Housing sector is engine for economic growth

Housing sector is engine for economic growth

The housing delivery infrastructure in Uganda, as in most developing regions in the world, is woefully underdeveloped. Not enough new homes are being built each year to meet current needs. As Uganda is projected to have the fastest population growth in the world over the next quarter century, radical changes are needed. Rapid urbanization, in the absence of adequate and affordable housing, is feeding the growth of large urban slums. In the case of Uganda there has been no large-scale organised real estate development in the last 30 years. Private developers have been putting up houses in single units or in small batches while the government owned developer National Housing and Construction Co. (NHCC) has built not more than 2,500 housing units in the last 30 years.
A study called `Strategies for facilitating the financing of affordable housing in Uganda’ by the former executive director of the Private Sector Foundation Uganda, Dr William Kalema projects that by 2035 the housing need for Kampala will be 1,018,000 units. To meet this need, the country will need to build 34,000 units per year, for Kampala alone. Dr. Kalema’s study further projects that the national housing need by 2035 to be at 12.5 million housing units, which will require the building of 419,000 units per year. The total annual investment needed for housing is estimated at US$9 billion annually
Few investments have a greater impact on economic growth and development and poverty alleviation than housing. A large number of industries have links to the housing market. One outstanding measures of the impact of housing on the economy is the number of jobs created particularly from the growth of other ancillary and related industries with backward and forward linkages with the housing sector. It is also estimated that every $1 invested in housing has a multiplier effect of about $8 elsewhere in the economy. Perhaps few things are more developmental or pro-poor than housing due to its linkages to many sectors in the economy that include land markets, construction, and labor markets. It has been estimated that there are roughly 600 other industries that have links to the housing sector. A stimulus to the demand for housing will have a direct or indirect stimulatory impact on all of these industries.
The impact on the economy of building a house within the boundaries of that economy can be divided into three phases. Phase I is the construction phase this includes material inputs, jobs, wages, and local taxes and user charges and fees generated by the actual development, construction, and sale of the home. The jobs include on-site and off-site construction work as well as retail and wholesale sales of components, transportation to the site, and all of the professional services required to build a home.
Phase II is the Ripple Effect that includes the wages and profits distributed during the construction period that are spent by workers supplied goods and services. Also included are the continuing effects from recycling income back into the community that produces more jobs, wages, and local taxes.
Phase III includes the continuous goods and services purchased by the owners of the home. Roughly 30 percent of the new home-owner’s income is captured by local businesses and workers as the occupants of the new home buy clothing, food, and entertainment. In turn, that spending causes its own ripple effect as local businesses buy from other local businesses. A new household therefore causes a permanent increase in the level of economic activity, jobs, wages, and local tax receipts.
For Illustration purposes we use the employment created to show how promotion of housing can support employment creation. For example a low cost house needs the services of approximately 32 skilled and unskilled employees as one of the inputs. If 1,000 low cost homes are developed in the economy in a year then the employment created will be 32,000 jobs in the economy (Fig 1). The demand for laborers will reduce unemployment, and in turn create purchasing power within the economy as those employed consume other goods and services within the economy. In terms of demand for other goods and services we take example of cement, a low cost house needs on average 250 bags of cement, so constructing 1,000 units creates a demand for 250,000 bags of cement. This same concept applies to all other inputs ranging from tiles, nails, iron sheets, sand, bricks, paint, windows, doors, kitchens, door handles, and so forth. The production of these inputs in turn creates demand for water, electricity and creates employment. These also create an immediate tax benefit not considering the long term tax effects on jobs created, ground rent, property tax, purchase of other items to furnish the houses and services consumed within the economy.


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