Rwanda-Kigali City
Rwanda-Kigali City: Integrated Safeguards Data Sheet Restructuring Stage
Read more: Affordable Housing in Kigali
The project supports affordable housing projects in urban and peri-urban areas of Kigali City and secondary cities. The original project design has focused on ensuring the scale-up of affordable mortgage finance in Rwanda, thus focusing on the demand side of the market.
In retail finance, the E&S risks and impacts normally occur before downstream financial exposure of the mortgage lenders financed by the WB project via refinancing from BRD, and thus the mitigation approach is based largely on ex-post exclusions of properties with potentially high reputational (e.g. prior resettlement or destruction of critical habitats) or physical risks (e.g. located in disaster-prone zones).
The environmental risk was therefore rated moderate. The restructuring involves the provision of Infrastructure for Affordable Housing Development Projects.
The Rwanda Housing Finance Project (RHFP) is a US$150 million five-year project aiming at expanding access to housing finance to households and to support capital market development in Rwanda.
The IDA Scale-up Facility (SUF) credit was approved by the Board on November 29, 2018 and became effective on April 10, 2019. The credit has disbursed 5.23 percent as of July 2020. The project is implemented by the Rwanda Development Bank (BRD) and includes two components:
(1) Provision of Long-term Finance to Expand Housing Finance through a line of credit (LoC) extended to financial institutions (US$147 million equivalent) and
(2) Technical Assistance and Implementation Support (US$3 million equivalent). Component two finances analytical work and capacity building to (i) enhance the housing demand side and (ii) support the reform agenda to improve the enabling environment for the supply of affordable housing.
Efforts to promote housing development and urbanization have not been able to bridge the large and widening gap in the housing market. Urbanization and housing are a high priority in Rwanda’s development strategies, Vision 2050 and National Strategy for Transformation One – NST1.
The overall demand for housing is estimated to remain at 70,000 units annually up to 2050 with a shift from rural to urban areas. The annual supply of formal housing by developers is estimated at just 1,000 new houses in Kigali.
Supply-side constraints affecting the development of new affordable homes arise from access to land and costs of construction. The availability of land is limited because of challenging terrains (for example, more than half of the land in Kigali is on steep slopes or in wetlands and is difficult and costly to develop).
Land is also expensive because of small plot sizes and fragmentation. Leveraging land as an incentive for affordable housing, including through land value capture, is challenging for the government as most land is in private possession. Construction costs are high due to the high cost of infrastructure and building materials, the lack of developer finance, and outdated building technologies.
Rwanda lacks large-scale local housing developers, with the local construction industry lacking skills in architecture, engineering, and development to operate at scale. The combination of these constraints has contributed to the limited supply of new housing. Furthermore, due to their price range, the available housing units are only affordable to the highest-income percentiles