Building resilience: Prioritising sustainable real estate in Africa

Posted by MIRA Funds

June 25, 2020


Earlier this year, UK Climate Investments announced a £30 million ($US39 million) commitment to support the construction of green affordable housing in Kenya. We spoke with Ana Plecas, Senior Vice President at UK Climate Investments, about Africa’s affordable housing crisis and how sustainable building design will be key to the development of more resilient cities on the continent.

What is driving the shortage of affordable housing in Africa?

Around the world, cities have long been beacons of opportunity – acting as magnets for people seeking greater access to employment, education, and services. It is no different in Africa, where more than 40,000 people move to urban centres each day in search of prosperity1.

This will only intensify as a massive increase in the region’s population causes the number of people living in its urban centres to double by 20502. With many cities already struggling under the weight of their current populations, this rapid urbanisation will put even greater pressure on the availability of affordable housing.

Kenya is a perfect example of this growing problem, with more than half of its urban population currently living in overcrowded slums3. Today, its capital Nairobi is home to just over five million people4. By 2050, it is expected that this figure will grow to more than 14 million, raising serious concerns around living conditions and access to public services4.

Addressing this challenge is important, with affordable and quality housing essential to sustaining the region’s economic development and stability. But this challenge does not exist in isolation. We must not lose sight of the environmental challenges Africa will also face in the years ahead, drawing on sustainable design principles to tackle both issues head on.

If Africa’s urban centres are not made resilient to the effects of climate change, their vibrancy and promise of opportunity will be at risk.


What is meant by sustainable building design?

Buildings and the construction sector represent approximately 36 per cent of global energy use and 39 per cent of greenhouse gas emissions5. Sustainable design aims to minimise this impact by reducing the amount of energy and water used by buildings during both the construction and operation phases.

Most people would understand the impact energy and water efficient fittings and fixtures can have on a building’s environmental footprint. But there are other design considerations that can also enhance a building’s green credentials. For example, windows are the main source of heat loss and gain by a building. If you consider a building’s window to wall ratio early in its design phase, you can significantly reduce its reliance on air conditioning longer term. In the context of rising average temperatures on the African continent, rethinking the design of new buildings in this way could have a real impact both on quality of life and energy consumption.

Sustainable building design can also incorporate technology to increase the control tenants have over their energy use. From smart meters to renewable energy systems like rooftop solar panels, technology can help mitigate the impact our buildings have on climate change.


Why is sustainable building design important for Africa in particular?

It is expected that climate change will disproportionately impact countries on the African continent, bringing more unpredictable weather conditions in the years ahead. Faced with the prospect of higher average temperatures as well as more frequent and intense droughts, it is vital that we adapt our societies for this new normal – starting with our buildings and critical infrastructure.

Some modelling suggests that if temperatures rise by 2°C, sub-Saharan Africa could experience a 20 per cent decline in rainfall and an increase in the number of consecutive dry days6. If buildings are designed with these climate scenarios in mind, communities across the region will be better positioned to deal with growing issues like water scarcity. Similarly, buildings that prioritise energy efficiency will take pressure off the electricity grid and reduce overall emissions.


Is it a choice between affordable or green? Can Africa have both?

There is a perception that green buildings are more expensive to design and build than conventional buildings. The reality is that, today, intelligent design does not have to cost the earth.

A lot of the green design principles we are talking about do not involve a significant outlay and only require that developers evolve their approach. In that sense, it will be important that the viability of environmentally sustainable building design is demonstrated by the construction industry, with initiatives like EDGE certification already helping to achieve this goal.

“There is a perception that green buildings are more expensive to design and build than conventional buildings. The reality is that, today, intelligent design does not have to cost the earth.”
 

Ana Plecas, Vice President, UK Climate Investments

Once these green design principles are embedded in the market, we expect we will see both building standards and the expectations of tenants evolve. We think residential and commercial tenants across Africa, like in the rest of the world, will increasingly want to own, rent and work in buildings that are better for the environment. They should also recognise the benefits these types of buildings can offer in the way of lower operational costs through reduced water and electricity consumption.

Hopefully, we will reach a point where green solutions are considered standard in Africa.


Who will drive this change in Africa’s housing and construction sector – the public or private sector?

The Kenyan government – like many across Africa – has identified affordable housing as a priority policy area, but we believe private capital will be essential to delivering the considerable step-up in investment required.

The entrance of more institutional developers to the market in recent years has been reassuring, but local developers need equity to obtain construction finance and deliver affordable housing projects at scale. I think the supply and demand imbalance that we are seeing will attract capital to the sector, but effective urban planning and infrastructure investment will be key. The presence of other investors like UK Climate Investments will also play an important role in crowding-in investment – giving private capital the confidence needed to commit to new projects.

In this respect, we expect that both governments and the private sector will need to work together to build adequate green housing to meet the needs of Africa’s growing population.


About UK Climate Investments

Managed by Macquarie Infrastructure and Real Assets, UK Climate Investments is a £200 million pilot investment programme mandated to invest in India and sub-Saharan Africa. It targets transformational green energy investments where UK Climate Investments’ capital can mobilise additional private sector capital on a sustainable basis to promote cleaner, greener growth in these developing economies. UK Climate Investments is a joint venture between Macquarie’s Green Investment Group and the UK Government’s Department for Business, Energy and Industrial Strategy. It forms part of the UK aid funded International Climate Finance, which is a UK Government commitment to support emerging markets and developing countries to respond to the challenges and opportunities of climate change.

To find out more about the work of UK Climate Investments, click here.

For more information about MIRA, contact us.

1 Affordable Housing in Africa, International Finance Corporation 2019.

2 Urbanisation in Sub-Saharan Africa: Meeting Challenges by Bridging Stakeholders 2018, Center for Strategic and International Studies.

3 Population living in slums (% of urban population), United Nation’s Millennium Development Goals, UN Habitat.

4 Socioeconomic Pathways and Regional Distribution of the World’s 101 Largest Cities, Global Cities Institute.

5 Bringing embodied carbon upfront 2019, World Green Building Council.

6 The southern African climate under 1.5° and 2°C of global warming, Coordinated Regional Downscaling Experiment Africa 2019.

 

This market commentary has been prepared for general informational purposes by the authors who are part of Macquarie Infrastructure and Real Assets (MIRA), a business division of Macquarie Group (Macquarie), and is not a product of the Macquarie Research Department. This market commentary reflects the views of the authors and statements in it may differ from the views of others in MIRA or of other Macquarie divisions or groups, including Macquarie Research. This market commentary has not been prepared to comply with requirements designed to promote the independence of investment research and is accordingly not subject to any prohibition on dealing ahead of the dissemination of investment research. Nothing in this market commentary shall be construed as a solicitation to buy or sell any security or other product, or to engage in or refrain from engaging in any transaction. Macquarie conducts a global full-service, integrated investment banking, asset management, and brokerage business. Macquarie may do, and seek to do, business with any of the companies covered in this market commentary. Macquarie has investment banking and other business relationships with a significant number of companies, which may include companies that are discussed in this commentary, and may have positions in financial instruments or other financial interests in the subject matter of this market commentary. As a result, investors should be aware that Macquarie may have a conflict of interest that could affect the objectivity of this market commentary. In preparing this market commentary, we did not take into account the investment objectives, financial situation or needs of any particular client. You should not make an investment decision on the basis of this market commentary. Before making an investment decision you need to consider, with or without the assistance of an adviser, whether the investment is appropriate in light of your particular investment needs, objectives and financial circumstances. Macquarie salespeople, traders and other professionals may provide oral or written market commentary, analysis, trading strategies or research products to Macquarie’s clients that reflect opinions which are different from or contrary to the opinions expressed in this market commentary. Macquarie’s asset management business (including MIRA), principal trading desks and investing businesses may make investment decisions that are inconsistent with the views expressed in this commentary. There are risks involved in investing. The price of securities and other financial products can and does fluctuate, and an individual security or financial product may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international or local financial, market, economic, tax or regulatory conditions, which may adversely affect the value of the investment. This market commentary is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in this market commentary. Opinions, information, and data in this market commentary are as of the date indicated on the cover and subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this market commentary and/or further communication in relation to this market commentary. Some of the data in this market commentary may be sourced from information and materials published by government or industry bodies or agencies, however this market commentary is neither endorsed or certified by any such bodies or agencies. This market commentary does not constitute legal, tax accounting or investment advice. Recipients should independently evaluate any specific investment in consultation with their legal, tax, accounting, and investment advisors. Past performance is not indicative of future results.

 

This market commentary may include forward-looking statements, forecasts, estimates, projections, opinions and investment theses, which may be identified by the use of terminology such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “can”, “plan”, “will”, “would”, “should”, “seek”, “project”, “continue”, “target” and similar expressions. No representation is made or will be made that any forward-looking statements will be achieved or will prove to be correct or that any assumptions on which such statements may be based are reasonable. A number of factors could cause actual future results and operations to vary materially and adversely from the forward-looking statements. Qualitative statements regarding political, regulatory, market and economic environments and opportunities are based on the authors opinion, belief and judgment.

 

Other than Macquarie Bank Limited ABN 46 008 583 542 (MBL), none of the entities noted in this document is an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) or banking legislation in other jurisdictions. The obligations of these entities do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities.