A vast pool of pension savings is sitting largely outside Nigeria’s housing market even as developers and households struggle with a financing gap estimated at N59 trillion, raising fresh questions about how the industry’s N30.94 trillion in assets can be channelled into long-term housing investment.
The Pension Fund Operators Association of Nigeria (PenOp), in its latest sectoral report, Unlocking Housing Finance Through Pension Capital, said the country’s challenge is no longer simply the availability of capital but the lack of mechanisms to connect long-term institutional funds with long-term housing needs.
The report, produced in partnership with SFS Capital Nigeria Limited, noted that pension assets are growing by about ₦5 trillion annually, yet less than one per cent of the industry’s assets under management is invested in real estate.
PenOp said the mismatch is significant given the nature of pension funds, which are designed to generate long-term investment returns, and housing projects, which similarly require patient capital and longer investment horizons.
“Nigeria does not have a capital problem. It has a coordination problem,” the association said.
Nigeria’s housing deficit has been widely estimated at about 28 million units, although a revised government estimate puts the number of inadequate housing units at 14.9 million. PenOp estimates that the country needs about 700,000 new housing units annually to keep pace with population growth and household formation, but only about 50,000 units are currently delivered each year by public and private developers, leaving a substantial gap between demand and supply.
The report puts the estimated financing requirement for addressing the housing challenge at between N21 trillion and N59 trillion.
The pressure is being compounded by rapid urbanisation and rising property prices. Lagos alone is adding about 620,000 residents annually, while Abuja is expanding at about five per cent a year. Six Nigerian cities are also among Africa’s 30 fastest-growing cities, according to the report.
At the household level, rising property prices and rents have further widened the affordability gap. PenOp estimates the median home price in Lagos at about N330 million in 2026, while many households spend more than half of their income on rent. Rents in locations such as Lekki and Ikeja have also risen by more than 200 per cent since 2019.
Mortgage system struggles to close gap
The report noted that conventional bank financing has been unable to provide the scale and structure of funding required to address the housing shortage, with mortgage rates generally above 20 per cent and loan tenors often too short to support affordable home ownership.
Nigeria’s mortgage-to-GDP ratio remains below one per cent, compared with 16.2 per cent in South Africa and 2.2 per cent in Kenya. The report also noted that fewer than one per cent of the 5.47 million National Housing Fund subscribers have accessed an NHF loan.
The association said the situation highlights the need for alternative sources of long-term financing.
“Nigeria needs N21 trillion to N59 trillion to close its housing gap,” PenOp said, adding that the Federal Government’s Renewed Hope housing programme delivered approximately 6,612 units in 2024, representing less than one per cent of the estimated annual requirement.
“Bank financing is structurally misaligned. Public budgets are overstretched. The capital solution must come from somewhere else,” the report stated.
Pension assets largely concentrated in government securities
Despite the size of the pension industry, PenOp said only a small portion of the funds is currently reaching productive sectors such as real estate.
More than 56 per cent of pension assets are concentrated in Federal Government securities, according to the report, while total real estate exposure stood at N167.3 billion, representing less than one per cent of the industry’s N30.94 trillion assets under management.
Although the regulatory framework allows pension funds to invest more in infrastructure and real estate, PenOp said a significant portion of the permissible allocation remains unused.
The association said the issue is not necessarily a lack of regulatory appetite but the absence of suitable investment instruments, project structures and market infrastructure capable of making housing investments attractive and sufficiently secure for pension funds.
The report noted that pension capital is particularly suited to housing because both pension savings and housing projects have long-term investment horizons.
Four channels proposed for pension-backed housing
Rather than advocating unrestricted direct investment in property development, PenOp proposed four investment channels through which pension funds could gain exposure to housing.
The first is mortgage-backed securities and bond issuances. Under the proposed model, the Federal Mortgage Bank of Nigeria (FMBN) would originate and pool mortgages before converting them into tradable securities that pension fund administrators could purchase through the debt capital market.
The report described this as one of the most direct pension-ready routes into housing finance because it would give PFAs access to housing-backed fixed-income instruments.
The second is Real Estate Investment Trusts (REITs). The report said Nigeria’s REIT market remains relatively shallow and is dominated largely by commercial and office properties. It proposed greater development of residential and affordable housing REITs that could provide institutional investors with exposure to the housing sector.
The third is a dedicated housing finance fund. PenOp proposed the establishment of a Securities and Exchange Commission-registered Nigeria Housing Finance Fund, backed by commitments from PFAs, which it estimates could mobilise between N500 billion and N1 trillion in long-term capital for affordable housing.
The fourth is direct development finance, under which PFAs could participate in large housing developments as co-investors through structured special purpose vehicles and blended-finance arrangements.
PenOp proposes six reforms
To make the proposed framework workable, PenOp recommended six reforms involving pension, capital market, housing and financial institutions.
The recommendations include creating an Affordable Housing Fund category under Regulation 1 of the pension investment framework, facilitating the rating and listing of FMBN bonds on FMDQ, introducing a government credit guarantee mechanism and reforming the REIT framework.
Others are the creation of a N500 billion National Housing Finance Fund and reforms to property valuation and land title systems.
PenOp estimates that the proposed measures could unlock hundreds of billions of naira in pension capital, with the affordable housing fund and FMBN bond initiatives alone potentially attracting N500 billion to N1 trillion or more.
The association also said improved land documentation and valuation standards would be critical to attracting institutional investors, as uncertainty around property ownership and asset valuation remains a major impediment to large-scale housing investment.
N250bn annual pension opportunity
Beyond the existing pension pool, PenOp said the industry’s annual growth provides an additional opportunity.
With pension assets increasing by approximately N5 trillion each year, the association estimated that capturing five per cent of that annual growth towards housing finance could generate about N250 billion annually.
PenOp said the funds could provide a more sustainable source of housing finance than reliance on annual government budgets or short-term commercial bank loans.
The report also cited South Africa and Kenya as examples of African markets where pension-backed housing initiatives have been deployed to support affordable housing while maintaining the long-term objectives of retirement savings.
For Nigeria, PenOp believes that even a modest allocation from the country’s rapidly expanding pension pool could create a significant new source of patient capital for a housing market that has struggled to attract affordable, long-term financing.
