Fuel price hike deepens housing woes, increases construction costs

There are fresh concerns among professionals that the increase in fuel prices may hinder investments in the real estate sector and widen the housing gap. They believe that the industry will be subjected to an increase in logistics, housing and labour costs, VICTOR GBONEGUN reports.

Experts are worried that the recent increase in the price of fuel will further compound challenges in the country’s housing market, which is still battling hyperinflation, exchange rate volatility, high costs of construction materials, interest rates and general economic uncertainty.

With the latest increase in Premium Motor Spirit (PMS) price by the Nigeria National Petroleum Company Limited (NNPCL) from N618 per litre to N868, there are fears that rents, labour, logistics and housing costs will double as developers’ factor changes in building materials market in their production costs.

Professionals said the development will limit access to affordable housing and increase 28 million deficits. Nigeria’s total housing production is approximately 100,000 units yearly for a population of over 200 million, creating a substantial gap between supply and demand according to the World Bank.

The report named cities such as Lagos, Abuja, Port Harcourt, Ibadan, and Kano as growing at about 4.3 per cent per year and worse hit by urbanisation and homelessness. It is also estimated that 53 per cent of the 213 million Nigerians living in urban areas will rise above 70 per cent by 2050.

According to the National Bureau of Statistics (NBS), inflation eased to 33.40 per cent in July 2024, slowing for the first time in almost two years, down from a 28-year high of 34.19 per cent in the previous month but the figures are predicted to jump up again with the increase in fuel prices. In any economy, the ease of transportation; and movement of goods and services add to the overall cost of production.

When the fuel subsidy was allegedly removed on May 29, the prices of essential building materials like cement were worse hit and sold between N10,000 and N15,000 in different parts of the country before prices stabilised recently between N7,500 and N7,600 depending on locations.

Other building components such as reinforcement, sand, nails, granite, roofing sheets, windows and doors, also went up as dealers and suppliers attributed the situation to foreign exchange, materials and logistics costs.

Also, lands, rents and housing prices skyrocketed by over 100 per cent across the states and major locations. Rent for a three-bedroom apartment skyrocketed from N800,000 to N2.5 million and N5 million within two years, while the cost of a one-bedroom apartment rose from N250 to N500,000. The rent for a two-bedroom, previously let out at N600,000 is now N2 million, depending on location.

The Guardian survey of the building materials market last week showed that the prices of cement, reinforcement, tiles and paints are relatively stable as dealers retain old prices. The price of cement still sells at N7,500 and N7,600.

However, experts bemoan the increase in labour and logistics costs. Former president of the Nigerian Institute of Building (NIOB), Mr Kenneth Nduka, observed that the impact will be huge and affect the transportation costs of those who actively engaged in housing production like artisans.

He stressed that it will negatively affect their availability for jobs and production. Nduka said the spike would also impact the cost of building materials as construction is based on logistics and transportation.

He said: “This will affect the cost of the job itself. These are ingredients that makeup housing. If there are no materials and labour, how will you talk of housing production? And there is low purchasing power. There is no artisan you will invite to a construction site this period that will not ask for N10,000 per day.”

Nduka pointed out the development will further provide a low incentive for developers to invest, and argued that if the developers are not investing, the availability of housing stocks will reduce.

He also stated that professionalism would suffer the most because if houses are not built for income generation, the government, professionals and industry will lose.

“The way forward is to end bad governance, which is one of the challenges will have in Nigeria. It is a generational issue and doesn’t have to do with the current crop of leaders. Leaders need to be responsive to the needs of the masses. We need to end greed and corruption.”

Former Chairman, Nigerian Society of Engineers (NSE), Apapa Branch Lagos, Dr Garba Ombugadu, said transportation runs the economy, and any increase in any aspect of transportation brings a multiplier effect on all aspects of life, especially the cost of living.

Ombugadu said the increase in the price of fuel would lead to an astronomical increase in the cost of building materials, as most of the factories are run with petrol, gas and diesel plants.

“Although demand will always be there, the increase in inflation will affect the purchasing power of Nigerians. People will no longer afford one-bedroom apartments because the price has gone up. Most of the companies’ profit margins will drop due to the ripple effect of inflation and the unstable economic situation in the country,” Ombugadu said.

The way forward, he said, is for local sourcing of materials to construct buildings, while the government issues policy towards building and expansion of low-income houses for low and middle-level workers.

He also suggested that the government should critically evaluate the production needs before building houses and ensure policy formulation to sustain the real estate sector in terms of manpower regulation and competence.

According to him, the government must be involved in key areas of production, especially the production of iron rods to meet local needs.

“By the time you keep importing most of the building materials; it affects the cost of building and tends to bring down the progress expected in the sector. We are import dependent and every rise in exchange rate affects imported materials.”

Ombugadu further advocated incentives for building material importers to cushion the effect of the high foreign exchange rate.

President, International Real Estate Federation (FIABCI), Nigerian Chapter, Mr Akin Opatola, said the development would impact housing buyers, developers, and investors, adding that stakeholders will start to consider a nexus between affordability and accessibility.

He said: “Before May 29, 2023 price of petrol was N195/N254 per litre but now we have seen about 500 per cent jump in prices. We may not witness an immediate increase in building materials, housing costs, and rent. It will come over time.

The increase may be gradual based on the cost of transportation, and the exchange rate for the importation of materials.

“What this means is that people will start to consider the best location to work and live to reduce the cost of transportation. Accessibility and affordability of housing will now reign supreme because of the fuel price hike.

“For instance, the Lagos government has been investing in rail projects, wherever there is a high level of infrastructure development, property value will increase and there will be demand in such areas.”