How to Achieve A Housing Agenda for Political Leaders and Policy Makers

By Marja C Hoek-Smit (Wharton School, University of Pennsylvania (Retd.) HOFINET)

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

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

1. 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)

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!