"Let them own their own homes!" — the Lagos housing challenge

I've written a fair bit about the housing problem in Lagos. A city of anything between 15 and 18 million persons, with a 48.6% poverty rate (2012), and an acute shortage of low-cost housing.

There's of course no shortage of luxury housing. Victoria Island and Ikoyi are home to hundreds of empty luxury apartments; priced out of reach of all but the insanely wealthy. IT entrepreneur Jason Njoku has got an interesting post on the economics of housing prices in Lagos. Two years ago I wrote extensively on the Eko Atlantic City project being spearheaded by the state government, adding 9 square kilometers of reclaimed luxury territory ("the Manhattan of West Africa") to Lagos' Victoria Island.

Any news of progress in terms of access to (relatively) low-cost housing is therefore much welcome. Which leads me to the focus of today's post.

One year after the Ijora-Badia demolitions that left thousands of Lagos residents homeless (February 2013), the state government launched its long talked about Lagos Home Ownership Mortgage Scheme (HOMS) "to encourage and support home ownership of first-time buyer residents of Lagos State to purchase decent and affordable homes through the provision of accessible mortgage finance."

The Lagos State Mortgage Board administers the scheme. Interested persons apply to the board, which carries out a pre-qualification process. (To be eligible one must be a Lagos resident aged 21 and above, have proof of tax payment for the five years prior to the application and of a regular income, and be a first-time home-buyer). Selected applicants then move on to a "draw" stage, which the government promises will give all applicants an equal and transparent chance at getting a home allocation.

Of the about 1,000 persons who submitted applications in the ongoing debut round, 96 were pre-qualified for the draw, which will hold on Tuesday March 4, 2014. The government says draws will take place monthly.

Applicants successful at the draw stage will then get access to mortgages arranged by the Lagos Building Investment Company Limited. Down payments are fixed at 30%, interest at 9.5% p/a (half the rate commercial banks offer), and a minimum mortgage tenor of 10 years. Home prices start from around 4.1 million naira ($25,000) to 10 million naira ($61,000) for a one-bedroom apartment. Missing three consecutive payments throws up the possibility of a foreclosure.

The government insists that it is an "owner-occupier" scheme, which means that beneficiaries cannot rent out their property to a third party. Which makes sense in that it prevents people from seeking to own multiple homes under the shylock-free financing arrangements of the scheme.

HOMS currently has 1,104 homes available for sale. It's a far cry from what the city needs. But I guess we can choose to see a glass that used to be empty but is now 1/1000th full, as opposed to one that should be almost full but is sadly 999/1000th empty.

Perspective matters, after all, says the Law of 'Halfaloafonomics'.

The kick-off of HOMS is coming barely a month after the launch of the Nigeria Mortgage Refinance Company (NMRC), an initiative which my friend Feyi Fawehinmi compellingly breaks down for the lay-person in this blog post.

Clearly it seems like there's a push for the rapid expansion of the Nigerian mortgage market. Knowing how things work in Nigeria, expect other states to quickly latch on to the Lagos State example. (Ogun State already launched, last December, a "Homeowners' Charter".)

This growing emphasis on home-ownership - "Let them own their homes!" as the new "Let them eat cake!" - throws up a problematic scenario which I must confess didn't immediately occur to me while I was reading up about HOMS for this post.

It took my stumbling on a post by Victor Olapojoye, a US-based Nigerian development expert, to make that problem clear. Olapojoye makes the sensible, logical distinction between "rental housing" and "home ownership."

He writes:

"The LASG recently launched a Home Ownership Mortgage Scheme. According to the LASG, the scheme is the solution to high cost of rental housing in Lagos. Are you kidding me? The solution to rental housing paucity is to establish a home ownership scheme? It is like saying the solution to the exorbitant fares charged by private transportation owners, is to set up a car ownership scheme that will make everybody a car owner. It sure does not make sense, and it is obvious that LASG does not seem to understand that there are two distinct markets for rental housing and home ownership. It is not everybody that will own a home, but that should not preclude them from having access to decent and affordable rental housing."

He goes ahead to suggest a number of solutions, all aimed at "ensur[ing] there is competition in the rental housing market."

From the foregoing, the following seem incontrovertible to me. That:

  • That Lagos needs to be building many more new houses than it is currently managing to build.
  • That the government cannot afford to leave the housing issue to private developers driven solely or primarily by a maximum-profit imperative.
  • That, considering the scale of the shortfall, the emphasis in Nigeria ought to be on low-cost rental property as opposed to mortgages and home-ownership schemes. The sudden government craze for mortgages and home-ownership programmes should not take place at the expense of a commitment to the development of a massive pool of low-cost housing that actively supports a rental economy in which consumers are properly protected by the state.

What are your thoughts on this? Are there any examples from other countries, that offer useful lessons for Lagos State?

Photo: Housing development in Lekki Peninsula, Lagos, Nigeria

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