Housing is a key Potential Economic Multiplier for Uganda
If deliberately targeted, housing has the potential of becoming the engine that drives the process of sustainable socio-economic development in any country. The World Bank has established that every $1 appropriately invested in the housing sector, generates an economy-wide multiplier effect of between $5 and $12. Housing is one of the principal sectors that can revitalise economic growth, with shelter recognised as one of the tools of development.
Investment in housing and related infrastructure and services have effects on the national income that go far beyond the direct investment itself by triggering forward and backward linkages through additional investments in production, transportation and marketing of building materials. Uganda has the potential to positively harness the economic multiplier effect by capitalising on the housing sector's financial and social linkages and by prioritising it as one of the primary growth sectors for our economy - as already highlighted in the National Development Plan.
Writing in the journal Up And Down Wall Street in August 2006 on the "Multiplier effect of each dollar spent on housing in economy," Alan Abelson argued that for every $1 spent in housing, $1.27 is generated in economic activity. The total multiplier for output and employment in the construction industry is estimated to be 2.866 times, i.e., for every $1m increase in construction output, there is an increase in overall economic output of $2.9m.
According to the National Development Plan, housing is one of the primary growth sectors. The share of construction in GDP growth was 7.1% in 2011, second only to agriculture. However, the current allocation in the budget to the housing sector is 0.3% of the approved budget (Shs 24bn), making it the second most underfunded sectors, after ICT which got 0.1%.
The effects of this lack of prioritisation is the staggering housing backlog levels which, according to the State of Uganda Population Report 2007, is about 1.6 million units nationally. The report also shows that the urban population growth rate of 5.1% and 3.2% for the national population indicates that by 2015, the national backlog will be approximately 2.3 million units.
Inadequate production of this category of housing is associated with under-investment by both the public and the private sectors. Public sector involvement in housing development has been declining over the years, while the private sector has mainly catered for upper middle and high-income groups, leaving the lower middle and low-income brackets unattended.
Despite this being a big opportunity for them, private sector players have been unable to satisfy the vast market for affordable housing. In order to subsidize the factors affecting delivery of affordable housing (production, land, infrastructure, taxes, building materials and cost of finance), some government investment in housing is required.
Previously, the government provided houses for civil servants to whom it later sold the units, but today the government's role in affordable housing is only through facilitation of the private sector. More support is needed, though, for example through tax exemptions for affordable houses, mortgage incentives to selected affordable housing schemes, and provision of the infrastructure aspects of housing development.
While Uganda's economic performance was at par with that of countries such as Kenya, Ghana and Malaysia in the early 1970s, these economies have since improved significantly ahead of Uganda's and this has been greatly attributed to their heavy investment in infrastructure.
To achieve the government objectives of growth, employment and socio-economic transformation for prosperity, housing is an avenue the government needs to emphasise. Due to limited resources, linkages with other infrastructure sectors should be explored to allocate aspects of, for example, the road and energy funds.
With a projected per capita income of $1,300 pa (index mundi), if we assume 50% of household income is allocated towards housing the effective demand would be for units worth $30,000, assuming a 25-year 5% interest mortgage (with government subsidies in taxes, mortgages and infrastructure).
If the cost of sales is projected at 80%, units can be built at $25,000. This will create a contribution to the GDP of $250,000,000 per 10,000 units constructed. Using the Philippines multiplier of 16, the current housing backlog has a potential ripple effect of $4 trillion on the economy if 10,000 units are produced annually.
BY ELIZABETH KASENENE RUMANYIKA
The Observer Newspaper
4 MAY 2012