Africa needs 50 million new homes, but building is bad for the environment: how to finance ‘green’ solutions

The future of housing raises some serious environmental concerns. Construction has been linked to 39 per cent of global carbon emissions, and the concrete industry alone is responsible for 8 per cent of the world’s greenhouse gases.

Solutions will be especially useful in Africa, because so much building still needs to be done. The continent’s population is projected to grow from around 1.5 billion to an estimated 2.4 billion people by 2050. There’s already a housing backlog of 50 million homes.

Green housing could be one of the solutions. Green homes are built using less energy and water, and with natural and often recycled resources. They are designed to use less water and power, and emit lower levels of greenhouse gases.

As sustainable housing researchers, we have extensively investigated the evolution of green housing. We’ve looked at how green homes are certified, and what kinds of policies support them. We’ve also investigated the barriers to financing green homes and looked into what’s preventing a transition to a green economy in real estate, building and construction.

Our latest research set out to map how green housing developments are financed around the world.

We reviewed all global studies on green housing finance over a 20 year period (2003-2023). Our aim was to uncover the main financial instruments used by private green housing developers, and how these types of finance support sustainability in the construction sector.

Our research found that green housing finance products must address developmental targets, sustainability, cost, water and energy efficiency, materials, and climate change risk.

Sustainability concerns are rising globally. Home owners and developers have a role to play in the adoption of environmentally friendly building practices. Knowing more about green housing finance empowers housing stakeholders to go green.

Development finance institutions and commercial banks need to work more closely together to offer practical green housing loans. They also need to make sure that developers and individual home builders know about the benefits of and choices they have for going green.

The development finance gap

Green buildings deliver environmental gains such as nature preservation and the environmentally efficient use of resources. They also reduce the carbon footprint created by environmentally unfriendly building materials like concrete. They stimulate local economies and small enterprises by driving new technology, specialised skills, and the use of locally sourced materials.

Countries in Africa want to mitigate climate change, adapt to it, reduce the cost of energy, and manage their dwindling resources, such as water. One way to achieve this is to make new housing projects more water and energy efficient. Climate finance is a significant way of funding green housing.

However, the financial tools that make this possible are limited and not accessible to all people. In Africa, as seen in Nigeria, South Africa, Kenya and Ghana, economically and ecologically viable cities seem out of reach. Green homes potentially reduce electricity and water bills over time. But their higher upfront costs make them unaffordable for most people in these countries. Green homes can seem like a luxury rather than a necessity.

Very few green housing financing opportunities exist for developers and home owners. Financing is a roadblock. Africa has a US$1.4 trillion financing gap for global affordable housing. So, building sustainable housing is a lesser priority for many developers and African families who want to own property.

The problem is made worse by limited private sector involvement and a poor understanding of how green housing finance works. If green buildings are going to attract serious private investment, African governments need to show that affordable green housing is possible, and makes good business sense.

African countries are being left behind

Our research found that countries in Europe and Asia have a wide array of financial instruments to build green houses, such as credit, mortgages, loans and subsidies. There’s a commitment to sustainable housing from both the private and public sectors.

On the other hand, across many developing economies, the story is quite different. Our review showed that the only country on the African continent where green housing finance research has significantly emerged is South Africa.

In South Africa, green housing has mainly been built as a social intervention, funded in the form of donations from organisations like Habitat for Humanity South Africa.

The South African government provides subsidies and incentives. The International Finance Corporation (the largest development finance institution in the world) also works with some South African banks and commercial housing finance companies to provide green housing finance.

But green housing affordability remains a massive problem across the rest of the continent.

What needs to happen next

Private and public actors must advocate for change in the financing sector to promote green housing projects across the African continent.

Environmental resource preservation is in the private and public interest. This means that there must be a shared language and agenda for cities in African countries. We propose that green building councils be set up across the continent. These councils can collaborate across countries, exchange knowledge and make sure that all countries in Africa have access to the same information about sustainable housing practices, expertise and materials.

Green building certification bodies must adopt and standardise local approaches to environmental sustainability. This should increase financial interest in African green housing markets.

Jonathan Oladeji, Postdoctoral Research Fellow, University of Johannesburg and Chioma Okoro, Professor and Acting Head of Department: Department of Finance and Investment Management, University of Johannesburg

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