To say that one is impressed with the giant strides Lagos State has achieved under the administration of Governor Babatunde Fashola, is stating the obvious. Most Nigerians have seen the good work done by his administration to better the life of Lagosians. To the extent that Governors of other states are actually coming to Lagos, to learn how BRF did it and hoping they can replicate some of the successful programs in their own states.
To say that one is impressed with the giant strides Lagos State has achieved under the administration of Governor Babatunde Fashola, is stating the obvious. Most Nigerians have seen the good work done by his administration to better the life of Lagosians. To the extent that Governors of other states are actually coming to Lagos, to learn how BRF did it and hoping they can replicate some of the successful programs in their own states.
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One of such laudable accomplishment was the recent enactment of the Lagos Tenancy Law. In a nutshell, the law hopes to achieve two things - Make rental housing more affordable for Lagosians, by outlawing the practice where building owners require prospective tenants to pay multi-year rent upfront, sometimes requesting up to three years advance payment. The other objective is to punish erring building owners and tenants. While this step in itself is laudable, it will, in my opinion, go the way of other similar laws enacted by past administrations in Lagos State. The reason is very simple. Private building owners enjoy an absolute monopoly in the rental housing market in Lagos State in particular, and Nigeria in general. This is already evident in the reaction of building owners in Lagos to the law. Some of them are quoted as telling prospective tenants, who remind them of the existence of the law, to go and rent Fashola’s house, if they don’t want to pay two-year rent. And there goes the question. How many rental housing has the government of Lagos built or supported its construction in the last 20 years? I am not talking about low cost housing sold to people, who then turn them into rental properties. The answer is a resounding NONE, NADA, ZILCH! How many building owners will Lagos State prosecute? How many prospective tenants, who are more interested in putting a roof over their families, will go and report an erring owner. Even if they report, what is the alternative? Move on to the next shylock building owner? The law even goes further to demonize the victims (tenants) by stipulating punishment for paying multi-year rent to a building owner. I don’t think it is wise to demonize the very people the law was enacted to protect.
Without real competition between private and public investment in rental housing, the tenancy law will be unenforceable. To create competition in the rental housing space, States and Cities in developed countries have established Housing Development Authorities. For instance, in the State of Illinois where I live, there is the Illinois Housing Development Authority (IHDA), while the City of Chicago has the Chicago Housing Authority (CHA). Both of these agencies are primarily established to ensure that there is affordable rental housing for the people of the State and City. They achieve their objectives either by providing or guaranteeing concessionary mortgage financing to private developers to build affordable rental housing for the people.
From the above, any discerning mind will understand what needs to be done. However, it is rather disconcerting that Lagos State government does not seem to understand the solution to the problem of rental housing deficit in Lagos State. I say this, because how else can you explain the sheer misalignment of the solution being proposed by LASG. The LASG recently launched a Home Ownership Mortgage Scheme. According to the LASG, the scheme is the solution to high cost of rental housing in Lagos. Are you kidding me? The solution to rental housing paucity is to establish a home ownership scheme? It is like saying the solution to the exorbitant fares charged by private transportation owners, is to set up a car ownership scheme that will make everybody a car owner. It sure does not make sense, and it is obvious that LASG does not seem to understand that there are two distinct markets for rental housing and home ownership. It is not everybody that will own a home, but that should not preclude them from having access to decent and affordable rental housing.
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What is the solution? To start with, enforcement of the tenancy law should start with the Low Cost Housing Estates where housing units built with Lagos State money were sold to private individuals who have, through the years, turned them into rental units and are collecting multi-year rent from tenants.
The next part of the solution is for LASG to ensure there is competition in the rental housing market. This can be achieved be either directly financing rental housing projects all over Lagos State or working out PPP arrangements with private developers to design, build and finance rental housing projects. This must, however, come with specific milestones. For instance, one of the goals could be, having in place 2 million rental housing units in Lagos by 2015. Announcing this goal alone will make current private building owners understand that the people of Lagos will soon have a more affordable and more decent rental housing alternative, and as with all human beings, they (building owners) will fall in line. This is because, Lagosians will be able to, not only own, but also rent houses that Fashola helped build.
This solution can be wrapped into the Lagos Home Ownership Scheme by providing Rental Housing Developer financing guarantees to private developers in the rental housing space through the scheme. This will enable private developers, who are committed both morally and legally to abiding by the provisions of the Lagos Tenancy Law, access financing at concessionary rates to develop rental housing projects. The FMBN model is a good starting point. Other considerations will be cost-effectiveness and timely delivery.
Cities and States all over the world are looking for more cost-effective ways of delivering rental housing. It becomes even more important in Nigeria’s case where our addiction to cement has essentially insanely driven its price up, such that a ton of cement that is priced at N9000 in China, is priced at N44,000 in Nigeria! To achieve cost effectiveness, most cities and states all over the world including Africa, are moving towards modular building technology. By using modular technology, housing projects can achieve more 40% reduction in cost, when compared with the cost of conventional building methods that require enormous use of cement and extended onsite construction. Because the modules are built in a factory, there is less wastage. There is also opportunity to enjoy economies of scale, because modular housing plants buy materials by the metric tons. Finally, cement use will be reduced by over 70%, there by taking out the single biggest construction cost driver in Nigeria.
In terms of timely delivery, modular technology is a win-win for both developers and financiers. Because modular buildings are delivered in months and not in years, developers have a shorter waiting time before their assets start generating revenue. This puts them in a better position to start repaying their loans quickly. Modular technology lowers the longer term risk borne by financiers. This is because a sustainable repayment plan based on revenue from the asset which essentially eliminates the need for long loan deferment periods can be put in place. Also, because the housing units are the ultimate collateral for the loan, the quicker they are completed, the better it is for the financiers.
Recently, a group of Nigerian investors from the US presented a proposal to build a $2m Modular Housing Plant in Abuja. The Plant was expected to manufacture up to One Thousand Five hundred (1500) 30-Unit Rental Apartment Buildings (45,000 units) annually. I was later informed that the person they spoke with at the Federal Capital Development Authority (FCDA) requested N5m in bribe payment or 10 of the rental units before looking into their proposal. Needless to say, the guys pulled out of the deal. One of them told me that there is no reason why he should bribe someone to make life better for Abuja residents. So, Lagos State Government, I have suggested a solution, the ball is now in your court.
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