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Enhancing access to affordable housing finance in Tanzania

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AS is the case with all other goods and services, housing can either be a good idea when one buys it or service when someone rents it. Whether housing is a good or service, it is a fact that funds are needed to either build or pay rent the same.

The money needed in both scenario can simply be referred to as housing finance. However, housing finance is a broad topic whose definition may vary across continents, regions and countries, particularly in terms of the areas it covers.

For example, what is understood by the term “housing finance” in developed countries may be very different from what is understood in a developing countries. To confirm the versatility of the term, even the International Union for Housing Finance (IUHF), which is a multinational networking organisation, hasn’t yet came with an official position on what the best definition of housing finance is.

As explained as we started this article, put simply, housing finance is what allows for the production and consumption of housing. It refers to the money we use to build and maintain the family or more broadly, the nation’s housing stock.

But it also refers to the money we need to pay for it, in the form of rents, mortgage loans and repayments.” It follows that housing finance is not only important to buyers of houses but also play an important role to developers as well.

As it can be quickly grasped, the availability of housing finance be it formal or informal is directly related to the housing status of individual and even the nation. Due to its pervasiveness and its cross cutting nature, no single player in the housing finance ecosystem can adequately do all what is required to ensure it functions effectively.

It is from this background that it is important for key stakeholders to work together for mutual gains to ensure the availability and access to housing finance becomes an important part of the nation’s financial system. In countries where the governments controls land ownership such as Tanzania, the role of government and its related institutions in enhancing access to and availability of housing finance becomes even more critical.

Other players such as banks and financial institutions, developers, the civil societies and homebuyers are also equally important. It is important to note that the government’s recognition of the importance of housing as an important pillar of the economy dates back in 1962when the National Housing Corporation (NHC) became the first commercial entity to be established.

This was accompanied with an annual and sizable allocation of financial resources to finance social housing programs countrywide in what then came to be known as ‘slum clearance’. Likewise the establishment of the Tanzania Housing Bank that closed shops in 1990’s was a move that strengthened the government’s resolve to provide affordable end user finance to prospective home buyers.

Similar to challenges facing other countries in the Sub-Saharan Africa, government’s expectations to see a full-functioning housing market have not matched economic realities to the extent that the pace of growth of the housing market has not been satisfactory over years. Under this scenario, the availability of affordable end user finance and developer’s finance appears to be a challenge to date.

Central to the limited access to consumer housing loans is the fact that the income levels of the majority do not match loans repayment requirements. This limitation coupled with the cost of formal housing pushes many prospective buyers out of the formal housing market with the Tanzanian mortgage market contributing less than one percent of the GDP.

Obtaining formal housing is often costly, requiring one to navigate through some regulatory and administrative requirements. A well functioning housing market can be a vital economic sector and potential source of job creation.

The World Bank estimates that the housing investment in Sub-Saharan Africa represent up to six percent of the GDP and one house built can create up to five new jobs. It is commendable that the ongoing Housing Finance Project administered by the Central Bank has already started making strides in re-building the housing market.

One of the key component and achievement has been the opening of the housing micro-finance window administered by BOT and the establishment of the Tanzania Mortgage Re-finance Company (TMRC) whose key objective is to provide long term funding to banks that give home loans.

This is an important development in addressing the challenge of consumer housing finance. The initiative of the government through social security institutions to establish Watumishi Housing Company (WHC) in 2014 was also a positive move in addressing the issue of both housing supply and developer’s finance.

It would sound however, that more formal developer’s finance is needed to address the issue of massive financial resources that are needed not only to upgrade the existing informal housing development but also to implement new projects. This type of funding should be accessible to both public as well as private developers based on sound financial principles.

It is estimated that more than ninety five percent of housing development in Tanzania is carried out by individuals or households from personal savings on incremental basis. It follows that encouraging people to save and providing avenues that simplify the ability of households to serve will have a positive effect in enabling people to own decent homes.

The younger generation is poised to benefit more as it has ample time to save over years. Ongoing initiatives by banks and even Savings and Credit Cooperative Unions (SACCOS) to create innovative financial products that allow people to save money needs to be commended.

The awareness on new generation financial products such as Collective Investment Schemes and Real Estate Investment Trusts (REITs) need to be intensified as these instruments allow people to save small amounts over a long time hence addressing both immediate as well as future financial needed of households. In conclusion, Tanzania can expand access to decent housing and improve the quality of existing housing stock by addressing constraints facing home buyers and developers to access housing finance.

While formal housing finance institutions will take time to grow and be able to save the majority and the fact that a significant part of the population has limited access to formal banking, it is relevant to continue encouraging and supporting grassroots savings programs such as SACCOs, housing cooperative and similar Collective Investment Schemes as these will continue to play a key role in supporting individuals and families to own decent homes


by: Dr. Fred Msemwa
13 Feb 2018
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