IMPACT OF HOUSING FINANCE MARKET ON GROWTH OF SELECTED AFRICAN ECONOMIES
ABSTRACT
The motivation for this study arose
from the need to place the African Continent on the part of sustainable
economic development. Most Countries in Africa have been adjudged to be
among the poorest nations, in sharp contrast with the abundant resources
in the housing sector. The study adopted the ex-post facto research
design. Annual longitudinal data from 1997 to 2014, a period of 18 years
were collected from various data banks. The classical linear regression
model was used in testing the seven hypotheses formulated from the
sampled economies of Kenya, Nigeria, Burundi, Morocco and Namibia. Real
Gross Domestic Product (RGDP) constituted the dependent variable, which
is proxy for economic growth while outstanding mortgage loans by
mortgage banks (MBOHL) and Commercial banks (CBOHL) constituted the
independent variable. While interest lending rate (LINT), Total housing
loan as a percentage of total loans (THLPTL) and total housing loans as a
percentage of GDP (THLPGDP) were proxied for control variables. The
findings revealed that housing finance is positive and statistically
significant for some African nations, it is positive and none
statistically significant for some other African nations. The study
recommends a holistic approach to housing finance through Government
policy direction, market based economy and introduction of Mortgage
Backed Securities (MBS) in the capital markets across the African
continent.
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Researchers in the fields of Finance,
Economics and Urban Development have revealed that the term housing goes
beyond the provisions of a place of residence; it includes the
available social services such as pipe-borne water, electricity and
sanitary condition of the environment among others. Hence decent housing
is said to have a positive effect on the lives of the residence in
terms of being more productive, improved health, self-confidence and
dignified personality. Conversely, a robust housing finance market is a
catalyst for economic growth through the creation of employment in other
sectors of the economy, assisting household in asset acquisition and
improvement in living condition of societies(Bank of Ghana, 2007;
Rahman, 2009: Doling, Vandenberg & Tolentino, 2013). Likewise
Hassler (2011), affirm that real estate investment is a key contributor
to economic growth, household welfare and urban development.
Construction is one of the sectors with the most impact on the economy.
It deepens and makes the financial system more efficient by helping to
mobilize savings, expand access and reduce informal sources of finance.
Conversely, Ade (1983) posits that
financing of real estate, which includes our homes, shopping centers,
office buildings, firms and factories, is one of the major
responsibilities of our financial system. Housing is considered as a
basic necessity for man. According to Hanif and Hajazi (2010), Housing
is a basic need and the major problem is the shortage of housing units,
especially in less developed economies, Pakistan inclusive. This view
was supported by Coskun (2011), he argued that the housing problem is an
unresolved issue in Turkey.
Housing was made a constitutional issue
due to the importance attached to housing by the Turkish government. The
Turkish Republic Constitution of 1982, article 57, specifically states
that the government will take steps to meet the demand for housing
delivery within the context of a policy which will consider the
peculiarities of towns and environmental conditions and supports
community housing projects. The place of housing in the economic
development of nations is so important that government all over the
world, including Nigeria makes provision for decent and affordable
housing for her citizens. Onuigbo (1999), opined that housing is a very
important facility in the scheme of economic production. All the above
authors argued that a well housed workforce enjoy good health, physical
comfort and composure of mind, which impact positively on economic
production. Similarly, Olaniran (2003); argued that housing transcends
mere provision of shelter. Rather it includes the provision of utilities
and community services which enhances human dignity, creates conducive
social climate, facilitate orderly development of society and improve
the health and sanitary conditions of the people. From the above context
three (3) conclusions could be drawn; first is that housing is a
fundamental human need. Secondly, that those who live in decent houses
are more likely to make positive contributions to the economic growth
and development of society. Thirdly, that the term housing includes the
environment and social amenities available for the consumption of its
occupants. Obadian (2007); puts its thus: “the demand created by housing
needs of modern man transcend the provision of mere shelter as it
embraces all other social services and utilities that enhances the
dignity of a man living a decent life”. Olayiwola, Adeleye &
Ogunshakin (2005), posits that housing is one of the three basic needs
of mankind and it is the most important for the physical survival of man
after the provision of food. Adequate housing contributes to the
attainment of physical and moral health of a nation and stimulates the
social stability, the work efficiency and the development of the
individuals.
Since housing enhances production, it
then means it is a tool for rapid economic growth of a nation. The
housing sector has a multiplier effect. In most developed economies, the
housing sector is seen as an important sector for stimulating economic
growth (Okonjo-Iweala 2014; Isa, Jimoh & Achuuenu, 2013; NHBI 2012).
Also Igbinoba (2011) asserted that the housing sector has the ability
to stimulate economic growth and development in a depressed or stagnant
economy and raising the standard of living of the people. It could be
argued that there is a strong correlation between housing contributions
to a nation’s Gross Domestic Product (GDP) and the people’s ability to
own their own houses.
Similarly, it has been argued that
Mortgage lending is the primary mechanism used in many countries to
finance private ownership of residential property. It is normal for home
purchase to be funded by mortgage loan. Few individuals have enough
savings or liquid funds to enable them to purchase property outright. In
countries where the demand for home ownership is highest, strong
domestic markets have developed (Andrew, 2010; Haurin & Munasib,
2006; Wilcox, 2005). Giving special attention to the housing finance
market in Africa is important for the following reasons: It will enable
the low and medium income earners who cannot ordinarily build or buy a
house out of their small earning to own a house.
These workers will in turn pay property
rent to the government, thereby expanding the government revenue base.
This point is crucial when viewed against the background that 70 percent
of all tax revenues raised by local municipalities in the United
States, comes from property taxes (Igbinoba, 2011). Also a
well-developed housing finance market will provide paid employment and
stimulate economic development in the other sectors of the economy. It
has been argued that the US real estate industry is a major contributor
to the national economy. In 2001 it provided job for 1.7 million
Americans and it generate hundreds of billions of dollars every year as
an economic output. (Igbinoba, 2011). Aside from enabling the low income
group to own a house, tax revenue to governments and generation of
employment, the desire to build or purchase a house is a primary
motivation for the generation of household savings in the financial
system.
Housing finance market is a segment of
the capital market. It has been argued that housing finance refers to
the activities of both private and public sectors in providing financial
resources with or without financial agents and intermediaries for the
purchase, construction, improvement or renovation of a housing unit
including the immediate infrastructure (Onuigbo, 1999). Also Boleat
(1985), observed that the purpose of a housing finance system is to
provide the funds which home-buyers need to purchase their homes.
However, there may be differences and complexities from country to
country due to government intervention, but the essential feature of any
system, that is, the ability to channel the funds of investors to those
purchasing their homes, must remain.
There is a strong correlation between the
housing finance market and development as evidently demonstrated in the
US economy before and after the economic meltdown of 2008.It is as a
result of the positive relationship between the housing sector and
economic development that the US economy experienced a fast growth
between 2001 and 2007, a period referred to as housing bubble. However,
with a crash in the housing sector which occurred between 2008 and 2010
as a result of the subprime lending crises, (bubble burst) the US
economy also declined within the period. The purpose of this study is to
ascertain the effect of the housing finance market on the economy of
African’s States. Activities in housing fiancé market were examined in
Kenya, Nigeria, Burundi, Morocco and Namibia due to the relative
availability of data in these markets. There is dearth of data in
housing finance in most African countries, consequent upon the under
development of the market in the continent. Similarly, it has been
noted: when it comes to African economies, and that of many other
developing countries, I think this conventional wisdom on the importance
of the housing sector seem to be forgotten. The housing sector is
almost a big elephant in the room which seems to have escaped the
attention of policy- makers, multilateral institutions and the private
sector. At present, housing finance remains under developed in most
emerging markets. The lack of financial services in developing countries
has a significant negative impact on the efficiency of urban
investments, of which housing constitutes probably form about 60 percent
if the experience of advanced economies in any guide (Okonjo Iweala,
2014; Renand, 2004).
Among the countries of North Africa
region, Morocco has the most advanced housing finance market while the
Egyptian mortgage market is the least developed. Egypt housing finance
market is relatively young, although the country has a long history of
provision for housing. In the 60s and 70s the policy was provision of
mass housing by the state. The policy was later considered to be
inadequate as the burden of provision of houses especially for the poor
was becoming unbearable for government. The government has since charted
a new course, the provision of enabling environment for private sector
to thrive. Hassan (2014) posits that with the establishment of Egyptian
Mortgage Refinance Company (EMRC) in 2006 with the objective of
providing long-term finance to the mortgage finance companies, the
housing finance market has witness a tremendous growth. EMRC issues
bonds duly collateralized by real estate loan portfolio, which help
enhance the bond market and provide long-term finance resources.
On the contrary, growth in the Nigerian
housing finance market has been slow. It accounts for only 4 percent of
Gross Domestic Product (GDP) at its Peak. At a time it was as low as 1
percent (Kolawole, 2015). According to Kolawole (2015) the sector has in
recent time out grown the GDP at 8.7 percent. On the other hand Namibia
has a strong and efficient finance market. It is estimated that about
52.8 percent of the total credit in 2012 were mortgage loans.
Comparatively, the Namibian financial
sector is second only to South Africa within the African continent. Thus
South African has a history of sound financial system. The government
introduced several measures to induce financial institutions to invest
in the housing sector. Part of the measure was the establishment of the
National Urban Reconstruction and Housing Agency (NURCHA). It was
established to provide guarantees to both bank and non-bank lenders as a
mean of lowering the risk of operating in this segment of the market
(Moss 2009).
1.2 STATEMENT OFTHE PROBLEM
The African continent has been adjudged
to be one of the poorest regions in the world. This is in sharp contrast
with the huge abundant resources in the housing and housing finance
sectors waiting to be taped. Several studies have been carried out on
housing finance market.
However none seem to have addressed
collectively the problem of the impact of housing finance market on the
economies of Kenya, Nigeria, Burundi, Morocco and Namibia. It has been
argued that housing and housing finance has the potential of
re-positioning the economy of nations. On the other hand, international
experience in high income economies shows that a well-functioning
mortgage market will provide very larger external benefits to the
national economy efficient real estate development, construction sector
employment, easy labour mobility, capital market development, more
efficient resources allocation, and lower macroeconomic volatility
(Renaud 2004).
This study is shaped around Oyalowo
(2012). The research conducted by Oyalowo in (2012) examined the
constraints limiting lending institutions’ participation in housing
finance supply in the West Africa region. It also examines how
governments across West Africa can tackle these constraints. It was
based on regression analysis of secondary data related to factors
necessary for lending institutions’ participation in formal housing
finance supply. The ratio of the private credit to GDP of West African
countries between 2008 and 2010 is regressed against the independent
variables inflation rate, procedures to register property, time to
register property, cost to register property, strength of legal right
index and depth of credit information system. Similarly, Chen et al
(2006) focuses on economic development and housing affordability in
China. It argued that the importance of housing finance industry in the
Shanghai economy increased significantly since 2000. Its share in
Shanghai GDP was 5.5% in 2000 but has risen to 8.4% in 2004, it is now
the third largest industry sector in Shanghai and ranks behind only the
IT and finance industry sector. Other studies asserted that the housing
sector is an important segment in any economy. As such housing policy
must be seen as one of managing an important economy sector, with
crucial links to overall economic performance, rather than, as is a
common view, simply producing dwellings as a component of the social
welfare system. These links, through the real, fiscal, and financial
circuits of the economy are becoming increasingly well understood. As
these become more transparent, the stakes of good housing policy become
more and more evident. Furthermore the housing sector is said to have a
multiplier effects on the economies of nations. It is an important tool
for stimulating economic growth (Mayo 1991, Okonjo-Iweala 2014 Akinwunmi
et al 2008).
Given the role of housing finance in
economic growth it has been observed that the main factors determining
the growth of mortgage lending activities related to the development of
the economy of Latvia are: growth of the GDP, the development of the
construction sector, and increasing transactions in the real estate
sector (Solks, 2010). While the above studies emphasized the role of
housing finance in economic growth, Tomlinson (2007), looked at the
study from s different dimension. He argued that for a long time,
studies relating to housing tended not to focus on housing finance per
se, but rather emphasized topics such as urbanisation, unplanned
settlement upgrading, the lack of residential land for formal housing
and so forth. In such context, housing finance has primarily been
discussed as one of a number of constraints, rather than as the focus of
the research. Also a growing body of research has been highlighting its
importance for social and economic development, causing housing finance
to become a distinct field of knowledge and endeavour. It has slowly
emerged from the grey zone between urban development and financial
sector development, to assert it claim as distinct filed in its own
right (Porteous, 2006).
From the body of literature reviewed, it
is evident that there is a gap in knowledge concerning housing finance
market in Africa. The gap reveals that there is no known impact study of
housing finance on African economies. Also there is no known
comparative study of housing finance market on the economy of Egypt,
Nigeria and South Africa. It is these gaps that the study seeks to fill.
1.3 OBJECTIVES OF THE STUDY
The major objective of the study is to
find the impact of Housing finance market on growth of selected African
Economies while the specific objectives are:
- To analyse the impact of the contributions to housing finance by Mortgage banks on economic growth of Kenya.
- To examine the impact of the contributions to housing finance by commercial banks on the economic growth of Kenya
- To determine the impact of the contributions to housing finance by Mortgage banks on the economic growth of Nigeria.
- To ascertain the impact of the contributions to housing finance by commercial banks on the economic growth of Nigeria.
- To evaluate the impact of the aggregate housing finance on economic growth of Burundi.
- To appraise the impact of the aggregate housing finance on economic growth of Morocco
- To determine the impact of the aggregate housing finance on economic growth of Namibia.
1.4 RESEARCH QUESTIONS
The following research questions were postulate in order to have a clearer understanding of the subject matter.
- To what extent have the contributions to housing finance by Mortgage banks impacted on the economic growth of Kenya?
- To what extent has contribution to housing finance by commercial banks impact on the economic growth of Kenya?
- How far have the contributions to housing finance by Mortgage banks impacted on the economic growth of Nigeria?
- How far has the contribution to housing finance by commercial banks impacted on the economic growth of Nigeria?
- To what extent has the aggregate housing finance impacted on the economic growth of Burundi?
- To what extent has the aggregate housing finance impacted on the economic growth of Morocco?
- To what extent has the aggregate housing finance impacted on the economic growth of Namibia?
1.5 HYPOTHESES
The following null hypotheses will be tested in this study:
Ho1 the contributions of housing finance
by Mortgage banks does not have positive and significant impact on
economic growth of Kenya.
Ho2 the contributions of housing finance
by commercial banks does not have positive and significant impact on
economic growth of Kenya.
Ho3 the contributions of housing finance
by Mortgage banks dos not have positive and significant impact on
economic growth of Nigeria.
Ho4 the contributions of housing finance
by commercial banks does not have positive and significant impact on
economic growth of Nigeria.
Ho5 the aggregate housing finance does not have positive and significant impact on economic growth of Burundi
Ho6 the aggregate housing finance does not have positive and significant impact on economic growth of Morocco.
Ho7 the aggregate housing finance does not have positive and significant impact on economic growth of Namibia
1.6 SCOPE OF THE STUDY
The housing finance market is a part of
the wider mortgage finance market, concerned principally with the
provision of loans for the purchase or development of real asset.
Activities in the real estate market
ranges from the provision of land and the necessary documentation
associated with such purchases, to the acquisition of an already
completed building or erecting a new building on a parcel of land. There
are different types of building at different cost. The choice of
building to be constructed at any point in time depends on two factors.
These are the intended use of the building and the financial position of
the owner of the building.
Housing is synonymous with status symbol.
The type of a house one lives in is a reflection of his social standing
in society. Discussion on housing finance could be approached from two
perspective, access to mortgage finance and effect of mortgage finance
on the economy. In this study, the focus is on the effect of mortgage
finance on the economy. Period under investigation is thirty (30) years
1985 to 2014
1.7 SIGNIFICANCE OF THE STUDY
This study will be most significant to the following groups. These groups are:
- Government:-
This study will be of immense benefit to
government at the federal, state and local government level. It will
assist government in formulating and implementing appropriate
developmental policies. It has been argued that housing finance has a
multiplied effect to the economy because of its backward and forward
integration.
Conversely, when governments formulate
appropriate policies that will create an enabling environment for the
growth of the housing sector and housing finance market, it will
automatically stimulate growth in the economy. Growth in the housing
sector and housing finance market has the potential of affecting the
economy in positive ways. First is creation of mass jobs for artisans,
engineers and other skilled and unskilled labour.
Secondly, is the eradication of poverty
when majority of the people are gainfully employed and there is a free
flow of economic activities, poverty will be reduced to its barest
minimum. Thirdly, it will lead to increase in financial intermediation.
More people will demand for mortgage loan, thereby stimulating economic
growth. The significant of the study on housing finance market is
derived from the importance of housing as a tool for economic
development and the attention paid to housing delivery by various
governments all over the world. Housing has been said to rank next to
food among the basic necessities of man. Consequently there is the need
to adequately house the inhabitants of a nation, especially when viewed
against the background that a well housed workforce contribute maximally
to the production of goods and services in any economy.
In effect adequate housing of the African
worker is a necessity. While the provision of affordable housing for
the low and medium workers in the public service are capable of
addressing the following issues in Africa:
- Attainment of the sense of fulfillment among the low and middle level public servants.
- Elimination/reduction of corruption in the public service.
- Increased productivity of the public servant, thereby leading to increased national output.
- Investors
Both local and foreign investors will
benefit maximally from the study. It will expose them to the
opportunities available in the housing finance market. It has been
argued that the real estate sector contributed greatly to the
transformation of the American economy. In like manner a well-developed
housing finance market is capable of transforming the African economies
while at the same time creating mass employment for the teaming
population of African. Warnock and Warnock (2008) observed that while
housing finance is a vital component of a well-functioning housing
system, to date there has not been a systematic analysis of the depth of
housing finance across a broad set of countries. In fact, as far as we
know, no formal cross-country study of the size of the housing finance
market exists. Existing international housing finance studies tend to be
descriptive and highly informative, but lack any forma empirical
analysis and often focus on one or more country case studies.
- Academia
This study is intended to contribute to
existing theoretical an empirical literatures in housing finance
discipline. Specifically, its aim to determine the impact of housing
finance market on growth of emerging economies like Egypt, Nigeria and
South Africa. There is dearth of literature on housing and housing
finance market in Africa despite the importance of this field of study.
Conversely, this study will stimulate interest on further research,
teaching and learning on how a robust housing finance market could be
used to accelerate growth of the African economies and other economies
of emerging housing finance markets.
- Financial Institutions
This research will maximally be
beneficial to financial institutions, especially insurance companies and
pension funds administrators. The housing finance market will serve as
an investment hub for the excess liquidity of these institutions. Also
it will enable the Primary Mortgage Banks to introduce mortgage backed
securities which will be traded in the stock exchange market.
- General Public
The result of this study, is believed
will be of immense benefit to the general public. Housing is a basic
necessity that touches on every life. It is the desire of every working
adult to own a house to which he will retire to one day. Housing is a
capital project and a study on housing finance market is one of the
surest ways to enlighten members of the public on how to access finance
to build their own houses.
1.8 LIMITATION OF THE STUDY
Like most field of studies, housing
finance as a new field of study in finance is associated with some
limitations. The main limitations of this study are:
Size of the Market: The
mortgage market and the housing finance market are interrelated for
there to be a robust housing finance market there have to be sound
mortgage market that supply fund. In most African Countries, it is
either the market is non-existed or under developed.
Materials: As a new
field of study, there are no enough indigenous materials. The researcher
has to rely mostly on materials from developed countries such as USA
and United Kingdom.
Materials were also sourced from some
developing countries. Among the countries are China, India, Egypt, South
Africa, Ghana and Nigeria.
1.9 OPERATIONAL DEFINATION OF TERMS
- Mortgage Loan: money obtained from financial institution, secured by real assets
- Housing Finance Market. A specialize market for
funds for building construction, purchase of land and renovation of
house is traded. It is a market restricted to real estate only; fund for
the construction of different types of houses, such as housing estate,
shopping complexes and residential houses are obtained in this market.
- Housing Finance. It refers to the activities of
both private and public sectors in providing financial resources with or
without financial agents and intermediaries for the purchase,
construction, improvement of renovation of a housing unit including the
immediate infrastructure (Onuigbo, 1999).
- Housing: The provision of shelter which includes
the provision of utilities and community services which enhances human
dignity creates conducive social climate, facilitate orderly development
of society and improve the health and sanitary conditions of the
people.
- Mortgage backed security (MBS) it is a type of
asset-backed security that is secured by a mortgage or collection of
mortgages. The mortgages are sold to a group of individuals (a
government agency or investment bank) that securitizes, or packages, the
loans together into a security that investors can buy.
- Emerging market: Is a market that has some characteristics of a developed market, but does not meet the standards to be a developed market.
- Economic growth: An increase in the capacity of n
economy to produce goods and services, compared from ne period of time
to another. It could be measure in nominal terms, which include
inflation or in real terms, which are adjusted for inflation
- Economy: The wealth and resources of a country or region, especially in terms of the production and consumption of goods and services
Thanks for your interest in the research
topic. The complete research work will cost you N2000 and we will send
the material to you within 24hours after confirming your payment.
Make the payment of N2000 into any of the account
number below and we will send the complete material to you within
24hours after confirming your payment.
Agada Leonard E.
