ABSTRACT
The motivation for this study arose from the need to place the African Continent on the part of sustainable economic development. Most Countries in Africa have been adjudged to be among the poorest nations, in sharp contrast with the abundant resources in the housing sector. The study adopted the ex-post facto research design. Annual longitudinal data from 1997 to 2014, a period of 18 years were collected from various data banks. The classical linear regression model was used in testing the seven hypotheses formulated from the sampled economies of Kenya, Nigeria, Burundi, Morocco and Namibia. Real Gross Domestic Product (RGDP) constituted the dependent variable, which is proxy for economic growth while outstanding mortgage loans by mortgage banks (MBOHL) and Commercial banks (CBOHL) constituted the independent variable. While interest lending rate (LINT), Total housing loan as a percentage of total loans (THLPTL) and total housing loans as a percentage of GDP (THLPGDP) were proxied for control variables. The findings revealed that housing finance is positive and statistically significant for some African nations, it is positive and none statistically significant for some other African nations. The study recommends a holistic approach to housing finance through Government policy direction, market based economy and introduction of Mortgage Backed Securities (MBS) in the capital markets across the African continent.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Researchers in the fields of Finance, Economics and Urban Development have revealed that the term housing goes beyond the provisions of a place of residence, it includes the available social services such as pipe-borne water, electricity and sanitary condition of the environment among others. Hence decent housing is said to have a positive effect on the lives of the residence in terms of being more productive, improved health, self-confidence and dignified personality. Conversely, a robust housing finance market is a catalyst for economic growth through the creation of employment in other sectors of the economy, assisting household in asset acquisition and improvement in living condition of societies(Bank of Ghana, 2007; Rahman, 2009: Doling, Vandenberg & Tolentino, 2013). Likewise Hassler (2011), affirm that real estate investment is a key contributor to economic growth, household welfare and urban development. Construction is one of the sectors with the most impact on the economy. It deepens and makes the financial system more efficient by helping to mobilize savings, expand access and reduce informal sources of finance.
Conversely, Ade (1983) posits that financing of real estate, which includes our homes, shopping centres, office buildings, firms and factories, is one of the major responsibilities of our financial system. Housing is considered as a basic necessity for man. According to Hanif and Hajazi (2010), Housing is a basic need and the major problem is the shortage of housing units, especially in less developed economies, Pakistan inclusive. This view was supported by Coskun (2011), he argued that the housing problem is an unresolved issue in Turkey. Housing was made a constitutional issue due to the importance attached to housing by the Turkish government. The Turkish Republic Constitution of 1982, article 57,specifically states that the government will take steps to meet the demand for housing delivery within the context of a policy which will consider the peculiaritiesof towns and environmental conditions and supports community housing projects. The place of housing in the economic development of nations is so important that government all over the world, including Nigeria makes provision for decent and affordable housing for her citizens. Onuigbo (1999), opined that housing is a very important facility in the scheme of economic production. All the above authors argued that a well housed workforce enjoy good health, physical comfort and composure of mind, which impact positively on economic production. Similarly, Olaniran
(2003); argued that housing transcends mere provision of shelter. Rather it includes the provision of utilities and community services which enhances human dignity, creates conducive social climate, facilitate orderly development of society and improve the health and sanitary conditions of the people. From the above context three (3) conclusions could be drawn; first is that housing is a fundamental human need. Secondly, that those who live in decent houses are more likely to make positive contributions to the economic growth and development of society. Thirdly, that the term housing includes the environment and social amenities available for the consumption of its occupants. Obadian (2007); puts its thus: “the demand created by housing needs of modern man transcend the provision of mere shelter as it embraces all other social services and utilities that enhances the dignity of a man living a decent life”.
Olayiwola, Adeleye & Ogunshakin (2005), posits that housing is one of the three basic needs of mankind and it is the most important for the physical survival of man after the provision of food. Adequate housing contributes to the attainment of physical and moral health of a nation and stimulates the social stability, the work efficiency and the development of the individuals.
Since housing enhances production, it then means it is a tool for rapid economic growth of a nation. The housing sector has a multiplier effect. In most developed economies, the housing sector is seen as an important sector for stimulating economic growth (Okonjo-Iweala
2014;Isa, Jimoh & Achuuenu, 2013; NHBI 2012). Also Igbinoba (2011) asserted that the housing sector has the ability to stimulate economic growth and development in a depressed or stagnant economy and raising the standard of living of the people. It could be argued that there is a strong correlation between housing contributions to a nation’s Gross Domestic Product (GDP) and the people’s ability to own their own houses.
Similarly, it has been argued that Mortgage lending is the primary mechanism used in many countries to finance private ownership of residential property. It is normal for home purchase to be funded by mortgage loan. Few individuals have enough savings or liquid funds to enable them to purchase property outright. In countries where the demand for home ownership is highest, strong domestic markets have developed (Andrew, 2010; Haurin & Munasib, 2006; Wilcox, 2005). Giving special attention to the housing finance market in Africa is important for the following reasons: It will enable the low and medium income
earners who cannot ordinarily build or buy a house out of their small earning to own a house.
These workers will in turn pay property rent to the government, thereby expanding the government revenue base. This point is crucial when viewed against the background that 70 percent of all tax revenues raised by local municipalities in the United States, comes from property taxes (Igbinoba, 2011). Also a well-developed housing finance market will provide paid employmentand stimulate economic development in the other sectors of the economy. It has been argued that the US real estate industry is a major contributor to the national economy. In 2001 it provided job for 1.7 million Americans and it generate hundreds of billions of dollars every year as an economic output. (Igbinoba, 2011). Aside from enabling the low income group to own a house, tax revenue to governments and generation of employment, the desire to build or purchase a house is a primary motivation for the generation of household savings in the financial system.
Housing finance market is a segment of the capital market. It has been argued that housing finance refers to the activities of both private and public sectors in providing financial resources with or without financial agents and intermediaries for the purchase, construction, improvement or renovation of a housing unit including the immediate infrastructure (Onuigbo, 1999). Also Boleat (1985), observed that the purpose of a housing finance system is to provide the funds which home-buyers need to purchase their homes. However, there may be differences and complexities from country to country due to government intervention, but the essential feature of any system, that is, the ability to channel the funds of investors to those purchasing their homes, must remain.
There is a strong correlation between the housing finance market and development as evidently demonstrated in the US economy before and after the economic meltdown of
2008.It is as a result of the positive relationship between the housing sector and economic development that the US economy experienced a fast growth between 2001 and 2007, a period referred to as housing bubble. However, with a crash in the housing sector which occurred between 2008 and 2010 as a result of the subprime lending crises, (bubble burst) the US economy also declined within the period.
The purpose of this study is to ascertain the effect of the housing finance market on the economy of African’s States. Activities in housing fiancé market were examined in Kenya, Nigeria, Burundi, Morocco and Namibia due to the relative availability of data in these markets. There is dearth of data in housing finance in most African countries, consequentupon the under development of the market in the continent. Similarly, it has been noted:
when it comes to African economies, and that of many other developing countries, I think this conventional wisdom on the importance of the housing sector seem to be forgotten. The housing sector is almost a big elephant in the room which seems to have escaped the attention of policy- makers, multilateral institutions and the private sector. At present, housing finance remains under developed in most emerging markets. The lack of financial services in developing countries has a significant negative impact on the efficiency of urban investments, of which housing constitutes probably form about 60 percent if the experience of advanced economies in any guide (Okonjo-Iweala, 2014; Renand, 2004).
Among the countries of North Africa region, Morocco has the most advanced housing finance market while the Egyptian mortgage market is the least developed. Egypt housing finance market is relatively young, although the country has a long history of provision for housing. In the 60s and 70s the policy was provision of mass housing by the state. The policy was later considered to be inadequate as the burden of provision of houses especially for the poor was becoming unbearable for government. The government has since charted a new course, the provision of enabling environment for private sector to thrive. Hassan (2014) posits that with the establishment of Egyptian Mortgage Refinance Company (EMRC) in
2006 with the objective of providing long-term finance to the mortgage finance companies, the housing finance market has witness a tremendous growth. EMRC issues bonds duly collateralized by real estate loan portfolio, which help enhance the bond market and provide long-term finance resources.
On the contrary, growth in the Nigerian housing finance market has been slow. It accounts for only 4 percent of Gross Domestic Product (GDP) at its Peak. At a time it was as low as 1 percent (Kolawole, 2015). According to Kolawole (2015) the sector has in recent time out grown the GDP at 8.7 percent. On the other hand Namibia has a strong and efficient finance market. It is estimated that about 52.8 percent of the total credit in 2012 were mortgage loans. Comparatively, the Namibian financial sector is second only to South Africa within the African continent. Thus South African has a history of sound financial system. The government introduced several measures to induce financial institutions to invest in the housing sector. Part of the measure was the establishment of the National Urban Reconstruction and Housing Agency (NURCHA). It was established to provide guarantees to both bank and non-bank lenders as a mean of lowering the risk of operating in this segmentof the market (Moss 2009).
1.2 STATEMENT OFTHE PROBLEM
The African continent has been adjudged to be one of the poorest region in the world. This is in sharp contrast with the huge abundant resources in the housing and housing finance sectors waiting to be taped. Several studies have been carried out on housing finance market. However none seem to have addressed collectively the problem of the impact of housing finance market on the economies of Kenya, Nigeria, Burundi, Morocco and Namibia. It has been argued that housing and housing finance has the potential of re-positioning the economy of nations. On the other hand, international experience in high income economies shows that a well-functioning mortgage market will provide very larger external benefits to the national economy. Efficient real estate development, construction sector employment, easy labour mobility, capital market development, more efficient resources allocation, and lower macroeconomic volatility (Renaud 2004).
This study is shaped around Oyalowo (2012). The research conducted by Oyalowo in (2012) examined the constraints limiting lending institutions’ participation in housing finance supply in the West Africa region. It also examines how governments across West Africa can tackle these constraints. It was based on regression analysis of secondary data related to factors necessary for lending institutions’ participation in formal housing finance supply. The ratio of the private credit to GDP of West African countries between 2008 and 2010 is regressed against the independent variables inflation rate, procedures to register property, time to register property, cost to register property, strength of legal right index and depth of credit information system. Similarly, Chen et al (2006) focuses on economic development and housing affordability in China. It argued that the importance of housing finance industry in the Shanghai economy increased significantly since 2000. Its share in Shanghai GDP was
5.5% in 2000 but has risen to 8.4% in 2004, it is now the third largest industry sector in Shanghai and ranks behind only the IT and finance industry sector. Other studies asserted that the housing sector is an important segment in any economy. As such housing policy must be seen as one of managing an important economy sector, with crucial links to overall economic performance, rather than, as is a common view, simply producing dwellings as a component of the social welfare system. These links, through the real, fiscal, and financial circuits of the economy are becoming increasingly well understood. As these become more transparent, the
stakes of good housing policy become more and more evident. Furthermore the housing
This material content is developed to serve as a GUIDE for students to conduct academic research
IMPACT OF HOUSING FINANCE MARKET ON GROWTHOF SELECTED AFRICAN ECONOMIES
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