Dar es Salaam. Housing affordability is typically considered to be a social issue despite the fact that it is normally given little attention on the economic development agenda by many countries.
In contrast, homelessness and poor housing multiply inequalities and have a long-term impact on physical and mental health.
Affordable housing is housing that is appropriate for the needs of a range of very low to moderate income households and priced so that these households are also able to meet other basic living costs such as food, clothing, transport, medical care and education.
As a rule of thumb, housing is usually considered affordable if it costs less than 30 percent of gross household income.
The Sustainable Development Goal (SDG) 11 to make cities and human settlements inclusive, safe, resilient and sustainable provides an unparalleled opportunity for the attainment of collective and inclusive progress, and for the achievement of sustainable development in the world.
Affordable housing is sometimes used synonymously with low cost housing which may not necessary mean the same thing. Affordable housing is not the same as social housing.
Affordable housing is open to a broader range of household incomes than social housing. However, low cost houses are normally meant for an even lower income group that may not be able to qualify for affordable homes and sometimes, low cost houses may be built to implement some government sponsored social housing programmes.
The recent establishment of the Government sponsored Tanzania Mortgage Refinance Company (TMRC) has helped a great deal in enhancing the liquidity in the housing market by providing long term finance to banks that provide mortgage loans. Despite its newness in the market, TMRC has played a pivotal role in curbing interest rates to at least manageable levels.
Despite these positive development, more efforts need to be done in easing access to mortgage products by those in the lower income bracket. In connection with this, like what is applied in other few countries, the government could adopt a short-term measure such as not taxing the income meant to service mortgage instalment similar to what it does to pension’s deductions.
This will have the impact of enhancing affordability particularly to the lower income group which would otherwise remain with nothing to take home at the end of the month once the mortgage instalment paid to service the loan is taxed.
Watumishi Housing Company (WHC) ceo Fred Msemwa said affordable housing can be a barrier to equality if only the high earners are able to afford and have registered house which enable them access to both financial and land market.
“But if its affordable to the extent even lower income earners own registered properties they can benefit from opportunities offered by land and financial market that will enable them rise up the ladder to equality,” he said.
Why housing affordability matters
The health effects of poor housing disproportionately affect vulnerable people: older people living isolated lives, the young, those without a support network and adults with disabilities.
There is a compelling evidence showing that if housing is no longer affordable to such working groups such as teachers, nurses, drivers, people working in industries among others then this will directly impact on the productivity of industries as industries will have to pay higher salaries to staff to enable them meet the cost of shelter.
It is, therefore, critical that public and private corporations entrusted with the provision of affordable housing in Tanzania strive to ensure they do so in a manner that supports the national resolve to grow an industrialized economy.
The support needed should come in the form of enabling the working class to get decent homes for rent or buying at a cost that does, at worst, exceed 40 percent of their income to leave a reasonable income to meet other family needs such as education, health.
Given the salary level of the average Tanzanian working class which does not exceed Sh500,000, this is a major challenge to affordable homes developer in the country as they have to match the prices of their homes with the income level of this group.
Speaking to The Citizen LGV Real Estate Consultancy, Moving Coordinator Enock Barikulige said the issue of housing affordability is complex with a majority of high income earners living in posh areas like Masaki where houses including stand alone or apartments are rented at $800 or more.
“We also have middle income earners who are found in areas like Kinondoni, Tegeta, Mikocheni or even Mbezi Beach where cost of renting a house ranges between Sh300,000 and Sh600,000 on a monthly basis,” he said.
Income inequality and house affordability
Across the globe, and as currently evidenced in Tanzania, the existence of higher distribution of income at the top end is associated with significantly higher rents and crowding out for those at the lower end of the income distribution.
Aside from growing income inequality and decreased housing affordability, the supply of housing in Tanzania has failed to keep pace with demand, putting upward pressure on the existing stock of housing.
This has further exacerbated housing prices and has contributed to Tanzania’s housing affordability crisis.
This crowding out effect also has potential impacts for local labour markets and economies.
With this trend, the supply of labour is likely to be concentrated in areas where there is availability of affordable homes compared to areas where there is limited supply of affordable homes.
“As people continue to fail accessing economic opportunities available in major towns where industries and other economic activities take place, they are poised to remain poor hence failing to exit the poverty trap,” said a financial expert based in Dar es Salaam, Fredrick Ulomi.
He adds; “On the other hand, lack of affordable homes will force employers to pay higher salaries to employees which will not only erode on their competitiveness but also not bring any meaningful impact on staff’s welfare as the majority of which is used to pay for shelter.”
What makes houses to be expensive?
In the context of the Tanzanian housing market, there are several factors which make prices of houses inordinately higher.
Such factors include both those related to supply of houses as well as those which are related to the demand side of the equation.
On the supply side, this includes factors such as the price of land and zoning requirements, the building permits and approval mechanisms, the costs of service infrastructure such as water, electricity and water, the cost of finance to developers etc.
In the recent past, the cost of land had been rising to unimaginable levels that have locked out many low and middle income earners. As the cost of land forms part and parcel of the houses pricing formulae, this has been one of the factors which has raised prices of houses sold under planned development.
In some cases, the zoning requirements restricts development of high rise buildings. Though intentions may be good, zoning requirements that result into acceleration of horizontal development results into need for more investment in new roads, water and electricity systems which must be absorbed by house buyers.
It is, therefore, not surprising to note that Dar es Salaam’s five million people could be accommodated in a much smaller space compared to the existing scenario which is dominated with horizontal development of residential houses some of which are being done on unplanned areas.
Real estate experts are also ruing the lag of time it takes to get building permits. “There are times where granting of building permits takes inordinately long resulting into delayed commencement of project and completion. Assuming such projects are financed by loan, this has the implication of pushing the cost of finance upward and hence translating into additional costs of each individual residential units,” noted Makena Dennis, a real estate developer.
In recent times we have witnessed several measures being taken by the government to address these issues. Such initiatives include improvement and decentralization of land administration, curbing of land prices hikes, expanding water supply services.
While these initiatives signal a move in the right direction, more improvement is needed in ensuring Tanzanian cities and towns grow vertically rather than horizontally.
“This move has the advantage of attaining long term affordability for houses as well as leaving a sizable stock of land for future generations,” Dennis states.
Factors which influence prices of houses include interest rates charged by banks on mortgage finance, taxes on finished housing units, taxes on monthly mortgage instalment paid by house buyers and the duration of loan.
Interest rates charged by banks and financial institutions on mortgage products remain to be one of the biggest hindrance on affordability of houses sold in the Tanzanian housing market.
Higher interest on mortgage can even erode the efficiency of developers as even cheaper houses become unaffordable when they are to be bought through mortgage finance.
Ayamba Sadiq, a Kinondoni resident who recently started building a house in Kigamboni says that had it not been for high interest on mortgage, she’d already be a home owner by now. The 35-year-old woman had plans of owning a house by the time she turned 30. But unfavourable interest rates on mortgage made her resort to plan B.
“It will now take me at least 5 years to complete with construction of my house,” she says.
Putting the high mortgage interest rate in context; a house selling at an affordable price as low as Sh28 million on a 25 five years mortgage at 18 percent interest rate requires one to pay at least Sh424,000 per month for the entire period of the duration of the loan.
This means that the majority of the Tanzania working class cannot afford to buy a house worth Sh30 million under such terms. Impliedly, the working class and most
Tanzanians so to speak resort to building houses on a self-help basis where more than 98 percent are built on incremental basis taking between 1 to 15 years to complete.
From the accounting point of view, the cost of such houses built on incremental basis become even more expensive as one has to pay rent elsewhere during the whole period when the house is under construction. However, there are positive developments that are showing light at the end of the tunnel. These include the different housing projects being built around the city which are said to be more affordable to low income earners upon completion.