Housing Finance & Land Registries

an architect on a building site

Housing represents a key driver of economic growth and constitutes a major part of household wealth. Furthermore, formal housing can serve as collateral for credit, thus enabling individuals to have easier access to financial services.

In general terms, housing finance refers to the primary mortgage market – where mortgages are created and funds are given directly to borrowers – and the secondary mortgage market – where lenders and investors buy and sell existing mortgage loans and mortgage-backed securities.

UN Habitat reports that 46 African cities are now larger than one million people and every day for the coming fifteen years, Africa’s cities will have to accommodate an extra 40,000 people, indicating a rising urban pressure and serious capacity constraints.

Functioning mortgage markets only exist in a few African countries, due to institutional weaknesses, macroeconomic instabilities, and adverse legal and regulatory environments, which explain inefficient collateralization of housing assets and a significant shortage of long-term finance sources. By international comparison, African mortgage markets are relatively small: while in North America and Europe mortgage loans comprise often of over 40% of GDP, South Africa (at 26.4%), Namibia (at 19.6%) and Mauritius (at 12.2%) have the highest mortgage debt to GDP ratio and are the only countries in Sub-Saharan Africa with ratio above 5%. In North Africa the mortgage market is much more developed with Morocco at 16,9% and Tunisia at 12%.

Housing markets have experienced some measure in growth in recent years, with policymakers, regulators, financiers, and investors increasingly recognizing the importance of investment in housing, and the specificities and risks of long-term housing finance systems.

Yet, incremental building continues to account for 70 percent of all housing investments in Africa. Building incrementally allows a household to piece together shelter as payment capacity allows, without taking out a loan that might not be payable in the future. This economic flexibility, however, comes at high costs, as it often leaves occupants physically vulnerable to weather conditions and safety hazards for years while they build their shelters piece by piece. Also, incremental building is in the long term more costly as frequent replacement of make-shift and disposable construction materials are more expensive than the purchase of higher quality, more durable materials at once.

While the provision of long-term loans for housing through microfinance institutions could be a solution, this approach is still nascent in Africa – with a few examples available in Central and West Africa.

A better supply of long-term finance as well as micro housing finance could improve housing quality and provide suitable investments for funds, more closely matching the long-term liabilities of pension schemes and insurance companies. Yet many questions remain unanswered about the right balance between innovation and regulation, the extent of risks to the financial system, and the appropriate role of the state to promote affordable housing.