Nigeria steps up state role but puts off housing reform

In November, Nigeria began selling 5,000 new units of social housing under construction nationwide and financed by the federal government. In this, the state is maintaining its historic approach of directly constructing and managing social housing. Legislative and bureaucractic reform that might support the inflow of private capital has been slow in coming. And since the national housing policy was last rewritten a decade ago, economic growth and consumer spending power have moderated, inclining developers to keep their focus on the luxury end of the housing market where buyers are least sensitive to price instability.

Significance – Housing and land ownership

Nigeria’s real estate sector grew by 2.32% in the third quarter of this year after four years of decline that began when the country went into a recession in 2016.[1] Construction was especially hit by that slump. GDP growth in the industry fell from 13% in 2014 to less than 2% in 2019 – the year before Covid.

Even so, authorities are presently taking limited steps to accelerate sector recovery, and these steps mostly comprise direct construction of housing rather than reforms to the legal, bureaucratic and monetary environment. For example, a three-year Economic Growth and Recovery Plan that was set in 2017 proposed the construction of 10,000 flats per year through a Family Homes Fund. This was conceived as a public-private partnership but is now chiefly backed by the central bank because it has not drawn sufficient private capital.[2]

Changes to the Land Use Act 1978 could attract more private capital to housing development. A relic of military rule, this law states that the sale, transfer, sub-lease or mortgage of land must only be done with the consent of the state governor. Investments in housing remain susceptible to public sector inefficiency, corruption and political risk under this framework. A result is that outstanding mortgages are barely growing and sit around 1% of GDP.[3] This was roughly the same figure when the national housing policy was last revised in 2012.

In the decade since, inflationary pressures and monetary policy have increasingly constrained demand for formal housing and domestic investment alike. Inflation is presently 16% largely due to the currency depreciation and import controls imposed since a fall in oil prices disrupted the country’s terms of trade in 2016. The Central Bank of Nigeria (CBN) is responding to the price instability (and consequently high interest rates) through unorthodox interventions that precede Covid. The CBN is subsidising loans to firms in sectors including manufacturing, agriculture and construction. Here, its flagship since 2015 has been an Anchor Borrowers Programme that subsidises loans for farmers and is inspired by President Muhammadu Buhari’s mantra that the country must grow what it eats. See: Client Update (Nigeria) – Automotives, risk and return. Songhai Advisory (November 2021).

Outlook – Market and elections

President Buhari’s final term will end in the next 17 months after general elections are held in February 2023. Significant changes to land legislation or administration are unlikely in the interim. The Land Use Act is ingrained in the constitution to emphasise its political importance and will not likely be altered in the foreseeable future. Government policy will continue to be centred on directly financing and developing housing, while currency depreciation remains an ongoing source of risk in the absence of a credible nominal anchor and with the country’s declining oil output. Developers will continue to target the luxury end of the market where there is a constant boom – or increasingly turn to a recent financing method where prospective homeowners pay upfront and their deposits are used to develop the property.

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[1] GDP Q3 2021 report (November 2021). National Bureau of Statistics.

[2] Family Homes Fund announces commencement of 4,201 homes in seven states (September 2021). Family Homes Fund.

[3] Centre for Affordable Housing Finance in Africa yearbook (2019). CAHF.

Photo credit: Olasunkanmiariyo, CC

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