ABSTRACT
The study was propelled by the need to have a deep assessment of how public sector capital expenditure, housing finance and sustainable housing development have impacted on the people, while assessing their implications on one of the topical issues which is the rate of urbanization in Nigeria. It also looks at extent of government involvement in housing finance and sustainable housing development in Nigeria. The review of extant literature reveals high rate of urbanization (45% urban population ratio) with staggering implications on rent and slum formation. They were also in accord on the multi-tier distorted mechanism of applying public capital spending. Geographically Weighted Regression (GWR) methodology was adopted towards the achievement of its objectives using annual secondary data. GWRs choice is because it attempts to capture spatial variations by allowing the regression model parameters to change over space. This undoubtedly will facilitate multi regional study of the housing sector development efforts in the country. For objective one, the study finds PCS as having a positive significant impact on SHD in Nigeria. For objective two, it was found that HFN has positive significant contribution of about 50.499% on SHD. For objective three, it was found that PCS positive significant impact on UBD in Nigeria. For objective four, it was revealed by the study’s results that HDV has positive and significant impact on UBN in Nigeria. For objective five, it was found that when FML increases its investments on housing development by ₦1billion, SHD in Nigeria would rise significantly by about 20.52449%. Based on the foregoing, the study among other things recommends that all tiers of government and their agencies should strive to increase public capital spending for more infrastructure and housing since it has a positive significant impact on sustainable housing development. More housing finance should thus be encouraged to help control the prevailing housing deficit in Nigeria while at the same time control for the adverse of urban sprawl.
TABLE OF CONTENTS
Title page i
Certification ii
Declaration iii
Dedication iv
Acknowledgements v
Table of Contents vi
List of Tables x
List of Figures xii
Abstract xiii
CHAPTER 1: INTRODUCTION
1.1 Background of Study 1
1.2
Problem Statement 9
1.3 Research Questions 19
1.4 Objective of the Study 20
1.5 Hypotheses of the Study
20
1.6 Significance of the Study 21
1.7 Scope of the Study 22
CHAPTER 2: REVIEW OF RELATED
LITERATURE 23
2.1 Conceptual Literature
Review
23
2.1.2 Public spending 24
2.1.3 Housing finance 24
2.1.4 Sustainable housing development 25
2.1.5 Housing 26
2.1.6 Housing types 28
2.1.7 Housing expenditure 29
2.1.8 Urbanization 30
2.1.9 Migration 32
2.1.10 Internal migration 33
2.2 Theoretical
Literature Review
35
2.2.1
Public expenditure theory (Wagner’s Law) 35
2.2.2
Fiscal illusion theory (Mourao, 2008) 36
2.2.4 Principle of maximum social advantage
(Akrani, 2011) 38
2.2.5 Bid rent theory (Alonso, 1968) 42
2.2.6 The Harris–Todaro
model 44
2.2.7 Theory of spatial disparities (Ravi & Venables,
2005) 44
2.2.8
Institutional framework 45
2.2.9 The sources of housing finance 52
2.2.10. Government interventions in the housing
sub-sector 56
2.2.11 Current status of sustainable housing
development 59
2.3
Empirical Literature Review
60
2.3.1 Housing development and housing prices 60
2.3.2 Benefits of housing and problems of housing
production: Nigerian studies 61
2.3.3 Public housing programmes and affordability 63
2.3.4. Sustainable housing development (SHD) 64
2.3.5 Evidence on urbanization 67
2.3.6 Urbanization and migration 69
2.4
Identified Gap in Empirical Literature 70
CHAPTER
3: RESEARCH METHODOLOGY
72
3.1 Research Design 72
3.2 Model Presentation 73
3.3 Justification of the
GWR Model 77
3.4 Justification of the
Panel Data Model 78
3.5 Estimation Procedure 78
3.6 Exploration of Local
Factors Affecting Urbanisation 81
3.7 Sources of Data 85
CHAPTER
4: PRESENTATION OF RESULTS AND RESULTS 86
4.1 Descriptive
Statistics for Variables in Objective one 86
4.1.1 Unit root test for variables in objective one 87
4.1.2
Cointegration test for variables in objective one 88
4.2 Presentation of the
GWR Model for Objective one 89
4.2.1
Correlation test for variables in objective one 92
4.3 Presentation of Model
two results for Objective two 93
4.3.1 Descriptive statistics
for variables in objective two 93
4.3.2 Unit root test for variables in objective two 94
4.3.3
Cointegration test for variables in
objective two 95
4.3.4
Presentation of the GWR model result for objective two 96
4.3.5
Correlation test for variables in objective two 100
4.4 Presentation of Model
three results for Objective three 100
4.4.1 Descriptive statistics
for variables in objective three 100
4.4.2 Unit root test for variables in objective three 101
4.4.3
Cointegration test for variables in
objective three 102
4.4.4
Presentation of the GWR model for objective three 103
4.4.5
Correlation test for variables in objective 3 107
4.5 Presentation of Model
four results for Objective four 108
4.5.1 Descriptive statistics
for variables in objective four 108
4.5.2 Unit root test for variables in objective four 109
4.5.3
Cointegration test for variables in
objective four 110
4.5.4
Presentation of the GWR model for objective four 111
4.5.5
Correlation test for variables in objective four 114
4.6 Presentation of Model
five results for Objective five 115
4.6.1 Descriptive statistics
for variables in model for objective five 115
4.6.2 Unit root test for variables in objective five 117
4.6.3
Presentation of the GWR panel model for objective five 118
4.6.4 The Breusch-Pagan lagrangian multiplier test for random effects 123
4.6.5 Heteroskedasticity test 124
4.7 Evaluation of Working
Hypotheses 125
CHAPTER
5: SUMMARY OF FINDINGS, CONCLUSION AND POLICY IMPLICATIONS
128
5.1 Summary of Findings 128
5.2 Conclusion 131
5.3 Policy
Recommendations 132
References 135
Computational Economics
appendixes 147
LIST OF TABLES
1: Type of occupancy status per sector 5
4.1: Summary of Statistics results (Objective
One) 86
4..1.1 Unit root result for the variables of
Objective one 87
4.1.2 Summary results of cointegration test of the models for Objective one 88
4.2.1 Summary
results of the GWR model for objective one 89
4.2.2 Summary
results of the correlation test of
variables for objective one 92
4.3.1 Summary statistics result of variables of the
model for objective two 93
4.3.2 Unit root test results of the variables of the
model for objective two 94
4.3.3 Summary results of the cointegration test of model for objective two 95
4.3.4 Summary results of the GWR model for objective
two 96
4.3.5 Summary
results of the correlation test for variables objective two 100
4.4.1 Summary
statistics result of variables of the model for objective three 101
4.4.2 Unit
root test result for the variables of Objective three 102
4.4.3 Summary results of the cointegration test of the
model for objective two 103
4.4.4 Summary results of the GWR model for objective
two 104
4.4.5 Summary results of correlation test for
variables in objective three
107
4.5.1 Summary
statistics result of variables of the model for objective four 108
4.5.2 Unit root test results of the variables of
model for objective four
109
4.5.3 Summary results of the cointegration test of
the model for objective four 110
4.5.4 Summary results of the GWR model for objective
four 111
4.5.5 Summary results of correlation test for
variables in objective four
114
4.6.1 Summary statistics result of variables of the
model for objective five 116
4.6.2 Unit root test results of the variables of
model for objective five 117
4.6.3.1 Summary of results of the fixed effect
model(Dependent variable -shd) 118
4.6.3.2 Summary of results of the random effect model(Dependent
variable -shd) 119
4.6.3.3 Summary of results of Hausman model selected
test 120
4.6.4
Summary results of Breusch- pagan langragian multiplier test for
random effects 124
LIST OF FIGURES
1.1 Ratio of Outstanding Mortgage Loan to GDP of Selected African Countries 12
2.1 Marginal social sacrifice curve 40
2.2: Marginal Social Sacrifice 40
2.3:
Maximum Social Advantage 41
2.2 Diminishing Marginal Social Benefit Curve 29
2.3 Maximum Social Advantage Curve 30
CHAPTER 1
INTRODUCTION
1.1
BACKGROUND TO THE STUDY
Public
capital spending grows the economy due to the fact that it affects almost all
human endeavour in the various areas of life such as housing, urbanization, construction,
production, technology, etc (Babatunde, 2018). As obtains in many African
countries, Nigeria has a very little formal housing/ housing finance sector to
offer for the majority of potential
homeowners. The practice over the years has been to establish institutions that
are expected to provide housing finance, supposedly targeted at ordinary
Nigerians especially in the urban areas. These efforts, unfortunately, instead concentrates
on the high-income market in search of safer lending, leaving the vast majority
of urban homes without any recourse to housing finance. The unstable domestic
macroeconomic environment doesn’t equally support private sector institutions
to get involved in housing finance. Banks given their nature are justifiably
risk averse thus they tend to lend more to the less risky clients which are the
rich and the well-paid. The fact that people do not always borrow to build their
own homes, is a popular feature of the Nigerian finance market. Nigerians now borrow
more to do business and then use business profits to build their houses. (Amao
& Odunjo;2014, Aliyu;2017).
Remarkably,
stake holders in the real estate sector (Estate Developers, Primary Mortgage Institutions
-PMIs, and others) have commended the proposal for budgetary allocations for improvement
in infrastructure and that of housing in the year 2020. On the downside, issues
surrounding the budget implementation, unproductive Public-Private Partnership
(PPP), and policy instability are the pitfalls they warned Nigeria against. The
2020 N10.33 trillion budget expectedly should contribute and impact positively
on real estate industry. N259.2b was set aside for capital expenditure for the Federal
Ministry of Works and Housing (the highest allocation to a ministry), though a
larger part of the ministry’s allocation went to road projects. Sectoral breakdown
of the allocation to ministry of Works and Housing/ housing sector includes
N17.5bn for National Housing, N30bn for Social Housing Scheme (Family-Homes
fund) and N210bn for road construction and rehabilitation (Adams, 2021).
However,
many Nigerians presently lack access to housing finance. As little as only two
percent of homes in the country has outstanding formal housing loan from any
financial institution for the purchase of a home in 2011. (Amao & Odunjo;
2014). Traditionally, housing is generally
self-financed through the buildup of savings equity over a considerable long
period of time. It can also be financed through close friends and relatives. Available
means of housing finance are mostly not affordable for many people largely due
to the somewhat unfavorable terms and conditions of the few available loan
packages. Loans are usually naira denominated at fixed rates arrived at between
the parties, though interest rates usually dangle from 17 percent to 22 percent
while their maturity period ranges from 5 to 15 years.
Only
those loans acquired through the National Housing Fund scheme are subsidized. They also come with a maximum maturity period of
about 30 years with interest rate of 6 percent. The prevailing interest rates which
are relatively high relates itself with the country’s inflation rate that averaged
around 12 percent in the last few years, and the exorbitant cost of funding for
banks. Low risk treasury bills which paid 13 percent in January of 2013, this
rate was expected to decline meaningfully in the subsequent five years (Nigeria Outlook, 2014). The above forecast
has come
to fruition with the rate for 344 days now hovering around 5.3 percent.
According
to Arilesere (1997), Abiodun (2000) Okupe (2000) the history of the sector of
housing finance has remained an awful one in Nigeria. The switch to Petro-dollar
led economy from agro-led economy was not gradual and hence isn’t helping the
economy. This sudden availability of petro-dollar led to fragrant abuse of
foreign exchange receipts and unguarded spendthrift attitudes especially among
our post-independence leaders. This led to the assertion that “money was not
our problem but how to spend it”. This gave a summary of a country that lacks
prudent management abilities. This attitude and precarious situation together
with unprecedented population growth has remained unchecked ever since. Although the home ownership rate in Nigeria
has remained relatively high across the sub region, expenditure on housing alone
averaged about 12 percent of all the expenditure for about all the 43million
households in Nigeria. This is coming ahead of health and education expenditures.
The General Household Survey (GHS) also indicate that this share of rent as a
percentage of total expenditure of all homes is modestly constant across all regions,
although most households in the cities spend a little more on rent when
compared in absolute terms than those in the rural areas. (World Bank; 2019)
The
colonial housing finance in Nigeria was exclusively for the colonial masters
and few aristocrats and some selected local top civil servants who were
fortunate to come close to them in the urban areas. Subsequently, there were
efforts at kick starting housing provision; though still for the privileged
few. This led to the establishment of Lagos Executive Development Board (LEDB)
in 1928; Nigeria Building Society (NBS) in1956; State Housing Corporations
between 1956 and 1960; National Council of Housing 1971 and, Federal Mortgage
Bank of Nigeria (FMBN) 1977 with an initial roll out capital of N20m that was
later increased to N150m in 1979. The various sources of
housing finance in existence today in the country can be grouped into two
majors which are; the Formal and Informal sources. The formal sources comprise
of bank and non-bank financial institutions operating within the guideline as
stipulated by the federal government. Among these are: The Federal Mortgage Bank of Nigeria (FMBN),
commercial banks, merchant banks, specialized development banks, insurance
companies, pension fund, developers/contractor financed housings. Some informal
sector finance sources for housing are as follows: Personal or Family Savings,
Individual moneylenders and Voluntary Housing Movements.
However,
the assistance of the World Bank was sought and gotten in 1979 for the pursuit
of housing construction projects in just eight states of Nigeria spread across
the northern and southern regions. Furthermore, the fourth National Development
Programs of 1980 – 1985 equally provided for a N1.9 billion budget for housing.
Unfortunately, only a paltry N600m was spent on construction of houses within
the period. The failure of governments over the successive years to actualize
the desired rate of incremental housing unit production and the increasing
housing need/demand forced the enactment of the 1991 National Housing Policy.
The
spread of purchasing power and that of poverty strongly correlates with the status
of those occupying different households. Conversely, the geo-distribution of
the poverty seems to contradict itself with the recent trend of home ownership
in rural areas of the country.
Table
1: Type of Occupancy Status per Sector, 2018
|
Sector
|
Owned
(%)
|
Provided
by employer(%)
|
Free
with authorization(%)
|
Free
no authorization(%)
|
Rented
(%)
|
|
Urban
|
43.8
|
1.56
|
17.14
|
1.
|
35.72
|
|
Rural
|
81.11
|
0.87
|
12.65
|
1.19
|
4.19
|
|
Total
|
66.25
|
1.14
|
14.43
|
1.43
|
16.75
|
Source:
GHS, 2019
The
GHS table above shows that most Nigerian households live in their own homes in
the rural areas while those that live in rented homes are more commonly seen in
urban areas. It (Table:1 above) suggests that close to 66 percent of households
found in Nigeria in 2018 are the owners of the houses they live in leaving the
other about 33 percent to some other forms of occupancy status. Their breakdown
shows that about 14.4 percent dwell in rent-free homes, about 17 percent are in
rented buildings while just one percent lives in official buildings as made
possible by the employer of the head of the household. Home ownership was found
more common in the rural areas (81 percent) than in the urban areas that
accounts for 44 percent. The values also suggest that renting of homes is
popular in urban areas (35 percent) than in the rural areas (4 percent). The
table also shows that some people/ homes dwell in free houses. The figures
shows that they can be seen in both urban (17 percent) and rural areas (13
percent).
When viewed from the point of gender, World
Bank (2018) found that 54.3 percent of homes wherein females are the head live
in their privately owned homes, 29 percent of them reside in rent free houses
with the consent of the property owner while only about 15 percent live in rented
apartments. Conversely, it was found that 68 percent of homes with male heads
dwell in their own houses and 17 percent in rent ones.
Notwithstanding
that the home ownership rate is still high in relative terms, household
expenditure on housing still stand at about 12 percent of their total household
expenditure. This is seen to be higher than that of expenses on education and
health. The share of rent as a percentage of total household expenditure was
seen to be moderately constant through regions, although homes in cities spend higher
on rent in absolute terms than their rural counterparts.
Housing
finance has its limitations in Nigeria due to the size of her mortgage market
and the existing mismatch between maturity and ability to pay by Nigerians. At
present, Nigeria has about 54 Primary Mortgage Banks (PMBs) and 21 Deposit
Money Banks (DMBs) (as at January, 2020). Lending by DMBs to prospective home
owners in relation to their total assets accounts for less than 1 percent. The
oil and gas sector receives most of the lending. This represents about 22
percent of all the loanable fund to the private sector. A cursory look at the
entire banking industry shows that 84 percent of overall liabilities in the 10
largest banks in Nigeria comes from customer deposits that are equally held in
the short-term. The balance of the funds
is basically equity with strong limitations to other sources of funds for
longer term financing which stands averagely at about just 11 percent of their
balance sheets. Opening up of the market for residential housing via
improvements in the housing finance structure have the potency of providing an array of income yielding
prospects through the construction sub-sector and other ancillary industries.
Instances of this can be seen from Indian and Colombian housing markets. In Colombia,
World Bank, (2018), it was found that five more direct jobs are created for
every US$10,000 spent in constructing houses therein. In India, the study found
that 1.5 direct and 8 indirect jobs are created for every housing unit that is
constructed while in South Africa, 5.6 and 2.5 direct and indirect jobs are
created per home construction.
The
current rate of urbanization in Nigeria has continued to the increase in housing
demand in her urban centres. It is estimated that about 700,000 housing units are
needed annually across the various segments of the housing market to meet up
with the going levels of housing demand. However, the going housing
construction rate of below 100,000 units per annum have resulted to the
accumulation of housing deficit of about 17 million units as at 2018. Some
other non pure economic benefits - but social - like giving home owners true
sense of belonging and strong stake in their host communities have all been
attributed to home ownership. (World Bank, 2018).
These
issues on housing are equally likely to have possible implications on
urbanization in Nigeria which demographic components of population and
migration is a strong factor. The distribution of number of homes based on
their migration status shows that those who are migrants make up at least 2/5
or 40% of the entire population in 7 states out of the 36 states of Nigeria.
The states involved include; Abia state (48.7%), Ekiti state (48.1%), Delta state
(45.3%), Imo state (45.1%), Anambra state (44.4%), Bayelsa state (43.2%) and
Lagos state (40.1%). Twenty others states and the Federal Capital Territory
Abuja, reportedly have percentages that are higher than that of national average
which is 23%. Noticeable change was also seen in patterns of migration within
the country- internal migration. New high migration destination states were seemed
to have evolved. Lagos state, which earlier stood as the highest migration
destination had given way for other states like Abia, Ekiti, Delta, Imo,
Anambra and Bayelsa states in that order. These are among the states identified
as high migration states from the last census data. This recent trend migratory
behavior across these states will evidently apply pressure on the available resources
of these state with view to providing the needed infrastructure and services
that can support business and life of individuals (Nigeria Outlook, 2014).
Africa
is presently experiencing a new wave of urban and city life; this new
experience seems to have given rise to the high rate of urbanization in the
region which presently stands at 4% per annum. As at 1995, only few cities in the region
(about 28 of them) has a population of more than one million. This number after
ten years in 2005 has grown to 43 and was projected to be around 59 cities by
2015 and this was exceeded.
African
urban population, which stood at 413 million (40% of present value) in 2010 was
estimated to get up to 569 million (45% of present value) in 2020. On the other
hand, it has to be noted that economic growth rarely occurs without an
accompanying growth of population and in urbanization rates especially among
developing countries. Urbanization again on its own has its other bad side. UN
survey found that policy makers are usually disposed to policies that tries to
curb urbanization instead of making provisions to draw its benefits maximally.
Hence they work towards policies that will reverse the migratory trend and send
people back to the rural areas. It is worthy of note though that rapid rate of
urbanization comes with a barrage of
socie-economic problems. These may include different forms of crime,
over crowding and springing up of slums, ease of out break of epidemic, etc .
The inevitability of corruption has become evident over time ought to be
planned for or ultimately made desirable as cheap as possible. This will
warrant finding ways of ensuring that people do not pay exhorbitantly much on
public utilities/ infrastructure and most importantly housing. Findings from
World Bank (2018) reveals that about $40 trillion will be required to support housing
and infrastructure towards meeting urban needs of the people in developing countries.
This was also projected to get up to $94 trillion by 2040. The big question is;
where will the money be sourced from and at what cost. Finding ways to finance
such needs have remained a great challenge facing urban economists and policy
makers in emerging / developing economies which includes Nigeria (Spence, Annez & Buckley; 2009, Gurara, Klyuev, Mwase and Presbitero; 2018). Drawing
from the above background, this study therefore aims at determining the extent
to which public
sector capital expenditure, housing financing and sustainable housing
development have impacted on the people especially as it concerns urbanization
in Nigeria.
1.2
STATEMENT OF THE PROBLEM
As
it obtains in many other countries in Africa, Nigeria’s formal housing system
is small and at the same time weak. This weak and small system is where the
millions of prospective home owners are expected to draw financing from. The
tradition over time has been to establish home ownership institutions that emphasize
home ownership mainly for the urban populace without recourse to the needs of
the rural dwellers. These initiatives that gave rise to the
housing finance tradition, however, started to pay attention to mainly the high
income earners who may have the capacity to borrow ‘safely’. Safely here based
on their higher capacity /credit worthiness. This at the end of the day leaves
the vast majority of the urban poor without any guaranteed and affordable means
of accessing housing finance. Housing and housing related issues has fast become
a topic for private and policy discussions in all quarters. This cuts across
all social strata under the groups of those who have housing problems and those
who want to invest in housing for business purposes in both sectors of the
economy (public and private) of almost all the developing countries in which Nigeria
is about the most populous in sub Saharan Africa. It is becoming more glaring by
the day that housing conditions and circumstances in which majority of the people
in the urban areas live in can be best described as dehumanizing. Others who
have access to somewhat an average or decent housing circumstances and
environment enjoy such at exorbitant rates/rent. According to Onibokun (2016) and Nubi (2015),the
amount charged as rent in most cities across the country constitute almost 60%
of the income of an average workers in most of the cities concerned. This value is by far much higher than the global
average of 20-30% as recommended by United Nations.
Iyagba
and Asimo (2018) are of the view that the estimation of the rate at which new
houses are being demanded draws partly from the rate at which new houses are
being constructed. They are also of the view that the rate at which the old
houses are being replaced equally influence this demand and by extension the housing
stock. Nigeria’s population was put at 98
million in 1991 and above 200 million in 2019. The foregoing values, their rate
of growth and rate of change in other demographic dynamics suggests that 720,000
housing units are required every year in Nigeria to meet her domestic housing
needs. This constitutes a huge source of worry for the housing sub sector and
key players/stake holders therein. Presently, the federal government is assumed
to have ease of access to many other factors of production in the housing
industry except capital which is usually low in supply. These capacities notwithstanding,
the federal government have over the years been able to contribute only a
paltry 4.2% of this annual housing requirement in the country. The private sector mortgage/housing holdings
are expected to make considerable level of contribution in this direction
towards the attempts at achieving the desired state of being. This presents its
own policy challenge too, because, about 85% of urban housing demand are met by
private sector developers in the housing market. (Federal Office of Statistics,
Lagos 1993). Unfortunately, there are a
lot of challenges which the private sector is battling with leaving the market
always in disequilibrium (supply always fall short of demand).
In
Federal Mortgage Bank survey of financial institutions, the low ease of access to
the usually long-term mortgage funds was seen to be a major setback towards the
growth and development of mortgage financing in Nigeria (Federal Mortgage Bank,
2012). The survey also found that other impediment to growth of the mortgage
market includes; challenges of housing supply and issues surrounding land title
registration. Notwithstanding that the regulatory framework permits, lenders in
the mortgage industry have remained unable and sometimes unwilling to extend the
maturity mismatches in their balance sheets. This inability of the market to
provide long term funds have discouraged the much needed investments in the system
that would have left consumers with variety of borrowing options. The lack of
access to long-term funds also prevents lenders from making the necessary
investments in housing and in the systems to establish large-scale mortgage
lending operations. (Africa Yearbook, 2010).
The
marketplace for mortgages in Nigeria have remained underdeveloped even after
the notable growth it has achieved in the last couple of years spanning beyond
a decade. The market growth was from N54 billion to N226 billion from 2006 to
2009 which shows an average growth rate of 35 percent per annum. In 2010, arising
from the banking crisis, the unsettled mortgage loans in the market declined by
8 percent, before it started to experience growth again. By 2011, the market
was at N234 billion. Despite this increase, there was still reduced access to
mortgages loans. The ratio of mortgage loans to GDP which stood at 0.6 percent
supports this weakness. This is obviously low for a country like Nigeria which
has a relatively well-developed financial system. Despite the growing economic
and relatively better developed banking system, Nigeria still under performs in
relative terms among her peer countries. Unsettled mortgage loans as a ratio of
GDP ratios in some other countries like South Africa, Ghana, Senegal, Uganda
and Nigeria for example, stands at 34, 4, 2, 0.8 and 0.6 percent respectively.
Source:
World Bank (Country indicator) databank 2019.
Figure 1:
Ratio of unsettled mortgage loans to GDP for selected African countries.
The
figure 1 above shows that Nigeria has the least ratio of outstanding mortgage
loans to GDP in 2019.
The
growth and development of the Nigerian mortgage market has over the years been
impeded by the shortage and near lack of affordable and decent housing. The
cheapest house that can be built by a private developer will cost about
US$31,250 (N 4.6 million) within Lagos state, while the same house will cost
about US$15,600 (N2.3 million) outside of the state. Furthermore, a large proportion
of the housing supply in most parts of the country still exhibit that bias for
high income earners. This is because the housing supply still tilt mostly
towards the supply of luxurious houses that are beyond what the middle-income people
can afford. The rise in the prices of these houses has been mostly blamed on
high construction costs. This is because majority if not all the construction firms
/ estate developers carry the costly burden of providing their own ancillary
infrastructure like sewerage, access roads, power and most especially water.
These has been estimated to add an additional 30 percent of the cost of
construction to its final market- rental or selling price. Some other
challenges include the weakness of the existing legal and regulatory framework
for property development in most states or where they may be in appropriate /
uneconomic or unsupportive to the mortgage market.
Banks
in Nigerian usually distinguish between the behavioral and contractual maturity
of their deposit base. This implies that although a large percentage of the
deposit base can conventionally be rightfully withdrawn on short notice, their
“conduct” is usually to stay put and be in the form of pseudo long-term funds.
This so-called “gluiness” of the deposit base mostly prevails during the period
huge deposits are that of the public sector institutions, which are considered more
reliable and stable than those held by individuals or private sector
organisations. Another source of gluiness may also likely be from such depositors
like SME’s or corporations that maintain a considerably large minimum credit
balance on their transaction accounts. This gluiness can also be improved by
offering different forms of incentives to make depositors leave higher
balances, or for making specified number of few withdrawals over a given long
period of time. or negotiate some contractual short-term notice obligations on
withdrawals. Many market regulators across the globe have come to terms
with most of the behavioral long-term deposit as part of the liquidity requirements most institutions.
However,
the domination of the money market by the banks has not done much at improving
the ease of access to long term finance within the economy. This has been
considered as a pre requisite for the opening up of the housing market. The banking
sector consolidation of 2005–2006 greatly improved the capacity for many banks
in Nigerian to expand their scope of operations internationally and open up subsidiary
firms mostly around Africa, the lending of these banks has continued to remain
inclined to the bigger corporations, their subsidiaries and those in their
supply value chains. Furthermore, Nigeria still face a huge long-term financing
gap, which is meaningfully impacting adversely on her growth potential. This
gap has to do with that which can be used for financing infrastructure, which
in this case can include housing. This has also seen to the slow growth of
credit supply to the private sector. Private
sector credit shrank from 34.6 percent of GDP by 2011 year end to 30.0 percent
two years later in 2013. The limitations in housing finance in Nigeria has
mainly been blamed on the prevailing existing maturity mismatch within the
industry. Credit supply from Deposit Money Banks (DMBs) as mortgage loans still
account for less than 1 percent of their total assets. The DMBs has over time
shown their preference for the petroleum industry companies whose credit supply
account for almost 22 percent of total credit to the private sector. (Nigeria Outlook, 2014).
In
the event of a constricted money market, the housing industry is always the
first hit in terms of its adverse effect because prospective builders and
tenants will most likely find it difficult to access financing. This challenge is more likely to be felt due
to the fact that builders ab initio under normal economic circumstances
encounter problems with the procurement of capital for housing projects. These twin
problems of increased interest rates that leads to high cost of housing and the
persistent difficulty with accessing capital for housing purposes will be
further analysed deeply in this study.
As
found by Onabule (2016) 245 Primary Mortgage Institutions (PMIs) were
operations under the National Housing Programme (NHP) between 1991-1996. Unfortunately, only 54 are now operating,
with majority of them mainly in the South Western Nigeria and the FCT- Federal
capital Territory. According to Abiodun (1999), the National Housing Fund raised
about 4 billion naira through the compulsory deductions made from workers
salaries across the country Out of the N300 million loan approved by FMBN
in the year under review, only N100million was advanced to prospective
builders. Thus the problem is not always the is not always fund availability but
rigorous administrative measures usually put in place to secure the loan in a
bid to forestall default. Hence, the challenges of housing persist.
Furthermore,
the projected expansion in the population of urban dwellers, has equally
increased the expected problems that is being envisage from the housing
industry. Going by the prevalent home occupancy ratio of about three to four
people per room in Nigeria, the number of housing units required was put at
around 500,000 and 600,000 units by the National Rolling Plan (NRP). If this projected
annual housing need is to be met at an average cost of N500, 000 per unit (this
is now rather conservatively unrealistic though given going general price
levels) the costs would be whooping and may be deemed unachievable. The cost of
housing provision would be something around N250 Trillion and N300 Trillion (this
does not include the expected cost of providing infrastructural support at the
various sites which are obviously nonexistent). This can be viewed as the macro
perspective of the problems that usually crop up on the path ensuring adequacy
of housing. This implies that the governments at all level and mortgage institutions
concerned will need a heavy capital base in a bid to effectively surmount the
challenges associated with adequate housing provision. The unbelievable increases
in population/ size and number of cities and mega cities in recent few years
have led to the severe scarcity of affordable housing units and has led to dwelling
units which resulted in congestion, high rents, poor and unbearable urban living
conditions, weak infrastructural services and of course increased crime rates
(Ajanlekoko, 2001).
At
the micro-level, homse ownership has been observed as about the first on the priority
of majority of the households. It was also seen to in most instances represent
the largest investment made by most homes (50% to 70% of most households’
income). This observation is very significant since it has been found that
income per capita of a Nigeria has remained on a downward trend over the last
decade. On the supply side, the sudden and sustained increases in the market
price of building materials in recent time has equally made housing less
affordable by increasing number of Nigerians. Relating to affordability and requirements
for housing, with the Gross Domestic Product of $49.7 b in 1988 and $44b estimate
for 1989, and about $49 b in 1991 as well as per capita income of N3,000.00 the
challenge still persists. Over time, the
situation is equally not getting any better. In recent times, the country’s GDP
came up to $448b in 2019 with a per capita income of $5,190 - this officially is
about #2. million -while the average cost of erecting about the cheapest decent
bungalow is about #5 million. Thus, financing has remained a major factor in
the analysis of the housing problems faced by Nigerians mostly in the long-term.
In so far as efforts are not seriously made towards finding more convenient and
flexible ways of financing housing for people of all income bracket, the
problems associated with housing will persist and in an upward trend.
Urbanization
apart from its effects on the environment and by extension public health, also impacts
on the people socially and economically. For the high quality labour/ /skilled
workers-that dwell in the rural areas, the process of urban growth has the
capacity to connect him to more and larger labour markets. These larger markets
can facilitate their getting new and higher paying jobs, this will go a long
way towards changing the living standards and wellbeing of the members of the
household of this labourer due to change in aoccupational status of an
individual,
Depending
on the social goal, urbanization can also impact as desired with respect to reductions
in fertility rates which in turn reduces the rate of growth of the population.
The rate of fertility in urban areas are usually lower than in rural areas.
This could be attributed to near zero employment in agriculture, cost of living
and raising children, cost of dwelling units in cities, popularity and
knowledge of pregnancy control measures/ family planning methods. Urbanization,
unlike what is generally perceived, has a way of reducing death rates, this is
usually the case given the prevailing higher health literacy not minding the
deplorable living conditions that are found in some parts of most cities. This
knowledge of pregnancy control measures and demands of urban work place will in
the longer term be reducing the birth rate of the urban dwellers. (i.e. the
fertility rate). The time interval between reducing birth and death rates will initially
translate to high rate of growth of urban population. However, as cities grow,
the cost of provision of housing and that of the ancillary infrastructural
support grows too. This is because there is usually limited supply of land,
water and building material are not readily available at good prices. These are
worsened by the cost of man hour loss to the ever increasing traffic congestion
problems. Migrants with enough enabling skill will find it easier to make a
living in the urban centres not minding the challenges that obtains there. can
survive to live in the big city with all great challenges. On the contrary,
poorly skilled will find it very difficult to eke a living in the urban centres
since they will obviously find it difficult to get jobs due to their low skill.
These will culminate into other social issues like homelessness and different
forms of crime, un employment, drug / substance abuses and dependency. It is worthy of note that these are usually
complex and difficult to profile and solve due to their fluid and social
nature. This thus makes it imperative to always review social problems from
their social-economic and cultural perspectives. Presently, correlations
between environmental problems are beginning to be understood, though social
scientists cannot yet analyse precise how, to what degree these social issues are
linked and how they could be most effectively contained. One problem is to
integrate land- and water use planning to provide food and water security (UNEP
2019).
Nigeria
is presently the most populated country in Africa. It equally has a high rate
of urbanization with the largest economy in the African region. However, the pressures
arising from relatively high population growth rate, high level of internal
migration which is usually rural-urban and prevalence of inappropriate technology
that can foster massive development of housing, have all led to formation of slums
and other forms of squatter settlements in most urban This has also resulted to
the current housing deficit of about 20 million houses that Nigeria is
currently facing. Nonetheless, the question of whether public
capital spending and housing financing improve or aggravate housing deficit
is still worth researching further upon as this study
has opted to embark upon. Furthermore, the effect of housing finance on sustainable
housing development and urbanization is yet to receive suitably adequate
research interests in the country. It was also observed that majority of the
existing studies / literatures on the effect of public capital spending and
housing finance on housing development and its implication on urbanization were
mainly done for and in the developed countries. This implies that there exists
a remarkable research gap that has been waiting to be filled for Nigeria. This
will constitute the directional thrust of this study.
This research will make an attempt to fill up this
gap by investigating the state of being in Nigeria and produce more evidence on
how public capital spending and housing finance affects sustainable housing
development and its implications on urbanization in Nigeria.
1.3 RESEARCH
QUESTIONS
This study is guided by the following research
questions:
1.
What is the effect of public capital
spending on sustainable housing development in Nigeria?
2.
How does housing finance contribute to sustainable
housing availability in Nigeria?
3.
What is the impact of public capital
spending on urban sprawl in Nigeria?
4.
To what extent does housing development
affect urbanization in Nigeria?
5. What
is the level of government involvement in housing finance and sustainable housing development
in Nigeria?
1.4 OBJECTIVES
OF THE STUDY
The
broad objective of the study is to investigate the effect of public capital
spending and housing finance on housing deficit and its implications on
urbanization in Nigeria. However, the specific objectives are to:
1.
Investigate the effect of public capital
spending on sustainable housing development in Nigeria.
2.
Ascertain the contribution of housing
finance on sustainable housing availability in Nigeria.
3.
Establish the impact of public capital
spending on urban sprawl in Nigeria.
4.
Determine the extent to which housing development
affects urbanization in Nigeria.
5.
Investigate the level of government
involvement in housing finance and sustainable housing development in Nigeria.
1.5 RESEARCH
HYPOTHESES
The
hypotheses to be tested in this study are:
H01:
Public capital spending has no significant effect on sustainable housing
development in Nigeria.
H02:
Housing finance has no significant effect on sustainable housing availability
in Nigeria.
H03:
Public capital spending has no significant effect on urban sprawl in Nigeria.
H04:
Housing development has no significant effect on urbanization in Nigeria.
H05:
There is no significant level of government involvement in housing finance and
sustainable housing development in Nigeria.
1.6 SIGNIFICANCE
OF THE STUDY
Unfortunately,
rising government capital expenditure has not translated to sustainable housing
availability and development in Nigeria. In addition, many Nigerians still
wallow in poor housing structures. This paper will identify the basic relationships between public capital spending, housing
finance and housing deficit as it affects urbanization in Nigeria, which
will serve as good information for investors in Nigeria.The findings of this
study will therefore avail governments at all level and policy makers mainly those
that are involved with housing policies with vital information that can enhance
the benefits of urbanization in the country. This study will contribute to body
of existing knowledge through the analysis of the magnitude, nature and
direction of the interactions between public capital spending, housing finance
and housing deficit as its implication on urbanization in Nigeria. This study
will help to establish a link between housing finance and housing availability.
Since currently there are few studies in Nigeria in this connection and also
help to see if there is any value for emerging markets like Nigeria.
This
study will add more knowledge on the concept of housing finance and give more
empirical findings on the relationship between housing finance and urban sprawl.
This will provide more literally material which will be of value to scholars,
students and researchers.
Hence,
the results and recommendations of the study could serve as a framework for the
formulation of a more viable and sustainable housing policy for Nigeria. The application of the findings of this study can also be extended to be
beneficial to other sister economies within the region.
1.7 SCOPE
OF THE STUDY
As
it concerns coverage, the scope of coverage of the study is between the period
of 1981 and 2019 using Geographically Weighted Regression (GWR) methodology with
annual secondary data. This would enable the study to look at different aspects
of the housing sector development and the attendant urban sprawl in Nigeria. The
coverage is chosen owing to the availability of data. This study will examine the nature of basic relationship between public
capital spending, housing finance and housing deficit as its implication on
urbanization in Nigeria. However, bearing in mind the major objective the study
is pursuing, the study intends not to move beyond investigation of basic
relationships between public capital spending, housing finance and housing
deficit as it affects urbanization in Nigeria. It will highlight and analyse those areas past works did not delve
into. It intends also to improve the appreciation of important housing variables
and expand available options of policy and policy mix for policy makers. The
study limits itself to Nigeria with a view to examine the extent of housing
deficit in Nigeria. Variables, such as
interest rate and rate of unemployment were seen as control variables. Furthermore,
extent of policy mix and harmonization were equally proxied with monetary and
fiscal policies, while the stock market value of shares traded and market
capitalization were used to proxy financial integration.
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