“Mr Speaker, to boost housing supply…” was the opening remark of the Finance Minister’s 2019 Budget Statement on Housing to Parliament. In the presentation he also said, “Mr. Speaker, a vibrant mortgage and housing finance ecosystem is key for social equity, economic development and job creation.”
A laudable aim and welcome development but can the housing finance ecosystem announced achieved a true social equity in Ghana? The statement does demonstrate the Government is eager to tackle Ghana’s housing deficit. For once, the Budget also outlines specific housing projects the Government intend to implement. The Housing Mortgage Fund could definitely boost housing supply when it is fully operational. However as they say the devil is in the details. How would these funds be disbursed to generate return on investment?
The Minister’s statement suggests two approaches for disbursing the funds. One is to channel the funds through commercial banks as mortgage products to finance housing projects or give the funds to real estate developers to build affordable or subsided homes. This guarantees a sizable amount of money for housing development for the next five years. However Housing Finance initiatives only solve one side of the housing puzzle. These two approaches pose serious challenges and do not appear to offer value for money in the long term.
Let us examine the two approaches. In the current climate the Commercial Banks are under intense pressure from the Bank of Ghana to raise their minimum paid-up capital to GH¢400 million by December 2018 and maintain it thereafter. They are also required to maintain enough cash liquidity to facilitate retail banking daily transactions. Lessons from the 2008 subprime mortgages finance crisis fiasco indicate under such conditions the banks are not likely to lend money to individuals so quickly. They are more likely to use the Housing Funds to sure up their books or invest in activities that offer quick financial returns. Long term return on investment through mortgage products may not be part of their strategy.
The eligibility criteria the banks may develop for the disbursement of the funds is also likely to be satisfied by a handful of people. The vast majority of hard working Ghanaians who deserve this facility will be disqualified. Effectively the banks will be receiving this mortgage fund from the Government at zero percent and no cost. Yet using their complicated loans calculation formula they would rake in substantial profit margins at the expense of the tax payers’ whose money they obtain on the cheap. This should not be allowed to happen if we are to maintain sustainable housing development.
The second approach which is providing Construction Finance to real estate developers to subsidise affordable housing development also does not guarantee continuous housing supply. It is well established, house prices for newly built properties are influenced by cost of land, cost of finance and developers profit margin. Varying these three variables reduces total cost of houses significantly and makes homes affordable. Developers would rather maximise their profits and improve their balance sheets than pass any gains to customers. Therefore it is unlikely any savings from the funds and land cost would be automatically passed to the prospective home owner. Developers profit margins would instead be widen.
Housing Mortgage Fund therefore does not necessarily leads to a boost in housing supply. This is why the government is consistently urged to develop the housing institutional structures and a framework to govern housing development and management. This will provide management and monitoring mechanism to police the efficient use of the Funds. Unfortunately, the other entire housing development programme announced in the Budget Statement follows the same colonial era workers housing scheme pattern that have never served our long term interest.
Though Ghana is the first in Africa and second in the world, after Mexico to outdoor a budget that fully integrates the Sustainable Development Goals (SDG) framework. The Housing Mortgage Fund may not achieve its intended objectives if we fail to address the concerns and complexities associated with channelling the Funds through the Banks or Developers.
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