Stakeholders in Nigeria’s housing sector have raised alarms regarding the detrimental impact of escalating interest rates on mortgage adoption and access to affordable housing. These rising rates are straining both supply and demand facets of the housing market, leading to increased costs for developers while simultaneously limiting prospective homebuyers’ ability to secure affordable mortgages. Industry experts are predicting that these factors could result in a significant decline in housing accessibility and affordability, exacerbating the existing housing crisis in Nigeria.
In an exclusive interview, Olufemi Oyedele, Chief Executive Officer of Fame Oyster & Co., emphasized that the ongoing hikes in interest rates will render borrowing significantly more expensive, consequently stalling construction activities across the housing sector. He attributed the current inflationary trends in Nigeria to an oversupply of money driven largely by fiscal mismanagement and prior corrupt practices. The reliance of Nigeria’s housing industry on imported building materials further complicates matters, as soaring foreign exchange rates already burden the sector, placing additional strain on housing costs.
As interest rates continue to rise, debt service costs for mortgages will increase, resulting in a likelihood of diminished borrowing activities. Oyedele suggests that many Nigerians will be forced to explore alternative living arrangements, such as overcrowding in existing units or squatting, as new housing developments are expected to decline. This trend typifies a historical pattern where the housing sector is often the most affected during economic downturns, struggling to recover even after conditions begin to improve, indicating a bleak outlook for homeownership in Nigeria.
Furthermore, Babatunji Adegoke, Technical Secretary of the Nigerian Society of Engineers, highlighted the substantial repercussions of increased interest rates on construction. He noted that higher borrowing costs would lead to inflated construction expenses, which might result in delayed projects or their outright cancellation, causing job losses and potential rise in social unrest such as crime. Adegoke also pointed out that elevated mortgage interest greatly reduces affordability, potentially curtailing the demand for new construction and subsequently hindering the housing industry’s contribution to economic development.
The organised private sector has shown considerable concern regarding how the interest rate hikes instituted by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) could worsen the existing issues with bad loans in numerous deposit money banks. In response to these ongoing economic challenges, the CBN’s MPC has increased the benchmark interest rate multiple times, with the latest being a 50 basis point increase, as announced by Governor Olayemi Cardoso during a press briefing after the committee’s meeting.
The consensual decision by MPC members to tighten monetary policy further underscores the urgency of addressing the high-interest rates affecting the housing sector. As the situation unfolds, stakeholders are calling for comprehensive strategies to mitigate the adverse effects of monetary policy on housing affordability and accessibility. Without immediate corrective measures, there is potential for an intensified housing crisis in Nigeria, leading to long-lasting social and economic ramifications for the country’s populace.
