THE supply and buying of houses like any other product is governed by Economics Laws of Supply and Demand respectively. Demand is the term used to describe the ability and willingness of buyers to purchase a product or service.
This is a general term that takes a number of issues into account, such as buyer income, buyer perceptions and buyer needs. Demand is a market force opposite of supply, which is the ability and willingness of producers and service providers to provide products and services at the market at a given price.
This general idea of demand is often called notional demand, which is composed of both latent demand and effective demand. Even if a buyer needs or would be willing to purchase a particular product or service, he cannot do so if he lacks the necessary funds or if he does not know about that product or service. This portion of market demand is called latent demand.
The importance of latent demand is that it presents an opportunity to firms to increase revenue by investing in marketing efforts or introducing lowcost products. Effective demand is a representation of the actual amount of goods or services that buyers can purchase in a given market at a given price.
Effective demand is the difference between notional demand and latent demand. Effective demand is a reflection of the extent to which buyers’ income, perceptions and needs combine to result in an actual purchase rather than a mere desire to purchase. The housing demand in Tanzania is estimated at three million units.
While the authenticity of this figure is something that can be debated, other more reliable estimates deduced from the National Census (2012) may support this figure and status of housing demand in Tanzania.
This Census indicated that the country had 9 million housing units in 2012. Despite the fact that this census indicated a general improvement in the overall living conditions and quality of houses built by Tanzanians compared to the previous census, it was evident that 3 million homes were still built by mud and thatched by grasses.
It is well known globally that the quality of houses built is directly linked with the economic status of the owners and therefore the quality of the three million homes as deduced from the National Census leaves a lot to be desired in terms of improving the living standards of dwellers of such houses whose number reaches fifteen million people.
In connection with this, a recent study commissioned by the Bank of Tanzania titled Housing Market Study report (2014), established that there is an urban housing backlog estimated at 1.2 million homes with Dar-es-salaam accounting for a third of the total figure.
This demand, then, was estimated to grow to 1.9 million housing units by 2015. While all these facts point to the existence of a major housing gap in Tanzania, the trust on the effective demand needs more than this quality figures.
Information deduced by profiling household income data indicate that housing demand data do not necessarily translate into effective demand and ability to own homes. In view of this, most household will continue to rely on renting as an alternative to accessing decent homes.
This is due to not only their income status but also inability to access affordable finance to acquire homes either by building or buying. This scenario is likely to continue as long as houses affordability and structural issues that prevent the vibrancy of the housing market and developers from supplying more homes remain unresolved.
This article focuses on how to stimulate the latent housing demand by looking at the dynamics happening in the lower income group while sparing other factors such as the functioning of the housing markets and extending the role of municipals for future discussions.
Houses supplied in the market need to be reasonably priced to align with the income levels of the target buyers. The challenge to developers lies on establishing a trade-off between supplying quality houses at prices that match the income level of prospective buyers.
Experience indicates that most houses buyers are normally choosy and want high quality houses than those they would construct for themselves. An unofficial assessment of income profiles of most employees in Tanzania indicates that the majority comprising more than eighty five percent cannot afford to buy a new home by a mortgage priced at 15 per cent if that house is sold at more than TZS 20 million.
It follows that if developers are to match the income levels of most prospective buyers comprising of the Tanzanian working class, they must build homes that do not exceed TZS 20million and banks must offer an interest rate just below 15 per cent.
This ideal price could be the maximum price suited to the working class only as the rest of the market comprises of peasants whose annual income level could be even lower.
A survey conducted by Watumishi Housing Company (WHC) indicates that if you are talking of affordable homes in the village then the indicative price need to range from three million to eight million while at the district level need to range from twelve to fifteen million.
While these hypothetical prices could be relevant to buyers, developers on their part face a myriad of challenges to deliver decent homes at those prices. Developers are constrained by a need to meet minimum quality standards given the fact that construction of houses is a regulated activity where developers have to meet certain building codes and standards.
Other constraints include the cost of land, services, profit margin and all associated costs. In view of this analysis, it is evident that a bigger population will continue building homes on incremental basis as existing housing delivery systems cannot transform the existing housing demand into effective demand.
Apart from the fact building homes on incremental basis takes a considerable time sometimes extending to 15 years to complete a house, this process contributes to housing informality in urban centres now estimated to go beyond seventy percent.
Housing informality not only denies house owners of economic opportunities that they would get if such homes could be recognised legally through titling but also locks out capital as most unfinished houses could stay as works in progress for years hence limiting the fiscal flow in the economy.
In connection with this, housing informality deprives the government and municipals of the badly needed property tax revenues that could be channelled to provide social services such as health and education.
Developers also suffer as they miss opportunities to tap into latent demand that could be transformed into effective demand from people who own homes by building themselves.
To reverse this trend, players in the financial markets must continue coming with innovative products that broaden the ability of people to save over years and increasing awareness on home loans to the general public.
In conclusion, given the constraints they face, developers have limited strategic choices that they can employ in order to transform the latent housing demand into effective demand other than devising and adopting innovative cost effective house designs and practicing vigilance in managing project costs.
Despite existence of the truth that across the globe, there is no evidence of any social housing scheme targeting the poor that has succeeded without the government putting her footprint, developers have got a bigger role to play before the government can come to the rescue of those who need homes but they can’t afford.