Innovative financing and strategies towards social housing (part II)

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.

Land subsidies and housing funds

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.

Unused land taxes

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) 

First Published