affordable housing rhetoric in ghana and how to fund it

AFFORDABLE HOUSING RHETORIC IN GHANA AND HOW TO FUND IT

Dogbegah1, R. and Donkor-Hyiaman1, K.A.

1Chartered Institute of Building (CIOB) – GhanaAccra, Ghana.

1School of Real Estate and Planning

Henley Business SchoolUniversity of Reading, UK.

Presented byKwaku Addo Boateng (CIOB)

Presentation Outline

• Introduction• Affordable housing and housing affordability• Affordable housing rhetoric in Ghana• Funding affordable housing in Ghana• Pension asset-backed housing finance: theory

and practice• A model for financing affordable housing• Conclusion

Introduction• Ghana’s housing deficit is estimated at about 1.7

million units, largely in Affordable homes(MWRWH, 2014);

• The housing deficit is expected to reach 2 million by 2020;

• The formal housing market serves mainly high-income and upper middle-income households;

• Current housing supplies are either unaffordable or inadequate to meet the needs of the masses; i.e. low-income or lower middle-income.

Introduction (cont’d)

• Many developers market their supplies as affordable housing, although unaffordable to the masses;

• There is virtually no affordable housing considering current house price cuts and income levels in Ghana;

• The fact that some households can afford the houses on the market does not make them affordable housing;

• What then is affordable housing?

Aim of the Paper

• This paper is an exploratory study that attempts to conceptualize affordable housing as a product distinct from the concept of housing affordability;

• To suggest a model for the propose National Housing Fund recommended by the new National Housing Policy.

Affordable Housing and Housing Affordability: What is the Difference?

• Affordable housing is synonymous to earlier designations like ‘poor housing’, ‘subsidized housing’ and ‘social housing’ particularly in Europe and bears much semblance in meaning with housing affordability;

• Affordable housing like social housing expresses a social need;

• Affordable housing implies that a responsible and humane society has an obligation to assist those of its members who cannot afford decent housing given their income levels.

Affordable Housing and Housing Affordability: What is the

Difference?• The concept of affordable housing is the same

across countries but the definition of what is affordable varies per region, country, and community, etc;

• The UK National Planning Policy Framework (NPPF) (2012) defines affordable housing as the sum of affordable rent, social rent, intermediate rent and affordable home ownership provided to specific eligible households whose needs are not met by the market; subject to rent controls that require a rent of up to 80 per cent of the local market rent (including service charges, where applicable).


• According to the London Tenants Federation, affordable housing is housing deemed affordable to those with a median household income as rated by country, province, region or municipality by a recognized Housing Affordability Index;

• Eligibility depends on local authority allocation policies, local incomes and local house prices depending on the type of affordable housing;

• Peter O’Brien of the Royal Town Planning Institute (RTPI) in the UK provides a quantitative benchmark, making reference to past EU definitions that equate what is affordable as 75 to 80% of the market price or rent.

Affordable Housing and Housing Affordability: What is the Difference?• The difference between the market house prices

and affordable housing is accounted for through direct or indirect financial assistance - subsidy usually from the government (Turner, et al., 2009);

• Affordable housing should be reasonably adequate in standard and location sustainably;

• Reasonable adequacy in India means a 300 – 1200 Sq. Ft (KPMG, 2010);

• Affordable housing is usually secured by law; for instance, by “planning gain” in the planning law in the UK (Crook et al., 2001, 2002; Holmans et al., 2000, 2004).


• Housing affordability is however usually expressed as a ratio of house price-to-household income;

• Acceptable ratios in most developed economies are 1:3 or 1:4 (Jones and Datta, 2002);

• Housing affordability is also expressed as one-third (1/3rd) or 30% of total household income (Karley, 2009; Quigley and Raphael, 2004);

• Affordable housing is thus a housing product while housing affordability is a measure of the affordability of a house to afford.

The Reality of the Affordable Housing Rhetoric in Ghana

• Housing sector has never been a large component of national economic planning but rather a part of the welfare sector (Ayitey and Pitcher, 2013);

• The State was active in the provision and financing of housing in the late 1950s to the early 1980s;

• Government proposed a construction of 6,700 housing units in the 1959-1964 development plan (Government of Ghana, 1959 cited in Arku, 2009);

• 200 of the units were targeted at middle-income households, 1,500 for low-income households and the remaining 5,000 units for Government workers.


• Government’s Seven Year Development Plan dedicated £13.3 million for low-income housing out of a total £44.5 million in the housing sector;

• The project included the construction of 60,000 new housing units between 1964 and 1970 (Government of Ghana, 1964 cited in Arku, 2009);

• Only 11,752 units representing 20% of expected output was completed by 1966 (Konadu-Agyeman, 2001);

• Subsequent mass housing construction was envisioned but also thwarted by inadequate funds;

• Many of the old housing estates in Accra and Kumasi were directly developed by Government but housing deficits kept increasing;


• Structural Adjustment Program (SAP) had a toll on government supply of housing (Awuvafoge, 2013);

• Low-income housing was a major policy tool in the Ghana Vision 2020 Agenda to propel the nation into middle-income status;

• The Ghana Poverty Reduction Strategy (GPRS I) was initiated mainly for housing intervention but also failed;

• About 20,000 affordable housing units were initiated by government at the beginning of the millennium;

• Only about 4,500 units - ranging from bed-sitter, single and two bedroom apartments had started in some regional capitals by 2007;


• In 2009, a US$10 billion affordable housing project signed between the Government and STX Korea to deliver 300,000 housing units was abruptly thwarted;

• At an average unit cost of US$50,000, the intended affordable housing units were practically unaffordable at the time;

• The incumbent government recently handed over the uncompleted affordable housing projects initiated by the erstwhile government to the SSNIT for completion;

• Affordable housing provision has not attracted the needed attention;

Financing Affordable Housing: Pension Asset-Backed Housing Finance

• End-user finance and development finance remain one of the major constraints;

• Many people do not have enough formal savings to provide mortgage down payments; hence cannot access the traditional mortgage finance products;

• Most banks lack long-term funds to originate enough mortgage loans;


• The new National Housing Policy (2015) proposes the establishment of a National Housing Fund;

• The fund would provide affordable mortgages, construction finance, slum upgrading and support for small scale local building material producers;

• The nature of the fund in terms of its sources of funds is however subject to debate;

• We propose that the tier 2 pension scheme of Ghana is a potential source of long-term funds for the National Housing Fund;


• Pension asset-backed housing finance enables members of pension funds to utilize their accrued pension benefits to finance housing;

• Members can either collateralize their pension benefits (pension-secured loans) or borrow the benefits (pension loans) (Sing, 2009; Short et al., 2009; Afrane et al., 2014);

• Common in South Africa, Kenya, Botswana, Tanzania, Mauritius, Singapore, Brazil, Mexico.

A Model of Pension Asset-Backed Housing Finance

Affordable Housing Finance Model: Mortgage Trust funded by Tier 2

Pension Contributions• The proposed National Housing Fund can

take the form of a mortgage trust;

• A mortgage trust is a form of real estate investment trust (REITs) that specialises in mortgage investments;

• REIT is a publicly or privately-traded corporation or association that acts as an investment agent specializing in real estate;

• The REIT would be a pension fund manager;

Affordable Housing Finance Model

• Tier 2 pension scheme members can then invest their 5% monthly contributions in the REIT and own a share;

• The REIT can be used by members as a savings mechanism to raise the needed down payments for a mortgage;

• Accumulated savings can then be collateralized by members to raise an affordable housing loan from the REIT;

• The REIT can also lend to developers in the form of construction finance particularly for affordable housing development;

Stakeholders

• Tier 2 pension scheme members;• Pension trustees;• REIT;• Special affordable housing developers;• Government;• Institutional investors, i.e. mutual funds,

SSNIT, insurance firms.

Proposed Framework

Roles of Stakeholders• The REIT as a pension fund manager would

receive tier 2 pension contributions and invest them in pension-secured loans;

• Pension-secured loans are allowed by section 103 (2) of the National Pension Act, 2008 (Act 766);

• The Pension Trustees will have two basic functions:

(1) responsibility of investing members’ contributions in the mortgage trust; and

(2) serve as a servicing channel for housing loans contracted by their members from the mortgage trust.

(3) They could as well guarantee repayments for a fee.

Roles of Stakeholders

• Government would provide the needed subsidy and negotiate land acquisitions for affordable housing development;

• Institutional investors would invest in the REIT as secondary lenders;

Recommendation• The comprehensive national policy on

affordable housing is indispensable;

• Further research into the potential of pension asset-back housing finance in Ghana is needed;

• Further research areas may include; (1) pricing of pension asset-backed housing

finance, (2) institutional workability of pension asset-

backed housing finance.

Conclusion• Affordable housing has attracted little

attention from the public and private sectors;

• There is no comprehensive policy on affordable housing in Ghana;

• Innovation is required to meet the funding gap;

• A combination of a REIT structure and the concept of pension asset-backed housing finance may be useful for establishing and funding the proposed National Housing Fund.

“We are the Change We Seek”- Barak Obama

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affordable housing rhetoric in ghana and how to fund it

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