Urban societies are typically a mix of diverse people and interests that are often interdependent. It is therefore pertinent that urban housing strategies account for social integration of these varied interests. But the ‘affordability’ of housing seems to be an ambiguous subject matter. Definitively, affordability should capture the average income of the people, the design and material costs of building, the underlying costs of lands, maintenance costs and other associated costs that determine the price per unit of the housing structure. In Lagos where the prices of lands, materials and designs are comparatively high, the final price per unit of a decent housing development turns out above the average wage of the people and thus a luxury for the low-middle income groups. A realistic price for low-income resident should derive from the prevailing average income, ranging therefore between N18, 000 and N50, 000. The inflated cost of lands is due mainly to a combination of factors including inflexible land tenure system, land speculation, land grabbing and high incidence of fraud. The result is the manifestation of inequality and segregation in settlement pattern – for which mixed income/class policies are possible solution.
Mixed income/class housing is a strategic co-location of both social housing and market housing designs in an area with shared access to infrastructure in order to ensure social inclusiveness. Given the housing situation in the country, market motivated strategies only worsen inequality and social exclusion. The time is now to grease the stiff necks of the government, call the attention of private developers and community stakeholders towards mixed income/class alternatives. We must build political consensus on housing as a necessary human need for the rich and poor alike.
Challenges to mixed income/class housing policies
Market mechanism: where the government has failed to provide the basic infrastructures that ensure social inclusiveness and lacks policies against gentrification of cities, private developers step in to fill the gaps however with a selection strategy that maximizes profits. For instance, if the underlying land is auctioned and developed under market process like in Banana Island, a decent unit in the eventual development becomes too expensive for the common man.
Social costs: mixed strategies imply that low income earners live in the same neighbourhood as the wealthy where infrastructures are available. But these infrastructures and utilities such as energy carry costs that may exceed the income levels of the poor. Also, because prices generally tend upwards, the activities of wealthy may drive up prices – of foods, schools – such that the poor may sort themselves out. Example, Amuwo-odofin, FESTAC town.
Security: the growing disparity between classes has dynamic implication on behavioural patterns and environmental expectations for both classes. This for the wealthy class manifests in perception of insecurity around the poor and class tension. For the poor, it could mean oppression and intimidation.
Policy proposals: case study
Studies show that inclusive, equitable cities are more sustainable. In particular, two international case studies in Vienna, Austria and Maryland, USA show interesting outcome and could serve as guide in the approach to mixed housing strategies. In Vienna, the government drives the construction of most new apartments: land is sold to the winning developer at a subsidized rate, under low interest financing and long-term loan repayment schemes. In conformity with the stipulated design standard, ecological considerations, the developer must then rent half of the new apartments to low-income residents at prices regulated by the government. Today, Vienna is adjudged the world’s most liveable city.
In Maryland, the policy sets aside 15% of housing units over 50 units for affordable housing, of which one third goes to the Public Housing Authority for subsidized low-income housing, while two third goes to the modest income class. Two approaches were compared thereof in this case study: in Mckendree development, the affordable residences were clustered in one area where there are high income residents as well. There were no shared facilities or community spaces, and maintenance was left to the individual residents. In Timberlawn development, the affordable units were dispersed around the city with the market-rate residences. The units also had shared facilities which were centrally maintained. Comparative surveys showed more satisfaction in Timberlawn than in Mckendree.
We can draw lessons from the successes in the international case studies. Policies can be designed to address the challenges that hinder the implementation of social housing programs across Nigeria. In Lagos for instance, a mixed housing policy could stipulate that 20% of estate development greater than 5 hectares have to be allotted for constructing affordable housing. Of the 20%, 15% may be reserved for moderate income class while 5% would be reserved for the low income category such as artisans, housemaids, and petty traders. These affordable units would be sold only to cooperative groups so as to avert the incidence of speculative reselling – at market values. However, members of the cooperative societies may sell or transfer their block or shareholdings to existing or new members. Rental price in the lower income segment may be a fraction, say 20% of their estimated average income. Government involvement is necessary to keep prices stable.
The design guidelines should follow the distributed-type mixed housing, proximity to social infrastructures such as schools, healthcare centres, parks and markets should be considered. Given the electricity situation, buildings should be at most, 5 storeys with navigable stairwell – without elevators. Kitchen, toilets and bathroom may be shared by optimum number of room/occupants. Designs should adopt simple parameters such as cross ventilation, double roofing and roof overhangs in order to boost environmental performance and reduce maintenance costs. However, these policy suggestions are not conclusive. They are simple, practical steps towards inclusive housing policies and are open to debate and further discussions. It attempts to call the attention of private and community developers, governments and other stakeholders to the possibilities in creating social housing.
(This article is based on the report, Achieving Mixed and Integrative Housing in Lagos by Heinrich Böll Stiftung and Arctic Infrastructure)
First published: https://www.businessdayonline.com/exclusives/analysis-sub/article/affordable-housing-strategies-mixed-income-policies-part/
In part I of this two-part series, I argued that the price of land among other factors is a key driver of variation in price of rental units across location. Therefore, policies and strategies to create and finance affordable, low-income housing should begin from stabilizing the price of lands and managing the distortions inherent in the system. For instance, the report by Heinrich Boell Stiftung (HBS) and Arctic Infrastructure (AI) in 2017 reveals that in Ijora-Badia, Lagos, where the government had evicted over 9000 people (according to Amnesty International) in a bid to construct low-income housing in the area, the government offered the land – in equity – without any development or due diligence as to the soil type and whether further subsidies were necessary to keep the final rental price/unit low. The construction of the foundation and other necessary development to enhance the carrying capacity of the land consequently shot up the price of a simple 2 bedroom to 22 million naira. Under a rent-to-own scheme designed by the developers, it is required to make an initial down payment of 1.1 million naira and a subsequent rent of N 175, 000 to be covered by 33% of monthly income. One would have to earn over N500, 000 monthly to be able to fulfil this obligation. This automatically changes the equation of the units from low-income to high income.
Speculation is another aspect. Land Speculation creates the distortions in market process that raise the price of lands beyond normal market level. Even worse, given the high demand for housing and other productive demand for lands, speculation prevents the optimum use of land and halts development. Banana Island which was initially government development has seen huge speculative purchases that have driven the prices of properties to one of the most expensive in the world. Interestingly however, little over 50% of the land has been developed (HBS/AI report 2017). It is therefore pertinent to correct for these distortions that push the prices of rental units above the affordability of the common man.
Landsubsidiesandhousingfunds
Governments interested in providing low-income housing can hold equities by providing land subsidies to the developers that emerged out of a competitive bidding process. The land should be accessible with developed road network and drainage channels to prevent floods. The winning developers should be given access to low interest financing over a long-term repayment scheme. The government can establish social housing funds from which community developers and private developers interested in social housing investments can draw. A number of proposals on social housing investment funds were suggested in the report that followed the Lagos Development Envision Lab 2017 by Heinrich Boell Foundation and Arctic Infrastructure: Habitat Funds – to be disbursed to mortgage banks for onward lending to households earning monthly incomes between N18, 000 – N40, 000, at 5% interest rate over a 20 year period and a monthly repayment plan ranging N5, 000 – N12, 000. A Loan to Value (LTV) ratio of 85% would apply under this fund with a maximum of 5% initial equity contribution from the beneficiaries. The participating mortgage banks (PMB) would obtain the funds at a 3% interest rate from the state funding institution. A Social Housing Guarantee Fund would guarantee any amount in excess of the 85% LTV extended to households. A Construction Fund, through the PMBs would finance developers interested in social housing at interest rates not exceeding 6% over a 20 year repayment period. Whereas the Habitat fund enables households to buy rental units, the Construction fund incentivizes developers to provide low-costs housing. Other funds may be set aside for innovation and technology that reduces the costs of building materials and construction as well as energy innovation related to housing construction.
Unusedlandtaxes
It is not consistent with common sense to have lands fallowing in speculation when there are prevailing demand for housing units. But land speculation happens to be sound business intuition especially in Lagos where alongside inflexible land tenure system, the process of land acquisition defeats transparent market process and is underlined by high incidence of fraud. It is therefore intuitive to suggest that unused lands be subject to taxation, proportionate to the value of the land after two years of purchase. This is likely to cut short the speculative time window, moderate any value accruable from speculative purchases within the two-year period. It may therefore free up idle lands for productive housing construction at least – if not social housing. Additional incentive may be to offer tax abatement to developers providing mixed income and affordable housing. Developers may also be given density bonuses which allow them to build more units per acre than the permissible level thereby increasing profitability per land area.
Summarily, it may be most effective to collaborate with cooperative housing societies in order to avert likely distortions especially in the disbursement of funds and subsidies. These housing societies, if formed within the community by community members with the sole purpose of providing low-costs housing would be more committed to the welfare and development of their communities than external private developers with profit motives. More so, housing societies optimistically, would be easier to regulate on issues of rental pricing and speculative reselling than private actors. It is also possible to work with the community association of land owners who are willing to surrender their land titles in equity towards the construction of low-costs housing units. Example: Amukoko Community Development Association. This way, the developers need not buy the lands, but issue equities or a fair share of the development units to the original landowners.
(This article is based on the report, Achieving Mixed and Integrative Housing in Lagos by Heinrich Boell Stiftung and Arctic Infrastructure)
The Trumpian bias about the US trade deficits and the US-China trade war is beginning to spill over, and we are beginning to see domestic versions of it in Nigeria (and the rest of Africa). The reluctance that trailed the signing and ratification of the African Continental Free Trade Agreement (AfCFTA) was a harbinger; the eventual border closure is exemplary. The argument put forward was that while the nation looks to grow its local industries, entering the agreement would open the economy to presumably uncontrollable volume of imports especially from foreign countries outside the AfCFTA—as Nigeria is thought to be the target market—which could challenge efforts made to develop the cottage industries.
Manufacturing countries in Europe, Asia, and America who have standing arrangements with sovereign states in Africa could exploit the free trade agreement to route their goods to other African countries, enjoying the exemption on tariffs and other benefits of the agreement. This would have a devastating effect on domestic manufacturing: business shutdown, job losses, and the loss of tariff and tax revenues. There would also be some exchange rate effects as the expanding import bill implies depreciation pressure on the naira exchange rate.
Nonetheless, it is also likely that the AfCFTA brings significant welfare benefits that offset the scenario above. For instance, increased imports could lower the prices of goods and services through economies of scale and competitiveness. This could, in turn, imply reduced inflationary pressure. Moreover, there is the “rule of origin” that attempts to checkmate the incidence of foreign goods smuggling.
Yet, faced with a budget deficit of N1.9 trillion in 2019 and planned deficit of N2.18 trillion for 2020, the Nigerian economy is in desperate need of finance and the administration is doing everything it can to increase revenue: we have seen the government raise the VAT from 5 to 7.5 per cent and introduced new tax schemes. The CBN recently enforced the exclusion of 41 import items from accessing foreign exchange (forex) via the official exchange window in a bid to reduce the pressure of import demand on forex. Only three months after signing the AfCFTA in June 2019, the government shuts down all land borders with Niger, Benin and Cameroon in jittery reaction to the likelihood of import binge, and the other consequential issues that may follow the implementation of the AfCFTA in 2020. This, however, is not peculiar to Nigeria alone: in Equatorial Guinea, the government talks about building a wall to prevent illegal immigration from other West African countries. Xenophobia in South Africa is another overt resistance towards factor mobility.
The Nigerian government is under pressure to protect its economy and win in the AfCFTA but its approaches are anti-free trade, protectionist and nearly indigenization of the economy, very similar to the trade ideology of President Trump in the US.
As the government aggressively extracts revenue in tax from the society and prevents cross-border trade transactions, it directly stifles the economy, meting out hardship and misery on its citizens. By these actions, the government overtly reveals its preference for revenues over societal welfare, grossly undermining the continental trade agreement and the essence of regional integration; and by so doing, transmitting negative signals to other countries within the AfCFTA. Since the closure of the border, the consumer price index has gone up; small businesses struggle, hunger and poverty trend upward. Investors have also adopted a wait-and-see approach to the one step forward ten steps backwards pace of the economy.
The economy admits its weak manufacturing and infrastructure base; it would not stand the competition that would come. Uncontrolled import would challenge local manufacturing and ridicule industrial development especially the target on food self-sufficiency in the Economic Recovery and Growth Plan (ERGP).
One way out of the woods
A World Bank data shows that as of 2017, total imports to Nigeria amounted to 13.18 per cent of GDP and trade growth of 11.56 per cent. Even though participation in intra-African trade is relatively low at 4.4 per cent, the AfCTA holds the potential for increased trade. It is therefore important to establish a system of importers registry based on certain stipulated criteria in readiness for the deluge of importation. These registration criteria need not be monetary payment but would include minimum capital requirements, loans credibility, tax returns, storage/warehouse facilities, logistics ability and etcetera. This approach would eliminate the myriads of micro importers—as is the statusquo—that contribute to the pressure on forex while broadening the import business by giving a formal structure.
The importers’ registry would complement the implementation of the rule of origin clause to eliminate round-tripping. It would allow for the efficient administration of regulatory checks on product destination, quality standards, and tracking. Other importers from across Africa interested in the Nigerian economy need only comply.
It would engender cooperation among the indigenous importers, the CBN and the Nigerian Customs Service.
The other benefit of the importers’ registry is that the registered import businesses would be buoyant enough to issue product warranty and return guarantee to dealers/retailer should the product not satisfy the customer as against the current practice where consumers are ambushed by petty importers who are unable to give these assurances. This would go a long way to ensure consumerism and consumer protection.
Also, by way of trade protection, the registered importers may organize themselves into unions according to their respective trade lines and help combat the incidences of counterfeit products so as to protect their market share/profit, licenses and avoid regulators knocking their doors. The intuition is that these importers are better positioned to curb the menace of substandard items, and with the right incentives, would develop the internal interest to do so.
We have signed the continental free trade agreement which opens our borders to a flood of importers from across Africa: if we cannot manage our own importers, what is to say we would be able to manage the multitude of importers from all over Africa? Yet we do not need to implement draconian policies that isolate us from the rest of the world. We need rather work towards increasing competitiveness by enhancing productive efficiency through technology and the requisite infrastructure. We have given conditions to reopen the borders; we may need also to build a database or register of importers.
