2013 introduction, phd

8/13/2019 2013 Introduction, Phd

1/97

1 INTRODUCTION

1.1 BACKGROUND of STUDY.

The impact of planning policies on housing outcomes and whether urban planning is the

problem or the solution with regard to affordable housing has attracted considerable

attention in recent years. The increased interest on the role of physical planning system in

the provision of affordable housing stems from the effects of house price inflation on the

housing market, demographic changes, increasing levels of urbanization and the drastic

reduction in housing stock arising from the widening gap between housing demand and

supply in many countries especially the developing economies (Adedeji and Olufemi,

2004; Gabriel & Jacobs, 2006; Gurran & Whitehead, 2011). The house price increases of

the past few years created pressures on the supply of affordable housing, increased urban

land prices and inevitably priced people out of their local housing market. These

developments have resulted in governments initiating and using a wide range of

regulatory and administrative processes in the housing market that impact directly or

indirectly on housing affordability. It is believed that government regulatory intervention

in the housing market is inevitable if low-income families and other vulnerable groups

are to be provided with affordable housing (Chiu, 2007). Different aspects of regulation

are deployed in the production, allocation, exchange and consumption of housing and are

generally aimed at ensuring good housing standards, improving the efficiency of the

housing market and moderating housing outcomes that are considered undesirable from


2/97

an overall societal viewpoint (Milligan, 2003; Chiu, 2007). However, as governments

make efforts to contain unplanned developments and control the output and quality of

housing, it appears that some of the planning powers and regulations have fostered

unsupportive regulatory environment rather than encouraging affordable housing

development (Listokin & Hattis, 2004; May, 2004).

The distinctive characteristics of housing and its major role in the society has been a core

rationale for government intervention in the housing system of any country. Residential

housing is one of the most basic human needs, playing a very important role in the

welfare and productivity of the individual (Yates et al, 2007). Housing provides shelter,

comfort, security and dignity and is a catalyst for acquiring better education, healthy

lifestyles, long-term wealth and a greater civic awareness in communities (Onibokun,

1983). However, even as a basic necessity, only a few have access to the benefits of

decent, safe and affordable shelter (Gabriel et al., 2005). In spite of the efforts and

interventions of the three tiers of governments aimed at providing adequate and

affordable housing to Nigerians, affordability problems continue to affect a large segment

of the population, notably the urban poor, single parent families and the unemployed

(Agbola, 1998; Ademiluyi, 2010). Since they have low incomes and cannot compete

effectively in the housing market, the market provides them with housing that is insecure,

unhygienic and often in informal and unplanned locations with little or non-existent

infrastructure. In recent times, the problem has expanded to include the young and

middle-income households who aspire to own their homes but are increasingly priced out

of the housing market and forced to substandard housing in city centres and urban


3/97

periphery (Ikejiofor, 1999; Olayiwola et al., 2005a; Ademiluyi, 2010).

Housing affordability seeks to establish a standard in respect of which the amount of

income spent on housing is deemed affordable or unaffordable and is used widely in

evaluations of the impact of the cost of housing on housing consumers (Milligan, 2003;

Hulchanski & Shapcott, 2004). It considers the extent to which housing costs for a given

standard of housing affect household income and the capacity of the household to meet

the total household needs (Hancock, 1993). Typically, a household is said to have a

housing affordability problem when it pays more than 30 percent of its income on

housing and utilities (Hancock, 1993; Feidman, 2002; Stone, 2006). The concept has

been expanded in recent times to represent a common way of summarizing the nature of

housing problems and needs in many nations (Gabriel et al., 2005). The affordability of

housing is largely determined by the costs of producing and financing housing and the

income levels of households at a given time (Milligan, 2003; Burke et al., 2007), but

some other social and demographic factors like the widening gap between the rich and

the poor as well as the phenomenal reduction in family sizes also contribute to housing

affordability problems (Katz et al., 2003).

The initial motivation for this study stems from the recognition that housing affordability

problems transcend the individual and have wider effects on the society as a whole. The

effects go beyond the personal experiences of the individual or households and have

larger implications on unemployment, labour market performance, community


4/97

sustainability and aged care (Gabriel et al., 2005). As housing affordability problems

become pervasive in many countries, several issues revolving around the need to bring

down housing construction costs, ease housing regulation and other legal and policy

matters have risen to the fore. According to Keivani and Werna (2001a), assessing and

analyzing the effectiveness of the housing regulatory framework is of prime importance if

the widely accepted, World Bank sponsored enable markets to work programme is to

succeed. The regulatory environment within which the housing sector operates

establishes the infrastructure and organizational framework for the production, exchange,

allocation and consumption of the housing commodity (Lawson, 2003). This environment

often includes building and related codes, land use and zoning, subdivision regulations

and exactions, impact fees, planning laws, licensing requirements, environmental

approvals, safety legislation, growth controls and urban growth boundaries, historic

landmark laws and associated wage regulations (Shill, 2002; Listokin & Hattis, 2004).

These regulations are intended to stimulate orderly and efficient development of the built

environment by legislating what can be built as well as the quality of the housing product.

They are often justified on this particular basis with the claim that they can improve the

quality of housing and enhance better life for households (World Bank, 1993).

It is acknowledged that some of these regulations can increase the quality of housing by

increasing the quality of building materials and enhancing building practices (Feldman,

2002). Regulations like inclusionary zoning, minimum lot sizes and similar land use

controls have been known to remove barriers and encourage the development of

affordable housing (Shill, 2002). In general, regulations promote good health, safety,


5/97

welfare and have recently being directed towards the preservation of the environment and

energy conversation (Adams, 2008; Cheshire & Sheppard, 2003). But the environment

within which these regulations operate in developing countries like Nigeria is far from

ideal. Rather than promoting the availability and affordability of housing, government

involvement in planning and land use in developing countries creates a maze of

regulatory and administrative barriers that prevent the housing market from functioning

properly (Boudreaux, 2008). The regulations may impose large costs on housing

consumers thereby subverting their original intent. Some of the regulatory barriers

include bureaucratic bottlenecks, fragmented structures and patchwork of administrative

arrangements, inconsistencies, lack of transparency and faulty regulatory enforcement

strategies and practices (Feldman, 2002; Adedeji & Olufemi, 2004). Arimah (2010)

reports that the land registration process in Nigeria takes about 274 days and incurs fees

totaling more than 27 percent of the property value. Similarly, Ikejiofor (2003) cites a

situation where entrepreneurs follow a complex process to formally develop land in

Nigeria, while Arimah and Adeagbo (2000) find that the increasing level of urbanization

in Nigeria and its accompanying problems tend to question the efficacy and relevance of

existing urban development and planning regulations. These issues clearly demonstrate

the exclusionary nature of the regulatory framework and the inevitable consequences are

the imposition of high transaction costs on the housing sector, restriction of residential

land supply and supply of low cost and affordable housing, land titling procedures that

are difficult to meet and the resultant increase in housing affordability problems (World

Bank, 1993; Feldman, 2002). In these circumstances, housing developers therefore prefer


6/97

operating in informal housing and land markets, thereby creating and expanding slum and

informal settlements. It seems the progress made in housing delivery through the

application and enforcement of building regulations may have been achieved at the cost

of higher housing price burdens and lower affordability among Nigerians. In this regard

therefore, the study attempts to examine the relationship that may exist between

development regulations and housing affordability in Nigeria. In doing this, it is

important to examine holistically the effects of both the substantive regulatory provisions

and their implementation on the affordability of housing.

Using affordability as the empirical focus of this study can be justified on a number of

grounds. Housing costs constitute a significant element of a household budget and

typically expensive relative to household income (Gabriel et al., 2005) and the impact of

house prices and rents on housing affordability for households has been established to be

important to the operation of the housing market (Milligan, 2003). Affordable housing

also plays a fundamental role to economic growth, maintaining stability of families and

supporting an acceptable standard of living. In line with this too, Phibbs (2009) and Davis

(1993) agree that it is not possible to build sustainable economies if the social and

economic networks in the cities are disrupted because of people leaving the cities in

search of more affordable housing. Furthermore, Davis (1993) links the availability of

affordable housing to the economic vitality of communities, cities and nations. Still, other

studies have highlighted the challenges of not having access to important workers such as

police, nurses, bus drivers, cleaners, hospital workers because they have left town in

search of cheaper housing (EPIC Dot Gov, 2004; ACTU, 2007). In another vein, Phibbs


7/97

(2009) associates the location of housing that is affordable to a particular household with

the possibility of positively influencing the broader economic and social opportunities

and personal life choices of each member of that household. Affordable housing is

therefore crucial to a country and its people. Without it, people are bound to be

impoverished, families and communities eroded, jobs are lost, the economy is weakened

and the environment is damaged.

1.2 STATEMENT of the PROBLEM

Traditionally the role of building regulations is to address safety, health requirements,

accessibility and the protection of the building and the inhabitants from fire and structural

damage. The economic and cost consequences were not a major concern to the various

stakeholders in the housing market. But in recent years, considerable interest on the

framework for an efficient building regulation system and the social and economic

consequences of the regulations has been generated because of the proliferation of

regulations and their perceived impact on the supply and cost of housing (Schill, 2004;

Gurran & Whitehead, 2011). Importantly, questions about planning regulations and its

impact on housing affordability and policies focused on the needs of the urban poor and

other vulnerable groups have been prominent among policy makers and academics (Beer

et al., 2007). Indeed some of the regulations may be efficient and justified because they

promote public health and safety and create amenities, but at the same time may increase

housing prices and generate unacceptable affordability problems for low income


8/97

households. This has therefore attracted attention to the opportunities for governments to

make use of the planning tools and regulatory systems to advance housing objectives,

notably the provision of affordable housing.

Studies have shown that about 60 percent of Nigerians are without adequate and

affordable housing and home ownership rate is less than 25 percent, compared to the 75

percent United Nations benchmark (Okpala, 1992; UN-Habitat, 1996b; Oloyede et al.,

2011). The occupancy rate stands at 6 persons per room indicating a high level of

overcrowding in Nigerian cities (Adeleye, 2008; UNDP, 2010). The abysmal housing

statistics is a fall out of the wholesale adoption of the enabling markets to work policy

of the World Bank in the 1980s. The policy expanded the role of the private sector in

housing provision and reduced public expenditure on housing. Instead of enhancing the

housing conditions and improving housing availability as envisaged, the policy resulted

in housing and land price increases arising from the acute shortage of housing.

Low household incomes and high housing costs are two major causes of housing

affordability problems. While household incomes are dependent on labour market

conditions and demographic and social factors, housing costs have a number of

components that include labour costs, productivity or mode of housing production,

materials costs, quality and regulatory/compliance costs and finance (Gabriel et al.,

2005).

Land use regulation, which is regarded as a government police function, may influence

housing prices by controlling land supply and increasing demand (Chiu, 2007). Research

studies on building regulations suggest that a wide range of regulations reduce the supply

of affordable housing and generate substantial cost burden on housing


9/97

developers and consumers but the magnitude of the individual effects is hard to establish

since existing research fails to distinguish the effects of the regulatory standards

themselves from their implementation or the way with which they are administered. This

study will therefore attempt to examine the impact of both the regulatory provisions and

their implementation on urban housing affordability.

Most studies in Nigeria relate almost entirely to the technical impacts of building

regulations in the form of increased level of building safety (that sets forth minimum

requirements governing structural stability, good ventilation, fire escapes etc), which do

not provide a strong base for drawing general conclusions about other housing impacts.

In this sense therefore, an important question to be addressed by this study concerns the

potential impact of regulatory standards on affordable housing development. In an

economy that promotes free market exchange, the housing regulatory environment should

pay attention to the different aspects of the approval processes, including the time that

elapses while waiting for the approval and the money expended in complying with

requirements that lead to high construction costs. The delays caused by the compliance to

regulatory standards affect the affordability of housing and reduce the availability and

supply of affordable housing particularly in those areas that developers avoid because of

the constraints. The degree to which the various sources of regulatory barriers affect the

availability and cost of housing is largely unknown, despite the reports of the various

studies that suggest a relationship between land-use regulation and housing supply and

affordability.


10/97

Indeed the issue of government regulations on land development has been addressed over

the years by several research studies concerned with building regulations, but the impact

of the administration of regulatory standards on housing affordability, in a regulatory

context, is an understudied aspect of planning regulation that deserves increased

attention. This study therefore draws attention to this area as an avenue for improved

understanding of regulatory process barriers which ultimately may lead to the reduction

of unnecessary government regulations and delays that may ultimately improve housing

affordability.


11/97

1.5 THEORETICAL FRAMEWORK

This section considers the theoretical position that shapes the entire design and research

investigations. The theoretical assumptions of a research framework are crucial to

understanding the overall perspective from which the study is designed and carried out

(Krauss, 2005). As a result, the specific techniques and procedures used are driven by

theoretical assumptions and reflect underlying values and beliefs of the researcher.

Indeed different assumptions have led researchers along different research approaches

towards the same phenomenon and these may have important consequences for the

conduct of research, interpretation of findings and policy directions. The three main

research approaches or paradigms are the scientific, interpretive and critical research

paradigms (Scotland, 2012). A research paradigm, according to Guba and Lincoln

(1994), is a basic belief system with a set of assumptions concerning reality (ontology),

how we know reality (epistemology), and the strategies, plans and ways of knowing that

reality (methodology). It represents a worldview that defines the nature of the world, the

place of the individual in it, and the range of possible relationships to that world and its

parts. In this sense, any given paradigm simply represents the informed view of its

proponents and as such is not open to proof in any conventional sense (Guba & Lincoln,

1994: 108). A paradigm consists of the following components: ontology, epistemology,

methodology and methods (Scotland, 2012).

Arising from its unique characteristics and multiple roles, housing holds different

meanings for the varied agents involved in its production, distribution, exchange and

consumption. Some of these agents are the households, the professionals (consultants),


12/97

the contractors, financiers, and the multiple government agencies involved in planning

and regulations. Playing varied and sometimes conflicting roles, these agents therefore

perceive housing differently. For households, a dwelling may provide shelter and

ownership; for others, housing may represent a capital investment, rental return, a form of

social control, a bundle of rights and responsibilities or even a source of economic

burden. In this sense therefore housing is described as an object that embodies many

cross cutting and complex social, economic and cultural relationships (Lawson, 2003).

These relationships underpin and are influenced by the process of producing, allocating,

exchange and consumption of housing services (Bassett & Short, 1980; Lawson, 2009).

Since there is no consensus about the best theoretical approach or ontological framework

for perceiving housing and its multi-faceted dimensions, housing research has therefore

used different approaches embodying competing views and social and economic theories

culminating and inspiring the various research perspectives and traditions: human

ecological tradition; neo-classical economics; institutionalist approaches; political

economy; urban managerialism; humanist, behavioural and phenomenological

perspectives and marxist approaches (Lawson, 2003).

The main thrust of this study is to investigate the impact of regulatory standards on urban

housing affordability. This presupposes a combination of a physical and social process

involving social agents and understanding the inter-relation of these agents to each other

and to the physical aspects of production, exchange and housing consumption is

important in this investigation. Therefore, the study uses the Structure of Housing


13/97

Provision (SHP) framework to develop and investigate the structure and social relations

in housing provision focusing on the social agents involved in the housing conditions,

costs and benefits and the outcome. The concept of a structure of provision, as espoused

in SHP, refers to a physical process together with the social agents involved in housing

provision that relate to each other in empirically observable ways (Ball & Harloe, 1992:

3).

The SHP is a methodological procedure that distinguishes and establishes the

relationships between social groups (agents) that influence the production, distribution,

exchange and consumption of housing (Ball, 1986). It explains the complex social,

political, cultural and economic interactions between various agents and structures of

housing provision. The SHP, as a productive framework meant to examine housing-

related issues, asserts that the prime inter-relation between housing provision and the

social agents can easily be identified to enable their specification (Ball and Harloe, 1992).

It also acknowledges the interaction between the state and the diverse groups involved in

the housing market within a framework of rules, policies and regulations that dictate how

the housing market operates (Keivani & Werna, 2001b). Studies that used the SHP

framework as an analytical tool have in fact demonstrated its usefulness in providing

satisfactory explanations of housing market processes (Milligan, 2003).

Although the SHP framework provides a context within which many housing-related

issues can be examined, it has some limitations. The SHP does not predetermine the

research agenda, but as an operational concept used in empirical research, influences the


14/97

ways in which the research questions are examined. It is recognized that for the SHP to

be useful, it must be combined with other social theories and methodologies of empirical

investigation and where necessary statistical analysis, to provide an adequate explanation

for the development of housing systems and their similarities and differences (Ball &

Harloe, 1992; Lawson, 2001). The study therefore takes a Critical Realism (CR)

perspective to build upon the SHP concept and address the deficiencies attributable to it.

Critical Realism, as a philosophy of science and a social theory, is helpful here as it

provides the theory for abstracting causal mechanisms, material resources and social

relations that underlie forms of housing provision (Lawson, 2009).

Critical Realism is a social theory that seeks an alternative way of research inquiry to the

two dominant positions namely: the scientific (positivism) and interpretive

(constructivism) paradigms. For the scientific paradigm, with the ontological position of

realism and epistemological position of objectivism, the purpose of inquiry is explanation

that leads to the prediction and control of phenomenon, whether physical or human

(Scotland, 2012). The interpretive paradigm, on the other hand, aims at understanding

and reconstructing the constructions that people initially hold ultimately aiming towards

consensus but still open to new interpretations as information and sophistication improve

(Guba & Lincoln, 1994). The main ontological tenet of constructivism is relativism that

posits that there is no objective reality. Rather reality is individually constructed and as

such there are as many realities as individuals (Krauss, 2005; Scotland, 2012). The

interpretive epistemology is subjectivism that is based on multiple realities constructed

by individuals who experience a phenomenon of interest (Krauss, 2005).


15/97

The ontology of Critical Realism is historical realism that celebrates the existence of

reality that is independent of human consciousness (Yeung, 1997). This view is based on

the conviction that there is a real physical and social world of independent phenomena

which cannot be reduced to language; in other words, a real world which has not been

constructed, defined or dependent on humans (Fopp, 2008). The epistemology of Critical

Realism is one anchored on subjectivism which affirms the social and human basis of

knowledge and social phenomena. Within this framework, knowledge and social

phenomena are socially constructed and influenced by power relations from within

society (Fopp, 2008). This paradigm seeks to transform society and address issues of

social justice and marginalization. The possibility of a transformation from an unwanted,

unnecessary, and oppressive situation to a wanted, empowering or a more flourishing

situation is the main goal of Critical Realism (Potomaki & Wight, 2000; Scotland, 2012).

From the above, Critical Realism has elements of both positivism and constructivism

combining the rigorous causal explanation in the natural and physical sciences and the

importance of meaning and understanding in the social sciences. Healy and Perry (2000)

argue that while positivism concerns a single, concrete reality and constructivism

multiple realities, Critical Realism concerns multiple perceptions about a single, mind-

independent reality where the concept of reality is one that is socially constructed and

under constant internal influence. Research inquiry in a Critical Realism framework is

value cognizant rather than being supposedly value-free as in positive research, or value-

laden as in constructivism. According to Critical Realism, the world is composed not

only of events, state of affairs, experiences, impressions, and discourses, but also of

underlying structures, powers, and tendencies that exist, whether or not detected or


16/97

known through experience and/or discourse (Patomaki & Wight, 2000; Lawson, 2003). It

is this underlying reality that provides the conditions of possibility for actual events and

perceived and/or experienced phenomena. The conceptual framework and philosophical

compass of Critical Realism and its relevance to the present study will be analyzed in

detail in the next chapter.

1.6 RESEARCH METHODOLOGY

The first part of the research methodology involves an extensive review of the relevant

literature to examine and explore studies that are related to the present study. A

theoretical framework relevant to the research purpose and one that can help in designing

the rest of the methodology is then identified. Thereafter, the methodology that guides the

procedure for collecting, analyzing, interpreting and reporting data in the research is

chosen based on the dictates of the theory and the enunciated research questions.

The study takes a realist perspective in investigating the impact of regulatory standards

on urban housing affordability in Nigeria. Given this understanding and the need to

explore all the relevant variables in detail, the study adopts the triangulation approach

for the field research. Although the study includes more quantitative-oriented information

gathering and data analysis, it nevertheless uses some qualitative methods. Critical

Realism uses three methodological guidelines in carrying out empirical research in the

names of iteractive abstraction, grounded theory method and triangulation (Yeung,

1997). Triangulation is the most common approach to mixed methods designs and is a

combination of methodologies deployed to study the same phenomena. The main purpose


17/97

of this process is to obtain different, but complementary data on the same topic (Creswell

& Plano Clark, 2007). It enables the researcher to integrate the quantitative and

qualitative methods and counter-balance the deficiencies of one method with the

strengths of another method.

1.3 AIM and OBJECTIVES OF THE STUDY

The aim of this study is to evaluate the impact of the housing regulatory standards on

urban housing affordability for the low income households. To accomplish this goal, the

study will strive to meet the following objectives:

1, To find out the important determinants of housing affordability.

2, To examine the prevailing framework of regulatory standards with a view to

identifying code deficiencies and inappropriate or excessive regulations that may

increase housing production and delivery costs.

3, To investigate the effects of housing regulatory provisions on housing affordability.

4, To identify the administrative and technical constraints and sources of

regulatory process barriers that impede scale and efficient housing delivery.

5, To stimulate the development and application of a viable housing production system

that may encourage affordable housing production and bridge the existing housing

affordability gap.


18/97

1.4 RESEARCH QUESTIONS

Given the objectives and the broad research interest, the following research questions will

guide the study:

1, What are the factors that determine housing affordability, from the specific to the

broad characteristics of individuals and households?

2, What is the impact of inappropriate and unnecessary building codes on housing

affordability?

3, What factors are causing unnecessary delays in obtaining building plan approvals and

other permits and how could the processes be streamlined?

4, To what extent is reduced housing affordability attributable to compliance to higher

quality standards?

5, Can a framework for an appropriate housing production system be established that

could deliver quality and affordable housing in Nigeria?


19/97

1.7 SIGNIFICANCE of STUDY

The study fundamentally attempts to uncover the technical and administrative

impediments that adversely affect housing production and could exacerbate the housing

affordability crisis. By critically examining and analyzing the regulatory codes, to define

appropriate and inappropriate regulations, the study contributes to the efforts to rein in

unplanned development and help expose building regulations that threaten to make

development of housing even more expensive than it already is.

Furthermore, the study attempts to give fresh insights into how the housing production

system works and how the housing market could effectively and profitably deploy

housing inputs towards providing affordable housing in a competitive environment that

seeks to promote free market exchange.

Another area this study contributes concerns methodology and the limited scope of

previous reports. In this context, the study is designed to address the anecdotal nature of

previous reports by conducting an empirically-based quantitative analysis that will

include structured surveys of builders and building inspectors. Scope will encompass a

more empirical, in-depth study of the building codes and their administration as they

affect building construction and their combined impact on housing affordability.


20/97

Unarguably, the main goal of any responsive planning regulation on housing should be to

achieve efficiency and equityin the production, delivery and ownership of housing. The

study therefore seeks to identify the reasons for the failure of the measures applied to the

provision of housing in the past by the public and private sectors, which could provide

the basis for the development of a relevant and innovative strategy that will achieve

extraordinary cost reductions in housing production, delivery and ownership in Nigeria.


21/97

Chapter Two

2 THEORY and REVIEW of the LITERATURE

2.1 Introduction

In keeping with the research questions set out in chapter 1, this chapter explores the field

of housing and housing affordability and reviews literature relating to the Nigerianhousing delivery systems, the regulatory environment for the supply of housing servicesand the framework for using housing affordability in this study. It also provides anoverview of the theoretical framework through which the study can be viewed and theconceptual framework that will give direction to the research methods. Following thisintroduction, section 2.2 briefly gives the profile of the country thereby laying out thecontext. Section 2.3 considers

2.2 Country Profile

With an estimated population of 160 million, Nigeria is the most populous black nation inthe world (World Bank, 2008). The country runs a presidential system of government thatis based on the 1999 constitution and has the administrative and political capital in Abuja.The constitution was promulgated by a decree on May 5, 1999 and came into force onMay 29, 1999. Nigeria is divided into 36 States plus a Federal Capital Territory. Thestates are further divided into a total of 774 local government areas that constitute thethird tier government. The first and second tier governments are the federal and the stategovernments respectively. The states are grouped into 6 geo-political, non-administrativezones. The zones are North Central, North East, North West, South East, South South andSouth West and the zones are shown in Table 1 and illustrated in Figure 1.

Estimates show that about 52 percent of Nigerians currently live in urban centers ascompared to 19.2 percent in 1963 (Aluko, 2004). This indicates a rapid rate ofurbanization. Some of the major cities are Lagos, Ibadan, Onitsha, Enugu, Aba, PortHarcourt, Jos, Kaduna, Kano, Sokoto, Maiduguri and Katsina.

Nigeria is a large, lower-middle income country with a total land area of 910,800 squarekilometers and an economy significantly dependent on oil and gas exports (USAID,2012). Despite the dominance of the countys oil sector, Nigeria has a large agricultural


22/97

economy that basically serves the local market, contributing 31 percent of the GDP,while the service sector accounts for 28 percent of the GDP (UNDP, 2010).

Although GDP and other economic indicators have grown over the years, they did nothave enduring positive influence on the proportion of people living in poverty. Evidence

shows that 64 percent of Nigerians live on less than $1.25 per day and Nigeria is ranked158thof 182 countries on the United Nations 2009 Human Development Index (WorldBank, 2009a; UNDP 2010). The country still faces daunting challenges in generating andmaintaining economic progress and stability, housing the people adequately andaffordably, improving public sector efficiency and inducing economic growth that will besufficient to lift the majority of the population out of poverty.

The housing situation is rather daunting. There is an estimated housing deficit of 12-14million housing units and the estimated amount required to provide for this deficit is inthe region of US$150-200billion (UNDP, 2010). This calls for the provision of about500,000 housing units per annum for the next 40 years. Studies have also shown that

about 60 percent of Nigerians are without adequate shelter giving a home ownership rateof less than 25 percent, compared to the 75 percent international benchmark (UNDP,2010; Adeleye, 2008). The occupancy ratio stands at 6 persons per room of 20m2,indicating a high level of overcrowding in Nigerian cities. A detailed analysis of thehousing problems in Nigeria will be given in the following section.

Some of the critical obstacles to economic development in Nigeria include: economicdominance of the state; character and pervasiveness of rent-seeking; starvation ofincome-enhancing investments; ineffective and inefficient government institutions;repression of the entrepreneurial economy; pervasive corruption; prevention of reforms;unsupportive business enabling environment; and macroeconomic policy instability andfinancial unsustainability (USAID, 2003). Correspondingly, life expectancy is low at 47years and literacy is between 39 and 51 percent. Having provided this backgroundinformation on Nigeria to serve as the fulcrum for further discussions, the chaptercontinues with a discourse on housing.

2.3 Housing Discourse

2.3.1 The Concept of Housing

Housing is a complex and multi-functional entity that encompasses many varieddefinitions and meanings. It is a basic non-substitutable element of householdconsumption and a necessary item in the efficient functioning of any economy (Gabriel etal, 2005). Afolayan (2007) explains that housing comprises the totality of theenvironment and infrastructure which provide human comfort, enhance peoples healthand productivity as well as enable them to sustain their psycho-social or psycho-pathological balance in the environment where they find themselves. Accordinglyhousing holds a central position in the welfare of households and contributes to many


23/97


24/97

Given the important functions performed by the housing asset, as enumerated above, it isnot surprising that the government and various stakeholders place a very high premiumon the provision of adequate and affordable housing. In fact, few things are as critical asthe provision of housing giving its linkages to many sectors of the economy includingland markets, construction, labour markets and banking. Bestani and Klein (2006)

estimate that there are roughly 600 industries that have links to the housing markets. Astimulus to the demand for housing will therefore have a direct or indirect stimulatoryimpact and effect on all of these industries. In a similar vein, Aluko (2004) emphasizesthat the activities in the house construction industry are labour-intensive and thereforegenerate considerable employment opportunities especially in the unskilled and semi-skilled population of the developing nations. The provision of this basic human need canalso have a great impact on a nations developmen tal goals such as environmentalsustainability, equity and the mitigation of natural disasters (Erguden, 2001).

In the final analysis, the provision of quality, adequate and affordable housing is basic forhuman survival and this is one of the primary reasons why many governments intervene

in the housing market. Intervention is often inspired by efforts to rectify the imperfectionsand incompleteness of housing markets. The social and political importance of housingand the reluctance of housing producers to provide housing for the poor through themarket, prompts governments in many countries to attempt to provide affordable housingdirectly through public corporations. But the task of providing appropriate, adequate andaffordable housing to the urban poor, though successful to varying degrees in developedsocieties, has persisted and remained intractable in developing countries. In this regardtherefore, it is now widely accepted that a comprehensive approach comprising theidentification and inclusion of different modes and agents of housing provision in aholistic integrated policy should be adopted and the role of government intervention willbe to ensure that lower income households that are not served by the market, have accessto appropriate and affordable housing (Angel, 2000; Renaud, 1999; Keivani & Werna,2001).

However, for this holistic and integrated housing policy and focused governmentintervention to improve the efficiency and stability of the housing market, the reasons formarket inefficiencies and the causes of housing affordability problems must beunderstood in considerable detail. Understanding the reasons and causes requires anaccurate analysis of the key dimensions of local housing provision system, the dynamiccontext in which the system operates and the evidence of the outcomes that result. Thisencapsulates the major theme of this study.


25/97

2.4 Justification for Using Affordability to Evaluate the Impact of RegulatoryStandards and Modes of Housing Production

It has been shown in the preceding section that governments intervene in the housingmarket because of the importance of housing to the individual, the economy and thegovernment and most importantly to improve the housing outcomes for lower incomehouseholds in the urban areas. In addition to government intervention in housing markets,Milligan (2003) and Kemeny (1995) highlight the influence of economic conditions,political and governance systems, demographic factors, welfare regimes, the urbanizationprocess and cultural traditions on housing outcomes. The interventions, which take theform of housing policies, building regulations, property taxes and land charges, incombination with many other factors that are external to the housing market, havecomplex and multiple impacts and outcomes in the form of: occupancy rates; housingaffordability; neighbourhood quality; physical adequacy; housing quality; and positiveand negative effects on health, education, crime, employment opportunities and selfesteem (Milligan, 2003; Orr & Peach, 1999).

This study is selecting housing affordability, a fundamental social and economic outcomearea, to evaluate the impact of regulatory standards and modes of housing production ona number of grounds. Housing costs, at the household and individual level, are one of thebiggest and most significant elements of a household budget and typically expensiverelative to household incomes or investor resources (Gabriel et al, 2005). The impact ofhouse prices and rents on housing affordability for households has been established to befundamental to the operation of contemporary market-based housing system (Milligan,2003).

The need to provide affordable housing to meet the demand and expectations of thecitizens is also fundamental to economic growth, maintaining stability of families andsupporting an acceptable standard of living. In consonance with this, Phibbs (2009) andDavis (1993) observe that it is not possible to build sustainable economies if the socialand economic networks in the cities are disrupted because of people leaving the cities insearch of more affordable housing. Furthermore, Davis (1993) links the availability ofaffordable housing to the economic vitality of communities, cities and countries. Still


26/97

other researchers have highlighted the challenges of not having access to importantworkers such as police, nurses, bus drivers, cleaners, hospitality staff because they haveleft cities in search of cheaper housing (ACTU, 2007; EPIC Dot Gov, 2004). In sum,affordable housing is crucial to a country and its people. Without it, people areimpoverished, families and communities eroded, jobs lost, the economy weakened and

the environment damaged (ACTU, 2007).

Critical reviews by Milligan (2003) on housing affordability also show that the locationof housing that is affordable to a particular household influences the broader economicand social opportunities and personal life choices of each member of that household.Adding to this, she asserts that the affordability of housing also influences the quality andquantity of housing that can be obtained and maintained as household income changes.

2.5 Effects of Poor Housing Affordability

This study is driven primarily by the recognition that the provision of safe, healthy and

affordable housing for households of diverse income and composition in Nigeria is vitalon grounds of economic efficiency and development, healthy living, equity and socialjustice. The pivotal role of affordable housing on the welfare of citizens has beenrecognized in the previous section and justified as the empirical focus for this study. Thissection will attempt to address the issue of why housing affordability is important.

Studies have shown that declining housing affordability forces households to spend alarger percentage of their income on housing, thereby squeezing expenditure on othernon-housing consumption items (Mueller & Tighe, 2007; Ambrose, 2005). These familybudget trade-offs reduce spending on food, clothes, recreation and shortchange healthcareand health protection and ultimately affect the quality of life and urban neighbourhoods(Ambrose, 2005).

The difficulty in acquiring affordable housing affects both the home ownership and rentalhousing markets and the effects are felt across all income groups though at varyingdegrees. Existing evidence suggests that the income groups most affected by declininghousing affordability are low-income households in the rental market (Gabriel et al,2005; Aluko, 2004). One of the main causes of the housing crisis that has beenrecognized and researched is low incomes. Very low income households have barelyenough money to pay for the basics and the most expensive basics is housing. Followingincome is the high costs of rents and housing units which exacerbates the problem. Lowincome and high costs of housing have therefore combined to create the barrier andincreasing inability for the urban poor to afford average prized homes in the market eitherin the rental or home ownership segment.

Housing affordability is more than just an individual household experience: the effectsmay also flow through to the neighbourhood and to the broader community. Theproblems of high home prices and unaffordable housing are multifarious and haveimplications not only for housing but also for health, urban and regional development,social cohesion, technology, ecology, employment, labour market performance, aged


27/97

care, finance, community sustainability, construction, technology and livable cities(Salama & Alshuwaikhat, 2006; Gabriel, 2005). The adverse consequences of declininghousing affordability can be classified and examined under four headings: economic,social, spatial and environmental.

2.5.1 Economic

Housing that costs more than a household can afford will expose the household to thepossibility of foreclosure (Crowley, 2003) and if the property is subsequently sold bycreditors for less than the loan outstanding, the family not only loses its home but alsoremains in debt (Ambrose, 2005).

The lack of affordable housing can adversely affect the efficiency with which the labourmarkets operate and can contribute to a spatial mismatch between jobs and workers,inhibiting migration to high-employment, high-cost locations while encouragingmigration to low-employment, low-cost areas (Yates et al, 2007). This phenomenon

manifests particularly in relation to the availability of lower-paid workers in high-costurban centres and may result in wage pressures in the form of higher pay claims thataffect the competitive advantage of firms in areas of high house prices by virtue of beingunable to attract key employees (Gabriel et al, 2005). Employees find it difficult tosupport the high housing costs on their incomes and may resort to changing to jobs thatare in high affordability/low-cost areas. This ultimately results in high rate of staffturnover which imposes its own costs on the firms. Invariably, every urban economyneeds plenty of low-paid service workers and medium-paid essential service workers, aswell as high paid knowledge workers to be successful.

The economic costs are not incurred by the individual families alone, but affect the localeconomies as well, when the fear of high interest rates on mortgages creates economicinstability as people wind back consumption to avoid falling into mortgage difficulties.The high housing costs and the heavy debt that underpins them give rise to reducedsavings and affect investments in other sectors that are essential to the long-term growthof an economy (Yates et al, 2007). The excessive debt burdens undertaken by homepurchasers and renters in response to the high house prices also lead to decreasedaggregate demand and severe credit squeeze.

Poor housing affordability can inhibit and alienate young, creative and innovativeworkers at the beginning of their careers if the struggle to get a foothold in the localhousing market is great. This imposes a significant constraint on the economy as well as athreat to the cohesion of the broader society (DTZ Research, 2004).

2.5.2 Social

According to Ambrose (2005) steeply rising house values disrupt household finances andplace yet another stress on already fragile families. The increased stress may acceleraterelationship breakdown with all the associated personal and social costs and may be feltnot only when these events occur but in the period when they are clearly in the horizon.By extension, without secure tenure over housing of a reasonable and affordable


28/97

standard, normal family life is difficult to support and full participation in the normal lifeof the community is virtually impossible. In a similar vein, Mueller and Tighe (2007)consider declining housing affordability as a source of personal hardship and social andpolitical tension in the community; and since our home and its contents make potentstatements about us and represent symbols of our ego, poor quality housing can therefore

be a great source of shame for many people. Another key finding in this regard is thatpoor quality housing can cause psychological stress and can negatively impact self-esteem and family self-sufficiency (Dunn, 2000).

Another deleterious effect of poor quality and unaffordable housing is overcrowding.Overcrowding, according to DTZ Research (2004) is a hazard to health where sleepingaccommodation is congested and ventilation is poor. More than the health hazard,overcrowding also impedes the ability of children to complete homework successfullyand timely, negatively influences a childs ability to focusat school, and may result inpoor school attendance, thereby increasing stress that leads to poor academicperformance (Braconi, 2001). It is important to note that reading takes deep concentrationand if there is no silence or quiet time and the TV is always on, children in suchenvironment will have little chance of doing well in school.

In the rental market, high housing costs can place the household at risk of not being ableto sustain their tenancy, thereby creating an increased potential for homelessness. Cohen(2011) shows that homeless people with chronic diseases may have difficulty properlystoring medication, maintaining recommended diet and going to follow-up appointments.The challenges posed by homelessness may also increase the likelihood of engaging inrisky behavior such as sharing drug needles or exchanging sexual favours for shelter.

Research has shown that declining housing affordability situations force low incomefamilies to move frequently to find suitable housing and these frequent moves make it

difficult for children to adjust to new schools, friends and neighbours thus leading to pooremotional and social adjustments (Buerkle, 1998).

In their study on housing affordability, Yates et al (2007) found that housing affordabilityhas a very significant impact on wealth distribution in most societies and therefore cancontribute to social and economic problems that flow from an inequitable distribution ofresources. The housing market as it is today seems to serve as a veritable tool forchanneling wealth and economic resources away from those outside the housing market(such as renters and would-be home owners) to those inside the market (such as existinghome owners). The rising housing costs create substantial increases in the asset levels ofresidential property owners and the rich thereby widening the gap between them and the

majority of non-owners. This phenomenon also tends to favour the older generation at theexpense of younger people with its attendant disaffection and youth restiveness. Insupport of this assertion, other research reports show that the proportion of incomedevoted to housing costs tends to rise as one moves down towards the bottom of theincome scale and this may well indicate that income inequality or the wealth gap willcontinue to widen (Ambrose, 2005).


29/97

A study reported in Social Trends 34, 2004,and cited in Ambrose (2005: 186) shows thatunsustainable forms of home ownership may force couples to put back the age of havinga first child and perhaps further children. The study further shows that fertility rate in theunder-29 age groups declined sharply while those of women in their late 30s almostdoubled. This phenomenon is not surprising given that increased and longer participation

in the labour market is necessary for households to earn enough money to build theirhomes or maintain their rented apartment.

2.5.3 Spatial

Research has consistently found a positive relationship between the high cost of urbanland and the attendant high cost of housing and the proliferation of squatter settlementsand slums (Olayiwola et al, 2005a). In this impoverished public realm, householdsalready disadvantaged in the labour market and forced by lack of resources to live there,suffer reduced effective access to affordable housing. This helps to entrap the householdsin the disadvantaged areas with inadequate social amenities and unsatisfactoryenvironmental conditions (DTZ Research, 2004). In addition to reducing the job

prospects of households, the locational concentration of low income households in theseareas of high affordability increase the levels of crime and anti-social behaviour andundermine social cohesion and community bond. This kind of environment significantlyraises strong barriers to the influx of investments and key workers and its attractivenessas a place to do business and live.

A report by Berry (2003) draws attention to the fact that the segregation of households inresponse to differentials in relative affordability in urban areas has the potential to createspatial polarization and impair economic and social sustainability. As Gabriel et al (2005)point out, increasingly polarized cities foster defensive behaviours that can undermine asense of wider citizenship as people retreat to and structure a life around their own small,

gated world and ignore their social obligations.

2.5.4 Environmental

A popular clich goes thus: innovate or die. This also applies to housing whereinnovations are needed for greater environmental sustainability in the areas of moreefficient use of building materials and design. But the existing high cost of housing mayinhibit progress towards achieving such goals since building and associated industrieswould rather concentrate on keeping house prices down than to undertake the innovationsneeded (Gabriel et al, 2005). In sum, there is a wide range of reasons why housingaffordability is important. It has been shown that there is a positive relationship between

declining housing affordability and substandard living conditions, shrinking employmentopportunities, economic stagnation, social exclusion and environmental problems.

The next sub-section will consider and outline the framework for using housingaffordability in this study. The study will examine the concept of housing affordabilityand what is known about its determinants and established ways of measuring andevaluating affordability outcomes.


30/97

2.6 The Concept and Dimensions of Housing Affordability

2.6.1 The Concept of Housing Affordability

The concept of housing affordability gained ascendancy in housing policy issues in the1960s and has recently become a common way of summarizing the nature of housingproblems and needs in many nations (Gabriel et al, 2005). The term became an integralpart of international housing policy discourse in the 1980s when governments around theworld started adopting neo-liberal modes of housing provision as part of the retreat of thestate from public responsibility for the plight of the poor (Stone, 2006). In other words,the issue of housing affordability became critical due to government disinvestment inpublic housing and replacement of public housing mechanisms with market drivensystems. This has inevitably drawn the attention of many stakeholders within the housingsector and pushed the concept of housing affordability into the centre of policy discourseand widespread usage in the last 30 years (Ndubueze, 2009). Two other factors alsoaccount for the emergence of housing affordability as a major policy problem. The first isthe fact that housing comprises the main share of household assets and debts, estimated to

be between two and three times the annual family income (OSullivan, 2003), and smallchanges in housing prices have large impacts on household welfare. The second factor isthat rising house prices place social and economic pressure on lower income households(Quigley and Raphael, 2004).

The term is used widely in evaluations of the impact of the cost of housing on consumersbut with a number of different meanings and measures (Milligan, 2003). However, themost general use of the term centers around consideration of the extent to which housingcosts for a given standard of housing affect household income and the capacity of thehousehold to meet the total household needs (Hancock, 1993).

In the period of its initial formulation, a household is said to have a housing affordabilityproblem when it pays more than 25 percent of its income to obtain adequate andappropriate housing (Hulchanski, 1995). This measure of affordability has been evolvingover the years. According to Kutty (2005), the measure was 25 percent of income untilthe early 1980s and 30 percent since then. In practice, however, the ratio differs fordifferent income groups. Higher income groups pay much less proportion of their incomeon housing than the lower income groups. This suggests that higher income householdshave more discretion over their housing expenditure and have higher residual income forother household needs (Van der Heijden & Haffner, 2000).

Issues surrounding the value of the benchmark and its origin have raised concerns and

debate among researchers prompting Quigley and Raphael (2004) to warn thatresearchers were setting affordability at a range of values that inhibits proper, accurateand comparative analyses of the phenomenon. Reflecting on this also, Konado-Agyemang (2001) suggests that the idea that no more than 25 percent of a householdsincome should be spent on housing may have developed out of conventional wisdom andlocal experience that housing costs are normally around a quarter of a householdsincome. This was believed to be the maximum people could spend on housing withoutjeopardizing their ability to acquire other life essentials. This 25-30 percent benchmark,


31/97

according to Hulchanski (1995) is more or less a rule of thumb that was determinedprimarily by private market requirements and does not recognize household types andcharacteristics nor the trade-offs that can be made by a household. The rationale for sucha benchmark therefore reflects historical and philosophical judgments rather thanevidence-based reasons (Burke, 2003).

The 30 percent of household income, when translated to a ratio results in what iscommonly known as housing expenditure-to-income ratio. The ratio was used in theearly 20th century by mortgage lenders and later by private sector landlords in NorthAmerica as an appropriate indicator to predict a households ability to pay the mortgage

or rent (Gilderbloom, 1985 cited in Hulchanski, 1995). The 30 percent benchmark is nowthe most frequently cited standard and defines a unit of housing as unaffordable if ahousehold would have to spend more than 30 percent of its gross income on housing andutilities (Feldman, 2002). Although some researchers, Quigley and Raphael (2004) forexample, believe that the housing expenditure-to-income ratio can be a misleadingmeasure of housing affordability, others opine that in spite of its shortcomings, it is auseful starting point in understanding the possible meanings of the concept ofaffordability (Gabriel et al, 2005; Hancock, 1993). There is also a difference in theconcept of housing affordability as it applies to the communist and capitalist economies.The 30 percent benchmark applies to capitalist states, whereas in the communistcountries, any rent above 4-6 percent of the family income is considered excessive(Konadu-Agyemang, 2001).

Housing affordability is often operationalized and expressed in terms of affordablehousing (Stone et al, 2011) and as Nubi and Afe (2011) explain, affordability isfundamentally what is needed to transform abstract housing thoughts into tangible assets.In this context therefore, affordability expresses the necessity of financial resources inachieving affordable housing.

Other related concepts used in the context of housing affordability are housingaccessibility and housing stress. Housing accessibility reflects the initial conditionsfacing a potential tenant or house owner that may make a purchase or rent moreaccessible (Robinson et al, 2006). It provides an indicator of financial thresholds forhouseholds to enter a segment of the housing market. The conditions for entry mayinclude equity deposit from individual or household income, interest rates, house prices,rents, taxes associated with arranging mortgage finance and government housing policies.Expressed differently, a person for whom housing is unaffordable is in effect lackingaccess.

Housing stress on the other hand, encompasses the ways in which households experienceaffordability problems. It denotes the negative impacts of insufficient income to secureadequate and affordable housing and may include other factors such as overcrowding,insecure tenure, unsafe or inaccessible locations, marginalization and stigmatisation (UN-Habitat, 2011; Gabriel et al, 2005).


32/97

2.6.2 Defining Housing Affordability

Several studies have shown that market failures have caused the housing market todeliver affordability outcomes that are deemed unacceptable to society (Stone et al, 2011;Whitehead, 1991; Quigley and Raphael, 2004). Therefore, to facilitate policy formulationand operational interventions in the market, suitable definitions of what is regarded asaffordable need to be developed and the concept of housing affordability clarified. Indoing this, it will be noted that definitions ultimately involve value judgments not onlyabout quality and attributes of housing but also about the relationship between housingexpenditure and housing income. It will be borne in mind also that the term is potentiallytenure neutral and may span the full range of housing tenure types, including privatehome ownership, private rental and social housing. Finally it will be worthwhile toemphasize that the term is both individual, intangible and determined by the uniquecircumstances, needs, expectations and resources of people (Berlin, 2010).

A survey of literature indicates a variety of approaches on the definition andmeasurement of housing affordability (Ambrose, 2005; Quigley & Raphael, 2004;Hulchanski, 1995; Hancock, 1993; Stone, 1993). Housing affordability simply means theability to afford housingand beyond this point, as Ndubueze (2009) notes, any attempt toprecisely grapple with the concept becomes slippery. To some degree, the lack ofconsensus among academics and housing experts on the conceptualization of housingaffordability reflects the different assumptions and priorities of researchers andinstitutions with different disciplinary backgrounds and objectives. In this regard, thecontested nature of housing affordability can be linked to different understandings of itsroot causes and drivers especially as they relate to inadequate family incomes orinadequate housing (Gabriel et al, 2005). Gabriel et al (2005) further note that

sociologists generally focus on concerns about social inequality, household experiences,housing need and supply while economists tend to frame their definitions on incomes,housing costs, housing finance and consumption patterns.

In his contribution to the debate, Grigsby (1990) links the two predominant approaches tohousing policy issues - demand-side and supply-side instruments, to housing affordabilitybeing perceived primarily as a problem of poverty or inadequate family incomes on onehand and on the other a problem of housing poverty or inadequate housing. This isabsolutely in line with the maxim that defining a problem in different ways willobviously result in different solutions. In this regard, housing policy development incountries guided by concerns about housing poverty emphasize supply-side approaches,

such as the provision of social housing, planned development and the use of urbanplanning instruments. In contrast, countries that see lack of housing affordability as aproblem of poverty focus on demand-side approaches, such as targeted rent assistanceand subsidies.

Housing affordability is commonly defined by the relationship between a households

housing expenditure and household income (Freeman et al, 1997; Linneman &Megbolugbe, 1992; Whitehead, 1991). The term seeks to establish a standard in respect


33/97

of which the amount of income spent on housing is deemed affordable or unaffordable. Inthis context therefore, housing affordability expresses the challenge each household facesin balancing the cost of its actual or potential housing on one hand and its non-housingexpenditure, on the other, within the constraints of its income (Stone, 2006). Inconveying the notion of housing costs in relation to income, the term describes the social

and material experiences of households in relation to their individual situations, in whatStone et al (2011) refer to as a relationship between housing and people.

Hulchanski (1995: 471) gives a guideline on how to define housing affordability andcontends that a household is said to have a housing affordability problem, in mostformulations of the term, when it pays more than a certain percentage of income to

obtain adequate and appropriate housing. This alludes to household income and housingcosts as important elements of affordability and shows concern with the standard ofhousing consumption when it mentions adequate and appropriate housing. In a similarvein, Maclennan and Williams (1990: 9) proffer their own idea of what housingaffordability entails and state that affordability is concerned with securing some givenstandard of housing (or different standards) at a price or rent which does not impose, inthe eyes of some third party (usually government), an unreasonable burden on household

income. In addition to addressing the ratio of income to housing costs, the statementpoints to some social and societal minimum and desirable expectations. The concern withan unreasonable burden on household income may imply a consideration of the capacityof households to meet both their housing and non-housing costs, thereby maintainingadequate housing and a good standard of living. Countering the view of affordability interms of a certain fixed percentage of income, Bramley (1990: 16) introduces the conceptof residual income and contends that households should be able to occupy housing thatmeets well-established (social sector) norms of adequacy (given household type and size)

at a net rent which leaves them enough income to live on without falling below somepoverty standards. While he speaks of some quantity of non-housing consumption thatsociety regards as socially desirable minimum, the definition also includes spatialvariation and household composition.

Zacchaeus 2000 Trust (cited in Ambrose, 2005: 172) offers a rather more comprehensivedefinition that includes adequate residual income. It states that once necessary paymentson rent or mortgage (including service charges and council tax) have been made, be the

household an individual, a family or people of pension age, there remains sufficient

income to sustain safe and healthy living, support the needs of any children of thehousehold at school and participate in the life of the community. Unaffordable housing

means that the residual income left after all housing costs have been met is not sufficient

for these purposes. Aside the tenets of capacity to pay and the ratio benchmark, this

definition brings to the fore the issue of opportunity cost of housing which Hancock(1993) considers as the essence of the concept of affordability: what has to be foregone inorder to obtain housing whether that which is foregone is reasonable or excessive in

some sense (Hancock, 1993: 129).

In everyday life however, housing affordability transcends the matter of housing costs,household income levels and a households ability to purchase housing, and includesoccupation variables or the costs associated with keeping and maintaining a house. In


34/97

essence, housing affordability is principally set by two main variables: capital variablesand occupation variables (UN-Habitat, 2011). The capital variables include the housepurchase costs and the ability to finance purchase, while the occupation variables includehouse occupation costs and the ability to financially service the running expenses. Figure4 illustrates the many dimensions of housing affordability. Another key determinant of

the availability, accessibility and affordability of housing is the role played by theinformal sector in housing production (UN-Habitat, 2011), considering that about 90percent of housing is produced by the informal sector in developing countries as noted inchapter 1. Section 2.6.4 considers housing informality in greater detail.

Within the varied definitions of housing affordability, five standards emerge as the corecomponents of the concept: housing costs, household income, socially accepted standardsof housing, quality of life and occupation variables. These elements and others like thelabour market conditions that affect a households ability to earn an income, interest ratesthat affect the costs of borrowing and other housing and material inputs combine toconstitute the factors that affect and determine housing affordability. In whatever wayhousing affordability may be defined, all housing will remain affordable for some peopleno matter the price while for others no housing will be affordable unless it is free (Stoneet al, 2011).

2.6.3 The Drivers of Housing Affordability

In the previous section, housing affordability is shown to be largely determined by thecosts of producing and financing housing and the income levels of households at a giventime. But the housing costs and household income are influenced by a combination offactors both within the housing system (including housing policy interventions) and

beyond it (including labour market relations). The above factors, in combination withlocal and international economic, social and political issues impact on housingaffordability. In general there are supply side and demand side factors that drive housingaffordability. The supply side factors are the forces that influence the cost of housingthrough the housing production process while the demand side factors shape thehousehold consumption and purchasing power.

The variables on both sides, that is, the production and consumption of housing aremediated through the exchange process. According to Milligan (2003), the way thathousing is paid for (afforded) depends on the nature of that exchange, whose interest thehousing exchange system serves and who benefits from the profits and fees generated.

Housing can either be sold or rented under a variety of arrangements, payment terms andrates. The system of housing exchange increases in importance as the housing stock agesand is usually organized through a series of intermediaries, who may include estateagents, valuers, surveyors, housing finance institutions, solicitors and land deed registrars(Rakodi & Mutizwa-Mangiza, 1990). (The sources that have been drawn on to presentthe drivers of housing affordability include Feldman, 2002; DTZ Research, 2004;Hulchanski et al, 2004; Ambrose, 2005; Lawson & Milligan, 2007; Yates et al, 2007;Darmanin, 2008; NZPC, 2011).


35/97

2.6.3.1 The demand side.

Income plays a fundamental role on housing affordability because it determines ahouseholds ability to pay for housing. Household income is dependent on labour marketconditions and demographic and social factors that influence the size and the formationand dissolution rate of households (Milligan, 2003). Labour market changes impact onthe households ability to participate in the housing market especially now that there isincreased casual and insecure employment that generates income insecurity and lowwages/salary rates.

Changes in population and household profiles are key to understanding housing need anddemand and these changes affect the housing market, influencing the demand and supplyof housing. The underlying demand for housing is primarily driven by householdformation which reflects population growth and changes in household size (Whitehead etal, 2009). According to NZPC (2011), household formation has been increasing fasterthan population growth owing to the general preference for smaller households. In thehighly constrained housing market of today, the increase in demand simply drives up

housing prices. Added to this is the production of housing types that are not alwaysreflective of the changing demographic profile

Other related factors shaping the purchasing power of the households include: the under-developed housing finance systems that cannot give mortgage credit at a reasonable rate;the high interest rates that fuel house price appreciation; the preference for home-ownership and the trend toward the construction of larger individual houses has led to theincreased disparity between demand and supply; the consistent differentiation of thehousing situation by tenure, location and generation giving rise to socio-spatialpolarization and segregation leading to social exclusion; property is often considered asan investment instrument and sometimes this leads to price speculation. Demand may

therefore become excessive if people develop unrealistic expectations about the returnsfrom housing investments relative to other investments. In this sense, the investmentperception of housing predominates over the consumption aspect creating a situationsimilar to the housing bubble experienced in the United States of America; governmentmeasures aimed at subsidizing the cost of housing such as tax concessions, rent law andgovernment assistance for home owners actually help to increase prices in the privatehousing market.

2.6.3.2 Thesupply side

Housing costs generally have an impact on the ability of households to access affordableand sustainable housing. They set the price and payment levels required to eitherpurchase or rent a house. Higher housing costs add to the upward pressure on rents and ashousing costs increase, the cost of home ownership also increases. Some of the factorsthat affect housing costs include: land-use regulations and costs associated with thepreparation of development applications that increase the cost of housing production;holding charges and costs caused by delays in approving land for future development;


36/97

shortages of skilled labour and poor management capability; higher costs of compliancecauses by increased environmental and regulatory requirements; lack of innovation in thebuilding industrymost of the work is still carried out on site rather than by assemblingprefabricated components that are manufactured off site; insufficient supply in the oneand two bedroom housing sub-market; insufficient supply of construction finance and

high interest rates on construction loan; containment of new developments in urbancenters without providing adequate development opportunities for new development atcity fringes or virgin land; substantial increases in housing-related infrastructural chargesdue to inflation and corruption; increases in taxes, development levies and withholdingtaxes.

Some other factors that affect housing costs include policies that restrict land supplythereby increasing land values which have a marked impact on housing affordability. Theconstraints on land may be environmental or topographical and may result frominappropriate zoning and lack of infrastructure (Brownlee, 2008). The reduced housingaccess resulting from the constraints increase the cost of residential land especially inurban centers. This is a major reason for the decline in the supply of new housing. Thereis also political and community opposition to urban expansion into rural areas as well asan increase in speculative land holding, following the liberalization of land development.Another cost related issue is the loss of specific types of housing like the low cost privaterental apartments, social housing or government-subsidized housing and boarding houses.Social housing or low income housing production has declined considerably due toprivatization and the adoption of neo-liberal policies that brought changes in the housingroles assumed by governments and the complete withdrawal of the welfare regimes inhousing policies. Major changes in government financing, land release and urbanplanning policies toward a more privatized system of housing supply have alsocontributed to the decline in housing supply. Figure 5 illustrates the factors that drivehousing affordability.

2.6.4 Informality and Housing Affordability

It is reported in section 2.6.2 that a key determinant of housing affordability indeveloping countries is the role played by the informal sector in housing production.Earlier in Chapter 1, the inability of low income groups to participate in the formal orconventional housing market was shown to be a major reason for the preponderance ofinformal or extra-legal mode of housing production in developing countries. This sectionexamines the issue of informal housing more closely.

Informal housing and informal employment are two important aspects of the

contemporary urban economy. While all formal economic activities operate under thepurview of the law, a major and salient characteristic of informal economic activities istheir extra-legality (Hansen & Vaa, 2004). The informal economy is characterized by itsease of entry, reliance on indigenous resources, family ownership of enterprises, smallscale of operations, labour-intensive and adapted technology, skills acquired outside theformal school system and unregulated and competitive markets (ILO, 1972; UN-Habitat,2003; Hansen & Vaa, 2004). Although the activities in the informal economy are extra-legal or irregular from the official standpoint, most of the actors concerned consider them


37/97

not only functioning but normal and legitimate. Arimah (2010) associates thewidespread crisis of state capitalism and the collapse of the state in developing countrieswith the proliferation of informal activities and the general in-formalization of theeconomy.

Housing is described as informal when it does not conform to current regulationsconcerning land ownership, land use, zoning or building codes and bye-laws (Shlomo,2000). Principally, informal housing uses a labour-intensive mode of production andutilizes a large input of self-help labour and improvised building materials (Drakakis-Smith, 1981, cited in Keivani & Werna, 2001). However, a considerable number ofinformal houses utilize modern materials, industrial methods of production, organizedwage labour and building contractors. Some of the common characteristics of informalhousing are insecurity of tenure, overcrowding, low profile/informal economy,inadequate access to safe water, inadequate sanitation, poor structural quality of housing,improvised building materials and processes, non compliance to local building codes,location in harzardous zones and economic and social deprivation (UN-Habitat, 2003;Nabutola, 2004; Arimah, 2010).

Informality in housing and land occupation is a multidimensional phenomenon and oneof the most visible characteristics of major third world cities (Arimah, 2010; Smolka &Biderman, 2011). The exact form of informal housing however depends on the political,socio-economic and cultural conditions of the individual cities/localities. In this regard,the consolidation of state power and its willingness to enforce planning rules is the majorfactor that determines the extent of informal housing (Gilbert, 1990). A study by Shlomo(2000) shows that in 1990, about 67 percent of housing units in developing countries areinformal and unauthorized while essentially none existed in high income, developedcountries. Numerous socio-economic factors drive the formation and growth of informalsettlements but much of the literature on housing identifies rapid urbanization,

widespread poverty and the inability of many governments to control physicaldevelopments within their domains as major factors in the prevalence of informal housing(Tipple, 1994; UN-Habitat, 2003; Davis, 2004; Arimah, 2010). An analysis of theincidence of informal housing in developing countries and economic models of informalhousing markets show that the phenomenon can best be approached as a housingaffordability issue since low income households have incomes that are below the levelsneeded to bid competitively for housing in the open market (Smolka & Biderman, 2011).Informal housing can therefore be seen as a distinctive type of housing market whereaffordability accrues through the absence offormal planning and regulation(Roy, 2005:149)Available projections point to a rapidly growing urban population in much of the

developing countries in the face of rising unemployment, poor agricultural performance,financially weak central governments and the absence of sound urban planning policies torespond to high level of urban growth (Cheru, 2005). Obviously this translates to astronger demand for scarce resources that will drive up the value of land and make itmore difficult for the urban poor to find affordable space in desirable locations of thecities. Existing cities are likely to be larger and their housing and associated infrastructurewill need major additions. Governments are unable to manage the swellingresponsibilities because the resources to meet this considerable housing challenge is


38/97

lacking. The inability of the government and the formal housing market to provideadequate and affordable housing has led the majority of urban population to build shacksin informal settlements and live in housing built without authorization. Other optionsopen to the urban poor, including living at the urban periphery, are also unaffordablebecause of high transportation costs, lack of basic services and lack of employment in

these locations. In the absence of any effective, large-scale response to housing shortagesby the state or the formal private sector, the housing requirements are being addressed bythe poor themselves, through the housing they build in informal settlements (UN-Habitat,2008). It is not surprising therefore, that the most effective supply of housing in thedeveloping countries takes place outside the law (Hanson & Vaa, 2004; Boudreaux,2008).

Many governments formulate laudable policies and programmes to provide affordablehousing but ineffective implementation makes the efforts futile with very poor results.Factors such as lack of resources, corruption, inadequate capacity and patronage combineto reduce the ability of the governments to meet the increased demand for new housinglet alone catch up with backlogs (Tipple, 1994; Uji & Okonkwo, 2007). Bureaucratic redtape and high transaction costs on land have inadvertently created land scarcity, limitedthe availability of credit for both developers and potential buyers and made the process ofacquiring tenure security complicated and expensive (Boudreaux, 2008; Smolka &Biderman, 2011). High interest rates and rigid labour laws also make it difficult for thepoor to access commercial credit for mortgages and to develop affordable housing oftheir own (Boudreaux, 2008). Informal housing is therefore partly a creation of the statesince some of the policies largely increase the economic incentives that encourageinformal housing development.

Stiff planning, regulatory and building standards that often exclude cheap traditionalbuilding materials used in informal housing also contribute to the development and

expansion of informal settlements. Furthermore, high minimum plot sizes, low densities,inappropriate zoning, high land use standards and land titling laws that are difficult tomeet are implicated in the process that produces informal settlements or what Roy (2005)describes as the unplanned and unplannable. Even self-building, to conform to theminimum lot size requirements or current building codes is unaffordable given the hightransaction costs associated with this mode of housing. Arimah (2010) reports that theland registration process in Nigeria takes about 274 days and incurs official fees totalingmore than 27 percent of the property value, while Ikejiofor (2003) cites a similar situationwhere entrepreneurs follow a complex process to formally develop land in Nigeria. Theseissues demonstrate the exclusionary nature of the regulatory framework and bureaucraticprocedures that restrict the provision of formal housing that is affordable to the urban

poor. The barriers create incentives for developers to shun the formal approval processesand

2013 introduction, phd

Documents