At a median monthly income of roughly Shs190,000, 96 percent of Ugandans cannot afford the cheapest house formally built by a private developer, according to official records from Uganda’s own Fourth National Development Plan that runs from 2025/26 to 2029/30. It means that the formal housing market, as currently constituted, is structurally irrelevant to the overwhelming majority of the people it is supposed to serve. This is not a market failure in the conventional sense. The developers are rational. The banks are rational. The investors are rational.
Everyone in the chain is making the best decision available to them, given the incentives in front of them. The failure is systemic, a compound of tax policy, infrastructure neglect, and financing structure, and it has produced a city of gleaming towers and two and a half million households without a decent place to sleep.
Who builds, and for whom
Walk through Bukoto or Muyenga on any given morning, and the property boom is visible, marred by glass facades, gated compounds, rooftop terraces surveying a city that is, by several measures, genuinely growing. The economy is expanding. Kampala is urbanising at 5.2 percent a year, one of the highest rates on earth, according to data from Uganda Bureau of Statistics. All of that should be fuel for housing construction across every income segment. Yet it is not. The country needs 200,000 new housing units every year to keep pace with demand. But roughly 50,000 are produced. The other 150,000 households are left to incremental self-construction, which involves buying sand when they have money, laying a foundation when they have more, leaving the roof for another year, another decade, perhaps forever.
The result is a landscape of permanently unfinished structures that are also, by any formal definition, not houses. Vincent Agaba, the managing director of Avarts Housing and president of Africa Real Estate Practitioners Alliance, says: ‘The truth of the matter is that at the moment, the demand side is not being addressed from A to Z’. Reason? ‘Because all these are private investors and they are looking at return on investment.’
The anatomy of a price
To understand why affordable housing costs what it costs in Uganda, it helps to take a unit apart. Take a modest apartment at Shs100m, which, in the current market, passes for entry-level. That price is not primarily a product of what it costs to build. It is a product of everything that happens before and around the building. Land accounts for roughly 10 percent. Infrastructure like roads to the site, water connections, power lines, and sewage adds another 20 percent. In most middle-income countries, a developer builds on land that a municipality has already serviced. In Uganda, the developer arrives on raw land and leaves with a fully serviced estate – financing every metre of road and every water pipe themselves.
Then comes the value-added tax (VAT). VAT on residential construction is not recoverable. If you build a commercial office block, the VAT paid on contractors and materials can be reclaimed. It, however, becomes a permanent, unrecoverable cost of 18 percent absorbed into every unit when it’s a residential house. On a Shs100m house, that is Shs18m in tax that neither the developer nor the buyer can do anything about. NSSF portfolio manager for real estate, Matthew Rukaari, notes: ‘Suddenly, a product that would be 18 percent cheaper if the VAT component wasn’t part of it becomes expensive by that margin.’ Then comes finance. Developers borrowing locally pay between 18 and 25 percent interest per annum on construction loans, short-term money used to fund long-term assets.
On a Shs100m project, the cost of borrowed capital adds another Shs20m before a single wall is built. Add approvals, design, environment assessments, council fees, and a developer’s margin of about 10 percent. The arithmetic is damning. Land, infrastructure, tax, finance, approvals, and margin account for roughly 65 percent of the price of a house. The actual cost of construction, which involves the bricks, the steel, the concrete, and labour, is what remains. Moses Lutalo, the Broll Uganda managing director, says the cost of financing is high in double digits, the tax regime around that is costly, and then the cost of infrastructure is daunting.
‘When you back all that up, plus the demand, which is unmatched, most of the developers have run away from affordable, low-cost housing,’ he says. The demand is ‘unmatched’ because, without mortgage access, which most Ugandans do not have, potential buyers want homes but cannot finance.
Building for banks
Kenneth Kaijuka, the National Housing and Construction Company chief executive, says: ‘I will tell you, for starters, that all the products you see on the market, just take an assumption that they belong to the banks. And the banks dictate it.’ Why? A developer borrows Shs10b from a bank to build, but the bank requires the title of the development land, say, worth Shs2b, plus additional prime assets worth 120 percent of the loan as collateral. The bank now holds Shs24b worth of assets against a Shs10b loan. It wants the money back in four years. The developer needs 10 to 15 years to sell the units at prices ordinary buyers can afford, which creates a structural mismatch.
When the bank calls the loan, the developer has two options: sell quickly at whatever price, or default. Both options produce units priced for whoever has the cash, not for whoever has the need. So, you end up with the developer who is not choosing to build for the rich because the bank’s loan terms are making that choice for them. Lazarus Mugabi, a real estate developer who is also the President of the Association of Real Estate Agents Uganda, explains that Ugandan developers borrowing domestically cannot compete with foreign developers who arrive with their own capital, or access capital at near zero-interest. ‘Borrowing locally and developing a project and expecting to sell it and breakeven is next to impossible,’ he says.
Government’s answer: Studying
Government is not unaware of these problems. The Ministry of Finance knows the VAT argument, and has heard it for years. Yet Moses Kaggwa, the Ministry of Finance director of economic affairs, says: ‘It is something we can study and see’. He acknowledges that residential construction bears input VAT that cannot be reclaimed, while also noting that developers are already exempt from output VAT on sales.
But the industry wants to reclaim the input and benefit from a waiver on the output. Dave Khayangayanga, Commissioner for Human Settlement at Ministry of Lands, Housing and Urban Development, understands the infrastructure problem intimately. His prescription is that government must put in the roads, the water, the power lines before developers arrive, not after. ‘In Jinja, which is a city now, government has gone ahead and put roads and water lines and power lines, people have gone and developed those spaces,’ he notes.
It simply has not been applied at scale, with consistency, or with the urgency that 2.5 million households in deficit require. But the challenges are wider than meets the eye. For instance, Kaijuka says the ‘national budget for the last 40 years doesn’t have a single shilling allocated for housing delivery’. It is an uncomfortable reality in a country that has spent four decades treating housing as a private sector problem, while the deficit has been compounded slowly behind the rhetoric. NSSF deputy managing director Gerald Kasaato has done the calculation of what government intervention would actually mean. ‘The Fund can bring the cost of the house down by 50 percent if there are interventions on land, interventions on infrastructure, and interventions on taxes,’ he notes. That would almost be half price, not achieved through subsidy or charity, but simply by removing the costs that the current system forces the developer to carry alone and pass to the buyer.
The coordination failure
Uganda’s housing crisis isn’t a market failure. It’s a coordination failure. Developers build upmarket because banks only finance upmarket, and banks only finance upmarket because collateral is reliable there. Thus, there must be deliberate steps to fix several housing layers, such as tax incentives for affordable developers, government-serviced land in designated zones, concessional construction finance at a rate of 5 percent instead of 20 percent, and a mortgage refinance company to extend tenures and lower rates. Tanzania did exactly this, and its mortgage market grew tenfold. Kaijuka thinks that the binding mechanism should be standardised housing prototypes as a prerequisite for concessional financing, giving developers something to quote, plan, and deliver at scale. The 2.5 million families who need a home are helpless, for now.