Core Messages
- Current string of economic shocks battered emerging market
economies hard - With major impact on housing programs, affordability and supply
- But housing offers enormous opportunities
- To stimulate economic recovery and generate employment
- And improve social, community health and educational outcomes
- Requires policy incentives that address the macro and fiscal challenges
- Expand and derisk financial/capital markets for housing
- Reform poor, costly policies
- Rethink measures to unlock supply in underserved markets
- Key: how to bring policy-makers together around common platform?
Multiple Crises Hit Emerging Markets - Strained finances/high debt levels due to Coronavirus pandemic
- Soaring global inflation: supply chain issues and War related shortages
- Tightening of monetary policy in advanced economies
Resulting in: - Deceleration of economic growth – EMDEs GDP per capita growth and
expected growth 2 to 2.5% from 4% pre-pandemic - Investors shift away from EM bonds –
- Benchmark index of dollar-denominated EM sovereign bonds down –
JPMorgan Global Diversified- total returns -18.6% in 2022
Sub-Saharan Africa: Real GDP Growth – by type of
economy —First Covid then War Impact
Sub-Saharan Africa: Increased Public Debt
Composition of Public Debt, 2010 and 2020- percentage of GDP
- Public debt increased considerably,
partly pandemic related; mostly
financed by private creditors and
increasingly from domestic financial
markets - Large part of sovereign debt held by
banks –average 20% of assets - Large increase in foreign debt –>
vulnerability to tightening in global
financial conditions and exchange
rate - High debt exposure limits fiscal space
to address price jumps /downturn in
poorer countries
Global Inflation Increased: Supply Chain and War
- -Latest Inflation Projection
for SSA: still elevated for
2022 at ~12%, but
projected to decline to
9.6% in 2023
-Related depreciation of
currencies against the USD
USD Has Strengthened
“The dollar is our currency but it is your
problem” J.B Conally Treasury Secretary 1970s
- Other currencies have dropped against the
dollar – no further increase expected - Increasing costs of foreign debt servicing
(90% of all forex transactions are in USD) - And making imports more expensive
- Only commodity exporters win
- E.g. Nigeria v Ghana v Egypt
- Some South and South East Asian economies
outperform other EMDC (e.g.India)
Result:$52bn Withdrawal from EM Bond Markets 2022
JPMorgan EMBI Global Diversified ( Dollar denominated EM sovereign bonds)
Annual Net Fund Flows $bn Total Returns Year to Date July 10 2022
Change in 10-Year Foreign Currency Bond Yields of
Selected Emerging Market Economies
Yield jumped by >10% this year in below countries
But reasons differ for different countries
Some countries in debt distress have pending deals with IMF
Sub-Saharan Africa: Sovereign Yields 2019-2022
Compared to EM Bond Index (percent)
What does this Mean for SSA’s Housing Sectors?
Macro-economic Volatility and Housing Make Poor Bedfellows
- Increase in interest rates/ interest rate volatility:
- Reduces demand for loans => lower demand for houses or home-improvement
- Impacts supply of loans- most mortgage lending is in fixed rate for life of loan; lenders cannot bear
interest rate risk => mortgage issuance sharply reduced; same for developer loans; - Banks hold highly priced sovereign bonds (risk free)- negative for mortgage market development
- Danger of stagnation in the housing sector
- Effects on house-prices relative to incomes:
- In advanced economies: higher interest rates often lead to house-price decreases
- In EMDC: mortgage sector is small; concerns focus on price increases – building materials
(imported) + higher interest rates; impacting affordability if incomes lag inflation - Effects on Fiscal Space:
- debt servicing costs higher; lower tax revenue; limits ability to invest in basic
infrastructure and services; or stimulate demand or supply of housing – limit current subsidy programs
But Housing Sector Offers Enormous Economic
Opportunities in Times of Downturn
Best way to reach sustainable debt levels + fiscal balance is economic growth
Housing sector is large part of economy ~ 16% to 20% of GDP in EMDC - Through consumption and investment
Housing Sector can (quickly) stimulate economic growth and in the process– - Generate employment (skilled and unskilled)
- Improve urban productivity and environmental sustainability
- Improve household productivity
- and social, community health and educational outcomes
How can this Potential of the Housing Sector be Achieved
During this Period of Uncertainty?
Three core areas for action in SSA, given current macro constraints
- Urgently expand financial sector for housing to deal with new financial
risks: primary lending and capital markets - Scale up housing supply through targeted private + public sector actions
using innovative methods without adding fiscal stress - Create common housing platform for public and private decisionmakers
to achieve speedy actions
Unleashing the Housing Sectors Potential –Policy
Actions - Macro policies + public/private policies to expand housing finance
Loan level – lending in times of uncertainty
- New mortgage instruments to deal with inflation (indexation)
- Credit guarantees for developer lending and mortgages
- Ease regulatory requirements for mortgage lending (cap requirements, etc.)
- Reform/close poorly structured + expensive mortgage subsidies
Investors- Capital market expansion to reduce risks - Expand capital markets for housing instrument to alleviate interest rate risk/+ALM
- New cap market debt instruments backed by residential property; attract new investors
(domestic/foreign) - New ESG compliant bonds to attract new foreign investors
Africa has several Refinancing Facilities — Nigeria, West African Monetary Union, Kenya,
Tanzania, Egypt that can take the lead to implement these policies urgently
Unleashing the Housing Sectors Potential –Policy
Actions (2)
- Scale up supply! Urgently
- Finish ongoing projects (access to debt finance; subsidies)
- Expand access to titled land (reforms) – new land surveying/registration
technologies - Use land value capture mechanisms to pay for infrastructure and cross subsidies
- Facilitate permitting; use realistic sustainable and affordable standards
- Increase domestic production of building materials
- Etc.
Most of the panels in this large and famous housing show focus on supply-side
innovations, which is critically important. I leave that topic to others.
How to Bring Policy-makers from Public, Private,
Non-Governmental Sector Together around
Common Housing Platform? - Create urgency around housing sector in current downturn
- Build coalition among top decisionmakers at national, state/local level
- Include private/NGO/DFI players – lenders, investors, developers
- Focus discussions on top priorities for housing sector to reach scale
- Understand what went wrong in past approaches to activate the
housing sector – lessons? - Create understanding and political will at highest political level to
make housing sector a national priority
Conclusions - String of economic shocks have battered SSA economies
- With negative effects on economic growth
- Housing has the potential to drive economic recovery
- With a targeted approach on priority policy areas
- Derisking developer and mortgage finance
- Scaling up supply through regulation, innovation, etc.
- Requires buy-in from high level public and private policy-makers
- The Africa International Housing Show brings all players together
- Great opportunity to start the action now!
By
Marja C Hoek-Smit