property rights african housing boom

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CT: Property rights drives African housing boom http://www.cfact.org/site/print.asp?idarti

3/27/2007

Find this article at this address:http://www.cfact.org/site/view_article.asp?idarticle=1116&idcategory=21

Property rights drives African housing boomMillennium Challenge Corporation and African Mortgage Market initiatives are producingresults

Friday, October 27, 2006

by Duggan Flanakin

While the housing market in the United States has fallen on hard times thanks in large part tofluctuating interest rates, there is another - worldwide - housing boom under way that is in largepart a direct result of changes in U.S. foreign policy.

Back in 2002, President George W. Bush announced his intention to reshape U.S. foreign aid policyand practice through creation of the Millennium Challenge Corporation (MCC), which todaydetermines a nation's eligibility for U.S. aid based on its record of fighting corruption, fosteringentrepreneurship, and promoting social justice. This formation of the MCC has already spawnedpositive results, as its very first grant included tens of millions of dollars earmarked for formalizingMadagascar's land tenure system (titling and surveying), modernizing its national land registry,and expanding land registration services to rural citizens.

In July 2003, President Bush followed up on this positive development by announcing his AfricaMortgage Market Initiative in a speech at the Leon Sullivan Summit in Abuja, Nigeria. Taking a cuefrom Peruvian economist Hernando de Soto, whose research had shown there is at least ninetrillion dollars' worth of trapped capital in unregistered land in the developing world, he explained:

"One specific obstacle to development in many countries is the lack of access to capital. ManyAfricans find it impossible to get a loan for a business or a home. And this makes it far difficult forpeople to build equity or to borrow money to start a business. The United States has some of themost effective mortgage markets in the world. We understand the flow of capital, and we want toshare this knowledge with the nations of Africa.... With the ability to borrow money to buy homesand start businesses, more Africans will have the tools to achieve their dreams."

The President assigned to the Overseas Private Investment Corporation much of the job of workingwith Africans to develop robust housing markets through construction of affordable homes indeveloping nations with the goal of bolstering retail banking and fueling local capital markets asengines of entrepreneurship. Last fall, the President installed fellow Texan Rob Mosbacher, Jr., asOPIC's new President. Mosbacher hit the ground running, championing private home ownership indeveloping nations as an instrument of foreign policy.

In May 2006, at the OPIC-sponsored "Housing Africa" conference in Cape Town, South Africa,Mosbacher asserted that Africa has the capacity to develop a viable housing industry." Noting thatOPIC has provided $367 million in financing and loan guarantees for housing projects in Africa


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since 2003, Mosbacher explained that:

"Housing development is central not only to individual dreams, but to the goal of economic growth.Home ownership is the single greatest store of wealth for individuals, and an important source ofcapital for entrepreneurship at the grass roots level. Unfortunately, for the most part Africa has notenjoyed the benefits of this relationship between housing and economic development.... [Our job atOPIC] is to take the ingenuity and resources of America's successful housing industry and partner itwith the entrepreneurial capacity of African businesses so that housing can assume its rightfulplace as a strong and sustainable platform for economic growth across the continent."

Recent African OPIC-funded projects include $7.1 million to underwrite a unique long-termlease-for purchase program for 400 affordable housing units being constructed in Nairobi, Kenya;$12.4 million in political risk insurance to assist construction of 5,000 homes in Tanzania, which in2005 had begun a new program to survey and upgrade hundreds of thousands of urban land plots;and $46.3 million to facilitate mortgage financing for 5,000 new homes in a project that willleverage over $100 million of new housing construction and serve as a model for future housingprojects in sub-Saharan Africa. Of the latter project, U.S. Ambassador to Zambia Carmen Martineznoted that the project is much bigger than building houses: "It is instilling a new sense of homeownership, introducing affordable financial instruments, and in the end building community."

OPIC's push for private property rights for ordinary citizens is by no means limited to Africa. OnMay 10, OPIC provided $100 million to National City Bank for financing housing construction loansfor low- and middle-income housing with a special emphasis on CAFTA-eligible countries; another$3.6 million of OPIC money was allocated for establishment of a network of franchisee-ownedCentury 21 real estate offices in Russia.

Expanding home ownership has long been a major theme of President Bush's domestic policy, too.Initiatives like the American Dream Downpayment Act, the Zero-Downpayment Initiative, andAmerica's Homeownership Challenge have had great success. For the first time in U.S. history, amajority of minority households are now homeowners. During just the first three years of the BushAdministration, increased housing prices and new home construction had added nearly $4 trillion tohomeowner wealth, and cash-out refinancing had added more than $130 billion to householdbudgets.

The focus on private home ownership is by no means merely a partisan issue. Former President BillClinton, at the recent Clinton Global Initiative meetings, announced a commitment by The FirstAmerican Corporation of up to $1 million to develop a template for cost-effective in-countrycreation and maintenance of a land record system that ensures a means for establishing andholding the legal title to a property in countries lacking such a system.

The announcement also carried former Secretary of State Madeleine Albright's observation thatmany of the world's poor who have "property in the form of land, housing, and livestock, areunable to make the most of these assets because they lack any legal title." Citing the work ofinvited guest Hernando de Soto, Clinton agreed that the inability to convert these assets into

collateral for loans is "keeping people in grinding poverty instead of being an asset that can liftthem up."

The recent U.S.-Africa Infrastructure Conference, sponsored by the Corporate Council on Africa,featured a panel on housing and commercial construction, with a focus on affordable prefabricatedhousing. One speaker noted that Mexico has committed to building 750,000 new houses a year forits people, and yet that rapid pace will still leave millions waiting in line for years.

Africa's housing need may be even more acute. A woman from Malawi, a nation with just 13 millionpeople, stated that the waiting list for new homes in her country is 100,000 families a year. It willtake both mortgage-based financing (including lease-purchase plans) and convincing aid donors tocommit to private property ownership to even come close to satisfying this burgeoning desire of


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urbanized Africans for affordable, modern housing.

With all that said, the fields are ripe for harvest - Africans are joining the outcry worldwide for afree market and a better standard of living. Providing food and services to the developing worldremains a challenge - but the potential for financial and personal rewards should provide sufficientincentives to investors to help bring about real change in a place that has for far too long beenknown as the "dark continent."

Duggan Flanakin serves as a CFACT environmental programs officer.

Copyright CFACT. All rights reserved.

property rights african housing boom

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