Despite its relatively small land area, Lagos is a hub of real estate construction activity in Nigeria, accounting for a significant portion of the country’s construction projects. Unofficial reports suggest that Lagos is responsible for 62 percent of construction activities in Nigeria, with Abuja at 22 percent and Port Harcourt at 18 percent.

The Real Estate Developers Association of Nigeria (REDAN) estimates that Nigeria constructs around 300,000 new housing units annually, with Lagos alone contributing more than 10 percent of these units. Despite this construction activity, Lagos still faces a substantial housing deficit, which has been estimated at three million units in a report by Pison Housing Company.

Several factors contribute to this housing deficit, including:

1. Investor Yield Appetite: Real estate investors in Lagos often prioritize high rental yields over long-term housing solutions. This can lead to the development of more luxury and high-end properties catering to a niche market, rather than affordable housing options for the broader population.
2. Sales vs. Rent Dynamics: The preference for buying over renting property is prevalent in Lagos, which drives up property prices. This can make it challenging for lower-income individuals and families to access affordable housing.
3. Rapid Population and Urbanization: Lagos experiences rapid population growth and urbanization, with people moving to the city in search of better economic opportunities. This places additional pressure on housing demand.
4. Infrastructure Challenges: Lagos faces infrastructure challenges, including inadequate road networks, public transportation, and basic amenities. These challenges can deter investment in affordable housing projects.
5. Land Cost: The cost of acquiring land in Lagos is often prohibitive for developers, pushing up the overall cost of housing projects. This can result in higher property prices.

Addressing Lagos’s housing deficit requires a comprehensive approach that includes affordable housing initiatives, improved infrastructure development, and policies that encourage the construction of housing units tailored to the needs of the growing population.

This is a major factor given that a typical investor is more interested in projects with a higher yield and more rapid capital appreciation. The high-end properties typically have higher profit margins. They are also long-term investments and are generally perceived as more stable during economic downturns.

For some other developers, the motivation can be prestige and branding. Developing high-end properties can enhance a developer’s prestige and brand image. Creating luxury properties can attract attention, media coverage, and recognition in the industry, which can benefit the developer’s overall business. For this reason, houses for the low to mid-income home seekers are hard to come by and where they exist, they are largely unaffordable to this class of people who really need housing, hence the deficit.

Sales versus rent dynamics

Typically, Lagos is a rental market where over 80 percent of its over 20 million population lives in rented accommodation, according to the state’s commissioner for housing, Moruf Akinderu-Fatai. Though this is a huge opportunity for build-to-let investors, it is a serious demand-supply mismatch.

According to a recent report by BuyLetLive, an online property marketing and research firm, the sell-rent ratio for properties listed in Lagos is the reverse of a home seeker’s expectation. Here is a city where more than 50 percent of residential projects listed on the firm’s platform, as of July 2023, were for sale, while less than 40 percent of properties listed on the platform were for rent.

The Lagos real estate market’s imbalance between properties available for sale and those for rent can be attributed to several factors:

1. Faster Rental Transactions: Rental properties may be delisted more quickly after finding tenants, leading to fewer listings compared to sales properties.
2. Affordability: Many people in Lagos seek rental properties due to affordability constraints, driving up rental demand.
3. Development Focus: Developers in Lagos often prioritize selling properties, driven by the potential for capital appreciation and higher returns.

Lagos’ rapid population growth and urbanization have intensified housing demand, aggravating the housing deficit. To address this, a comprehensive approach, including affordable housing development and improved infrastructure, is necessary to create a balanced real estate market.

The high cost of land in Lagos, coupled with the scarcity of available land, poses significant challenges to affordable housing development in the city. Land is a precious commodity in Lagos, and its premium price makes it difficult for developers to construct affordable housing units, particularly in the city center where demand is highest.

Additionally, Lagos faces infrastructure challenges that further complicate affordable housing development. The city’s rapid population growth and urbanization have strained existing infrastructure, including roads, water supply, and sewage systems. These infrastructure limitations can add to the cost and complexity of housing projects, making it more challenging to deliver affordable housing solutions.

In summary, the housing deficit in Lagos is driven by factors such as the high cost of land, rapid population growth, and inadequate infrastructure. These challenges need to be addressed comprehensively to bridge the gap between housing demand and supply in the city and provide affordable housing options for its residents.

Inadequate infrastructure, such as roads, water supply, and sanitation, hinder new housing developments. Infrastructure cost is high in Lagos, estimated at 40 percent of total construction cost. Developers are therefore hesitant to invest in areas with poor infrastructure, limiting the growth of affordable housing supply. This too, contributes significantly to the reasons for the growing deficit.