By Kecia Rust, Executive Director, Centre for Affordable Housing Finance (CAHF)
The need for housing across Africa is immediately visible and agreed upon. In virtually every city across the continent, evidence of informal and inadequate housing conditions can be found in the proliferation of informal settlements, slum areas, and overcrowding.
As the Covid-19 pandemic has highlighted so clearly, inadequate housing creates a key risk for infection, undermining efforts towards public health, while also failing to support household resilience in the face of emergency, including climate change. Meanwhile, African cities have among the highest urbanisation, population, and household growth rates globally – in some cities as high as 6%.
Without the supply of adequate, affordable, and sustainable housing at scale, housing backlogs continue to grow alarmingly: Nigeria claims a backlog of 19 million units; in Kenya, the housing backlog is estimated at about 2 million units, growing at over 350 000 units per annum; and in South Africa, notwithstanding its ambitious subsidised housing programme, the backlog persists at an estimated 2 million units.
Annual delivery rates of formal, developer-driven housing are nowhere near what is needed to meet current needs, let alone future projections. As a result, most households build and finance their housing independently – and often poorly. Governments continue to struggle to address the challenge and the private sector looks away, towards other opportunities.
And yet, the market opportunity if the housing ecosystem were to function effectively, is tremendous. First, housing stimulates economic growth and job creation and supports enhanced financial intermediation. Second, housing addresses many of the SDGs, driving access to basic services, contributing towards inclusive growth, and supporting the development of a sustainable future. And third, working housing markets improve the efficiencies of resource allocation, reducing dependence on the state and improving household capacity to meet their needs with their own resources – at the centre of this efficiency is finance.
Key constraint to housing investment: Lack of market intelligence
Market intelligence implies accurate and trended market information, a clear indication of risk and return, and track records that prove long-term viability – specifically targeting the opportunities and the challenges that relate to the affordable housing market. Without this information, practitioners move to familiar territory and high margin activities, while governments are left wondering why they don’t engage.
Although data is fundamental to the investment decision, good quality, focused data is very difficult to come by. Investors, developers, all highlight the difficulty of accessing data that gives an accurate picture of the affordable housing investment opportunity and its risks. Key data questions relate to the nature of the product, its composition, and associated costs; the process followed, including steps, time and cost, and the blockages that arise and the implications these have on overall affordability; details relating to people, the target market, their affordability, other financial pressures, and housing needs; and then the performance of the investment, whether this is a worthwhile venture, or how it might be improved.
Since 2020, the Centre for Affordable Housing Finance in Africa (CAHF) has been working with various partners, including 71point4, Reall, FSD Africa, FSD Kenya, FSD Africa Investments, International Housing Solutions, and Afd, to pursue a Data Agenda for Africa – a key aspect of that broader effort is the Open Access programme, launched in 2021.
The Open Access approach starts from the premise that the investment experience creates a rich array of data and useful market information, simply through the process of its implementation. All this data is valuable. It clarifies the nature of the effort, creating a basis for evaluating outcomes. It highlights blockages in the value chain for attention by policy makers, or possibly for the creation of innovative workarounds by other market players or government officials. It demonstrates market opportunities and suggests points of emphasis. And in these ways (and overall), it can be used to reduce risk as the stakeholders to an initiative have more and better information about what might be involved, enabling them to plan and better target their offerings. This improves the efficiency of investment while also lowering barriers to entry by other parties, who then see opportunities to engage in affordable housing. All of this together creates the basis for scale, even beyond the capital associated with the actual investment.
At the same time, there already exists data and market information, whether in the public domain or still in the filing cabinets of stakeholders or regulatory bodies, that could also be usefully shared in support of the particular investment, or wider market development. Bringing this data also into the framework will ensure that all players benefit from the collaboration.
Disecting layers of housing data
The affordable housing and development sectors have built up a solid, well-respected data and information base regarding affordable housing across Africa, and to some extent, at the country level, which is available in the public domain. It is at the micro-level – at the level of the project or the Fund – that there is very little data in the public domain. As a result, there is very little information to frame a view on product, process, people, or performance – and as such, investors and other market players are reticent to engage because they can neither quantify the opportunity nor the risks.
This micro-level data is kept from the public domain because of its commercial value, and the fear that sharing will undermine the competitiveness of the players. The challenge therefore is to harvest or liberate and assemble this data in ways that support market development without undermining commercial competitiveness.
While the Open Access approach is driven in practice from the perspective of an actual investment, it sits within the affordable housing sector, in which a range of players are already producing information and data that is relevant to the performance of that investment. Open Access seeks to curate all this information in support of the investment, while then also adding to the resource with the data that the investment itself creates.
Once collected, the data will be reviewed and interrogated, and used to produce knowledge products that share key learnings in support of market development, targeted at the breadth of stakeholders. To this end, the approach draws both on the existing activities of all affordable housing sector players, as well as on the participation of the investor, the investee, and their developer, in the context of a specific investment.
The vision of the Open Access initiative is to create a full database of all investments into affordable housing in a particular geography. Data and information sharing between the parties, and collaboration in the advocacy and engagement processes, will leverage the individual efforts of the parties to realise economies of scale across their efforts.
The Open Access approach is based on the underlying principle that no DFI investment will ever achieve sufficient housing delivery to fundamentally alter the availability of affordable housing on the continent. The need for affordable housing, in all its diversity, extends far beyond the capacity of existing investors. We therefore need to use our investments to crowd in other investment attention, and to use our developments to crowd in other development actors and activity.
The Open Access approach therefore asserts that when public money is invested into a development initiative it should have a twin-objective of:
- achieving the immediate development output (i.e., the building of houses) and then also
- supporting broader market development, crowding in other investors and market players to the affordable housing space.
To achieve this, the sharing of data and information related to the investment experience becomes a condition of investment, expressly outlined in the Investment Side Letter.
Over the course of the investment, this data and information will be collected and then assembled / beneficiated into useful outputs for sharing in the public domain and supporting a targeted advocacy programme to overcome market blockages – which face the particular investment and the market as a whole.
The establishment of an Affordable Housing Investment Alliance brings together like-minded investors who commit themselves to this principle of the Open Access approach and work together in achieving the overall goals of affordable housing market development.
In short, the Open Access initiative addresses the information asymmetry prevalent in the affordable housing sector which currently contributes to land speculation, mismanagement, and corruption.
The intention is that the data and market analytics produced through the effort will create the basis for evidence-based policy making and investments, while providing much needed predictability and transparency in the affordable housing market.
|For more information on the Data Agenda for Africa and the Open Access Initiative, visit: https://housingfinanceafrica.org/projects/a-housing-finance-data-agenda-for-africa/|