On a recent trip to Lagos, my foreign guests clamoured to see Makoko. “You know the place on the water where kids go to school in boats? Can we visit that?”
I was not surprised that first-timers to Nigeria knew about a slum in Lagos. If you google the city, you are almost guaranteed to see an image of Makoko on the first page of results; African cities are generally strongly associated with their slums, an assertion explored in a recent article by The Economist. As the data shows, nearly half of Nigerians live in shanty towns and slums, though we are by no means chart-toppers in Africa.
The data above resonates with my experience, having once lived in a shanty in the aftermath of student unrests at the University of Lagos. Unable to afford better accommodation, some students turned to shanties.
In cities like Lagos, shanties spring up to solve a problem – proximity to commercial hubs where people work or study. However, with their ad-hoc construction, poor sanitation and security issues, many shanties exact an economic toll on the health, life expectancy, and ultimately productivity of their residents.
That being said, can we learn anything from the economics of slum-housing, which we can take elsewhere? Certainly.
Learning from the economics of slums
The first insight is that slums usually occupy significantly smaller living spaces than you can find anywhere else. This divvying up of space in ways that conventional developers do not is one of the reasons that slums remain affordable.
Just as how FMCG (Fast Moving Consumer Goods) companies keep their products affordable by introducing micro-packs, slum landlords are very flexible with the amount of space they rent out. However, as you would expect, this can lead to cramped – and even dangerous – living conditions.
Secondly, we can learn from the range of materials used in construction, depending on the environment and budget. Wood, bamboo, plastic sheets, and corrugated iron all feature alongside more conventional material, in contrast to the endless rows of brick and mortar houses that characterise formal developments.
While the Makoko floating school reminds us that such developments must pass structural tests, we need to consider innovative and scalable pictures of what low-cost housing could look like. In the end, it won't look like Lekki.
The final point is on financing, both in the capital requirements for housing developments and in rent collection to recoup the initial investment. On the latter point, by doing away with the common practice in cities of paying multiple years of rent in advance, slum rents are better aligned with the incomes of tenants, and this is key in making the housing more affordable.
As for the capital requirements, land acquisition is usually a significant portion of the outlay for any housing project. But, slums are established by squatters, with no property rights (though there may be historical claims to the land), thereby minimising the cost of acquiring the land and ensuring it is cheaper to build.
A workable business model?
Armed with these insights on the economics of slums, we can see them reflected in the co-working spaces that have sprung up around Lagos, and we may begin to tease out a workable business model for affordable quality housing.
Let’s call them co-living spaces. Staying true to the shanty model but not being bound by it, we can imagine small living spaces with semi-permanent walls, within a multi-storey building and shared toilet facilities. These can be constructed with brick and mortar, but can also be made using shipping containers.
Flexibility will reign supreme with a variety of space formats – single bed multi-occupant rooms, single rooms, etc. Smaller rent payments – according to use on a weekly or monthly basis can be combined with progressive discounts for longer term tenants to cater for a range of income streams.
To get past issues with land costs and given the need for proximity to the city centres, some options can be explored. One is the multi-storey construction already mentioned which allows fitting people within the same building footprint up to an optimal number of storeys.
To achieve even lower costs, the investments can be structured as a public-private partnership (PPP), with the government providing the land as their capital contribution. This then reduces the amount of private capital required. By blending the zero-interest government contribution with private capital, the required rate of return on the entire investment is lower, making room for lower and more flexible rents.
Beyond providing affordable, sanitary, and safe accommodation, this concept can also serve as a platform for delivering other social welfare services to the tenants who are usually at lower income cadres. For example, the point of registration is an opportunity for national identification biometric capture or the provision of entry-level bank accounts to improve financial inclusion.
By tracking payments, a credit history can be established, providing a foundation for data-driven microfinance. These additional services have the potential to deliver far-reaching impact that extends well beyond affordable housing alone, creating another route to improving development outcomes in crowded urban centres like Lagos.