The housing sector, changes in the housing markets, and the systems of housing finance have significant implications on the financial markets, macroeconomic stability, and monetary policy. Therefore, most economies in the developed world adopt policies that make investment in their housing sectors attractive, resulting in their ratio of outstanding mortgage to GDP being above 50%. However, in most of the emerging/developing economies like Nigeria, even with resources at their disposal, the ratio is below 2%. This paper examines aspects of financing for housing acquisition over a period of time in Nigeria. The conclusion highlights pitfalls that need to be overcome; one of which is the need to adopt other means of mobilizing long-term liabilities to fund housing finance rather than depending on short-term deposit liabilities.
For a typical house-owner, the house is a major asset in his portfolio and for many households, the purchase of a house represents the largest (and often only) life-long investment and store of wealth (Malpezzi, 1999; Tsatsaronis and Zhu, 2004; Mabogunje, 2008). Furthermore, Bardhan and Edelstein (2008) argue that housing represents a large proportion of a household's expenditure and takes up a substantial part of lifetime income, and the provision of housing services depends mostly upon a well-functioning housing finance system. The consideration of acquiring a house is driven by the cost of acquisition and various government economic policies, which could be fiscal or monetary.
Nigeria has the largest urban population amongst other Sub-Saharan African (SSA) countries and the conservative estimates of Nigeria's urban population show that it exceeds the total population of all but South Africa and Ethiopia (The Economist, 2008). The urban population growth is between 6% and 8% per year in major cities such as Lagos and Ibadan, with a quality of life index of 41.8 to New York City at 100 (The Economist, 2008). The housing deficit stands at 14 to 17 million; up from the 8 million identified in the 1980s and 13.64 million estimated by Ajakaiye and Fatokun (2000) for the 2000-2005 period. Over 72 million Nigerians are either homeless or live in rented sub-standard homes in areas best described as slums (Omirin and Nubi, 2007). According to the 2010 Global Monitoring Report of UNESCO, about 92% of the population earns less than US $2 a day, with about 71% surviving on less than US $1 a day.
Housing problems result from complex inter-relationships amongst social, political, and economic policies and interaction with other activities in other sectors of the economy (Okunsanya, 1994; Soyingbe, Lawal, and Ajayi, 2007). The identified factors militating against housing provision in Nigeria include difficulties in land acquisition, lack of housing finance, high cost of building materials, problems on existing land policy, poor infrastructure (both physical and financial infrastructures), among others.
In most government circles, difficulties in land acquisition have been considered as the greatest factor militating against housing provision. In recent studies, Abdulai (2006, 2007) refuted the perception that traditional land rights are insecure as premised on the fact that the rights are not formally registered. It is argued that both registered and unregistered titles can be lost or annulled. Land registration does not guarantee the security of title or make it indefeasible; there have been instances where two different documentations originate on one piece of land.
However, Abdulai (2007) and Mabogunje (2008) have argued that housing finance is the most important factor in that people in the rural areas acquire traditional land and build on those lands. The construction might take a longer period of time to complete, which is described as progressive construction, because finance is not readily available. About 90% or more of total housing provision has traditionally being provided by the private sector (Buckley, Faulk, and Olajide, 1994; Ajanlekoko, 2001). …