That inflation, which is the continuous increase in price of goods and services, is ravaging the Nigerian economy is something even the blind can ‘see’.
Latest statistics from the Nigeria Bureau of Statistics (NBS) released for last month (July, 2022) shows that for the sixth consecutive month this year, inflation rate increased and now stands at 19.64%.
Not one sector of the economy is spared from the effects of the rising inflation. Food inflation now stands at 22.02%, the consumer price index (CPI) for transported is recorded at 402.40 points in July while that of housing utilities is 391.60 points.
Although a lot of attention and worry is focused on the increasing prices of food items, another basic need of human is shelter, which makes it important to x-ray the effect that Nigeria’s worrisome inflation increase is causing in the housing and real estate sector vis-a-vis how it affects the average Nigerian.
Generally, inflation causes many distortions in the real estate market and the sector is one of the most affected by inflationary pressures.
Specifically, the construction sector is faced with rising cost of building materials, 50kg bag of cement that was sold for N2,600 in 2019 rose up to N4, 500; iron rod increased from N300,000 per tonne to N415,000 in the building materials market.
Adding to this woe, increase in exchange rate, port charges, diesel cost which has greatly influenced the price of haulage amongst other challenges keeps pushing building and construction cost upwards.
Labour cost has also increased with professionals, skilled and unskilled workers involved in the sector all rising their wage and salary demands in order to meet their own personal needs.
Some developers have been said to cut corners or reduce cost by deliberately using substandard products thereby putting these building at the risk of collapse.
This may not be unconnected to the recent increase in the incidents of building collapse that is experienced across various part of the country.
The President, Real Estate Developers Association of Nigeria (REDAN), Aliyu Wamakko also lamented in a recent report that the increase in price of building material has lead to an influx of substandard materials in the building markets which he added is even becoming more difficult for developers to differentiate from the real ones.
The incident, according to the report is prevalent in iron rods, paints, lighting system, door handles, electrical cables and toilet fittings.
All of these have made developers in many major cities to increase rent and prices by 40% to 50%.
As it stand, developers and property owners are reportedly abandoning building projects due to the continuous increase in prices of building materials.
The South West Chairman, Real Estate Developers Association (REDAN), Mr. Debo Adejana, recently said that developers are adopting a wait-see approach to the staggering prices of building materials in the market.
Many construction companies according to reports have been forced to abandon site, ask and negotiate for reviewed prices.
The implication of this development is that with fewer houses being built to meet up with the ever rising housing demand, more pressure with be placed on the existing ones. This will invariably jack up prices for the available housing units.
For the average Nigerian, increase in inflation has not translated to increase in income, therefore, faced with a fixed income, the percentage of his revenue spent on consumption is thereby increased, reducing the monies available to be saved.
Many household will at the end of their tenancy agreement which in Nigeria is usually annually struggle to make rent their current rent.
Building owners are also in a quagmire. Inflation affecting them means they also have to increase their revenue based which translate to charging more for their houses.
House developers who have built new units at the current high labour and material costs will also transfer these cost to rent, pushing rent higher.
In all of these, affordable accommodation will remain elusive to the common man.
The common man will have to seek out creative ways to keep a roof over his head oftentimes seeking extra monies which may comes through taking extra jobs, seeking out multiple streams of income, and sometimes even borrowing.
If the current inflation trajectory continues, gone will be the days where the middle classes of the country get to build their own houses as Nigerian workers right now barely make rent.
There is no two ways about it; something has to be done to correct the present economic tide of the nation.
In a strong economy with robust growth, inflation may not have much of a negative effect on housing situations. Economist generally agree that a bit of inflation is needed for economic growth.
A strong economy will make it easier for people to afford higher prices, including interest rates, because their incomes tend to also increase. However, stagnant or weak economies in which income growth stagnates as well make it more difficult to purchase housing needs.
The Director-General, Nigeria Employers’ Consultative Association, NECA, Mr. Wale Oyerinde, in a statement recently clamoured for a holistic approach to resolving the economic crisis.
“Economic interventions aimed at improving living standards (to stimulate consumption) and enterprise sustainability (to promote job creation) should be implemented. While forex scarcity persists, allocation of the available forex to manufacturing and other productive sectors of the economy should be given priority.
“There is no better time for the government to reappraise current economic policies and deepen its engagement with the Organized Private Sector. While the government’s effort to salvage the economy is commendable, there is, however, a more holistic approach is needed to resuscitate the stuttering economy.”