You have probably heard in the media several times a news item or discussion on the national housing deficit. Depending on your situation, you may have ignored it or responded with passing curiosity. A closer look will reveal why the national housing deficit affects you more than you are aware. It affects you when you are about to purchase a property in several ways; your pool of available units is narrowed which could translate to higher priced units creating affordability issues. It could also mean your ideal choice of location may not have the supply or stock of units desired.
To put this assessment in the right context, it will be apt to break down what a housing deficit is and how it relates in particular to the Ghanaian situation. The housing deficit is basically the difference between the ideal amount of housing stock required to accommodate a population of a particular area and what stock is actually delivered or supplied on the ground. Let’s put some numbers to it so it makes a bit more sense. In Ghana it is estimated that we require an annual supply between 70,000 to 100,000 units but only about 40,000 units are supplied. This causes an annual shortfall and the cumulative shortfall over the years is what translates to the national housing deficit now estimated to be around 2 million housing units. So you see that news item or discussion on housing deficit isn’t as removed from you as you may think and while it is the responsibility of government and private sector to deliver these units, we can all play a part where we find ourselves if we are aware of the causal factors. Shall we delve into a few?
Some real estate developers have had to develop infrastructure like roads, electricity and water connections from scratch and this has shot up project costs, which are then passed on to the end buyer in highly priced real estate units. It is understood that developers estimate that infrastructure varies from 10 to 30% of the price of a dwelling, depending on the location of the site in relation to the existing infrastructure. This serves as a great disincentive to investors and real estate developers who essentially are in to make profit or have a good return on investment and if they have to pump a great deal of their capital into infrastructure development and be left with little margins.
Defective Land Tenure System
With ownership of land taking different forms, ownership usually is unclear and the processes are bogged down by bureaucracy. This has become a major bottleneck and barrier for real estate developers in obtaining large tracts of land for safe real estate development. The lack of an efficient land administration system has also led to disputes and unnecessary delays of projects from long drawn legal suits. So, while some investors may consider investing in large scale housing projects which could significantly contribute to reducing the national housing deficit, some of them are so burdened with the red tape in land administration that they abandon the projects midway.
Disruptions in Delivery of Affordable Housing Projects
The have been some fine drawings of affordable housing projects by various governments at different times, indeed some have moved from conception, contracting to construction, only to be abandoned when there is change in government. These disruptions affected planned projects like the 100,000 affordable housing project drawn in 2005 and others subsequently have been affected by change in governments. It is recommended that a program of continuity be put in place to oversee the proper completion and hand over of these projects irrespective of the government in power at whatever time.
Inadequate Access to Finance
Finance or more specifically, access to funding to develop projects is the fuel the moves idea conception from paper to construction site. However access to funding is inadequate or minimal due to a number of constraints. Some of the major issues that contribute to the inability of real estate establishments to access finance are noted in various studies as follows:
- Debt Gap – Most financial institutions believe that it is risky and administratively expensive to lend to small firms, including real estate establishments. Even when these firms eventually access some level of funding, they have to deal with other issues like higher interest rates, provision of landed security or collateral etc.
- Information and Knowledge Gap – Over here, one of the main issues is Information asymmetry. This happens occurs when one party to a transaction has more or better information than the other party. This causes a gap that may lead to rejection of proposals that aren’t bankable.
- Equity Gap – small firms are reluctant to surrender equity to outsiders because of the perceived loss of independence, control and freedom of action, dilution of earnings and the cost involved.
There you have it, knowing the issues now, how can you in your role contribute to reducing the national housing deficit. Do share!
The writer is the Executive director of Yecham Property Consult
& Founder of Ghana Green Building Summit.
Email: [email protected]
LinkedIn: Cyril Nii Ayitey Tetteh
YouTube: Real Estate Minute