On 23rd January 2019 (or thereabout), Mr. Moses Byaruhanga, Senior Presidential Advisor on Political Affairs wrote an article in the New Vision, titled Why rush to buy a car, build a residential house? Here are some business options. In the article, he urges Ugandans to consider investing in businesses other than rushing to buy cars and building houses.
The article was widely shared on social media and generated debate with some people supporting his sentiments while others disagreeing with him. I am not trying to respond to Moses’ article. I am only contributing to the views against prioritizing building houses basing on reasons that may not make economic sense. The argument that I am going to illustrate is that it is actually cheaper to rent than to live in your own house (prestige and emotional fulfillment aside).
Many people build houses with the thinking that they will save on rent. Some others build because they are not sure of their future earnings, hence the house is seen as a form of security in case one is no longer able to earn enough income to pay rent. But also there seems to be a cultural belief in many Ugandan tribes that one must own a house to qualify as a real man. Some of our cultural beliefs have no place in a capitalistic society.
Let us look at the figures briefly. An average house, the kind normally built by middle class corporates may cost about Ush. 200 million. On the other hand a good 2-bedroom apartment in the outskirts of Kampala may cost you Ush. 700, 000 in rent every month (8.4 million per year). Therefore the money used to build a house can cover almost 24 years of rent! Of course when you consider time value of money, you can imagine what 200 million would give you in 24 years.
Most people who are building new houses are doing so in areas of mainly Wakiso and Mukono districts, most of which are 20 – 30 kilometers from the city centre where majority work. That means that the cost of transport increases as one relocates to their own house. The lowest one can spend on fuel on a daily basis is about Ush. 20, 000 (Ush. 600,000 a month, 7.2 million a year), and that is before considering other vehicle maintenance costs.
Living in your own house means that you will pay higher utility bills since you have more lights switched on and water taps running. For instance whereas you may pay a total of about Ush. 50, 000 for both power and water every month in an apartment, the figures is likely to rise to at least Ush. 100, 000 per month in a residential house. That is an extra Ush. 600, 000 per year. There is also an extra cost on security that can range from about Ush. 50,000 per month if you only contribute to neighborhood watch or about Ush. 500,000 for a private guard.
A bigger house means somehow you will have more occupants leading to increase on all household bills. It also means that you have to buy more items to fill the house (e.g whereas you may have one sofa set in an apartment, your residential house is likely to have a bigger living room and therefore require about 2 sofa sets). You will also need to do repairs from time to time. I may not exhaust all the costs involved in owning a residential house. My aim is to highlight some of the costs to provoke you into considering some of these things in your decision making process.
So it is actually not true that staying in your own house makes you save on rent. It actually makes you incur more costs every month, both directly and indirectly in addition to initial huge investment of putting up that house.
Lastly, I should indicate that I am not against building a house. I know it feels great to have a nice house (as long as you can afford one). I know it is one of the dreams young people have as they grow up. So if you make money, build a house. The problem is that most of us are prioritizing owning a house before we invest in any other project. Many of us are taking huge bank loans to complete our residential houses yet such houses do not help us to earn any income.