Reasons behind Mogadishu’s skyrocketing rental prices

The affordability of shelter is one of the basic human needs due to the fact that it greatly affects the well-being and the success of individuals in normal life. Recent estimates indicate that about three million people reside in Mogadishu and a large portion of them live in rented houses.

For the last decade, the price of both residential and commercial houses has been highly increasing in Mogadishu and many contend that the increase in rental price is artificially manipulated by landlords without giving any regard to the personal income growth of tenants and hence call for government intervention in regulating the housing market.

On the other hand, some contend that the current rental prices represent the true market conditions considering the demand for houses exceeds enormously the available supply of houses in the city. Although the two arguments are verily appealing, the second one makes much sense when major factors contributing to the inflation in housing properties are closely studied.

The main factors that increase the rent prices include relative improvement in physical security, rapid urbanization, roadblocks, moderate economic growth, and change in expectations. First, despite insecurity incidences, the security of Mogadishu has been improving day after day since Al Shabab militants were driven out of Mogadishu by government forces and AMISOM in 2011.

This has induced many people who fled from the war to return back to the capital and start to rebuild and renovate their houses. Furthermore, many Somali Diasporas have decided to come back to the city and established various thriving businesses.

As a result of these, the rental price has changed. Villas previously rented for $100 now costs more than $400. Second, rapid urbanization is another major factor that contributed to skyrocketing rental prices in Mogadishu since the city has experienced a large influx of people from rural and other urban areas who mostly came for economic reasons such as employment opportunities, education, health services, and convenient transportation facilities.

Third, Mogadishu is a divided city because the government has installed roadblocks which divided the city in to two parties. Politicians, civil servants and the local and international staffs of NGOs prefer to live in zone “A” part where key government institutions and the offices of international aid agencies are located and the security forces try to protect that area from AS attacks.

The rental price in residential areas controlled by the government has soared drastically in recent times since current supply of houses in the safe zone can’t meet the high demand of tenants who are mainly government officials, businessmen and UN and other NGO staffs.

Fourth, moderate economic growth driven by remittance inflows and agricultural production also plays a crucial role in increasing housing price in the capital. The families that timely receive remittance money from their relatives abroad started to rent a big apartments and villa houses instead of living in small flats.

Thus, this contributed to the increase in rental prices in Mogadishu. Finally, change in expectations and manipulations of landlords are major elements that ignite this problem. The landlords in all districts of the city expect high inflation in houses which constantly drives the prices up and exacerbates the problem.

It is noteworthy that rental agencies and middlemen are also playing a major role in the sky-rocketing rental price in the capital, for instance some middlemen are paid by the landlords to set the price at a very high level.

Should the government regulate rental house prices?
Although basically the government should develop housing policy that helps citizens get affordable houses, intervention in the housing market by the local administration is not feasible and it may worsen the current situation.

Benadir Regional Administration (BRA) has housing department in its administrative organizational structure but it doesn’t have the strategy and capacity to address housing price problems in the city. Moreover, black market may arise that could increase rental price if the authorities try to fix the issue. Therefore, market forces of supply and demand determine optimal house prices. One may wonder how the market will solve the current problem?!

Apparently the high housing prices send a signal to both the landlords and tenants and they will differently respond to it by changing their behavior. Suppliers are likely to invest in large construction projects to meet the excessive demand from people and during last five years there have been major housing project invested by construction companies such as DARU-SALAM and MARINA BEACH estates projects.

Some businessmen motivated by the high profitability in housing started to build houses in several districts in Mogadishu and surprisingly that most of those houses are already booked with prepaid rents ranging from six to twelve months.

The projections foretell that other businessmen will flow the lead by building new houses in other districts of the capital. Furthermore, high house prices seemingly induce the private sector to develop the rent business by providing fully furnished houses.

Many rental agencies have emerged in the city that offer global standard services including official websites and apps that give the customers an information about available rental houses and their facilities, their prices and locations.

On the other hand, consumers may respond to the current rent prices by relocating from the downtowns to slums, peripheries and outskirts. In fact, one of the main factors that led to the expansion of the capital is skyrocketing prices and some new villages in the outskirts were recognized as official districts by Benadir Regional Administration and the Ministry of Interior of the Federal Republic of Somalia and other villages are candidate for becoming districts officially.

In light of the above mentioned factors, generally the federal government of Somalia and Benadir Regional Administration (BRA) should let the market forces determine the desirable prices and efficient house supplies.

Hussein Jimale