Financial Sector Development in Africa: Opportunities ... - World Bank

112 Walley
the current situation alongside future demand will allow for a gap analysis
to be performed. Such an analysis will provide the basis for the final,
forward-looking section of the chapter. It will attempt to set out a recommendations
framework of ways the gap in housing and the financing of
housing can be bridged.
Lessons and recommendations will be based on the data presented
in this chapter, on experience working in African countries and other
countries—both developed and emerging economies—and by highlighting
some of the success stories that are already taking place in Africa. There are
many positive developments that could be the spark for bigger movements
and replication in new markets. Above all, however, this chapter aims to
provide some enlightenment on the path out of the crisis and toward the
longer-term financing of housing in Africa. As will be shown, housing
finance systems are chains containing many links, each of which must be
strong and play its part for the system as a whole to prosper. This chapter
is therefore directed to lenders, developers, and policy makers as well as
the myriad other stakeholders that, each individually, have a role to play in
promoting an efficient housing finance system on the African continent.
Demand for Housing Finance
All housing is financed in some form or other. Housing can be financed
through a mortgage, savings, housing microfinance, or investment capital or
through the imputed value of one’s own labor. Given the size of the
expense that typically represents the largest purchase of any household, it
makes sense to extend the financing period as long as possible to improve
affordability. However, in Africa the absence of long-term funds has inhibited
the growth of housing finance and other forms of financing requiring
long-term money. This leaves many households with their only option: to
build incrementally with the purchase of raw materials coming out of any
surplus in each paycheck. This is typically a slow, inefficient way of constructing
housing, and it eliminates any economies of scale that could be
achieved from buying materials in bulk. It also means that the “housing
good” can be consumed only right at the end of the financing period, rather
than from the outset with a traditional mortgage loan.
Formal financing of housing in Africa has been limited to date.
Figure 4.1 shows that—with the exception of South Africa, Namibia, and
some of the North African countries—mortgage finance barely registers
as an asset class in the African financial system. As a continent, mortgage
debt outstanding to GDP is around 10 percent, which compares to