Understanding Housing Affordability Challenges in African Countries: Insights from Principal Component Analysis

Abukar Warsame

AfRES from African Real Estate Society (AfRES)

Abstract: Housing affordability remains a pressing challenge in numerous African countries due to rapid urbanization, population growth, and economic disparities. This study explores the multifaceted nature of affordability by considering variables such as GDP per capita, inflation rate, slum population percentage, female-headed households, unemployment rate, lending interest rate, maximum loan-to-value ratio, cheapest house price and size, and typical monthly rental. By combining and weighing these variables, a comprehensive affordability measurement is obtained. Utilizing Principal Component Analysis (PCA), the dataset's dimensionality is reduced, revealing key variables contributing to affordability. Our preliminary results demonstrate that distinct components, encompassing socio-economic development, inequality, urbanization, labor markets, housing conditions, construction processes, and economic and business environment, influence affordability differently across countries. Understanding these factors enables policymakers to design targeted interventions such as income redistribution, slum improvement initiatives, gender-specific housing programs, employment generation measures, interest rate regulations, and housing finance accessibility policies. The findings from PCA, combined with examinations of the Gini coefficient, Human Development Index, and World Bank DBI quality index, facilitate evidence-based decision-making and the development of effective policies to enhance housing affordability and socio-economic conditions.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2023-01-01
New Economics Papers: this item is included in nep-afr, nep-mac and nep-ure
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