Comparing Housing Economic Value Chains in Four African Countries
Introduction:
This study analyses how developing economies build housing, and how housing builds developing economies. It explores the role of housing in the economies of developing countries and quantifies and explains the inputs, processes and outputs of housing economic value chains in South Africa, Kenya, Nigeria and Rwanda. The HEVC methodology was piloted in South Africa in 2016 and has – where necessary – been adapted to describe the housing economic value chains in a number of other African countries including Nigeria, Uganda, Tanzania, Rwanda and Kenya.
Understanding how developing economies build housing, and how housing contributes to the growth of developing economies, is a key requirement for implementing evidence-based economic, housing, and housing finance policy. Yet, in many developing nations, insufficient macroeconomic and housing sector data exists to quantify how, where and to what extent housing influences economic growth. This paper outlines the findings from a pioneering methodology developed by the Centre for Affordable Housing Finance in Africa (CAHF) that has been used to describe, quantify and compare the impact of housing on the economies of South Africa, Rwanda, Kenya, and Nigeria.
The Economic Impact of Housing:
In economic terms, every housing action is important. Whether it is the construction and sale of a million-dollar penthouse in a capital city, or the rental of a shack produced out of recycled materials in an informal settlement, each action contributes to a country’s economy.
The housing sector influences national economies in three important ways. Firstly, while housing fulfils a basic human need for shelter, it also provides the base from which households participate in the economy. Secondly, housing is the largest single asset most households will accumulate over their lives and therefore comprises an important part of most countries’ stock of wealth. Thirdly, the construction, trading and rental of housing stimulates the production and sale of related goods and services, impacting on many other sectors of economies.
A Conceptual Understanding of the Housing Economic Value Chain:
The economic impact of housing arises predominantly from two activities: the construction, maintenance and improvement of the housing structure; and activities associated with housing rental. The HEVC is a consolidation of the economic value chains associated with these two activities, namely: the housing construction value chain (HCVC); and ii) the housing rental value chain (HRVC).
An economic value chain describes the linkages – both on the input (upstream) and output (downstream) sides of a particular economic activity and quantifies the economic value creation in an economy arising from that activity. Producing residential housing involves construction value-adding activities (digging and laying foundations, bricklaying, plastering carpentry, plumbing, electrical, tiling, roofing etc.) that are typically coordinated and undertaken by construction contractors. Similarly, housing rental and related activities may be undertaken by the property owner directly or be outsourced to letting or managing agents who act on the owner’s behalf.
Quantifying Housing Economic Value Chains:
The United Nations’ System of National Accounts (SNA) is a set of recommendations on how countries should measure economic activity using internationally-agreed concepts, definitions, classifications and accounting rules. The International Standard Industrial Classification of All Economic Activities (ISIC) defines different types of economic activities according to a hierarchy of sections, divisions, classes and sub-classes that become progressively more disaggregated and detailed.
The housing rental economic value chain in South Africa:
South Africa’s residential rental value chain has a very different economic impact compared to construction. While the 2011 Census showed that only 25 percent of South African households (3.6 million) rented accommodation, the estimated value of the total domestic production from the residential rental value chain in 2016 is higher than the housing construction value chain. The value added, and employment associated with the construction of housing stock persists only for the duration of the construction. To be sustained, the completed projects must be replaced with orders for new construction. By contrast, rental activities associated with the letting of residential properties tend to persist and are derived from that proportion of the total housing stock that is made available for rental, not just from new additions to the housing stock.
Conclusion:
This study is pioneering in its methodology, venturing into territories where accurate information is scarce, and data to build that information is limited or lacking. While we cannot yet definitively calculate the impact of housing on many African economies, this study develops a replicable methodology that provides a foundation for improved assessment of the impact of residential construction and rental on developing economies. We contend that by using whatever information is available, combined with reasoned and clear assumptions, a knowledge foundation is built which can be engaged with and improved on over time as improved information becomes available.
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