Urban Land Policy, Housing, and Real Estate Markets in Urban Ethiopia
Introduction
This study assesses urban land policy, housing, and real estate markets in urban Ethiopia, aiming to identify the factors contributing to the imbalance between supply and demand and to propose strategies for improvement. The research is based on a review of government documents, strategy papers, and secondary data from government institutions. The study emphasizes the need for efficient and equitable land management, sustainable housing development, and a well-functioning real estate market to address the challenges of rapid urbanization in Ethiopia.
Urban Land: Imbalance of Supply and Demand
Since the early 1990s, Ethiopia has made efforts to improve land service delivery, yet challenges persist. Land, according to the constitution, is a common property of the people and is not for sale. However, the government is expected to ensure private investors have the right to use land based on payment arrangements. In urban areas, use rights can be transferred if lease contract responsibilities are met, unlike in rural areas where transfers are limited to family members6. This has led to a land market primarily between municipalities and citizens seeking land for residence, investment, or real estate development.
The study identifies several factors contributing to the imbalance between land supply and demand:
- Financial constraints: Municipalities prioritise government projects (housing, roads, etc.) over the private sector, and are not compensated for the expenditures they incur, making land supply financially unsustainable.
- Limited market allocation: Only a small proportion of land is allocated to the market for transfer through auction, creating an imbalance.
- Inefficient land management: Despite legislation, the market is mismanaged due to the absence of modern management practices, and there is a lack of infrastructure supply.
- Low compensation for land: Compensation for land reclaimed from farmers is low, which fuels illegal land sales and resistance around cities.
- Informal markets: The limited formal market has led to the growth of informal markets and squatter settlements, distorting urban planning.
- Underdeveloped real estate market: The real estate industry is underdeveloped, lacking reliable information about price, size, quality, and availability of utilities.
- Quality of urban land legislation: The continuously updated land market law (lease law) has not enabled appropriate urban supply and demand, and preconditions for using leasehold rights limit the use of leasehold titles as collateral.
Housing: Insufficient Supply and Unaffordable Market
The government’s condominium housing supply initiative has not been able to meet the demand and has also caused distortions in land and housing markets. The housing market in Ethiopia is inefficient, with large unmet demands that influence prices. As per the MUDCo GTP II plan, the annual urban new house demand is 381,000, exceeding the annual supply. This leads to high levels of urban populations living in informal settlements.
Key challenges in the housing sector include:
- Affordability: Most residents are low-income and cannot afford market prices, even for government-subsidised housing, as most housing packages are geared towards middle and upper-income households.
- Housing finance: The lack of clarity in land markets hinders the development of the mortgage market, with most housing finance coming from informal sources.
Strategies for Addressing Urban Land and Housing Challenges
The study emphasizes the need for the government to develop a market that is responsive to land and housing demand, while also noting that such market cannot be built overnight. The report advocates for a strategic and phased approach with transparent strategies. Key milestones include:
- Resource generation: Cities need to generate resources through land value capturing and recovering their investment in land development.
- Titling and registration: Identifying who owns what, the size of the land, and the type of right attached to the ownership.
- Efficient market creation: Creating a market that enables the exchange of use rights efficiently and secures property rights adequately.
- Serviced land supply: Developing a strategy to facilitate the supply of serviced land, addressing the land demand gap for businesses and residences.
The current lease system suffers from mismanagement, requiring simplification of the payment system, moderation of lease rights transferability, and easier mortgage access. The government needs to capture and analyse land development costs to develop a cost recovery strategy, which would enable it to know how much resources are subsidized to make housing affordable. A proper land market is crucial, involving the creation of a conducive environment for land supply and making transactions easy and transparent. The real estate market also needs legislation to become transparent and accountable.
The government must also consider how to target different segments of society based on income levels, using a systematic subsidy strategy, similar to other countries like the Netherlands. The housing finance system should be well-addressed, clarifying the role of land titles as collateral. Furthermore, there needs to be housing governance and institutional restructuring to evaluate the capacity and effectiveness of government entities in enabling the housing market, and for all stakeholders to be involved in the process. Technical skills for estimating the cost of infrastructure and mechanisms for infrastructure financing are critical. It is essential to have reliable data for evidence-based policies and strategies for urban land and housing supply and demand market management.
The study recommends a less government intervention strategy for the Ethiopian Integrated Housing Development Program, establishing a legitimate office with relevant stakeholders to help lessen the government’s intervention in housing. The government may also increase land auctions for private sector access, using auction proceeds to fund infrastructure and service delivery and support targeted subsidy schemes for low-income households.
Conclusion
Implementing these recommendations should lead to the regeneration of Ethiopian urban land and housing markets, achieving the ten-year perspective plan of supplying land and housing in an efficient, equitable, and sustainable manner, resulting in the benefits of rapid and resilient urbanization.
For further reading:
Unlocking Ethiopias Urban Land and Housing Markets