Property rights drives African housing boom

While the housing market in the United States has fallen on hard times thanks in large part to fluctuating interest rates, there is another – worldwide – housing boom under way that is in large part a direct result of changes in U.S. foreign policy.

Back in 2002, President George W. Bush announced his intention to reshape U.S. foreign aid policy and practice through creation of the Millennium Challenge Corporation (MCC), which today determines a nation’s eligibility for U.S. aid based on its record of fighting corruption, fostering entrepreneurship, and promoting social justice. This formation of the MCC has already spawned positive results, as its very first grant included tens of millions of dollars earmarked for formalizing Madagascar’s land tenure system (titling and surveying), modernizing its national land registry, and expanding land registration services to rural citizens.

In July 2003, President Bush followed up on this positive development by announcing his Africa Mortgage Market Initiative in a speech at the Leon Sullivan Summit in Abuja, Nigeria. Taking a cue from Peruvian economist Hernando de Soto, whose research had shown there is at least nine trillion dollars’ worth of trapped capital in unregistered land in the developing world, he explained:

“One specific obstacle to development in many countries is the lack of access to capital. Many Africans find it impossible to get a loan for a business or a home. And this makes it far difficult for people to build equity or to borrow money to start a business. The United States has some of the most effective mortgage markets in the world. We understand the flow of capital, and we want to share this knowledge with the nations of Africa…. With the ability to borrow money to buy homes and start businesses, more Africans will have the tools to achieve their dreams.”

The President assigned to the Overseas Private Investment Corporation much of the job of working with Africans to develop robust housing markets through construction of affordable homes in developing nations with the goal of bolstering retail banking and fueling local capital markets as engines of entrepreneurship. Last fall, the President installed fellow Texan Rob Mosbacher, Jr., as OPIC’s new President. Mosbacher hit the ground running, championing private home ownership in developing nations as an instrument of foreign policy.

In May 2006, at the OPIC-sponsored “Housing Africa” conference in Cape Town, South Africa, Mosbacher asserted that Africa has the capacity to develop a viable housing industry.” Noting that OPIC has provided $367 million in financing and loan guarantees for housing projects in Africa since 2003, Mosbacher explained that:

“Housing development is central not only to individual dreams, but to the goal of economic growth. Home ownership is the single greatest store of wealth for individuals, and an important source of capital for entrepreneurship at the grass roots level. Unfortunately, for the most part Africa has not enjoyed the benefits of this relationship between housing and economic development…. [Our job at OPIC] is to take the ingenuity and resources of America’s successful housing industry and partner it with the entrepreneurial capacity of African businesses so that housing can assume its rightful place as a strong and sustainable platform for economic growth across the continent.”

Recent African OPIC-funded projects include $7.1 million to underwrite a unique long-term lease-for purchase program for 400 affordable housing units being constructed in Nairobi, Kenya; $12.4 million in political risk insurance to assist construction of 5,000 homes in Tanzania, which in 2005 had begun a new program to survey and upgrade hundreds of thousands of urban land plots; and $46.3 million to facilitate mortgage financing for 5,000 new homes in a project that will leverage over $100 million of new housing construction and serve as a model for future housing projects in sub-Saharan Africa.

Of the latter project, U.S. Ambassador to Zambia Carmen Martinez noted that the project is much bigger than building houses: “It is instilling a new sense of home ownership, introducing affordable financial instruments, and in the end building community.”

OPIC’s push for private property rights for ordinary citizens is by no means limited to Africa. On May 10, OPIC provided $100 million to National City Bank for financing housing construction loans for low- and middle-income housing with a special emphasis on CAFTA-eligible countries; another $3.6 million of OPIC money was allocated for establishment of a network of franchisee-owned Century 21 real estate offices in Russia.

Expanding home ownership has long been a major theme of President Bush’s domestic policy, too. Initiatives like the American Dream Downpayment Act, the Zero-Downpayment Initiative, and America’s Homeownership Challenge have had great success. For the first time in U.S. history, a majority of minority households are now homeowners. During just the first three years of the Bush Administration, increased housing prices and new home construction had added nearly $4 trillion to homeowner wealth, and cash-out refinancing had added more than $130 billion to household budgets.

The focus on private home ownership is by no means merely a partisan issue. Former President Bill Clinton, at the recent Clinton Global Initiative meetings, announced a commitment by The First American Corporation of up to $1 million to develop a template for cost-effective in-country creation and maintenance of a land record system that ensures a means for establishing and holding the legal title to a property in countries lacking such a system.

The announcement also carried former Secretary of State Madeleine Albright’s observation that many of the world’s poor who have “property in the form of land, housing, and livestock, are unable to make the most of these assets because they lack any legal title.” Citing the work of invited guest Hernando de Soto, Clinton agreed that the inability to convert these assets into collateral for loans is “keeping people in grinding poverty instead of being an asset that can lift them up.”

The recent U.S.-Africa Infrastructure Conference, sponsored by the Corporate Council on Africa, featured a panel on housing and commercial construction, with a focus on affordable prefabricated housing. One speaker noted that Mexico has committed to building 750,000 new houses a year for its people, and yet that rapid pace will still leave millions waiting in line for years.

Africa’s housing need may be even more acute. A woman from Malawi, a nation with just 13 million people, stated that the waiting list for new homes in her country is 100,000 families a year. It will take both mortgage-based financing (including lease-purchase plans) and convincing aid donors to commit to private property ownership to even come close to satisfying this burgeoning desire of urbanized Africans for affordable, modern housing.

With all that said, the fields are ripe for harvest – Africans are joining the outcry worldwide for a free market and a better standard of living. Providing food and services to the developing world remains a challenge – but the potential for financial and personal rewards should provide sufficient incentives to investors to help bring about real change in a place that has for far too long been known as the “dark continent.”

Categories

About the Author: Duggan Flanakin

Duggan Flanakin

Duggan Flanakin is the Director of Policy Research at the Committee For A Constructive Tomorrow. A former Senior Fellow with both the Texas and Arkansas Public Policy Foundations, Mr. Flanakin has a Master's in Public Policy from Regent University. During the years he spent reporting on environmental regulation in Texas and nationwide, Mr. Flanakin authored definitive works on the creation of the Texas Commission on Environmental Quality and on environmental education in Texas.