Shelter Afrique at AUHF 2014: Housing Shifts Toward Rental

Published: Sunday, November 16th, 2014 by Aaron Leaf

Managing Director James Mugerwa. Photo credit: Shelter Afrique

Rental housing will have its time in the sun if Shelter Afrique has its way. While the African financial institution has been supporting the affordable housing sector across Africa since 1982, it’s only recently that the push for more rental units has gained momentum.

But even with an increase in programs across the continent designed to boost ownership, Murgewa says, the reality is that a great many Africans “will never be able to access funds to buy a house.”

Rapid urbanization has changed the way families live together and move around. “Life patterns,” says Murgewa “are changing and we need to address their housing needs. People are not fixed to a specific location.”

In October, Shelter Afrique hosted the Africa Rental Housing Conference in Kenya which was meant to jump-start the conversation among the continent’s policy leaders. Coming out of that conference, Shelter Afrique’s first big rental project will involve universities across the continent and is meant to increase beds for students by about 30,000.

While Germany and the Netherlands are positive examples of places where the majority rent housing, Murgewa says that Shelter Afrique is not advocating for a complete shift in policy toward rental. Innovation, he claims, is to have myriad ways of addressing housing needs—options that are cost-effective and implementable. Formal rental housing is just one solution among many.

Images courtesy of Shelter Afrique

Working with Governments that Really Want to Deliver

Shelter Afrique has had recent success in other sectors as well, especially in partnerships with government to build large-scale housing projects. A current project with the government of Rwanda is a model that they’d like to replicate in other countries—the kind of project Murgewa believes that couldn’t happen in the private sector alone. “Rwanda has a government that really wants to deliver. The project requires building infrastructure and the eviction of squatters and they’re not shying away,” he says.

Shelter Afrique is using the Rwanda project model as a case study for future partnerships along the following lines:

  • Government sets the expectations for number and layout of units.
  • Shelter Afrique takes on the risk of feasibility studies, making sure the project is commercially viable.
  • They work through the environmental impact together, looking at alternative technologies and green construction.
  • Then Shelter Afrique brings together financial backers and the right contractors to execute the actual construction.

“They knew they couldn’t do it on their own,” Murgewa notes of the Rwandan government. “They gave us the bottom line, we did the feasibility study and the groundbreaking is happening very quickly.”

Promising Markets, Rising Demand

Shelter Afrique is in a unique position because their shareholders are made up primarily of their 44 member countries, the African Development Bank and the African Reinsurance Corporation. Because of the close interaction between Shelter Afrique and governments at the board and shareholder levels, they’re seen by governments as real partners. This means a certain level of back and forth.

“We’re challenging them to implement the right legal framework for landlords and tenants as well as create the right fiscal environment for large rental housing projects,” says Murgewa. “Governments have recognized the need to be proactive for project execution and also policy.”

Shelter Afrique is most interested in markets with high demand and necessary infrastructure for housing development. In no particular order, they are Nigeria, Kenya, Ghana, Ivory Coast, Rwanda, Zimbabwe, Senegal, Uganda, Cameroon, Gambia and Tanzania.Zimbabwe, says Murgewa, has a developed property market despite its international reputation while Senegal and Tanzania are seeing increasing demand.

Scale, Long-Term View and Experience to Execute

While the state of construction and development varies greatly between countries, Murgewa sees a lack of scale as a common factor holding back affordable housing developers across the continent.

For example, developers in a landlocked country like Rwanda will face the challenge of higher raw material costs than a developer in Kenya. Operating on a smaller scale compounds these costs, making it impossible to negotiate the right terms to make projects financially viable. This stifles development.

“Small developers are quickly overwhelmed,” says Murgewa. “Many have built a few apartments here and there and then inevitably fail when it comes to building on a larger scale. With large scale projects, you need partners with the capacity to execute.”

Images courtesy of Shelter Afrique

Another factor holding back more affordable housing is a tendency to focus on the luxury market. Developers who do this are attracted by the promise of high margins. Murgewa thinks this is short-sighted.

“They expect to earn much higher margins on a few projects rather than do more with low margins. It’s a short-term view. They expect to make a big kill quickly, rather than roll out 10,000 units. We want to say that they can do it differently but they need scale, to bring down the costs.”

It’s this vision, long-term economic viability with a social mission that determines the projects Shelter Afrique chooses to work on. Murgewa is clear on that front:

“We don’t give money free and not to everyone. Projects need need to have economic viability and certain criteria that are socially necessary. Once that is clear, we focus on executing.”