The Economic Reality of Uganda's Housing Market: Unpacking the Truth Behind Rising House Prices

By Sebaggala Richard

Uganda’s housing market is under immense strain, reflecting a broader economic crisis. A recent Daily Monitor story revealed that only three in ten Ugandans can afford to buy land, and construction materials, and pay for labor to build a house. This stark headline captures the growing reality for many Ugandans—the dream of owning a home is becoming increasingly unattainable. Rising construction costs, stagnant incomes, and high unemployment have created a difficult environment for homeownership. As housing prices continue to soar, examining the underlying factors driving this trend, its implications, and what can be done from an economic perspective and using examples from countries that have successfully navigated similar challenges is crucial.

The Ugandan government has made efforts to address this housing crisis. The 1995 Constitution guarantees the right to decent housing as part of broader social and economic objectives. The National Housing Policy of 2016 sets ambitious goals to increase housing production, improve housing quality, and promote affordability. This policy emphasizes partnerships between the government, private sector, financial institutions, cooperatives, and individuals, focusing on serviced land, infrastructure, and affordable financing.

However, despite these aspirations, the reality on the ground remains stark. The Africa Housing Finance Report 2023 estimates Uganda’s housing deficit at 2.4 million units, with 900,000 existing homes classified as substandard. The government’s target to build 200,000 units annually by 2022 was not achieved, as the private sector continues to focus on high-end projects for wealthier buyers. This disconnect between policy goals and actual implementation highlights deeper structural issues in Uganda’s housing market. Uganda’s challenges mirror those across sub-Saharan Africa, where countries like Zimbabwe, Tanzania, Kenya, and Nigeria face similar backlogs. The focus has often been on higher-income urban households, while the majority—those most in need of affordable housing—are left out.

A Critical Look at Supply vs. Demand

There is a widespread belief that the Ugandan housing crisis is due to a mismatch between supply and demand. However, this view only scratches the surface. An important factor is the segmentation of the housing market, where different groups view housing as either a commodity or an asset. Put simply, commodities are things we buy primarily to use or consume. Their value depreciates over time due to factors such as wear and tear or obsolescence. Examples of consumer durables are cars, food, and clothing. On the other hand, assets are things you buy to keep with the expectation that their value will increase over time. This happens due to factors such as market demand or scarcity. Examples of assets are real estate, stocks, and precious metals. The main difference between a commodity and an asset is the intention of the buyer: we use commodities for personal or everyday purposes, but we invest in assets in the hope that they will increase in value over time.

In Uganda, wealthier people treat housing as an asset, i.e. they built or buy houses in the expectation that their value will increase, which drives speculation and pushes up prices. In contrast, most Ugandans view home ownership as a necessity, as something that provides security and stability— much like we do with commodities. This difference in the perception and use of home ownership plays a big role in driving up prices and increasing inequality.

The housing problem in Uganda, as in many developing countries, is not just a matter of supply. Despite the government's efforts to reduce the housing deficit by building 200,000 units per year, the deficit has increased from 1.6 million to 2.4 million homes by 2023. The core problem lies in demand — people cannot afford housing, regardless of how many are built. The circular logic of addressing the housing shortage by increasing supply without considering affordability highlights a deeper truth: housing is expensive, not necessarily scarce. Building more homes will not solve the crisis if income levels stagnate.

A Skewed Housing Market

A persistent challenge in Uganda’s housing policy is the failure to segment housing demand by socio-economic groups. Like many sub-Saharan countries, policy often prioritizes the middle and upper classes, leaving out the poorest households. This mismatch contributes to widespread exclusion from the housing market. In sub-Saharan Africa, the housing affordability pyramid is skewed, with the wealthy and upper-middle class at the top and the vast majority, who are poor, left without options. Income inequality drives this phenomenon, and it is an issue Uganda must address if it hopes to make meaningful progress.

The growing gap between Uganda’s wealthy elite and the rest of the population is clearly reflected in the housing market. While a few wealthy individuals can afford to build houses at an accelerated pace, the majority remain priced out.  As resources are funneled into high-end projects, little attention is paid to affordable housing, leaving millions stuck in a cycle of renting or living in substandard conditions.

The Productivity Dilemma

The high cost of housing in Uganda poses a double challenge: rising overall costs and the need to make construction more affordable. In economics, there are two ways to reduce the price of a commodity—reduce demand by lowering wages or increase productivity. In the case of Uganda, where wages are already low, the focus should be on improving productivity. Reducing wages further would only hurt workers. Therefore, increasing efficiency in the construction sector is the best way to reduce costs and make housing more affordable.

To illustrate the importance of productivity, consider the difference between a locomotive driver hauling tons of material and someone using a handcart. Automation and machines dramatically increase efficiency. Similarly, Uganda’s construction sector, which relies on traditional, labor-intensive methods, keeps housing prices high. To reduce costs, the sector needs to adopt modern technologies and automate more processes.

To illustrate this, I observed the construction of a student center near our business school in Kristiansand, Norway, which is about the size of Cham Towers in Uganda. Despite the scale of the project, I noticed that there were less than five workers on site, and yet everything was running efficiently. I joked with my African friends that if this building was being built in Uganda, hundreds of workers would be on-site and food and tea kiosks all around. While it may seem positive that so many people are employed on a single construction site, the reality is that the low wages these workers are paid and a reliance on manual labor do not result in significant productivity gains. If Uganda’s construction sector is to become more efficient, embracing automation and reducing reliance on manual labor is essential.

Building houses is not just about putting materials together, it’s about efficiently assembling thousands of industrially-made components, like lumber, pipes, concrete, windows, and more. To make housing more affordable, the construction industry needs to become more productive in assembling these components, and the entire supply chain must become more efficient at producing and delivering the necessary materials. Simply put, there are no shortcuts when it comes to improving productivity. Cheaper prices come from increased efficiency, and in the housing sector, this means automation, energy use, and streamlining the entire supply chain.

Lessons from Other Countries

Rwanda’s public-private partnerships (PPPs) offer a useful model for Uganda. While Uganda’s PPPs have mostly focused on higher-income earners, Rwanda’s approach is more inclusive, targeting lower-income citizens and aligning housing development with their needs. By working with private developers and incentivizing affordable housing projects, Rwanda has managed to prevent runaway inflation while promoting economic development.

Costa Rica provides another valuable lesson. The country has prioritized sustainability in its housing policy, integrating green building practices and offering direct subsidies and market-rate credit. The National Housing Finance System, established in 1986, has been instrumental in improving access to housing through direct subsidies and market-rate credit, which have helped increase housing supply and access for low-income families.Despite challenges related to poverty and inequality, Costa Rica’s focus on sustainable, affordable housing has generated employment and growth opportunities. Uganda, with its plans to transition to a green economy, could adopt similar strategies to lower costs and create new economic opportunities.

Colombia has also taken measures aimed at expanding home ownership while ensuring broader economic growth. The country has introduced a demand-side housing program based on the ABC (savings, subsidy and credit) model, providing targeted subsidies to help low- and middle-income families afford a home (Gilbert, 2014). The country’s ABC model has helped expand homeownership for low- and middle-income families. More recently, Colombia has engaged its diaspora, linking remittances to housing projects. Given Uganda's large diaspora community in the US, Europe and Arab countries, Uganda could explore a similar strategy, incentivizing its large diaspora to invest in affordable housing. By linking remittances to housing projects, Uganda could create a win-win situation: Diaspora members would have a tangible way to invest in their home country, while the country would benefit from increased housing supply and economic growth. This strategy could help Uganda expand its housing market without jeopardizing investment in other important sectors and promote a more balanced and sustainable development path.

Conclusion

Uganda’s housing crisis is not just a result of rising construction costs—it reflects deeper economic issues, including income inequality, speculative investment, and cultural pressures surrounding homeownership. Housing policies across sub-Saharan Africa have often focused on the wrong targets, prioritizing the middle and upper classes while leaving the poor behind. Uganda’s current housing market risks excluding many people, leaving them “born to rent.”

To resolve this crisis, Uganda must rethink its housing strategy. Instead of focusing on high-end construction and speculative investment, the country should expand access to affordable housing while promoting productivity-driven economic growth. As the Housing Finance Yearbook 2022: Uganda Profiles outlines, there are no simple solutions. Uganda must tackle the issue from both the supply and demand sides, taking inspiration from countries like Rwanda, Costa Rica, and Colombia. Without these changes, Uganda’s housing crisis will only deepen, and more citizens will struggle to secure one of the most basic human needs: a roof over their heads.