforts aimed at improving the lives of at least 100 million slum dwellers by 2020, and it's eight years away from the deadline. Though the figure 100 million slum dwellers sounds huge, it's nothing when faced with the troubling fact that there are nearly one billion slum dwellers globally, as estimated by the UN-habitat.

Who will build Rwanda's almost half a million houses its capital needs when neighboring cities are also pondering the same question? The huge investment figures involved mean that governments need the private sector to actually undertake such ventures. Yet the same private sector players blame the former of throwing the industry to the wolves, slapping heavy duties on key construction materials hence ensuring low cost houses can't be supplied.

Charles Haba of Rwanda's Real Estate Association is particularly unhappy that Finance Minister Rwangombwa decided to create a new tax on imported raw construction materials when, according to Haba, he should have been subsidizing them.

In Kenya, it's the same cat fights between private sector and government that have ensured that East Africa's largest economy is nursing a current annual housing deficit estimated at 156,000 units per annum according to UN-Habitat compared to 50, 000 units built per year. The deficit is largely filled by the growth of slums and continued self-construction of poor quality traditional housing.

According to Daudi Migereko, Uganda's minister of Lands, Housing and Urban Development, his country has a national housing backlog of about 1.6 million units out of which 211,000 units are in urban centers and 1.29 million in rural areas. The Minister adds that in Kampala alone, about 60% of the houses are located in slum areas and are highly occupied while a few are located in uptown areas.

Population growth

While governments lay strategies to induce investors to build low cost houses, the more urgent matter would be drastically reducing population growth. "You can't eliminate slums when populations are in free drive. These new babies need to wait because in any case, the poor lives they are being born into won't allow them to live long," reasons Michael Kaparaga, a master student of urban planning.

For instance, experts predict that the urban population of Kenya is expected to increase to 21.7 million by 2020, which is 51% of the country's total population and represents an average increase of 600,000 people per year in urban areas.

The situation is even more alarming in Kampala where the Uganda Bureau of Statistics estimates that about 5 million people in the city will have no houses to live in by 2025 if the current birth rate is not controlled.

With high birth rates and rapid migration from the rural areas, the population in East Africa's cities is growing faster than their housing sector.

Experts say that in Uganda's case, if the population growth rates are sustained at a higher rate of 3.5 per cent, it is projected to increase more rapidly from 30.2 million people in 2007, 32.9 million in 2010, 35 million by 2015, 43.4 million in 2017 and 46 million by 2020.

In housing terms, going by Uganda's current national average household size of 4.7 persons, this indicates an average national increase of between 170,000 and 278,700 households each year.

When Kigali city authorities were told that they need to build half a million houses, they frowned and cried about resources. But with a 5.7% population growth rate that will see city residents double in the next half a decade, they should brace for worse.

If investors grab the opportunity, banks will sell mortgage products but government intervention is needed in form a public-private partnership to make this possible.

In Rwanda, if you don't earn above Frw 900, 000 per month then you don't qualify for a mortgage. This category is barely 1% of Kigali's total population.

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