In their terms of reference for this study, Fin Mark Trust observed that the role of pension fund assets in supporting access to housing is hugely attractive to housing development advocates: pension funds often represent the most significant proportion of domestic savings and therefore offer a substantial source of capital that could be used as end finance for housing in addition to funding the housing development industry in general. Pension funds, unlike commercial banks, fall into that small group of asset holders with long-term horizons, which housing advocates see as a natural source of the needs of borrowers for housing, who seek long-term finance. For their part, the trustees and managers of pension funds, especially those in the private domain, are not so sure: they tend to be conservative in their approach to fund investment, protecting member assets in support of their retirement. Recent turmoil in the global markets has created additional anxiety about the security of housing investments. Further, in many jurisdictions, there are regulatory constraints to pension funds investing in the housing sector. Trustees nevertheless are increasingly recognizing the need to continue seeking appropriate and profitable investment opportunities in new areas that often include property in general, and housing in particular. Opportunities also exist for pension schemes to issue debt and in this way mobilize capital to finance housing for their members.

Several factors account for this pressing housing challenge: high urban growth rates, as a result of both rural-urban migration and natural population growth; low-incomes making it difficult, if not impossible, for the vast majority to afford the housing finance products typically on offer; and weak housing markets that lack the capacity and capital to: (a) expand the supply of affordable housing; and (b) provide appropriate housing finance products. In particular, there is a growing demand for mortgage lending to middle and high income groups, requiring loans of maturities of up to 20 years. Yet there is an extremely limited supply of term funds: in Uganda, for instance, more than a half of the liabilities in the banking sector (68 per cent) are short term and do not exceed 30 days in maturity, while liabilities with the longest maturity (i.e. greater than 12 months) only account for 16 per cent6. The housing finance market is most developed in Kenya, but the other three countries have the potential to grow their currently small loan portfolios. At the lower levels of the income pyramid, the demand is for loans of shorter tenor – generally not more than 5 years – to support housing microfinance. An additional requirement in all four countries is for developer finance to boost housing supply in view of the low levels of formal housing production and the pressure that would come to bear on house prices if there were an expanded utilization of pension funds for housing.