Pan-African mortgage lender Shelter Afrique has developed a ‘Housing Affordability Calculator’ to vet proposals by developers pitching for affordable housing financing.
The calculator requires the user to input four data points: household’s monthly income, distance from the city centre, country of residence, and the local currency or US dollar to gauge affordability.
The calculator then applies background data and assumptions based on the prevailing mortgage terms in individual countries, percentage of monthly household income spent on transport based on the distance of the house from the city centre, and rate of monthly household income spent on transportation and housing for each income band.
Head of Policy, Research and Partnerships at Shelter Afrique Dr Muhammad Gambo said that developers currently claim they are setting up affordable units but price them expensively, creating a risk of slow uptake of completed projects.
He said the housing financier will now vet projects using the criteria to ensure affordability of the purchase price, finance and the cost of living.
“The housing affordability calculator is vital for Shelter Afrique in evaluating housing project proposals submitted, with respect to whether the units proposed are likely to be affordable to a low-income target market in that location,” said Dr Gambo.
“If household affordability is not accurately gauged by public or private sector developers, then there is a serious risk that there will be insufficient effective demand by households to purchase or rent the houses produced,” he said.
The housing affordability calculator, which was developed in partnership with the Centre for Affordable Housing Finance in Africa (CAHF), also seeks to enhance understanding of housing affordability of the demand and supply sides in African countries.
The calculator will pressure developers whose price range is still very high despite claiming to put up affordable houses.
It may also sway government policies on beneficiaries of tax incentives for affordable housing.
In Kenya, for instance, the government has scrapped stamp duty for first-time buyers and pledged to provide bulk infrastructure such as drainage and utilities. It has also promised to halve the corporate tax to 15 percent for developers who build more than 100 affordable units and exempt value added tax (VAT) on construction inputs.
Affordable housing is a lucrative venture as governments in Africa strive to encourage private sector involvement in providing millions of housing units.