If you are a twenty-something fresh graduate or first-jobber milling around any of Uganda’s sprouting urban areas, I have good news, and bad.
The good news is that, with relatively little effort, you will live in much better circumstances than your parents. With a little effort and luck, you will live in a permanent house with electricity and running water. If you share accommodation with animals, it is likely to be for fun, not for their safekeeping.
The bad news is that you are likely to rent for most or all your life, especially if you plan to live in the major cities. This is not necessarily a bad thing; renting allows mobility and frees up capital for investment and consumption. Still, you will most likely struggle to get onto the greasy property ladder should you choose to buy or build a house.
The high cost of land, construction, and money is pricing many Ugandans out of the property market and contributing to a housing crisis. The majority, with limited means, end up in very low-quality accommodation in informal settlements with very poor services. Those with more means bleed value in how much brick they get for their buck.
The need for decent and affordable housing does not get the attention it deserves. In this financial year, the Ministry of Lands, Housing and Urban Development has a budget of USh81 billion, half what it had the year before. Of this, about USh48 billion will be spent on salaries and other running costs. The Housing ministry does not plan to build a single house this year and is not measured on how many units are delivered.
Partly, this is because this role was outsourced to free market forces. Half of the National Housing and Construction Company, which built the low-to-medium housing estates in Bugolobi, Bukoto, Namuwongo, Namungoona and elsewhere, was sold to Gaddafi’s government. With Libya in turmoil, the company is undercapitalised and the few units it builds are targeted at the high-margin upper deck of the property market.
Partly, it is because of misaligned outputs and outcomes. Among its thin list of achievements, the ministry’s policy statement mentions that in the last financial year it promoted “densification through high-rise development in two municipalities in Kotido and Moroto”.
Your columnist is not a regular in Karamoja, but it does not strike me as a place in urgent need of vertical housing development. Those ministry people for them they are doing what they want.
Affordable housing in planned settlements reduces the cost of delivering services, improves social stability, and drives economic growth. People living in their own houses are less likely to burn tyres on the roads. Even renters in better-organised communities are more likely to have a higher instinct to preserve.
Our current model, where people save money and build brick by brick over many years, is also woefully inefficient. You lose the rent you continue to pay while you build and lose from the missed return on the sunk costs.
Here is a simple way to start tackling the problem. The Ministry has asked for USh250 billion to capitalise National Housing. This should be rejected. Instead, the government should put the money, even a part of it initially, in the Housing Finance Bank, and allow it to be lent at the trailing average inflation (currently about five percent) plus costs of three percent. So about eight percent.
If you take a 15-year USh100 mortgage at today’s prime interest rate of 19 percent, you will pay about USh1.68 million per month and will pay USh302 million by the end of the mortgage, of which USh202 million will be just interest. Cut the interest rate to 10 percent and the monthly payment drops to just over a million, just about the rent-to-own number. Total payment will be USh193 million and interest, at USh93 million, lower than the principal.
The value unlocked is immense. Developers can sell off-plan to reduce their financing costs while building bigger and better because they are assured of off-takers. Buyers will pay less overall and amortise their house buying costs over many years, leaving them with more disposable income to spend. More people with skin in the game means more political stability and a more willingness to find consensus.
This is just one of many solutions, but it is not even new. In his 2006 election manifesto, the NRM candidate promised to fund a mortgage scheme that would have reduced the cost of money for those seeking to buy houses. It’s a pity he was not elected, but there is hope, given that he is running again this time.