In a country where the average income needed to buy the cheapest house is almost double the average annual urban household income, home ownership will continue to remain an idea sought after but gravely unattainable.
This finding is derived from the 2016 Centre for Affordable Housing Finance in Africa (CAHF) report which cites the average income needed for the cheapest newly built house by a formal developer at $14 856 (approximately P160 000) and the average annual urban household income at $8 166 (approximately P88 000).
The report estimates the total number of households in the country at 500 000 and highlights that around half of urban households have only one income earner. In terms of the share of adults who do not earn an income the 2014 FinScope Botswana survey puts the number at 20 percent while another third earns less than P500 a month.
Given the recent towering employee layoffs it is highly likely that the number of adults with no income may have significantly increased. These figures when looked at in the context of home ownership depict the grim challenges faced by households. Affordability is at the centre of these challenges.
Based on figures from the 2009/10 Botswana Core Welfare Indicators Survey (BCWIS) only 3.3 percent of households lived in a house that they had bought whereas over 50 percent lived in their own self-built accommodation while 42.5 lived in rental or institutional accommodation.
The small number of residential mortgages ÔÇô approximately 20 000 in 2016, out of approximately 500 000 households in the country ÔÇô reflects the limited size of the formal property market,” states the CAHF report. Perhaps a more bleak reality that the insignificant access to mortgages speaks to besides the under-developed property market is that housing affordability is a lot more serious than could be imagined.
The CAHF report illustrates this by showing the monthly consumption expenditure by households in relation to how much of it is expected to go towards the cost of housing. It uses 2009/10 nationwide household income and expenditure survey figure which cites that approximately 50 percent of households had a monthly consumption expenditure of P1 600 (approximately US$240) or less.
“Using a benchmark that housing costs should not exceed 40 percent of household income, and updating these survey results to reflect growth and inflation to 2016, an average household can afford to spend approximately P1 100 (US$105) a month on housing ÔÇô meaning that half of all households can afford less than this,” states the report.
Based on this clear lack of affordability the report explains that even if formal mortgages were available to such households there is no affordable property available to them, “or at least not property that would be acceptable security to mortgage lending institutions”.
The unaudited Botswana Housing Corporation (BHC) financial results for the half year ended September 30, 2016 speak to the affordability challenges facing households. In its attempt to provide affordable housing to Batswana BHC is presented with a quagmire particularly because the household income is crudely mismatched to the current going price of the corporation’s property.
BHC continues to grapple with increasing costs associated with the construction of houses such as land servicing (water, electricity, roads connections) which as a result means that the total cost of providing housing exceeds households’ affordability. The results reported a 36-percent decline of revenue to BHC at P180 million compared to P282 million recorded in the prior year.
“The decrease in revenue was mainly driven by sales revenue which decreased by a significant P101 million or 56 percent. In the prior year, sales revenue was high and driven mainly by Phakalane and Palapye projects deliveries. The rental income has declined by 4 percent as the Corporation has not been able to increase rentals over 10 years,” states BHC. The corporation adds that as a way of encouraging home ownership it crafted a new strategy which focuses on building and selling houses as opposed to availing them for rental.
In recognition of the affordability challenge faced by households BHC, through government, provides various forms of subsidies in the form of Self Help Housing Agency (SHHA), Installment Purchase Scheme (IPS) and Youth Housing schemes. These are considered social housing projects for the benefit of low income groups and youth. This means that BHC balances the need to accommodate low-to-moderate income households at the same time as ensuring the commercial viability of the corporation by getting a return from its housing projects.
BHC will continue to be in a sticky position if the core of the issue is not addressed: which is affordability. If household incomes do not increase, home ownership will plunge deeper into a mirage.
“The overriding issue will continue to be affordability; most households are not able to afford formal housing, and are unattractive customers for formal financial institutions,” states the CAHF report.