_Challenges and Opportunities in Uganda’s Affordable Housing
Affordable housing is achieved when the related acquisition costs do not jeopardize other fundamental needs and represents a reasonable proportion of a household's overall income. According to the UN-Habitat, the cost for housing should not exceed 30% of the total household income. Despite the increase in investment in the segment, supply has not been sufficient to meet the growing demand.
With a population growth rate of 3.3% and an urbanization rate of 5.67%, the current population of 42million in Uganda indicates a housing shortage of 2.4 million units, with 210,000 in urban areas and 1.395 million in rural areas. The housing supply is neither adequate nor reasonably priced to meet the needs of the population in the housing gap, which is primarily comprised of individuals in the bottom end of the market. Increasing land prices, high cost of construction materials, limited access to funding opportunities, and planning bottle necks, are some of the issues limiting supply. On the other hand, demand is limited by low per capita income, high costs of borrowing, limited mortgage opportunities and affordable housing stock.
The housing needs of the Ugandan population continue to increase, necessitating an estimated 300,000 housing units annually to reduce the housing gap. Supply is dominated by private developers, who target mid-high-income and high-income groups, where a return on investment can be realised. Housing supply in the low-income segment is by individual homeowners who apply the incremental housing approach and construct houses using their savings and loans from microfinance institutions. Despite efforts by private developers to provide relatively affordable dwellings, a more robust approach to closing the housing gap on a wide scale will require government intervention which will include public and private partnerships, subsidies, policy interventions, and incentives to boost private developers.
According to the H2 2021 Kampala Market Update report, the housing supply in Kampala’s prime residential suburbs increased by 9%. A major observation was that the supply was targeted at the top end of the market, highlighting the existing mismatch between the type of housing supplied and the profile of people comprised in the housing gap. The report indicated that tenants and purchasers are opting for accommodation in secondary suburbs because of the slightly lower rents, despite the commute distance to the city center.
There has been a real effort by numerous developers to deliver houses at more affordable prices than was the case in 2021. According to the Center for Affordable Housing Finance in Africa, the cost of the cheapest newly built house by a formal developer in Uganda in 2019 was UGX 125 million (US$33 719). The price is still high for individuals in the mid to low-income segment who majorly work in the informal sector. With median monthly earnings of an employee in Uganda at UGX 200,000 (US$55), majority of the population is unable to afford mortgage financing.
Across the continent, several innovations in the construction and finance industries are fostering the development of affordable housing, making it cheaper and faster to develop. In Rwanda, developers are embracing the use of light concrete and light steel frames that are cost-efficient and faster to deliver than conventional steel products. Rent-to-own financial models as well as digital retail banking are opportunities that will allow more individuals in the low-income bracket to access housing products.
In Kenya, the government through its affordable housing program has instituted attractive incentives to propel inclusive growth through the removal of stamp duty for first-time buyers, reduction of corporate tax from 30% to 15% for prospective developers who seek to build more than 100 affordable units, providing bulk infrastructure such as drainage and utilities in earmarked neighborhoods and offering Value Added Tax (VAT) cuts and or exemptions on construction materials.
Additionally, in order to alleviate the poor financing of affordable housing projects, prospective developers can exploit other financing options such as Savings and Credit Cooperation Organisations (SACCOs), joint venture financing, and investment clubs which have steadily grown their savings as opposed to the traditional sources of commercial banks and financial lending institutions.
International institutions and corporations like the World Bank, International Financial Corporation, and African Development Bank are actively investing in Africa’s affordable housing industry, creating opportunities for partnerships with governments and private developers in a bid to provide more affordable stock to the deprived segment of the population.
As Uganda aims to attain a middle-income status, adequate housing for all through affordable homes will be key to promoting equitable economic growth and sustainable livelihoods for its growing population. An adaptation of some of the solutions from other countries as well as active involvement by the Government may serve as a catalyst in achieving some success in the provision of affordable housing.