With all of the excitement currently surrounding Namibian housing, property and land, it is becoming increasingly easy to lose sight of the foundation issues, as well as the constructive solutions to this critical issue. The fundamental problem being faced by Namibia and Namibians, is simple: we have insufficient houses for our population. Given this shortfall, housing, particularly house ownership, becomes exclusive as those that can afford to pay, bid up house prices until they are out of reach of much of the population. This is not a new situation, however, and has been developing and becoming worse for many decades.
The cause of this problem is equally simple: the supply of serviced land to the public from the country’s municipalities has been insufficient to service the housing backlog, not to mention the ever growing population. As little serviced land becomes available each year, it generally ends up in the hands of more wealthy Namibians, who can afford to buy and develop it.
Despite the problem being driven by supply shortages, most of the solutions to the problem that have been proffered to date focus on demand issues. These include the likes of loan-to-value caps, regulation of multiple property ownership, and more recently, rent control and foreign ownership regulation. While certainly good intentioned, none of these solutions look to address the fundamental issue, and at best may alleviate some of the symptoms (at worse are likely to cause major market distortion and disincentivise the building of new houses as well as foreign investment into the country).
So what is the real solution? The real solution, is simple: increase the supply of serviced land. As the problem is serviced land, so must the solution be serviced land. Moreover, this is not some major pie-in-the-sky solution. It is, in reality, much less ambitious than most of the solutions proposed to date. Given a housing backlog of an estimated 100,000 households, and an estimated cost of servicing a 300 square meter plot of N$55,000 (estimates vary from N$35,000 to N$75,000), the cost of sufficient plots to address the backlog would be in the region of N$5.5 billion (compared to the estimated cost of the Mass Housing Scheme of N$45 billion). This is undoubtedly a lot of money, but over the next three years, Government will spend a minimum of N$210 billion, and finding (reallocating) a mere 2.1% of this, to service land, is no challenge at all. Moreover, most Namibian’s would agree that this is the type of project they would like to see taxpayer money spent on, rather than new offices for Government, for example.
These plots could be provided relatively quickly, in large numbers, and could be provided free (paid for by the tax-payer). This provision of free and titled land would enable many Namibians to organise the construction of their own housing (through bank-loans, savings etc.) and would massively reduce the burden on Government to address the housing issue. Moreover, most Namibian’s would favour this approach to having to wait for many years to buy a finished house, constructed by and SOE. While this solution would work for many, others, would still need further support from Government, as not everyone would be able to provide for their own housing once given land. However, this is a secondary issue, which while constrained by the same basic challenge (access to serviced land), should not be considered one and the same problem. Supplying houses to those that cannot help themselves should be phase two of the housing project, and while equally important, requires significantly more Government intervention to resolve, through state provision of low-cost-housing.
Unfortunately, not allowing foreigners to buy houses, and not allowing owners to charge high rents will not address this fundamental issue, and this is really the crux of the matter. The proposed new regulations may help with the symptom, but they will not address the fundamental underlying issue – we do not have enough houses for the number of households in the country, because our municipalities are underproviding serviced land. The beauty of the problem is its simplicity, which means that the solution is equally simply. Because of this, we should be sceptical of any great and ambitious plans to do too much. The immediate solution is to service land, and lots of it. The sooner this is realised, the better.
Insight Magazine June 2013
According to the FNB House Price Index and its underlying components, house prices in Namibia have close to doubled over a five year period, from 2009 to 2014. In some of the country’s towns and cities, however, the price ascent has been even more dramatic, with Windhoek, amongst others, seeing prices double in less than four years. The reason for these notable increases are manifold, both due to supply and demand dynamics in the local economy. On the demand side, growth in the local economy, rural-urban migration, increased employment and a rapidly growing middle-class have driven strong, but ultimately foreseeable, increases in demand for formal housing, particularly in urban centres. It is, however, the supply of property, particularly serviced land, that is the primary driver of price increases. The reason for this is simply that over the past two decades, land supply has failed to keep up with rampant demand growth. The outcome of this demand-supply shortfall is price increases, particularly in urban areas.
As well as increasing house prices, limited supply of new property, particularly in urban centres, has resulted in a sizable shortfall of formal housing, meaning that many families that would otherwise be willing and able to afford formal housing are unable to do so, and thus end up in informal housing. According to Vision 2030, adopted in 2004, the extent of the shortfall was estimated to be approximately 80,000 houses. Updated estimates by local experts put the current shortfall in the region of 100,000 houses, which number is broadly in line with the number of families living in informal housing.
These high house prices not only bear an enormous brunt on the income of households, but it also ensures an in-or-out situation whereby the majority of the population becomes defined as either owners or renters, with little ability to transcend the boundary from renter to owner. In addition, this in-or-out scenario has a pervasive long term impact on inequality, as those that own property experience the capital gains of revaluation, as well as increased income from these investment assets not to mention bank credibility. Thus, those that own property can buy more. Those that do not, are effectively enslaved to pay rent, boosting the income of the already more opulent.
An additional dynamic worth considering is that rapidly increasing living costs, largely driven by housing, services and utilities, have a potential to undermine the competitiveness of the local economy, not to mention drive regression in living standards for many lower-income Namibians. As the cost of living increases, wage pressures are likely to increases, which in turn drives down company profit margins, and disincentivises value adding activity in the country and job creation.
Moreover, the ability to buy property is a key and critical part of establishing a savings culture with which to build an asset base for a person or household. This ability to leverage and invest allows for wealth creation, which wealth accumulation plays a key role in reducing poverty, and closing the country’s major income gap. The persistence of the current income divide in the country, perpetuated by the rapidly increasing cost of basic housing, breeds genuine discomfort within the populous, which in turn results in unrest, which unrest is starting to become alarmingly, but not surprisingly, apparent in the country.
In order to address this major, and potentially devastating social and economic issue, the Government has initiated a hugely ambitious scheme, aimed at providing 185,000 low-to-middle income houses by 2030, for a total cost of N$45bn. This scheme is a noble initiative, however contains a number of challenges and complications, which are likely to challenge its success, particularly in the short term.
To start with, the scheme has been slow to gain traction, and to date has been marred with controversy, from building quality, to tender allocation, to land access. Without looking to direct blame at any individual or institution, the end result is slow and relatively costly completion of the project, with many areas being behind their timeline on the first phase of the project at the time of writing.
Secondly, the project aims to add 185,000 houses by 2030, however it is estimated that the population of the country will have expanded to over 3.0 million by this year (up from 2.1 million in 2011). This increase in population, at current average household size (4.7 persons per household), suggests that more than 185,000 new households will be added in the country by the year 2030. Moreover, as the country becomes more wealthy and developed, average household size is expected to drop (as has been seen to date), thus many more households could be added over this period. As such, the current ambitious plan not only falls short of providing sufficient houses for population growth to 2030, but it will be insufficient to address the aforementioned estimated 100,000 house backlog currently in existence.
However, alternative and complimentary options exists, and may indeed, be favourable. Anecdotal evidence suggests that the majority of Namibians would prefer a more self-help method of acquiring housing, which method presents a number of notable benefits to the country, if implemented strategically. Firstly, results could be seen in a shorter period of time; secondly, costs could be reduced; thirdly, individuals would have more buy-in, encouraging greater ownership; fourthly, industry could be supported and developed; finally, employment levels could be enhanced.
By providing cheap or even free serviced land, the Government would enable Namibians to take control of their housing needs, either through the use of registered developers, or through inter-community assistance. For example, large numbers of unemployed Namibians could work together to build houses in their communities, with guidance and assistance from Government and private-sector experts. Smart housing design would enable individuals to gradually build small entry-level houses into larger and more luxury houses over time, thereby adding value to their property and investment, and developing an asset base for themselves.
Government could take this scheme as close or far as they wished, but could use the economies of scale created by a “housing construction boom” to support and develop key industry in the country, which industry could roll out to much of the rest of the region with similar housing issues over time. This includes, but is not limited to low-cost/alternative building materials, pre-cast building materials, cement manufacturing, various fittings (doors, windows, internal fittings etc.), corrugated iron, flooring, tiling and potentially even structural steel. By supporting such industry with subsidies (rather than import restrictions, which drive the prices up), Government could bring down the prices of these materials, while helping nascent industry to gain its feet with a long term focus on exports.
By sharing the costs of housing development between the Government (through tax and other revenues) and the public (where individuals could provide their own labour or contract in labour), would not only reinforce ownership and buy-in, but would also dramatically reduce the cost on any single party, and expedite the process of delivery.
On the cost side, there exists no doubt that the process will not be cheap, however, will be hugely more cost effective than relying on Government and State Owned Enterprises to provide completed housing. Land can be serviced for an estimated average cost of N$300 per square meter, which suggests that 300m2 erf should cost little more than N$90,000. While small, this areas is an ideal size with which to start, as erven could be traded and/or bought as blocks in order to make for larger plots, at the same time allowing lower-income earners access to land. The provision of 100,000 free erven would thus cost the Government an approximate N$9.0 billion – just 20% of the cost of the Mass Housing Initiative, and less than 3% of forecasted Government expenditure over the next five years. Additional funds could be allocated to industry development, subsidising basic building materials such as cement and bricks.
In addition, many local institutions, such as banks and mines, would be likely to weigh in and assist the public. For the former, land tenure would provide individuals with collateral that would aid them in gaining access to credit for building materials and development, while for the latter, mines may find favour in assisting employees to buy and build properties rather than live in compounds on site, or rented/informal housing in urban centres. Other corporate and Government herself, would undoubtedly benefit from lower housing costs in the country, as wage pressures would be likely to abate somewhat with lower living costs, and lower inequality would improve long term outlooks for social stability.
The Mass Housing Scheme is bold, ambitious and commendable, but will alone be incapable of addressing the country’s housing issues in the required timeframe. A more realistic solution is to provide large scale access to free or highly subsidised serviced land to all Namibians, which land could be used as the building block of housing, job creation, wealth creation and wealth equality. Not only will this expedite the process of delivery, but it will ensure greater buy-in by the public, and dramatically reduce the burden of responsibility on Government and State Owned Enterprises. And, most importantly, it can be done.
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