Introduction
The global housing deficit crisis has emerged as a pressing challenge, affecting billions of people worldwide. By 2030, it is anticipated that approximately 3 billion individuals, or roughly 40% of the world’s population, will lack proper housing (UN-Habitat, 2015). Within this global context, Nigeria stands out with an unprecedented housing shortfall, worsening the broader crisis. Annually, the country constructs about 600,000 fewer homes than needed, contributing to a staggering current deficit of more than 20 million homes that has been growing for decades (FGN, 2013). The scale of this deficit is further highlighted by the fact that Nigeria’s total current housing production is approximately 100,000 units per year for a population of more than 200 million, creating a substantial gap between supply and demand (World Bank, 2013). As urbanization and economic growth continue, the housing demand in major urban centers like Lagos, Abuja, Port Harcourt, Ibadan, and Kano is growing at about 20% per annum (Okonjo-Iweala, 2014). In light of these challenges, the exploration of alternative financial strategies becomes imperative for Nigeria to bridge the housing gap and provide affordable housing solutions for its citizens.
To address the affordability gap, real estate developers are reimagining financing models that will make funding easier and available for prospective homeowners. Some of these include:
Public-Private Partnerships (PPPs)
Public-Private Partnerships (PPPs) are collaborative arrangements between public and private sector entities to jointly deliver a service, facility, or infrastructure project. In a PPP, the government partners with private companies to leverage their resources, expertise, and efficiency in providing public services or developing projects. PPPs can streamline costs for construction and development which will in turn make affordable housing more viable for the general public.
Crowdfunding for Affordable Housing
By leveraging the power in numbers, small contributions from a large group of individuals can accumulate into a substantial fund for housing projects which allows for a broader base of financial contributors, reducing the burden on individual homebuyers and developers.
We are seeing more Microfinance and community-based institutions target low-income individuals and communities in recent years. They are primarily involved in providing micro loans to lower income households. These microloans enable individuals to invest in housing improvements or small-scale housing construction projects, thereby improving their living conditions incrementally. Community-based models focus on collective efforts within communities to pool resources, such as community savings groups or housing cooperatives, to fund housing projects collectively. These models empower communities to take ownership of their housing solutions and leverage their collective assets to address housing affordability challenges.
It is noteworthy that while both crowdfunding and community-based funding are centered around collective financial support, they differ in their structures and scopes.
Crowdfunding is a broader concept that entails gathering small contributions from a large and often diverse group of individuals through online platforms to address a wide range of purposes such as creative projects, business startups, or personal causes. It is often on a global scale.
On the other hand, community-based funding is more localized, focusing on a specific community or group with shared interests involving pooling resources within the community to fund initiatives like housing cooperatives, neighborhood improvements, or projects addressing local needs. Essentially, while crowdfunding is a general term for diverse fundraising, community-based funding concentrates on harnessing support from a defined community for localized initiatives.
One notable model gaining traction, however, is the Rent-to-Own payment scheme, DUO by Mixta Africa. This approach allows prospective homeowners to move into their new homes while making annual payments (equivalent to annual rent) and gradually build equity. Duo is designed to provide an accessible path to homeownership for individuals who may struggle with the upfront costs associated with purchasing a house. Under this scheme, individuals can lease a property with an option to buy later, during which their annual payments contribute to the property’s purchase price.
While innovative financing models are pivotal in addressing Nigeria’s affordable housing deficit crisis, Duo stands out as an exemplary solution. By breaking down financial barriers and offering a pathway to formal ownership, this model has the potential to revolutionize the real estate landscape in Nigeria. As the housing sector continues to evolve, embracing alternative financial strategies becomes imperative to ensure sustainable, inclusive, and affordable housing for all.
