Despite Inflation Drop to 32.15%, Housing Costs Remains High in Nigeria

In August 2024, Nigeria’s inflation rate dropped for the second consecutive month, reaching 32.15%, marking a slight relief in a challenging economic environment. While this drop was widely seen as a positive development, especially after months of surging inflation, the cost of housing and accommodation continues to rise, posing a serious challenge to many Nigerians.

Housing Sector's Divergent Trends

While inflation impacts various sectors differently, the housing sector has remained resilient in its upward trajectory. Rent prices, home purchase costs, and construction materials are becoming increasingly expensive, defying the overall cooling trend seen in other areas of the economy.

Experts point to several underlying reasons for the housing sector's continued inflationary pressure. One major factor is the persistent demand for housing, particularly in urban centers like Lagos, Abuja, and Port Harcourt. With Nigeria's growing population and the urbanization trend, there is a significant mismatch between housing supply and demand. As a result, landlords and real estate developers are capitalizing on this demand, keeping prices high.

Additionally, the devaluation of the naira has driven up the cost of imported construction materials, such as cement, steel, and finishing products, which in turn has driven up building costs. Local material producers have also increased prices in response to higher energy and transport costs, further straining the construction sector.

Subsidy Removal and Fuel Price Hikes: Compounding the Crisis

The recent removal of fuel subsidies in Nigeria has also exacerbated the housing affordability crisis. Higher transportation costs, which have a ripple effect across many sectors, have contributed to increased costs for building materials and labor. Contractors and developers are passing these additional expenses on to consumers in the form of higher home prices and rental fees.

At the same time, utility expenses, particularly electricity, have soared. The cost of powering homes, offices, and construction sites has risen in tandem with global oil price fluctuations, further eroding household purchasing power and increasing housing-related expenditures.

Impact on Nigerians

For the average Nigerian, housing affordability has become an increasingly pressing concern. A growing number of families are being pushed out of formal housing markets and into informal settlements where living conditions are poor, and security is uncertain. Middle-income earners, who once sought homeownership, now find themselves priced out of even rental markets in major cities. This trend is exacerbating the housing deficit, which currently stands at around 20 million units, according to the Federal Mortgage Bank of Nigeria (FMBN).

Despite various government interventions, such as affordable housing schemes, the reach of these programs has been limited. Many low-income households are unable to access mortgages or loans due to stringent requirements, further restricting their ability to own or rent homes.

Policy and Economic Challenges

The government’s efforts to reduce inflation have included interest rate hikes by the Central Bank of Nigeria (CBN), aimed at curbing spending and stabilizing the naira. While these policies have helped reduce headline inflation, they have also raised borrowing costs for real estate developers and prospective homeowners alike.

Without significant investment in affordable housing and policies to address the structural imbalances in the sector, many experts believe the housing cost crisis will persist, despite improvements in overall inflation metrics.

Looking Ahead

While the August inflation report offered some optimism, Nigeria’s housing sector presents a long-term challenge that requires targeted and sustained interventions. Until the supply of affordable homes meets demand and critical bottlenecks in material production and distribution are addressed, housing costs are likely to remain elevated.

For many Nigerians, the struggle to secure decent, affordable housing will continue to be one of the most significant challenges in the months ahead, despite the positive macroeconomic signals reflected in falling inflation rates.

Conclusion

As Nigeria navigates the complexities of inflation control, the housing sector continues to buck the trend, driving up costs for citizens across the country. Government policies and market dynamics will need to align in order to address the growing housing affordability crisis, ensuring that Nigerians can access secure and affordable homes in a more stable economic environment.