By Babatunde O. Ajani

For most Lagos residents, inflation is no longer an abstract economic term discussed only by policymakers and economists. It is reflected daily in the cost of food, transportation, education and healthcare. Increasingly, however, one of its most enduring and painful effects is being felt in the property market.
  
The cost of renting a home, buying land, constructing a building or maintaining an existing property has risen sharply. For property owners, developers and investors, inflation has altered the economics of real estate. For tenants and prospective homeowners, it has pushed decent accommodation further beyond their reach.
  
Lagos presents a particularly interesting case. As Nigeria’s commercial capital and most populous urban centre, the state combines rapid population growth with limited developable land in many desirable locations. Demand for housing continues to grow, while the cost of supplying new homes has risen dramatically.
  
The result is a property market in which nominal values are rising but affordability is declining. A house may be worth far more in naira today than it was a few years ago, yet the owner may not necessarily be wealthier in real terms. Similarly, landlords may earn higher rents, but their maintenance and replacement costs have also increased significantly.
   
Inflation has become one of the most powerful forces reshaping the value and character of property investment in Lagos. One of the most immediate consequences is the increase in property prices. As the cost of cement, steel, roofing materials, tiles, sanitary fittings, labour and transportation rises, developers have little choice but to pass part of the additional cost to buyers.
  
The problem is compounded by the depreciation of the naira. Many construction materials and fittings are either imported or dependent on imported components. Exchange-rate movements therefore quickly find their way into the cost of construction. A building that could be completed at a particular cost two or three years ago may now require substantially more capital.
   
Developers are consequently caught between rising costs and the declining purchasing power of potential buyers. Some postpone projects. Others reduce the scale of their developments. Many simply redirect their investments towards luxury housing, where the chances of recovering rising costs are greater.

This has serious implications for the supply of affordable housing. The people who need housing the most are increasingly unable to afford the homes being produced.

The rental market tells a similar story. Landlords are confronted with higher costs of repairs, security, utilities, professional services and replacement of damaged building components. When a roof needs replacement or a property requires major renovation, the cost can be staggering compared with what it was only a few years ago.
  
It is therefore understandable that many landlords seek higher rents to protect their investments. But what may be economically rational for the landlord can become financially devastating for the tenant.

This is the contradiction at the heart of Lagos’ housing crisis. As rents are rising partly because the cost of owning and maintaining property is rising, yet the incomes of many tenants are not increasing at the same rate.
  
Inflation also complicates the question of property ownership. Rising property prices are often interpreted as evidence that real estate is an excellent investment. There is some truth in this. Land and buildings are commonly regarded as stores of value because physical assets can provide some protection against the declining purchasing power of money.
   
However, a higher nominal price does not always mean a corresponding increase in real wealth. If a property doubles in naira value while inflation and the cost of rebuilding the property have increased by the same or an even higher margin, the owner may not necessarily have achieved a significant real gain. The distinction between nominal appreciation and real appreciation is therefore important.
  
Property owners may appear richer on paper while facing significantly higher costs of maintaining the same assets. Inflation has also reinforced the importance of location in determining property values.

Prime locations such as Ikoyi, Banana Island, Parkview Estate, Osborne Foreshore Estate, Victoria Island and parts of Lekki continue to attract wealthy individuals, corporate organisations and investors.
  
Land scarcity in these locations provides additional support for property values. Even during difficult economic periods, demand from high-net-worth individuals and investors can help sustain prices. But the story is different in many middle-income and emerging locations. While property values may also rise, affordability remains a major constraint. Developers may build houses that technically increase the housing stock but remain beyond the financial capacity of the majority of residents.
 
Also, high interest rates present another obstacle. Inflation often compels monetary authorities to maintain tight monetary policies. The result is expensive borrowing.
  
For prospective homeowners, affordable mortgages remain largely unavailable. For developers, high-interest loans significantly increase the cost of construction. When financing becomes expensive, the cost is ultimately transferred to the final buyer or tenant.
  
Nigeria’s housing problem is therefore not simply a shortage of buildings. It is also a shortage of affordable finance. Government policy must take this reality seriously. Inflation increases the cost of infrastructure and makes public housing programmes more expensive to implement. It also places pressure on governments to review land charges, property taxes and other fees.
  
But governments must recognise that every additional charge imposed on landowners and developers can eventually find its way into the price of housing.

The solution cannot simply be to allow the market to determine prices while government focuses on collecting more revenue from property transactions. Lagos needs policies that deliberately reduce the cost of housing production.
  
This means improving infrastructure in emerging communities, reducing unnecessary delays in planning approvals, addressing multiple taxation, encouraging local production of building materials and expanding access to affordable housing finance.
  
There is also an urgent need to develop new growth corridors with adequate roads, transportation, water and other infrastructure. If development continues to concentrate in a few expensive locations, land scarcity will continue to drive property values beyond the reach of ordinary residents.
  
Inflation has undoubtedly changed the value of property in Lagos. It has pushed up the nominal prices of land and buildings, increased rents and encouraged investors to see real estate as a hedge against the declining value of money.

But it has also produced a disturbing contradiction. Property is becoming more valuable while housing is becoming less affordable.
   
A healthy property market should not be measured only by how rapidly property prices are increasing. It should also be judged by whether workers can afford decent homes, whether young families can realistically aspire to homeownership and whether developers can produce housing without being crushed by the cost of finance and construction.

Until inflation is brought under sustainable control, mortgage finance becomes more accessible and the cost of housing production is reduced, Lagos may continue to experience rising property values alongside worsening housing affordability.

Ajani is a Lagos-based Estate Surveyor and Valuer.