Impact of fuel subsidy removal on housing, Oluseyi
A crucial government policy and financial support mechanism, fuel subsidy which is aimed at making petroleum products readily available and affordable for every Nigerian began in the 1970s. The policy which became institutionalized with the enactment of the Price Control Act in 1977 also sought to stimulate economic activities, enhance the welfare of Nigerians and help to alleviate households and businesses financial burden.
Though intended to shield Nigerians from the full impact of international oil fluctuations, the policy comes with heavy financial implications on the government. Year after year, government earmarked huge budgetary allocations to keep petroleum products prices artificially low and affordable for citizens. Before long, subsidy became a major source of government expenditure, with payment of subsidies becoming a tremendous drain on the resources of the country. Along the line, what is variously called the “Nigerian factor”, massive corruption crept in, and the policy became a conduit pipe for massive fraud and misappropriation of funds, and subsidy became a contentious and controversial issues for several years in the country.
In other words, the policy of subsidy, though noble in itself became plagued with monumental corruption and mismanagement, thus making the question of removing it a matter of time, with proponents of subsidy removal arguing that huge amount spent on subsidy could be channeled to productive investments, infrastructure development and other economic activities which can promote and produce sustainable economic development with substantial, and sustainable outcomes. They argued that fuel subsidy has adversely affected Nigeria’s finances and keeping it is fiscally inadvisable and if Nigerians are truly desirous of sustainable infrastructure and economic development, subsidy should go.
While many stakeholders insist that petrol subsidy is the last hope for an average Nigerian to have a share of the ‘’national cake’’.
In a significant policy shift, President Bola Ahmed Tinubu in his inauguration speech on May 29, 2023 announced the removal of petroleum subsidies. He did not mince words in bringing the subsidy policy to a final end. It was a decision that sent shock waves through the various sectors of the economy and the Nigerian polity. And it has gone, though not without inflicting some hardships on Nigerians, particularly those who survive on low incomes, and have to pay high transport fares to get to work daily, the employed urban poor population, and the unemployed. Prices of goods and services went up, and rents responded accordingly. Meanwhile, disposable income for many Nigerians shrinks by the day, due to inflation.
Like the other critical sectors of the economy, the housing sector is grossly and adversely affected by the subsidy removal, if not more than the other sectors. And this is a sector which plays a more critical role in the country’s welfare than is always recognized, a sector which directly affects the well-being of the citizenry, and the performance of other sectors of the economy. Subsidy removal has not only adversely affected the real estate sector,
The rental market is witnessing changes as some tenants are struggling to meet their rental obligations. The Nigerian average citizen now has less money to allocate to housing expenses, including rent or mortgage payments. Following the withdrawal of subsidy,
High cost of petroleum products has led to increase in transport fare, causing building materials prices to shoot up, simply because producers of the materials rely largely on petroleum for energy, and don’t forget that electricity supply is not yet stable. Cost of taking the materials to sites has also increased. These have consequences on rent, on affordability, on housing delivery and house gap. Real estate practitioners, institutional investors, property developers and construction stakeholders are being confronted with higher capital and operational costs, and this have reduces aggregate housing supply, thus aggravating the already huge housing deficit.
Real estate practitioners, particularly estate surveyors and valuers would confirm to you that there have been a huge shift in real estate market dynamics ever since the removal of fuel subsidy. Already, there is a decrease in demand for housing, especially in the middle and lower-income segments of the market. People are defaulting in payment and renewal of rents, either for commercial or residential accommodation, there are instances of companies and organizations relocating from high end to medium and low end areas because of the need to cut cost, and because revenue was not coming as originally projected. Activities have gone down generally, compared to situation under the subsidy regime, property prices went up, people moved from higher to lower end areas, from Lekki to the Mainland for instance in order to reduce cost. As a result, some property developers are finding it increasingly challenging to sell or rent their properties.
Going forward, the challenges we are presently experiencing in the housing sector as a result of subside removal can serve as gateways to growth, development and transformation of the sector. Albert Einstein’s quote, “In the middle of difficulties lies opportunity,” elegantly captures this profound truth.
Removal of subsidies might have unleashed challenges on the housing sector in Nigeria, but within these challenges are investment opportunities waiting to be unlocked for growth. All we need do is to identify the changing demand patterns, and key effectively into it. Government have embarked on massive infrastructure development across the country, opening up potential growth areas. We can focus on developing affordable housing units along these corridors and transportation hubs.
There must be a deliberate policy to the effect that federal, state and local governments in Nigeria should increase the housing stock for the benefit of medium- and low-income earners. The housing deficit affects the medium- and low-income earners, and these days, because of the economic hardship, many high-income earners are leaving big properties to compete for two- and three-bedroom units.
Housing and infrastructure development must be promptly addressed, with government partnering with the private sector and the professionals to draw housing programme and implement same to the letter. Time has come to focus on social housing. Government should also consider rent control laws to regulate rents charged by landlords.
Oluseyi Okeyode is a Lagos based estate surveyor and valuer/real estate consultant