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The power of ‘massive small’ for housing in Africa

Housing a continent

The power of ‘massive small’ for housing in Africa

Affordable housing faces many barriers in Africa but points of innovation are beginning to make a difference, contributing to wider sector health and improved affordability. Kecia Rust highlights two promising examples.

With interest in affordable housing at an all-time high, investors both domestic and international are seeking new African opportunities and applying their capital not simply to growing the property sector, but with a focus on housing that is affordable to a wider spread of the population. 

It is possible that some of this interest is incentivised by a growing acceptance and mainstreaming of the Sustainable Development Goals, in particular Target 11, which focuses on sustainable cities and communities.

Good housing supports other targets such as access to basic services and direct access to clean water and sanitation; health and well-being; and reducing inequalities through the asset wealth associated with homes. Businesses understand this, highlighting SDG-focused efforts in annual reports and shareholder presentations. 

However, challenges remain. Notwithstanding increasingly favourable policy environments in some countries, macroeconomic factors continue to undermine access to long-term capital, putting pressure on affordability with impossibly high interest rates.

Meanwhile broken value chains, with gaps in the land titling framework, municipal capacity constraints that undermine the delivery of infrastructure, and small-scale projects that are often stalled as a result of lack of funds, undermine the opportunity that the demand side clearly demonstrates.

And yet, increasingly, there are points of innovation that are beginning to make a difference, contributing to wider sector health and improved affordability. 

These efforts, through the evidence created by their success, are beginning to chip away at the challenges.  They respond well to the reality of African housing markets, and are highlighting a series of investment opportunities.  Two are particularly worth noting.

First, there is the notion of ‘massive small’. While the continent lacks large-scale housing delivery capacity, housing is nevertheless being built, unit by unit, brick by brick, by micro-builders who together constitute a massive delivery effort that is unrecognised in official delivery statistics. 

While traditional finance leans towards large-scale projects and bemoans the lack of financeable initiatives, two lenders are capitalising on the ‘massive small’ idea. 

Zambian Home Loans focuses on owner-builders with half-completed houses who need finance to complete their construction. Their market is huge – all across Zambia are projects that have stalled for lack of funds. 

These half-finished houses are effectively without value, until finance is applied. At that point, however, the construction activity that the finance enables, fundamentally shifts the loan to value ratio in the lender’s favour, improving the quality of the portfolio. 

Bite-sized chunks

Another ‘massive small’ example innovates further by leveraging the value of existing infrastructure to enable improved housing affordability. 

TUHF is a mortgage lending company based in South Africa that finances the purchase, conversion and/or refurbishment of inner city residential rental stock. 

In 16 years of operation, TUHF has financed 38,771 affordable rental units in 128 suburbs across eight metro municipalities. Delivering these in over 600 buildings, the average size of each project is about 64 units, a much smaller project size than most investors would consider funding. But when realised through the effort of 350 entrepreneurs, the combined effort is massive. 

The second, important innovation is the multiple mortgage liquidity facilities being established – most recently in Kenya but also in Francophone West Africa (Caisse Regionale de Refinancement Hypothecaire), Nigeria, Tanzania and Egypt.

Much has been written about these bodies and the role they play in regularising mortgage markets, but what is possibly even more interesting is their ability to disaggregate large scale investment capital into parcels appropriate for demand expressed by local banks, which are only beginning to build their mortgage portfolios. 

While the capital needs of Africa’s affordable housing sector are great, they exist in very small entities and initiatives – local-level efforts, the sort of ‘massive small’ being targeted by TUHF and Zambian Home Loans, that simply cannot be accessed by large-scale capital.

The interlocutor role of an apex organisation is the critically needed next frontier for facilitating investment on the continent.

The growth of affordable housing in Africa will be shaped by the experiences of these and other innovations. Each will grapple with the particular size and shape of the demand side, and how this corresponds with the evolving structure of the supply side, discovering specific opportunities that will fundamentally alter the overall opportunity in the years to come. 

Kecia Rust is Executive Director and Founder, the Centre for Affordable Housing Finance in Africa, which promotes investment in affordable housing and housing finance across Africa.

To read more articles from our special report on affordable housing in Africa, coordinated by AFFORD UK, visit the Housing a Continent webpage.

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