(BACKPAGE) Of banking and housing industries

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BY LEKAN SOTE

Uba Group

For some inexplicable reasons those who fear restructuring think it ends at power decentralization and fiscal federalism, the whittling down of the powers of the Federal Government that they have captured for personal and ethnic advantage.

They have probably never thought, for instance, of liberalization of bank funding of mass housing, so that many more Nigerians can own their own homes, while many others reap sustained employment in the construction industry.

Right now, Nigeria’s housing financing system, or mortgage banking, is in a ridiculous place. Though it may be useful to civil servants, who have access to housing loans as part of their conditions of service, it is not delivering adequate housing to Nigerians
Nigeria has 43 million households, with what has been described as a staggering deficit of 28 million houses. Experts say Nigeria will need N21 trillion to roll back that deficit. Please look not on the outgoing President Muhammadu Buhari’s administration to close this gap.

Dumebi Kachikwu, presidential candidate of Africa Democratic Congress, who is confronted by some demons in his party, who suggested that he could resolve Nigeria’s housing deficit within 18 months, if he became President next year, is a practical joker.

The government that appears to have delivered the most housing to Nigerians is that of Lateef Jakande of Lagos State. He provided housing estates throughout the three senatorial districts of Lagos State within four years and three months.

He was about to deliver the same throughout Nigeria under the pariah General Sani Abacha military government that he served as Minister of Works and Housing. But he was shown the way out before he could begin to get on with the job.

It was rumoured that he had engaged Nigeria’s major cement manufacturing company to commit to supply the required quantity of cement to do the job over a period of time and throughout the country.

They said he also got into talks with the banks to enable cement manufacturers and the building contractors, who will execute the projects for the government, to access loans, for fast and easy execution of the building projects.

What Jakande did was to use the auspices of the government to initiate a work programme that will raise the country’s Gross Domestic Product, create jobs for entrepreneurs and all cadres of professionals, tradesmen and artisans and create a financing process that will enable everyone involved in the value chain.

You would have seen the linking of the banking industry to the various segments of the construction industry, starting from town planners, to architects, building engineers, various cadres of artisans and suppliers of sundry building materials, like cement, sand, iron rods, plumbing and electrical wirings.

America has something more elaborate and formal than this. As part of President Frederick Delano Roosevelt’s “Big Deal,” a series of public works projects and financial reforms, his government established the Federal National Mortgage Association, also known as “Fannie Mae,” to expand the mortgage market with collateralized bonds.

Fannie Mae, which started out as a government-owned vehicle, before it was publicly traded in 1968, under the administration of President Lyndon B. Johnson, allows lenders to reinvest their assets into even more lending.

The Federal Home Loan Mortgages Corporation, or “Freddie Mac,” founded under Richard the Nixon Administration in 1970, is another publicly traded enterprise used to expand the secondary market for mortgages in America.

Like Fannie Mae, Freddie Mac also buys mortgages, and pools them before selling them to private investors in the open market. With these agencies or enterprises, more cash is made available for mortgages to enable more home purchases.

“So, for the government – at Federal, States and Local Government Authority levels – to deliver enough housing to Nigerian citizens, the private sector, especially the banking and construction sub-sectors, must be involved as driver and facilitator”

What this means is that high net worth individuals and munificent organisations are encouraged to contribute to a pool of funds, provide financing for mortgages, enable individuals and families to acquire homes and spread the payments over an extended period of time.

Usually, the home buyer would have provided significant evidence of capacity to repay the mortgage debt without default. As this scheme provides accommodation for individuals and families, it also delivers returns to investors.

But unfortunately, the downside of this arrangement (at least in America) is that there is a heavy penalty and very little room for forgiveness when a home buyer defaults. It’s a rent-to-own arrangement that can render an individual or a family homeless and very broke in a jiffy.

“CBN"

But the point to take out of the mortgage scheme being suggested here is that it puts a shot in the arms of the economy. It’s a brilliant interpretation of the work programme suggested by economist John Maynard Keynes.

Keynes was reported to have suggested that the government of Great Britain should hire some unemployed citizens to dig a hole and pay them, and then hire another set of citizens to refill the holes, and also pay them.

That way, he argued, the government would have found a legitimate way to put money in the hands of citizens, in order to energise the economy. It reminds you of the game book publishers play in order to get their books to be classified as bestsellers.

They simply go back to the bookshops and buy the books back! The consequent high volume of sales will naturally shoot the book to the top of the bestsellers chart. When the (undiscerning) media gets the report, they provide a rave review, while also mentioning that the book is a bestseller. Readers jump at the book, and further raise its bestseller profile.

Imagine the positives on the Nigerian economy of a construction industry driving local production of all types of building materials. Increased local production should strengthen the Naira against all the hard currencies.

If it is well handled, the consequent economies of large-scale production should significantly reduce the cost of building materials and (maybe) create a West Africa-wide market in the Economic Community of West African States region.

The Federal Housing Authority, wholly owned by the Federal Government, is expected to propose housing projects; recommend urban and regional planning, transportation, communication, electricity, and water development projects; and execution of housing projects on behalf of the Federal Government.

What you see in this schedule of duties of the Federal Housing Authority is a load of lethargy, enmeshed in bureaucracy that will neither deliver the housing needed by Nigerians, nor significantly contribute to Nigeria’s Gross Domestic Product. The Federal Housing Authority is inadequate for this purpose.

So, for the government –at Federal, States and Local Government Authority levels– to deliver enough housing to Nigerian citizens, the private sector, especially the banking and construction sub-sectors, must be involved as driver and facilitator.

Nigeria’s Federal Mortgage Bank, also fully owned by the Federal Government, functions like a regulator and central bank for private primary mortgage lenders to prospective Nigerian homeowners, is a good attempt. But it’s not nearly good enough.

To obtain a loan, you must have a savings account with a registered mortgage bank, where you operate a savings account for at least six months; and provide evidence of regular income, ownership of the land, survey, site and architectural plan.

But it won’t cut the ice. The bureaucracy that comes with Federal Government ownership of this vehicle will not allow it to rev up as it should. The absence of investors and the banking sector in the value chain is a drawback.