The African continent has one of the fastest growing populations in the world, as well as one of its most dynamic expanding economies. With a vibrant next generation demanding new types of housing, traditional structures for living and development are being challenged. The result? The emergence of an affordable housing sector.
Affordable housing demand in Africa on the rise
In almost every African market this demand is still not being met, as small private sector providers remain concentrated on individual luxury developments rather than on mass housing provision. This is due both to a lack of technical expertise and financial muscle, meaning, without a radical change, Africa's continued rise over the coming decades will be dependent on social housing funded with local and national government support.
Possibly as important as a lack of private sector provision is the fact that governments across the continent realise that housing is increasingly a national security issue, similar to healthcare provision or the reduction in unemployment.
A strong social housing sector can improve both political stability and the general health of a growing, increasingly educated urban population. As an example, the World Bank estimates that each housing unit constructed can create up to five full time jobs in the construction and related sectors - see the World Bank's full report on the housing sector in SSA here . Housing provision is a key focus for politicians continent-wide.
Utilising international finance for urban housing provision
One of the greatest issues facing the provision of social/affordable housing across Africa has been finance for such projects. This has slowly begun to change, both through greater private sector recognition of the burgeoning African middle class in the continent's more developed economies (e.g. South Africa, Botswana and Kenya) and increased support from non-governmental organisations that increasingly see urban housing provision as one of the most effective ways to beat poverty and improve access to education.
In a number of countries, Chinese and Western finance has partnered with local governments in the provision of both private and social housing for resident populations, often with the support of donor finance institutions (DFI) or Multi-Lateral finance.
This partnering (while complex) is likely to increase, with public private partnerships (PPP) procurements and structures deployed to cater for it.
Key for Governments will be ensuring value for money, meaning that designing the correct contractual structure and procuring suitable construction companies and operators is crucial. Reducing developer financing costs by guaranteeing buyers or tenants for finished units will make the sector more attractive to investors.
Supporting development in the African affordable housing sector
Kenya has a housing shortage of two million units and Nigeria a gap of over 17 million. Both countries have established PPP processes - for example, we previously wrote about the Kenyan roads PPP programme - and are looking to include housing projects in their infrastructure procurement programmes. As these countries', and others', economies develop and improve globally, developers are looking to see where and how they can enter these markets, and others, safely and profitably.
Various models of affordable housing provision, be it through rental schemes, government concession or micro finance, are all being employed across the African development market. There are increasing opportunities for both national and international developers, as well as funders, to become involved in the sector, as Governments look to utilise international skills and finance. The increase in DFI funded mandates to: assess the feasibility of social and affordable housing PPP projects in African countries; create and implement the required legislative, regulatory and contractual framework required for such projects to be considered bankable; and, advise on the procurements of housing projects, shows that such institutions and African Governments are willing to support the sector and want to encourage developer interest.
Despite this increase in support there are still several challenges to getting a project approved and closed, for example financing the suitable debt tenor on local markets, high construction costs, land ownership disputes and build quality.
Top three tips to investing in the affordable housing sector
As the sector grows, it is anticipated that the challenges mentioned above will be overcome through increased familiarity and streamlined processes, and developers that get in at an early stage may build a reputation as go-to organisations, before the sector becomes as competitive as it is elsewhere.
With that in mind, here are our three top tips for getting into the affordable housing market in Africa:
- Do your research. Find out which nations are committing to developing affordable housing and get in touch (e.g. Kenya and Nigeria as mentioned above). Gowling WLG may be able to help in this regard, having contacts within the Governments of several African countries.
- Be prepared to be innovative. Developers in other sectors in Africa have taken comfort from de-risking guarantees offered by Governments and supporting multi-lateral institutions. Support is often available for the most challenging projects.
- Get the right advice. Advisers such as Gowling WLG, who have worked on social housing and PPP projects for developers, funders and Governments in Africa and elsewhere, can help navigate some of the key issues in structuring bankable projects and support clients looking to enter the sector or the region for the first time.