Problems and prospects of

housing development in Ethiopia

Abraham Tesfaye
Commercial Bank of Ethiopia, Addis Ababa, Ethiopia
Abstract
Purpose The purpose of this paper is to give an analysis of the problems and prospects of housing
development in Ethiopia with particular emphasis on the city of Addis Ababa.
Design/methodology/approach The methodology employed here is a descriptive analysis where
the source of the data is mainly secondary data. Basic statistical tools are employed in the analyses of
the data.
Findings There is a substantial imbalance between the demand for and supply of housing units in
Addis Ababa. Accumulated demand for residential housing on the one hand and the low supply of
residential land on the other have pushed prices beyond the reach of the majority of the residents in the
country including Addis Ababa. Overcoming the housing problem, hence, requires efforts in three
main areas: housing demand; housing supply; and institutional framework. Improving the conditions
in these areas, in turn, requires the combined efforts of the government of Ethiopia, regional
administrations and donor agencies taking the view that overall development of the economy is crucial
for the housing development in Ethiopia.
Research limitations/implications The article is limited to discussions on housing developments
in Addis Ababa, though a brief introduction is given regarding the housing conditions in other major
urban towns in the country.
Originality/value This article specically discusses the housing problem in Addis Ababa. So far
no attempt has been made to link the strategy of the government of Ethiopia with housing problems in
Addis Ababa.
Keywords Ethiopia, Housing, Supply and demand
Paper type General review
1. Introduction
Urbanization is a development phenomenon that comes about with the development of
a countrys economy in general and industrialization in particular. It follows that the
rate of urbanization is considered to be one of the indicators of a countrys economic
development. The rate of urbanization is directly related to the demand for houses. It is
expected that as a country becomes more urban, more houses will be needed to
accommodate the increasing population in urban centers. The practice, however, does
not support this in that the acceleration in urbanization is not accompanied by the
provision of adequate housing. This is one of the reasons for the development of
informal settlements, which provide housing to most low-income groups
(UN-HABITAT, 2002). In Kenya, for instance, it was reported that rapid
urbanization is placing an enormous strain on an already stretched urban
infrastructure, housing stock and services, and resulting in the proliferation of
informal housing settlements (www.citiesalliance.org).
Various factors have been pointed out in relation to this divergence between the
inadequate availability of housing on the one hand and the rapid urbanization on the
other. In addition to the low level of economic development, the lack of genuine political
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0263-7472.htm
Housing
development in
Ethiopia
27
Property Management
Vol. 25 No. 1, 2007
pp. 27-53
qEmerald Group Publishing Limited
0263-7472
DOI 10.1108/02637470710723245
will to address the issue in a fundamentally structured, sustainable and large-scale
manner is commonly cited (UN-HABITAT, 2002). Other factors can also be made in
relation to this. The absence of urban policy (including housing policy), which is crucial
for successfully narrowing the gap between urbanization and housing development, is
an important factor.
After the literature review on the theoretical and practical approaches in addressing
housing problems in section two, the situation of housing development in Ethiopia in
general is discussed in section three. Section four focuses on the discussion on
assessment of the housing sector in Addis Ababa. Section ve reviews the prospects in
housing development in Addis Ababa. Finally, section six concludes the paper.
2. Housing nance
Housing loans are loans of a long-term nature provided for the construction of
individual houses and business premises. The common practice is to provide housing
loans to that section of the population that earns moderate to high incomes, provision
of housing loans operates through specialized institutions (mortgage banks), and over
a long-term. It is only in rare cases that commercial banks are called upon to engage in
mortgage nancing.
Mortgage institutions customarily provide housing nance to the middle and
high-income segment of the population. This does not exclude, however, cases where
these institutions offer long-term loans to lower income groups who can offer clear land
title and certiable income. This trend is outside the actual situation in developing
countries including Ethiopia where the poor, low-and even middle-income majority of
the population cannot afford a loan even for the least expensive, commercially built
housing units. In Ghana, for instance, only 5 percent of those who want to own a house
can do so from their own resources, 60 percent would need some form of nancial
assistance, and the remaining 35 percent are not capable of owning and building a
house in their lifetime (Derban, 2002).
At least three major reasons can be singled out for the inability of the majority of the
population in developing countries to get access to housing loans. These are absence of
good collateral; informality and instability of income; and lack of information on
borrowers (Erhard, 1999).
The underdevelopment of the real estate market, and hence the absence of real
market prices makes it difcult to determine the value of a mortgage. In other words, it
is difcult to assume that the mortgaged object will be sold at a price that equals at
least the outstanding debt. It is also difcult, in most of the cases, to nd
documentation on income (salary statements, nancials statements, etc.). Even if it is
possible, the information obtained will be manipulated for reasons of tax evasion or
other reasons. Financing possibilities are often limited because of the peculiar nature of
the sector. Banks tend to offer short-term credit to large enterprises with better
information and nancial strength. Instability in income combined with long maturity,
makes housing nance a very risky business for commercial banks. The instability of
income is a problem as the borrower might cease repayment due to lack of income at a
later stage of the loan term thus increasing the nancial institutions portfolio in
arrears (Erhard, 1999). The fact that housing loans are of long-term duration creates a
maturity mismatch for commercial banks since their sources of funds are of short-term
duration repayable at demand.
PM
25,1
28
Credit risk is another risk that is linked to housing nance. This arises as a
result of the high magnitude of the housing loans in comparison to the income of
the borrower, and the less developed regulatory and legal frameworks for
mortgage loans recovery. The argument is that banks, in case of default, will be in
a difcult position to easily convert mortgaged property into liquid funds without
entering into a lengthy and costly legal procedure (www.unchs.org). The narrow
real estate market is another problem for loan recovery making it difcult to
dispose of a defaulters assets.
Because of this, housing nance programs are required to exert large efforts
towards straightening households, housing and property issues, (www.citiesalliance.
org). Housing and property issues include the set of laws, regulations, processes and
institutions that dene whether and how poor households can acquire land and build a
home upon it. Household issues include the income levels of poor households relative to
the cost of housing and households ability to nance the necessary steps in acquiring
land and building a home. Laws and regulations dene the activities of nancial
services, the number of providers that serve the poor and the appropriateness of the
housing nance products relative to the needs and means of the poor are also
important issues. These are the enabling environments for the development of housing
micro-nance and for the increasing ability of low-income households to have access to
houses. The Kenyan experience is worth mentioning in this regard (www.citiesalliance.
org).
In Kenya, there is a large housing demand as a result of the mismatch between the
expanding urban population on the one hand, and limited housing stock on the other.
There is also a strong micro enterprise nance sector. Commercial banks are allowed to
lend to developers, who acquire big tracts of land, build houses and then sell completed
houses to individual buyers. Loans are provided to developers for a period of two to
three years. Mortgage institutions are permitted to provide long-term loans to
individuals to purchase units from developers, or in a few cases to build their own
complete houses. With regard to the nancing scheme, the following are suggested as
the major lessons for commercial banks:
.
land security does not have to mean full legal title. Potential housing lenders can
service poor households with secure tenure not based solely on full legal title;
.
mortgage guarantees in Kenya and many developing countries provide
substantially less security for lenders than in developed markets given the risks
involved in terms of instability of income, high foreclosure costs, weak resale
market for repossessed properties and liquidity risk;
.
progressive building increases affordability given poor households limited
incomes and high costs of land, building and housing; and
.
instituting regulations that reect how the poor build houses can encourage
lenders to develop innovative products, improve the quality of the guarantees
taken by these institutions and allow the poor to improve their living conditions.
Different approaches to housing nance are, therefore, required, as access to small
amounts of credit, with short-term maturities, can be useful if the poor and low-income
groups are to be supported. These require profound risk evaluation, nancing through
public mortgage institutions, and nancing through micro-nance institutions.
Housing
development in
Ethiopia
29
One of the approaches proposed is the substitution of collateral by a profound risk
evaluation (Erhard, 1999). The risk evaluation bases the credit on a sound appraisal of
the borrowers willingness and capacity to repay (i.e. cash ow analysis). It considers
the incomes and expenses of the house and business of the loan applicant and
crosschecking these with other sources of information like neighbors, employers,
suppliers, etc. Banks do not use this approach, as the information on which to base the
cash ow analysis is weak and unreliable.
The other is nancing through public mortgage institutions. These usually provide
loans at interest rates below the market or even the ination rate, using funds from
budget allocations and captive savings in the public sector, such as reserves of
insurance institutions and pension funds (www.unchs.org). This, which is a sort of
credit guarantee scheme, will increase the capacity of the mortgage institutions to
provide adequate loans to households who often rely on their own savings and
informal loans from friends and relatives.
Housing nance can also be offered through micro-nance institutions. The features
of micro-nance such as small incremental loans, short repayment periods, market
rates and innovative forms of collateral such as peer group lending and alternative
forms of titles of land present another form of lending mechanism available to low
income group of the population. Micro-nance for housing is the provision of small
loans to low and moderate-income households typically for self-help improvements
and expansion, but also for new construction of basic core units (Derban, 2002).
3. The state of housing conditions in Ethiopia
As a demographic phenomenon, the movement of people from rural to urban areas is
unavoidable. This is, however, only one form where urbanization can take place.
Others include growth of existing urban localities and annexation of new territories to
existing cities. In addition, natural increases determine the growth of an urban center.
Some of the urban centers in Ethiopia have already faced and others will eventually
face one of these types of phenomenon growth.
Despite its long urban history, Ethiopia remains one of the least urbanized countries
of Sub-Saharan Africa (SSA). In 1994, Ethiopias urban population stood at 9,019,000
accounting for 15 percent of the total population (CSA, 1998a). Although the nations
capital dominates the urban hierarchy with 29 percent of the total urban population,
other towns have been growing more rapidly since 1975 (PADCO, 1998). Different rates
of urbanization have contributed to the development of radically different spatial
structures in the towns. In some towns like Addis Ababa, urbanization has
overwhelmed the capacity of the municipal governments to lead the housing
development process (PADCO, 1998).
In the urban areas, shortage of housing is one of the major problems that call for
immediate action. The majority of houses in Ethiopia are below qualitative standard
and lack adequate space. The extent of provision for water supply, electricity, and
drainage is very minimal. These affect the lives and health of people living in these
houses. All these will continue in the future unless major improvements are made in
the housing markets and in the expansion and improved provision of infrastructure
and services.
During the Imperial era, urban land and housing was largely the property of the
feudal elite. At this time, more than 60 percent of the residential real estates were rental
PM
25,1
30
units. In this situation, widespread speculation by landlords and housing suppliers led
to increasing land prices and little investment in new dwelling units for low-or-middle
income households.
Following the 1974 revolution, the Derg adopted a command system to economic
production and provision of public services. In this regard, the government was
directly involved in the supply of housing and created and managed the cooperative
housing delivery system. Consequently, land, infrastructure, building materials and
housing nance were provided on a subsidized basis (PADCO, 1998).
The primary instrument for implementing the Dergs housing policy was the
proclamation on government ownership of urban land and extra houses (Proclamation
No. 47/1975), which effectively eliminated private sector rental or sale of real estate
development. This legislation nationalized all urban land and housing units not
occupied by owners. As per this proclamation, kebeles were responsible for the
administration of urban land and housing; rent collection from tenants paying less
than Birr 100 per month; and maintenance of existing housing units. In this way, the
kebeles gained control of 93.87 percent (142,095 units) of the total government owned
housing stock of 151,372 in Addis Ababa (1994 housing census). Most of the units
outside the kebeles control were placed under the protection of the Agency for the
Administration of Rental Houses (AARH).
With low public sector production rates of housing, the Derg organized and
supervised housing cooperatives to respond to housing requirements. To encourage
the development of the cooperative system, the Derg intervened with a wide range of
incentives. These include the following (PADCO, 1998):
.
Land was allocated without charge for the construction of owner-occupied
dwelling units. The maximum plot size for cooperative housing was 500 square
meters during the 1975-1986 period, when Proclamation 292/1986 lowered the
ceiling to 250 square meters. Typical plot sizes over the 1975-1991period,
however, were 175 square meters for middle and low-income cooperatives.
.
Building materials were also subsidized. Cooperatives and government housing
construction agencies, i.e. AARH and the municipalities, were given priority
access to construction materials from government retail enterprises at a cost,
which on the average was less than 65 percent of the market value.
.
Mortgage loans were also made to cooperatives with households earning at least
Birr 250 per month at substantially below market interest rates. During
1975-1986, interest rates were 10 percent for housing purchase, and 9 percent for
construction regardless of the type of the developer. As of July 1986, the Housing
and Saving Bank began lending to cooperatives and public housing enterprises
at 6 percent for purchasing and 4.5 percent for construction. The corresponding
reduced rates for private individuals were 8 percent and 7 percent.
This package of incentives for cooperative housing development resulted in a
signicant increase in both the supply of and demand for housing. From 1986 to 1992,
about 2667 cooperatives with a total membership of 69,775 were organized in 26 urban
areas. Addis Ababa alone accounted for 85 percent of the total membership. Over the
1975-1992, the cooperative movement produced a total of 40,539 housing units
(PADCO, 1998). This means about 2,252 housing units were constructed annually.
Housing
development in
Ethiopia
31
Despite this effort, total planned housing production satised a small portion of the
demand for the period. Various factors contributed to this poor performance. Minimum
salary requirements for mortgage loans eliminated a large percentage of the urban
population. The processes of forming a cooperative, securing a loan, and acquiring a
building permit were slow and administratively cumbersome. In addition, there is
acute shortage of building materials, whose production of rationing greatly extended
the period necessary to build. Average construction time ranged from two to ve years
(PADCO, 1998).
Since the transition in 1991, the government has sought to introduce a more
market-oriented approach to housing development. With the introduction of the urban
land lease holding proclamation in 1993, the government dened leasehold as the
tenure form of choice. The period of lease varies from 99 years for owner occupied
holding to 50 years for commercial and other uses. Although the law gave the regions
the authority to establish the lease rates, it is stipulated that land leases should be sold
via auction. Land to be used for social services and low-cost houses may be leased free
of charge (Proclamation No. 80/1993).
Several regional governments have followed the Federal governments legislations.
Region 14 administrations Urban Land Lease Holding Regulation No. 3/1994 declared
that urban land should be used for business activities and residential construction.
In addition to the land lease law, other measures have contributed to the
liberalization of the housing market. Subsidies on the sale of building materials have
been removed, interest rates for housing construction have been set at market rates,
etc. Despite these moves towards a market-oriented housing sector, there is currently
no comprehensive housing policy at the Federal or city level.
This study focuses on Addis Ababa, but highlighting the general picture of the
housing conditions in the major towns of Ethiopia is important to appreciate the extent
of the problem in Ethiopia as a whole. This study is largely based on the housing
assessment report produced by PADCO in 1998. It is assumed that the housing
situations at the time of this report still holds at present despite recent good progress
by the Addis Ababa Administration. This is to mean that the current housing problem
in Addis Ababa has exacerbated as compared to the situation at the time of the
PADCO study and the author of this paper shares the issues rose in the study report.
The increase in urban population has been quite rapid in the medium and small
towns with the highest annual increase exhibited in Gambella (see Table I). It follows
that towns with the highest urban growth rate have also the highest increase in the
number of households.
The low level of income of the population in developing countries (including
Ethiopia) is one factor that limits the development of housing. People in these countries
have little to save for the construction of houses.
On average, urban residents in Ethiopia spend about 49 percent of their income to
fulll their basic requirements (see Table II). This gure even goes as far as 70 percent
and 79 percent in Mekele and Bahir Dar, respectively. This is indicative of the fact that
the majority of the urban population in Ethiopia does not have adequate income to
build its own house. One can argue that where do the people spend the remaining
portion of their income if not housing. It is not the percentage share of their income that
matters but the level of their income, which is extremely low to rent a house let alone be
able to pay a loan.
PM
25,1
32
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Table I.
Populations and number
of households by study
cities, 1984-1994
Housing
development in
Ethiopia
33
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Table II.
Household income and
expenditure by study
town (in Birr)
PM
25,1
34
The increase in the cost of raw materials (mainly cement, wood and sheet metal) also
constitutes a bottleneck to the housing development in Addis Ababa and other major
towns in Ethiopia. The price of cement, wood and sheet metal increases annually by 20
percent, 43 percent and 55 percent, respectively during 1993-1995 (see Table III). The
present situation is also not different as price escalation is normally observed
especially in cement and sheet metal productions-largely in response to the high
demand. The recent effort by the Addis Ababa Administration to produce large
numbers of housing units has led to a sharp price rises in cement and other
construction materials, suggesting that large scale housing units production would be
hamstrung by supply constraints in construction materials.
4. Assessment of the housing sector in Addis Ababa
4.1 Demographic conditions and housing demand in Addis Ababa
Housing demand is determined primarily by demographic conditions (population
growth, average family size of households and new household formation). According to
the 1994 population and housing census, Addis Ababas population stood at 2,084,588,
accounting for 23.1 percent of the urban population. Between 1994 and 2002, the
population of Addis Ababa rose by 26.93 percent (an average growth rate of 3.36
percent per year), and by 2002, the citys population stood at 2,646,000, accounting for
25.7 percent of the urban population. In absolute terms, Addis Ababa added 561,412
persons during this period, which is an annual increase of over 70,000 persons. The
factors that related to this phenomenon are the high rates of fertility and high
rural-to-urban migration ows.
A Welfare Monitoring Survey report of the Central Statistical Authority (1998b)
showed that the dependency ratio in the rural areas exhibited a rising trend from 102.9
percent in 1996 to 101.6 percent in 2000 demonstrating enhancing burden on the rural
working age population. Looking at dependency ratio by age category in 2000, the
economically unproductive rural population in the age of 15 to 64 constitutes about 48
percent of the total dependent population. These are unemployed people who are
believed to be the major source of rural urban migration in search of work as almost
half of the economically dependent population is in the working age group. This
situation can further increase the demand for housing.
Although population growth shows the demand for housing, the rate of increase in
households is believed to provide a direct measure of potential housing demand.
The number of households in Addis Ababa increased by more than 0.16 percent (see
Table IV). This has contributed to the increase in the number of households in the city
by more than 14,255 per year. Given this increase, the citys housing demand is
Size category Cement Wood Sheet metal
Addis Ababa 28 71 55
Large towns 14 35 50
Medium-sized towns 25 44 60
Small towns 17
Total 20 43 55
Source: PADCO, 1998
Table III.
Average annual price
increase of selected raw
materials by town size
category (1993-1995)
Housing
development in
Ethiopia
35
increasing. Accommodating this increased demand will require additional housing
development and construction in the city.
Another important factor that needs to be considered when we talk about demand
for housing is affordability, the share of income households must devote to acquire
rental or owner-occupied houses.
A large proportion of households (92.5 percent) fell in the lower and medium income
category (see Table V). A 1996 study also shows that the monthly median income in
Addis Ababa was Birr 391 (PADCO, 1998).
Data obtained from the CSA showed that in 2000, 35.9 percent of the total income of
urban households goes to total food. In the case of Addis Ababa, the share of total
household income spent on food accounts for 33.4 percent, showing that from the small
amount of income, expenditure on food takes one-third-leaving very little income that
can be spent on housing rent or purchase.
Lower income translates to proportional decreases in housing budgets and to a
lower percentage of income allocated to housing. The resulting absolute decrease in
housing resources reduces effective demand, and therefore limits the performance of
the housing sector. The study made by PADCO (1998) showed that housing cost to
income ratio is 13.9 times for chika construction, and 29.2 times for concrete block
units. The ratio implies that households would need to save 14 to 29 times of their
income to be able to make a cash purchase of housing without the support of long-term
nancing, suggesting that housing affordability is extremely low. The same study also
revealed that rent to income levels in privately owned rental units are much higher,
ranging from 23.7 percent in planned areas to 47.4 percent in unplanned areas. This
suggests that the housing market is in a state of imbalance, with housing prices and
costs standing at levels well above most dwellers ability to pay.
In general, although population and household formation has been rising, this has
not been simultaneously supplemented by the increase in the number of houses due to
Categories of income (in Birr) Percentage of households
Below 2,000 43.0
2,000-12,599 49.5
12,600 or more 7.6
Source: CSA Household income, consumption and expenditure Survey 2001
Table V.
Percentage distribution of
urban annual households
income category (2000)
Population Households
1994 2002
Annual %
change 1994 2002
Changes in
households
Annual %
change
2,084,588 2,646,000 3.36 404,768 518,823 114,055 3.52
Note: Number of households for the year 2002 is calculated based on the 2002 total population of the
city (CSA, 2002) and on the average household size given by the 1994 population and housing census
(5.10) and assuming that it remains the same for Addis Ababa for the year 2002
Table IV.
Population and number
of households in Addis
Ababa (1994 and 2002)
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low level of affordability. Information obtained from the city administration-housing
agency showed that including those units, which require replacement, there were a
total of 299,000 housing units demand backlog in 2003. Meeting this demand alone
requires producing large number of housing units annually.
4.2 Land provision and housing supply
Land is an important component of housing development. The current land supply
system, to a large extent, is characterized by lease holding through auction and
negotiation. Following the Urban Land Lease Holding Regulation, the Addis Ababa
administration established the lease ofce and began implementation of the lease
system early in 1995.
The land delivery system in Addis Ababa is underdeveloped. Information obtained
from the Addis Ababa City Administration (1994) cooperative organization ofce and
the citys administration Housing Agency showed that between 1994 and 2003, about
4,147 plots of residential land have been delivered to individuals forming cooperatives.
Housing production is impeded primarily by a severe shortage of serviced
residential plots. The low supply of residential land in relation to demand has pushed
prices beyond the reach of the large majority of the city dwellers. The price of
acquiring use rights to residential plots has risen much faster than the ination rate in
recent years as a result of stagnant production and low availability.
4.3 Construction costs, building material availability and supply of housing
The study by PADCO shows that the public sector dominates the production of core
building materials in the country while the distribution is largely dominated by the
private sector. The public sector is the only producer of cement and timber. It is clear
that production is too low to meet demand. The low availability of some domestically
produced materials is a function of low production rates. As a result, prices tend to
increase due to shortage, as well as due to high demand.
The cost of construction materials is increasing from time to time. The prices of
cement and wood, both produced domestically have been rising. Recently, the price of
sheet metal imported for the construction of metal doors and windows has also climbed
dramatically.
Though concrete quantitative gures arenot available, the current price of
construction materials is higher than it was some eight years ago, owing to increased
production costs, as a result of increased charges for production inputs like electricity,
water, etc. The increased cost of imported inputs also rose dramatically, with large
impacts on the sector. Since recently, there is a sharp growth in construction activities,
both in the city and other towns.
A look at the price indices for rent, construction materials, fuel and energy for Addis
Ababa exhibits that prices have increased, on average, by 3.4 percent for the last eight
years (see Table VI). This is calculated by taking the 1995/1996 prices of these
materials as an initial amount. Decreases in prices have registered only twice in the last
seven years.
Concrete building material production rms report that rising cement prices have
pushed up the price of their products. The increasing devaluation of the birr (rise in
exchange rate) had an impact on the prices of imported building materials in the early
years of the reform program. Another contributing factor to increasing prices of
Housing
development in
Ethiopia
37
building materials is the value added tax (VAT), which is applicable to consumers of
construction materials as well.
Generally the signicant increase in raw material prices, from cement to wood and
to sheet metal is pushing prices upward. Consequently, an increasing tendency has
been observed in the construction prices from time to time, which has an adverse
impact on the supply of buildings.
Data on construction cost gathered from contractors indicate that some seven years
ago, chika units were built for Birr 545 per meter square, while the cost of hallow
concrete block units was 1,042 Birr per square meter (see Table VII). However, these
gures are likely to have escalated this time because of both supply and demand
factors.
Information obtained from the city administration-housing agency shows that the
existing average construction cost on different construction alternatives is 1,250 Birr
per square meter, exhibiting more than a 57 percent increase in the construction cost
incurred per square meter (see Table VIII).
In sum, lower availability and the high cost of construction materials inhibit the
supply of housing by driving up the selling price and rent of nished houses.
Productivity in the production of construction materials remained low. The technology
in the production of construction materials has not changed much. Cement shortage
continues to be the bottleneck for the rising construction activities in the city as well as
in the country.
Yearly average
Period Index Growth rate (%)
1995/1996 100
1996/1997 110.3 10.3
1997/1998 109.6 20.6
1998/1999
*
110 0.4
1999/2000 118.7 7.9
2000/2001 130.6 10
2001/2002 96.7 226
2002/2003 100.2 17.6
2003/2004 107.5 7.3
Average growth rate 3.4
Note:
*
Data for 1998/1999 are estimated based on the 1996/1997 and 1997/1998 gures
Source: CSA Statistical abstracts
Table VI.
Price indices for house
rent, construction
materials, water, fuel and
power for Addis Ababa
Mean m
2
Chicka construction cost
Mean m
2
HCB
construction cost
(Birr)
Average annual
cost increase
(%)
545 1,042 41
Source: PADCO (1998)
Table VII.
Construction cost and
development process data
in Addis Ababa (1995)
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4.4 The quality and condition of housing units in Addis Ababa
A comparison of housing production and increases in the number of households,
however, presents only a partial picture of the housing conditions in the city. This is
because it does not take into account the need to replace dilapidated units, and relieve
overcrowding, which will cast a more negative light on the quantitative performance of
the housing sector.
The absolute size of a house provides only a crude measure of the extent of availability
of shelter in a society. It tells nothing about the quality of a housing unit. The quality of a
residential housing unit is necessary to appreciate the extent to which the existing
housing conditions are regarded as socially desirable in terms of structural quality, rates
of occupancy, and other facilities of life. Besides, knowledge about the materials used for
the construction of walls, roofs and oors may be of special signicance for the
assessment of the durability of the housing unit, demand for construction materials, etc.
Information obtained from the citys municipal housing agency revealed that the
existing housing conditions are far from optimal. Most of the citys housing units are
below standard and deteriorating. Housing quality is low and declining, and housing
units have limited access to services.
The large share of the housing stock is also made from non-durable materials and a
considerable portion lack basic facilities (see Table IX). The type of construction
materials in which the housing units are made is such that 82 percent are chicka houses
Housing typology
Details % Details %
Building height Construction material
Non storied (G 0) 97 Wall
Detached 39 Mud and wood 82
Attached 58 Stone, bricks/HB 13
Multi-storied 3 Others 5
Detached 1 Floor
Attached 2 Mud 53
Housing facilities Wood tile 18
Details Cement/concrete 21
Have toilet 74.1 Others 8
Have no toilet 25.9
Source: Computed from CSA Data and Information Obtained from Addis Ababa Master Plan
Revision Ofce
Table IX.
Selected indicators for
housing characteristics in
Addis Ababa
Average construction cost in m
2
for
Chicka and HCB units
*
1995
Average construction cost in
m
2
on different construction
alternatives 2002
Average absolute change
1995-2002
794 1,250 456
Note: Birr is the ofcial currency of Ethiopia, 1 US$ Br:8:6
Source: PADCO (1998) and own calculation
Table VIII.
Construction cost and
development process data
in Addis Ababa: 2002 (in
Birr)
Housing
development in
Ethiopia
39
(i.e. their wall is made of wood and mud). Housing units whose walls are constructed
from stones and mud constitute about 13 percent. Moreover, 53 percent of the units
oor is soil, and 60 percent of them do not have ceilings.
In addition to the above, the condition under which amenities are available proves
the low quality of the housing stock of the city. In this regard, 26 percent of the housing
units do not have kitchens. Those housing units that do not have any type of toilets
constitute one fourth of the total housing units, and 19 percent of them have shared
toilet rooms. Only 4 percent of the total housing stock have pipe line water within the
units premise. Moreover, 90 percent of the houses do not have bathrooms. Generally,
the quality of housing units in the city is very poor.
With regard to the state of the housing condition, the larger portion of the housing
stock is in a state of dilapidated condition. A housing survey undertaken 13 years back
indicates that at that time one-third of government houses in Addis Ababa have been
beyond repairable. Now thirteen years have elapsed since this survey was made, and
no considerable work has been done in maintaining these houses during this time.
Information gathered from the Addis Ababa city administration-policy study and plan
commission further demonstrated that an estimated 60 percent of the citys center is
ruined. Housing units under the kebele administration in particular are ruined.
In Addis Ababa, there is a considerable difference in the age of unplanned and
planned units. This is most likely due to the fact that most of the unplanned units were
constructed prior to the Derg and that there were far fewer planned units in existence
prior to 1975.
Unplanned units are smaller than planned units in terms of the size of the house, the
number of rooms and the size of the plot (see Table X). Although the age of most of the
government owned housing units and low resistance of the construction material they
are built contribute to the poor condition of the housing stock of the city, very low
maintenance rates (frequency) and very low expenditures on maintenance by the
public sector remains the primary cause (of what?).
Overcrowding is a serious problem in the city. About 60 percent of the total
dwelling units in the city have less than three rooms (see Table XI).
4.5 Ownership of land, dwelling and other buildings
According to the results of the welfare monitoring surveys, around half of the
households own land and dwellings and/or other buildings which can use them as
collaterals for loans in addition to investments on the free plots of land (see Table XII).
The proportion of households that have acquired dwelling unit and/or other buildings
exceeds the proportion that lost this asset during the indicated timespan. Similarly, the
Planned Unplanned Total
Age of unit 27 17 23
Size of unit (m
2
) 34.7 48.7 39.0
Number of rooms 2.6 3.2 2.8
Plot size (m
2
) 239 326 279
Source: PADCO (1998)
Table X.
Unplanned and planned
housing stock by age, size
of unit, number of rooms
and size of plots (mean
value) 1995
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proportion of households that acquired land exceeds those that have lost land in the
three survey years. The rate, however, is decreasing.
The number of households which have acquired dwellings and/or other buildings
and who gained land have declined in 2000 when compared with 1998, suggesting that
land and housing delivery has declined. Alternatively, the number of households has
increased by more than the increase in available land and affordability of households
to gain land or acquire housing or other buildings.
4.6 Tenancy status
Tenure refers to the arrangements under which an individual occupies their living or
business quarters. Tenure information collected for living quarters shows the
distinction between rented and owner occupied units.
According to the 2000 survey by the CSA, nearly equal proportions of households in
urban areas live in rented houses as those who live in their own houses. About 48
percent are owner-occupiers and about 45 percent live in rented houses (see Table XIII).
Close to 6 percent of the households are shown to live in rent free houses. This includes
households residing with their relatives, and in rent free houses.
The distribution of households by tenure in Addis Ababa is such that a higher
proportion of households (57.0 percent) lives in rented houses, followed by those who
live in their own houses (see Table XIV).
4.7 Housing nance
The lack of functioning mortgage markets in Ethiopia impedes the emergence of both
savings institutions and long-term nancing facilities. Risk bearing nancing is
Survey year
Ownership 1996 1998 2000
Own dwelling and/or other buildings 57.4 50.1 49.6
Own land 57.1 51.3 53.2
Changes in ownership over 12 months
Households which lost dwellings and/or other
buildings 1.5 1.1 0.6
Households acquired a dwelling and/or other
buildings 4.4 4.7 1.3
Households which lost land 2.3 3.0 0.3
Households which gained land 4.2 4.1 1.1
Source: Welfare monitoring survey 2001, Vol. II
Table XII.
Percentage distribution of
urban households by
ownership of land and
dwelling or other
buildings and changes in
ownership by survey
year
Type of unit %
One room houses 31
Two room houses 29
Three room houses 19
Units which have four and above rooms 21
Source: Addis Ababa City Administration Housing Agency
Table XI.
Housing units by number
of rooms (% of total)
Housing
development in
Ethiopia
41
provided in other countries by venture capital institutions. In the short to medium
term, it is unlikely that such institutions, which are capable of mobilizing substantial
resources to nance the housing sector will be developed in Ethiopia.
There is a shortage of capital for investment in the housing sector as the only bank
that specializes in the provision of housing nance is the Construction and Business
Bank. Moreover, the commercial banks favor short-term loans. The low degree of
penetration of formal housing nance institutions means that the housing nancing
sector has a minimal impact on the development of the broader nancial system. The
nancial sector is also characterized by high interest rates, stringent collateral
requirements and other impeding requirements.
Given the weakness of the formal nancial sector and the high expenditure that
housing requires, many urban households have had to enter into the informal nancial
network to build or upgrade their dwellings units. Personal savings, family borrowings
and an active network of informal sector organization such as rotating savings
associations (ekubs) currently ll the nancial gap for homebuilders.
Following the onset of the nancial reform program in early 1990s, the Housing and
Saving Bank became the Construction and Business Bank in September 1994. The
Construction and Business Bank is established as a universal bank in line with the
dictates of Regulation No. 203/1994 issued by the council of ministers to cater for
banking services, mainly nancing loans for construction, repair, modication and
acquisition of residential and non-residential buildings, for construction sector
activities and for the development of hotels and tourism. It also provides business
Year
Tenancy status 1996 1998 2000
Owned 52.0 46.9 47.8
Rented 41.0 45.5 44.9
Rent free 6.9 6.0 4.9
Others 0.1 0.3 1.3
Not stated 1.4 1.0
Source: CSA, Welfare Monitoring Survey 2001
Table XIII.
Percentage distribution of
urban households by
tenancy status and
survey year
Type of tenure
Owned Rented
Free of
charge Other Not stated Total
n % n % n % n % n % n %
Addis Ababa
total 144,232 35.6 230,981 57.0 20,081 5.0 8,654 2.1 1,080 0.3 405,028 100.0
Addis Ababa
rural 5,242 89.5 94 1.6 400 6.8 84 1.4 36 0.6 5,856 100.0
Addis Ababa
urban 138,989 34.8 230,887 57.8 19,682 4.9 8,570 2.1 1,044 0.3 399,172 100.0
Source: CSA, Welfare Monitoring Survey 2001
Table XIV.
Distribution of
households by type of
tenure 2000
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loans to meet the working capital requirements of commercial and industrial activities.
The bank also has the mandate to offer foreign banking services. The authorized
capital of the Construction and Business Bank was stipulated to be Birr 71.8 million, of
which Birr 63.9 million is paid-up as of June 2000.
Generally, penetration by the formal banking institutions into the urban housing
nance market has been minimal over the past four decades. According to a survey
made by PADCO/WASS/NUPI (1996), only 10 percent of households used the public
sector housing bank as the primary source of funding for residential construction, and
only 6 percent used the same source to purchase their plot of land (see Table XV).
The time series analysis shows that penetration by the CBB rose during the Derg
period (see Table XVI). While overall penetration has declined with time, the highest
coverage was attained during the Derg period, where 20 percent of the households
borrowed from the Housing and Savings Bank to build their unit. This gure is largely
the result of subsidized interest rates which were as low as 4.5 percent for cooperative
members beginning 1986, which made the public route very attractive for house
builders. But at any rate, personal savings remained the key source of nance for
housing in Ethiopia.
The overall low levels of penetration from the formal housing nance sector are the
result of both government policy and cultural preference. On the one hand,
requirements for mortgage loans from the CBB and its predecessor have historically
excluded a certain percentage of the urban population. A study made by PADCO (1998)
showed that the CBE at that time provided mortgage loans on new houses of at least 17
square meters in size at an interest rate of 10.5 percent for a period of 20 years. This
entails a monthly payment of Birr 96, or a monthly salary of Br. 480, assuming that 20
percent of income is allocated to housing. The study further showed that at that time,
62 percent of households in Addis Ababa make less than Birr 480 per month.
Therefore, almost two-thirds of the urban population in the capital could not afford to
borrow from the only formal sector nancial institution offering mortgage loans at that
Period HSB bank Private lender Personal source Other
Imperial era 3.3 0.0 94.3 2.4
Derg 20.3 1.3 75.2 3.3
EPRDF 9.7 0.0 83.9 6.5
Total 9.7 0.5 86.8 3.1
Source: Household Survey, PADCO/WASS/NUPI (1996)
Table XVI.
Percentage distribution of
household sources of
funds for dwelling unit
construction in Addis
Ababa
Period HSG bank Private lender Personal source Other
Imperial era 12.8 0.0 84.6 2.6
Derg 7.3 0.0 89.1 3.6
EPRDF 6.3 0.0 93.8 0.0
Total 5.5 0.7 91.1 2.7
Source: Household Survey, PADCO/WASS/NUPI (1996)
Table XV.
Percentage distribution of
household sources of
funds for plot acquisition
in Addis Ababa
Housing
development in
Ethiopia
43
time. On the other hand, many households that can afford to borrow under CBB terms
choose to rely on informal funding channels. Traditional aversion to interest-bearing
loans leads these households to borrow funds on an interest-free basis from friends and
relatives or rely on personal savings for house construction, as evidenced by the data in
Table XVII.
This does not, however, mean that the demand for formal mortgage loans, assuming
that land becomes more available, is low. Rather, it indicates that the demand for
housing nance will continue to be satised by both formal and informal channels.
Moreover, as more and more urban households are integrated into the wage economy
and the banking system, the traditional aversion to borrowing from institutions which
charge interest will probably decrease, shifting more effective demand over to the
formal nancial sector.
The CBB is the only retail bank in Ethiopia specializing in the provision of nance
for the housing sector. Information obtained from the CBB reveals that before 1995, the
Bank gave mortgage loans amounting to Birr 407.1 million, below market interest rate
for the construction of 26,912 residential houses (see Table XVII). Of these units, 14,881
houses (55.3 percent) were built by borrowers whose monthly income was below 500
Birr, demonstrating the Banks role in supporting the nancial needs of the middle
income group of society for housing construction.
Nevertheless, after 2002, the number of loans extended for the construction of
residential houses has declined. The information from the Bank further shows that the
followings are the major reasons for the decline in housing loans:
.
poor and weak supply of plots of land for housing construction;
.
increase in the cost of construction materials;
.
increase in the minimum own contribution required by the CBB from borrowers
who desires to construct houses (from 5 percent to 20 percent); and
.
low fund and capital base of the CBB.
Since 1994, the bank extended loans amounting to Birr 190.9 million that is used for the
construction of 3,386 residential houses. In general, since its establishment, the CBB
has extended a total of Birr 598.8 million mortgage loans for the construction of more
than 30,000 residential units.
The CBB has the mandate to extend short and medium term business loans, since it
was restructured in 1994, but its performance still mainly depends on extending long
term construction loans. It extends mortgage loans to employees of governmental and
non-governmental organizations depending on their salary and age. The duration of
the loans may reach up to 30 years.
Year 1980-1984 1985-1989 1990-1994 1995-1999 2000-2004 Total
Loan extended 111,702 133,211 162,211 124,127 66,782 598,814
Note: Birr is the ofcial currency of Ethiopia, 1 US$ Br:8:6
Source: CBB
Table XVII.
Loans extended for the
construction of
residential units by the
CBB (in 000 of Birr)
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It is currently making long-term mortgage loans at an interest rate of 8.5 percent.
However, it is still carrying in its books loans made at lower interest rates, including
loans to housing cooperatives at 4.5 percent. Initiated in mid-1986, these 20-year
below-market rate loans will continue to be a drag on the CBBs earning for years. This
is the problem with low and xed interest rates, which could have been avoided if the
bank were to adopt a variable lending rate.
5. Prospects of housing development in Addis Ababa
The data presented in this report suggests that the citys housing market is under
considerable stress. There is a substantial imbalance in the demand for and the supply
of housing. Supply of housing has not kept pace with the rapidly growing population
and rate of urbanization. On the other hand, demand has been growing quite rapidly,
mainly driven by rapid urbanization, high population growth and household
formation. However, it has to be considered that the market for the housing sector is
highly segmented and far from uniform depending on the need, quality and
complexity? of houses as well as the location of the houses.
Shortage of residential building is especially acute for low-income households that
account for over 80 percent of the citys population. The general impression is that
demand is extremely high for those less complex houses that come largely from lower
and middle-income households. Demand for more complex and high quality buildings
mostly comes from higher income groups of the society who represent less than 10
percent of the city population seems less acute compared to the former.
Housing affordability in the city is extremely low. However, as a result of the supply
decit and high household formation rate, the demand for housing is extremely high.
But because there are a few residential plots available for new construction, production
is very low. It is this imbalance between supply and demand that pushes prices out of
the reach of most households.
5.1 Housing need assessment
The assessment of future housing need hinges upon demographic forecasts. Future
housing need arises from two demographic components: the natural one and the social
one. In order to evaluate the increased need due to natural demographic movement, one
is supposed to calculate the increase of households due to the formation of new entities
net of terminations. The assessment of the social demographic movement concerns the
estimate of migration ows, either international or domestic (rural-urban and
urban-urban migration).
The assessment of previously unmet housing need appears to be a more complex
issue, especially when it is true that, as in the case of Ethiopia, a large proportion of the
population lives below standard conditions. In this case, as noted above, the highly
subjective establishment of quantitative and qualitative standards, and their possible
change may imply a marked variation in the overall gures.
The rst factor creating unmet housing need is traditionally calculated through the
evaluation of the existing phenomenon of overcrowding (UN, 1967, p. 9). This aspect
analyzes the relationship between the number of households and housing units.
Here one assumes that the quantitative gure is established by a one-to-one ratio
between housing units and households. In the case of cohabitation, the number of
households will exceed the number of housing units. In general terms, cohabitation can
Housing
development in
Ethiopia
45
be voluntary or forced (because there is not enough housing to accommodate all of the
households or because some households cannot afford the cost of an independent
dwelling). Assuming that the standard to be pursued is that of one household per
housing unit, the number of households exceeding the number of housing units is an
indication of previously unmet needs.
A second factor of housing need stems from qualitative below standard housing
units. We can divide qualitative standards in two categories: those concerning the
construction materials, and those concerning supply of essential facilities such as
running water, toilet, bathing facilities, and electricity. When facilities such as
electricity and running water are absent, what is needed is readjustment of existing
housing stock, but does not require any replacement of the housing units or adding of a
newly built room.
As a consequence, data gathered on these aspects of quality of living give useful
information about standard of dwellings. This is because they are useful indicators of
the amount of intervention needed to promote adequate supply of essential facilities,
but do not affect unmet housing needs in terms of housing units.
As already mentioned, future housing need depends on the population dynamics
which result from natural and social movements. The natural movement is based on
the difference between birth and death rates as factors of population, and on the
difference between the household formation and dissolution. The social movement
refers to migration, and this is based on the forecast of population transfers.
Currently no surveys or estimates exist to evaluate the quantity of forced
cohabitation, as distinct from voluntary cohabitation, and would be useful because
only the former deals with unsatised housing needs (see Table XVIII). However, the
belief is that most cohabitation is forced due to lack of housing units and/or the lack of
economic means to access the housing market.
A study made by NUPI Group Huit (1988) showed that in 1990, around one-third of
government houses in Addis Ababa were beyond repair and indicated that if regular
maintenance is not undertaken, the gure would go up to 50 percent (NUPI, 2003).
Information obtained from the city administrations housing agency also exhibited a
low rate and level of maintenance on most government owned houses resulting in
many units remaining in poor and irrepairable conditions.
A study by PADCO (1998) further revealed that the average age of housing units in
the city in 1995 was 23 years. Hence, the age of the units and the low rate and level of
maintenance as well as low resistance of construction materials in which most of the
housing units are made reduced the durability of most units. It was assumed that 45
percent of the 1994 stock of government housing units were in an irrepairable
condition, suggesting the need to be replaced by new units.
Housing need to relieve overcrowdedness
Number of housing units (1) Number of households (2) Number (3) (2)-(1) % 4 3:(2) 100
374,742 404,768 30,026 7.4
Source: Population and Housing Census 1994
Table XVIII.
Distribution of
cohabitating households
by housing unit needed,
1994
PM
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46
In order to determine the number of housing units needed to replace those dilapidated
houses, Analysis is based on a household survey conducted by PADCO/WAAS/NUPI
(1996) on the housing conditions (see Table XIX).
The survey shows that housing units, which are in a poor condition, are in need of
major structural repair. It is, therefore, assumed that all of the housing units that are in
poor conditions need to be replaced by new units. This constitutes a new demand for
housing in the city (see Table XX).
5.1.1 Future housing need. As already noted, future need is determined by the
increase in the number of households. In order to estimate the magnitude of housing
units needed to accommodate the increase in the number of households, the following
assumptions have been considered (see Table XXI):
.
According to the 1994 population and housing census, Addis Ababas population
stands at 2,084,588, which suggests about 404,768 households. The census also
shows that average household size is 5.10. We assume that this average
household size will remain constant throughout the projection period 1994-2010.
Particulars Year Total/average
Number of dwelling units (CSA, 1994) 1994 374,742
City population (CSA, 1994) 1994 2,084,588
Average household size (CSA, 1994) 5.10
Number of households (CSA, 1994) 1994 404,768
Annual population growth 1994-2010 3.36%
Total population end year 2010 3,537,205
Projected average household size 5.10
Number of households 2010 693,570
Total new households 288,802
Annual new households 18,050
Household/dwelling units (CSA, 1994) 1994 1.08
Desired households/dwelling units 2010 1.00
Source: CSA and own computation
Table XXI.
Projection of demand for
dwelling units for newly
formed households
(1994-2010)
Housing units in
poor condition
Irrepairable
housing units
Housing units needed
to replace dilapidated houses
Total HSG units 1994 (1) (2) 3 1 (2)
374,742 138,280 11,242 149,522
Source: CSA and own computation
Table XX.
New housing units
required to replace
dilapidated houses
Good % Fair % Poor % Irrepairable %
25.5 34.6 36.9 3.0
Source: Household Survey, PADCO/WAAS/NUPI, 1996
Table XIX.
Housing condition in
Addis Ababa 1995
Housing
development in
Ethiopia
47
.
Information from CSA shows that in 2002, the citys population stood at
2,646,000. This shows that between 1994 and 2002, Addis Ababas population
rose by 561,412 at an average growth rate of 3.36 percent per year. We assume
that this average growth rate of the citys population will hold up to 2010.
.
The census data shows that the household/dwelling unit ratio is 1.08. However,
we assume that the desired household/dwelling unit ratio by the year 2010 will
be 1.0.
Based on these estimates, the total number of projected new housing units required to
accommodate newly formed households, replace dilapidated houses and relieve
overcrowding are calculated in Table XXII.
The housing need assessment shows the existence of a huge demand for housing
units, which, one way or the other suggests the existence of potentialities for mortgage
nancing.
5.1.2 Housing need by income category. In order to assess the affordability and the
need that arises from the different income categories of the houses, we assumed the
proportion of low income, medium income and high income household to be 80:13:7.
This is based on the CSA household income, consumption and expenditure survey of
2001.
Accordingly, the proportions of total housing need that arise from households in
these income categories are presented below (see Table XXIII).
5.2 City government housing projection
The Addis Ababa city government has planned to reduce the citys housing shortage
by one-third, and create a condition that benets the low- and middleincome group of
the citys residence. In view of this, the administration has planned to construct 100,000
houses in three years time.
Particulars n
Total new dwelling units required to accommodate
newly formed households 288,802
Annual new dwelling units required to accommodate
newly formed households 18,050
Total dwelling units required to replace dilapidated
houses 149,522
Annual dwelling units required to replace
dilapidated houses 9,345
Total housing units required to relieve
over-crowdedness 30,026
Annual housing units required to relieve
over-crowdedness 1,877
Total new dwelling units required 468,350
Annual new dwelling units required 29,272
Source: CSA and own computation
Table XXII.
Overall residential units
need assessment
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Information obtained from the Administration Housing Agency further showed that
about 2.5 to 3 billion Birr is required to accomplish the development plan in the next
three years. Of these, around 1.05 billion Birr is covered by the city administration, and
the rest is going to be covered by different sources. In this regard, during the rst year,
it is planned to mobilize a sum of 490 million Birr, 51 percent of which (250 million Birr)
will be covered by the city administration. The plan further shows that a sum of 900
million Birr is needed in the second year. Of these, 350 million Birr (39 percent) is the
share of the citys administration. In the third year, a total of 1.272 billion is required,
35 percent of which (450 million Birr) is to be covered by the city administration (see
Table XXIV).
The city administrations nancial need for the construction of the planned
residential houses from outside sources is huge. This creates the opportunity for
mortgage nance that may involve formal sector banks in nancing the housing
sector. In addition, the revised master plan of the city has proposed improvements of
housing nance through, among others, development of a housing construction and
savings association, extension of loan guarantees and expansion of micro nance
programs for housing. Moreover, the city administration has also planned to form a
housing development fund. These are intended to improve access to nance for
construction of houses in Addis Ababa at affordable prices.
5.3 Governments poverty reduction strategy and the role of the Commission for Africa
The Ethiopian economy is predominantly agrarian. Agriculture accounts for almost 85
percent of total employment and over 85 percent of total exports. Considering the share
of the major economic sectors in the GDP of Ethiopia, the share of agriculture has been
39.4 percent in 2002/2003 scal year while that of the service and industry sectors has
Particulars n
Total new dwelling units required 468,350
Annual new dwelling units required 29,272
Total housings required by low income group 374,680
Annual housings required by low income group 23,417
Total housings required by medium income group 60,885
Annual housings required by medium income group 3,805
Total housings required by high income group 32,784
Annual housings required by high income group 2,049
Source: CSA and own computation
Table XXIII.
Housing need by income
category
Total requirement Amount to be covered by AA city administration Financing gap
First year 490 250 240
Second year 900 350 450
Third year 1,272 450 822
Total 2,662 1,050 1,512
Note: Birr is the ofcial currency of Ethiopia, 1 US$ Br:8:6
Source: Addis Ababa City Administration and own computation
Table XXIV.
Finance gap for
construction of housing
units in Addis Ababa
(amount in millions of
Birr)
Housing
development in
Ethiopia
49
been 48.7 percent respectively. Among the three economic sectors, the service sector
growth in share of GDP has been 2.05 percent in 2002/2003 while the contribution of
agriculture has decreased by 12.17 percent as compared to the 2001/2002 share (see
Table XXV).
There is limited saving and investment in Ethiopia. This has been the major
constraint for full utilization of the countrys human and natural resources. The
Ethiopian governments Poverty Reduction Strategy Paper (PRSP) which was made
ofcial in 2002, had the overall objective of reducing poverty while maintaining
macroeconomic stability (FDRE, 2002). The PRSP focuses on agriculture on which
more than 85 percent of the Ethiopian population depends. According to this strategic
paper, the development of agriculture means the increase in agricultural income, which
in turn means the increase in industrial production as a result of which the income of
the urban household will improve following employment opportunities in the city and
towns. This will eventually overcome one of the major problems of housing
development: The affordability issue assuming that the other problems related to
housing will also be dealt with.
The PRSP has put forward strategic actions to enhance urban development and
management (FDRE, 2002). Among these, the following are important:
.
strengthen urban governance which includes among others formulation of urban
development policy;
.
infrastructure provision which includes among others upgrading of the existing
old and dilapidated houses; and
.
alleviating and mitigating housing problems, which are directly or indirectly
related to affordability (either to buy, construct or rent a house, from the market),
by formulating housing development policy, conducting a housing cooperative
study with the view to promote the development of housing cooperatives and
improve housing affordability via introducing appropriate housing standards
that consider local resource capacities and requirements.
Achieving the overall objective of poverty reduction and the specic tasks as related to
urban development and management which in the nal analysis mitigates the housing
problem in Addis Ababa are unlikely to be achieved without the support of external
development nance complemented by debt relief and support for foreign investment.
The Commission for Africa, which recognizes poverty and stagnation as the greatest
tragedy of our time in its recent report, is believed to be the best way for Africas (and
hence Ethiopias) problem to be recognized and the necessary aid and debt relief to be
granted by donor governments and agencies. This is a good prospect for the
development of the Ethiopian economy which can supply houses on a low-cost basis
and for the prosperity of those people who can allocate a signicant portion of their
expenditure on housing development.
6. Conclusion
The main impact of the policies followed in the past 10 years is the underdevelopment
of the housing sector. Overall housing developments fell far short of demand.
Moreover, an efcient housing delivery system has not been designed and
implemented.
PM
25,1
50
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Table XXV.
Amount and growth
trend of GDP of Ethiopia
by economic sector
(1998/1999-2002/2003)
Housing
development in
Ethiopia
51
Housing affordability in the city is extremely low. The main reason for poor
affordability is an unresponsive supply side. As a result of the supply decit and high
household formation rate, the demand for housing is extremely high. However, since
there are few residential plots available for new construction, production is very low. It
is this imbalance between supply and demand that pushes prices out of the reach of
most households.
Another reason for low affordability is that household incomes are low. According
to a 1996 study, the monthly median income in Addis Ababa was Birr 391 (PADCO,
1998). Expenditure on basic needs such as food is also very high implying that most
households have little money available for housing expenditure. The combination of
low production and a generally unaffordable building construction means that the
citys residential land delivery system cannot satisfy demand and, unless revised, will
contribute to act as the major constraint on housing development of the city.
There is a good prospect for housing development in Addis Ababa. The city
administration recently constructed low-cost houses targeted at low to middle income
earners in the city and this serves as a short-term solution to the problems. The
government of Ethiopia is currently implementing the PRSP, which includes urban
development and management as one of its strategic tasks. This will serve as a
medium to long-term solution to the housing problem in Ethiopia generally and the city
of Addis Ababa in particular. However, much depends on the willingness of donor
governments and the international community to nance these development objectives
and I see a bright future in this regard after the release of the Commission for Africas
nal report which, in my opinion, can be the best route for getting Africa (and hence
Ethiopia) out of the poverty trap.
References
Addis Ababa City Administration (1994), Urban Land Lease Holding Regulation No. 3/1994.
Central Statistical Authority (1998a), Population and Housing Census 1994, analytical report on
regions, Addis Ababa.
Central Statistical Authority (1998b), Statistical abstract, various issues.
Derban, W.K. (2002), Micro nance for housing for low/moderate income households in Ghana.
Erhard, M. (1999), Long-term housing loans to low and medium income households in Bosnia
and Hercegovina: the experience of developing an appropriate credit technology.
Federal Democratic Republic of Ethiopia (2002), Ethiopia: sustainable development and poverty
reduction program, Addis Ababa.
PADCO (1998), Ethiopia housing, Sector Study.
PADCO Inc./WAAS/NUPI (1996), Housing Survey Report, Ethiopia Housing Sector Study.
UN-HABITAT (2002), Housing for the poor: policies and constraints in developing countries.
Further reading
Federal Democratic Republic of Ethiopia (1993), Urban Land Lease Holding Proclamation
No. 80/1993.
Gebeyehu, A., Brazzoduro, M. and Gebremedhin, B. (2001), Housing Conditions and Demand for
Housing in Urban Ethiopia, Roma, Addis Ababa, October.
Kebede, G. (1985), Urban growth and the housing problem in Ethiopia, Cities, Vol. 2 No. 3.
PM
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52
Lea, M. and Chiquier, L. (n.d.), Providing long-term nancing for housing: the role of secondary
markets, World Bank working paper, United Nations Development Programme.
Merrill, S.R., Margo, S. and Kozlowski, E. (1999), The feasibility of estimating the demand for
residential mortgage credit in Poland.
National Bank of Ethiopia (2004), Annual Report 2002/03.
The enabling environment for housing nance in Kenya (n.d.), available at: www.citiesalliance.
org
Urban shelter: housing nance (n.d.), available at: www.unchs.org
Corresponding author
Abraham Tesfaye can be contacted at: abrahamtesfaye@yahoo.com
Housing
development in
Ethiopia
53
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