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Opinions of Thursday, 8 January 2015

Columnist: Acquah, Prosper Kwesi

Affordable Housing: Nothing Affordable

The current concept of affordable and low-income housing as implemented by Ghana and other African countries is a wrong fit for the continent, at best it is unsustainable. Governments over the years have attempted to implement affordable housing schemes without taking the time to target appropriate segments of the population. It is time African Governments; particularly Ghanaian governments changed their approached to affordable housing to make it much more affordable and sustainable.

This article attempts to expose the flaws in the current affordable and low-income housing schemes (simply referred to as affordable housing) and to suggest alternatives that are much more workable, sustainable, affordable and socially acceptable.

Every affordable housing program or scheme must satisfy at the minimum the following basic conditions:

I. The structures must be of good quality and must have facilities that guarantee dignified living

II. The structure must be decently located in terms of distance to basic facilities, place of work etc.

III. Must be affordable to low-income and vulnerable people in the community, primary target group.

IV. Must not deprive occupants and dependants of meeting the basic necessities of life after they have paid for housing.

In Ghana and many other African countries there are lots of questions about how affordable the affordable housing schemes really are. Even if low-income persons are able to afford these houses, their ability to adequately meet their basic needs after they have moved into the affordable housing units becomes a major problem.

Over the years in Ghana, many governments have started the implementation of various affordable housing projects. Unfortunately however, these housing projects seem not to be well intentioned or appropriately targeted. Most of these projects are designed, built and sold off at prices that are significantly below what a private developer would have sold a similar structure. In many instances the structures are of good quality and in very good locations. Unfortunately even though the selling prices are below market prices, they are unaffordable to lower and middle-income households. Instead, the well to do in society and the political elite buy off these housing units before construction is completed. In the end the lower income housing solution remains unresolved.

Assuming the schemes work as they are meant to, that the housing units are sold to lower income households, there will be several unintended negative social and economic consequences. The unintended challenges posed by the current affordable housing schemes being implemented in Ghana and other African countries include:

I. It is economically unsustainable to governments. To be sustainable, government will have to keep building new affordable housing units every year to satisfy lower level employees, new lower income household entering the job market and people migrating from rural to the urban areas. It is quite obvious that governments have very limited resources and it will be unwise to invest its resources in this manner.

II. It discourages Urban-Rural migration. Beneficiaries of the affordable housing programs are incentivized to remain in the urban areas after they retire since many of them would prefer to live in the urban areas in houses they own rather than move back to their smaller towns and villages where the quality of housing is lower than that they own in the urban areas. This phenomenon is likely to contribute to the ever increasing populations of the urban cities.

III. It leads to the exploitation of intended beneficiaries. As stated above, people who are not the intended beneficiaries will find ways to purchase affordable housing units as a form of investment hence depriving the intended beneficiaries of housing units. These ‘investors’ many times will rent out the units at high rents and collecting 24 months advance rent payments; simply unaffordable to the lower income people.

IV. It discourages developers from building affordable houses. This type of project sends a negative incentive to real estate and other private developers not to invest in the affordable housing market since governments are able to sell affordable housing units at much lower prices than private investors could. In other words governments are in competition with private developers.

V. It encourages the development of slums. When the most vulnerable people who truly need affordable housing, are unable to get one, they become slum dwellers. It is therefore not surprising that the slum growth rate in urban cities in Sub-Saharan Africa is a striking 4.53% according to UN-Habitat. In Ghana the development and expansion of slums (Old Fadama a.k.a Sodom & Gomorrah; Abuja; Lavender Hill; Sabon Zongo; etc) are just too obvious to ignore. Rural-Urban migrants freely migrate because they are able to afford rents in the slums. The social cost associated with the development of slums is very enormous. For instance teenage pregnancy is very prominent in the slums; environmental pollution- Agbloshie/Old Fadama has gained the notorious reputation as the world’s largest e-waste site; prostitution, drug peddling and use are rife in the slums. The development of slums exposes the poor and vulnerable to health, safety and security hazards. It is therefore very urgent for our leaders to address the problem of affordable housing as a national security one.

The problem faced by many African governments is that though they are willing to address the affordable housing problem, they do not have the resources to do so. In some cases also as stated above, the projects though well intended, are wrongly targeted, wrongly executed and only lead to the aggravation of the problem because of lack of planning, bad planning or good old corruption. African governments must always take cognizance of the fact that they have very limited resources and rather than waiting and courting the so called ‘foreign investors’, development partners, and such international organizations to bring some type of magic pill or wand to magically solve their problems, they need to device “homemade solutions” to their problems. There is no quick fix to Ghana’s (Africa’s) housing problems.

Governments can solve the problem of affordable housing by putting in place innovative policies that will motivate local private investors to take advantage of opportunities in the affordable housing industry. Governments must ensure that proposed solutions must be ‘market-oriented’ in order for the solutions to be sustainable. Some of the simple yet workable ways of solving the housing problems in Ghana and other Sub-Saharan African countries include;

1) Put an immediate stop to the “build and sell” affordable strategy. As stated above there is nothing affordable about that strategy since it only serves those who do not need affordable housing (politicians, their relatives, upper middle income people, political party loyalists, etc) and as a result aggravates the problem. Instead government should focus on rental affordable housing.

Rental affordable housing is a lot more affordable to the poor; those at the bottom of the economic ladder (migrant workers, drivers, secretaries, entry level clerks, police, military and paramilitary personnel etc) who really need affordable housing to survive. These are the people who are most likely to be slum dwellers if there is no other alternative for them to get housing.

By focusing on rental affordable housing, and abiding by the rent control laws of Ghana, Government will kill the proverbial “two birds with one stone”. The government will not only be solving the housing problems but also eliminating the stubborn phenomenon of potential tenants paying at least 24 months of rent advance before moving into rental housing units. Affordable housing units become available for re-use when a tenant is transferred by his/her employers or goes on retirement. Affordable housing units will be managed in such a way that tenants will pay rent monthly and not 24 months in advance as is currently the case in Ghana.

The current rental market in Ghana makes it very difficult/almost impossible for migrant workers (migrating from rural areas to urban centers) and lower level income earners to rent any decent housing facility. This is because many lower income people are unable to get loans from either their employers ( interest-free) or bank loans (interest rates around 35% p.a.) to pay for 24 months rent advance. The daring ones may take loans from Microfinance Institutions (MFIs) or Savings and Loans Companies (S&L) at above 8% per month interest rates. For these people the options open to them is either to rent a room from relatives and friends or look for housing in the slums.

2) Government must seed the management of all affordable housing facilities to private property management companies to manage. Over the years in Ghana for instance, it is known that people are not diligent in the management of public/government assets of all kinds. When given the right incentives (Key Performance Indicators) private firms such as Broll Ltd and Rent Matters Ltd will be able to manage affordable housing facilities diligently.

3) Given that Governments have limited resources, they have to give various incentives to local private developers/investors such as GREDA (Ghana Real Estates Developers Association), ItalConstuct, Proslin Ghana Limited, etc, to build and rent out affordable housing to meet the needs of lower income and lower level employees. Such incentives may include:

a. Government, giving out government owned land at designated affordable housing areas to developers to build approved affordable houses. The allocation of this type of land must follow strict guidelines devoid of the usual machinations and cronyism associated with government managed projects. Also the type of houses to be built must conform to strict building plans approved by the government.

b. Government must give soft loans to credible local affordable housing investors to assist in funding of affordable housing. The current very high interest and Treasury bill rates in Ghana for instance do not incentivize local investors to put their money into the development of affordable housing. Most rational investors will rather put their money in Government Treasury Bills and not into affordable housing investments.

c. These local investors must also be given tax breaks similar to those given to Free Zone companies to ensure that the number of years it takes for them to recover their investments is shorten.

4) There must be strict guidelines for persons who qualify to occupy affordable housing units, to ensure that the units are not occupied by people not in the beneficiary targeted group. Rules must be formulated for the management of all affordable housing units. The management of these housing units (private companies) must be given the right incentives to ensure that rewards are given for adherence to the rules and punishments for flouting the rules. A small government institution or the Department of Rent Control could be put in charge to ensure compliance by property managers.

5) Finally government assisted programs must be put in place to enable affordable housing occupants and other lower and middle-level employees to put up retirement homes in their regions of origin/choice. This will ensure that when they finally retire and/or move out of the affordable housing units, they are able to move back to their villages/hometowns and live in dignity. Government as part of the program will help developers secure loans to build decent yet inexpensive houses (<$4000) outside the urban areas for willing affordable housing occupants. The loan repayment plan must be structured in such a way so that occupant would finish repayments before the go on retirement. In many cases retirees are unable to move back to their various villages/hometowns because they do not have decent housing to resettle back into.

Whereas the problems of housing in the cities and urban centers are that of quality and quantity; in the rural areas the housing problem is that of quality and not quantity. Very few people in the rural areas do live in rental units; however housing facilities in the rural areas lack facilities such as descent toilet, bathrooms, running water, adequate ventilation etc.

By adopting the suggestions above, governments will be solving the problem of quality and quantity in the urban areas and also that of quality in the rural areas.

The problem of affordable housing is better solved by local and innovative programs and policies. The interests of the ‘saviors’ of African- the Foreign Investors are not well aligned to sustainably solve the problem of affordable housing. An affordable housing project is a typical long-term social investment project; foreign investors rarely have investment horizons exceeding ten (10) years and affordable housing investments are not the type that can be exited in 10 yrs or less. For many objective and none political thinkers, the fiasco suffered by the Government of Ghana in its attempt to boldly confront the affordable housing problem through a deal with the Korean company (STX Engineering & Construction) was a blessing in disguise. It was very unlikely that the project was going to pay for itself. The most predictable end to the STX project would have been that the Government would in the end pay for the STX loan using other scarce resources.

On a continent with abundant natural resources, ever growing youth population, and an endless list of problems to be solved; it is sometimes disheartening to see the way African Governments and the political class behave. Our governments have developed the penchant for chasing any and everything foreign to the point of exporting our problems to foreigners to solve for us. African governments are always globetrotting in search of foreign investors, development partners and attracting FDI (foreign direct investment) at all cost. The problem of affordable housing is one that cannot and will not be solved by foreigners. In these times of austerity, African governments must begin to be more innovative; look within and think within. The solutions to most of our problems lie within. The affordable housing problem must be solved using “homegrown solution”.

By Prosper Kwesi Acquah

Business & Financial Analyst,

A pro-poor advocate,