Housing finance methods in urban Tanzania : The case of households in Kinondoni Municipality, Dar es Salaam, Tanzania

Abstract: Effective housing finance methods require the interrelationships between the housing finance system components such as banking and capital markets, land registry, the housing sector, and macroeconomic and socioeconomic aspects. Nonetheless, despite the exclusion of the majority of the households by formal long-term housing finance methods, Tanzania has experienced substantial improvement in housing development in the last two decades. This study explored how the aspects of housing finance methods, household financing decisions, housing affordability and expenditures are linked to effective housing finance in Tanzania. The study integrated a range of theories, namely; financial theories, housing finance system theory as well as bricolage and effectuation approach to explain the household's financing decisions. The explanatory sequential mixed methods design was used to determine household financing options. Results indicate that informal finance and microfinance are preferred relative to housing mortgage finance methods. The market share of housing mortgages is less than 10 per cent. Moreover, the study established that informal and formal methods coexist. Findings also confirmed that community-based finance schemes play an important role in the housing finance system, and that many house owners use more than one source of finance. This implies that the bricolage and effectuation approach to housing results in emerging unconventional housing finance methods. The study further found that housing expenditures are constrained by large family size, low household income, lack of property collateral, high-interest rates and lack of affordability, all of which linked to poor employment status, house type, and lack of property collateral and high-interest rates. The study also revealed that different choices of the housing finance methods are influenced by age of breadwinners, level of employment and interest rates. This implies that, the macroeconomic environment, banking industry and capital markets constrain the household's financing decisions, housing expenditures and affordability. Therefore, a multisector policy approach is required that can help to provide for effective housing finance methods, enhance housing affordability and tackle housing expenditures. The policies need to ensure effective housing delivery system, stability of the interest rates, inclusive and affordable financial services, effective land registration systems, strong banking industry and capital markets and better follow up of housing expenditures.