Nigeria’s housing sector: Challenges and solutions

The potential of the housing sector to significantly contribute to Nigeria’s economy and boost GDP is undeniable. However, despite the government’s efforts through various institutions and programs, the sector has yet to realize its full potential. In this article, we will examine the challenges facing the mortgage and housing industry in Nigeria and propose solutions to foster its growth and vitality

1.      Lack of Effective Foreclosure Mechanism: One of the critical challenges plaguing the mortgage industry in Nigeria is the absence of an effective foreclosure mechanism. The current legal framework for foreclosure is cumbersome and time-consuming, deterring lenders from extending credit for housing projects. To address this issue, the introduction of non-judicial foreclosure could provide a more efficient and streamlined process for reclaiming collateral in the event of default. This would enhance the confidence of lenders and facilitate increased lending for housing projects.

2.      Impediments of the Land Use Act: The Land Use Act poses a significant impediment to land ownership and development in Nigeria. The Act, which vests all land within a state in the governor, complicates the process of acquiring land for housing projects. Reforms to streamline land acquisition processes and provide clearer land titles would encourage investment in the housing sector. Additionally, incentivising states to decentralize land administration could expedite the process and unlock the potential for housing development.

3.      Low Income of Nigerian Workers: The low income of Nigerian workers presents a formidable barrier to homeownership and mortgage uptake. Addressing this challenge requires a multi-faceted approach, including the implementation of a higher national minimum wage to improve the purchasing power of citizens. Furthermore, targeted initiatives such as affordable housing schemes and subsidized mortgage rates for low-income earners could facilitate greater access to homeownership opportunities.

4.      Low Capital Base of Mortgage Institutions: The inadequate capital base of Primary Mortgage Banks (PMBs) and the Federal Mortgage Bank of Nigeria (FMBN) hinders their capacity to provide long-term financing for housing projects. To bolster their capitalization, measures such as recapitalization, mergers, and strategic partnerships could be explored. Additionally, the establishment of a mortgage liquidity facility or guarantee scheme could enhance the liquidity and stability of mortgage institutions, enabling them to expand their lending act.

5.      High Cost of Building Materials: The high cost of building materials contributes significantly to the overall cost of housing construction in Nigeria. This inflationary pressure exacerbates affordability challenges for prospective homeowners. Initiatives to address this issue may include the promotion of local manufacturing of building materials, tariff reductions on imported materials, and incentives for sustainable construction practices. Furthermore, research and development efforts aimed at innovative and cost-effective building technologies could help mitigate construction costs.

6.      Lack of Adequate Infrastructure: Inadequate infrastructure such as roads, water supply, and electricity undermines the attractiveness of housing developments and exacerbates the cost of construction. Public-private partnerships (PPPs) for infrastructure development and targeted investments in critical infrastructure projects could alleviate this challenge. Additionally, incentives for private developers to integrate infrastructure provision into housing projects could enhance the overall viability and attractiveness of developments.

7.      Low Access to Long-Term Funds: The limited availability of long-term funds for mortgage financing constrains the growth of the housing industry in Nigeria. To address this issue, the securitization of mortgage loans through the issuance of mortgage-backed securities (MBS) could mobilize additional capital from the capital markets. Moreover, leveraging pension funds as a source of long-term investment for housing projects could provide a sustainable funding avenue. However, stringent regulatory frameworks and risk management mechanisms would be essential to safeguard investors’ interests.

8.      Lack of Adequate Incentives: The absence of sufficient incentives to invest in the housing sector further dampens investor enthusiasm and slows down industry growth. Implementing targeted incentives such as tax breaks, grants, and subsidies for developers and homebuyers could stimulate demand and investment in the housing market. Additionally, introducing policies to streamline regulatory processes and reduce bureaucratic hurdles would improve the ease of doing business in the sector, attracting more investors and fostering growth.

9.      Political Interference: Political interference in government-owned housing institutions undermines their efficiency and effectiveness. Insulating these institutions from political influence would promote transparency, accountability, and better performance.

The housing sector holds immense potential for driving economic development and improving living standards in Nigeria. However, realizing this potential requires concerted efforts to address the myriad challenges facing the sector. By implementing the proposed solutions, including reforms to foreclosure mechanisms, land tenure systems, and access to finance, Nigeria can unlock the latent opportunities within its housing market and propel its economy towards sustainable growth and prosperity.

Kenechukwu Aguolu  writes via [email protected]