Affordable housing demand has continued to grow over the past few years across the real estate sector in Lagos and Nigeria as a whole due to a number of factors. Firstly, this has been attributed to the continued rise in house prices (both rental and sale prices). For example, average house sale prices have grown by up to 2.5% in Yaba and 9.4% in Victoria Island over the past 5 years.
Secondly, there has been a corresponding rise in construction costs. Cement prices have seen an increase, from between N2,450 and N2,510 in 2021 to N3,900 – N4,200 in 2022. Additionally, land prices have been on the rise, with areas such as Epe recording over 100% growth and Lekki by 14% all within the past 5 years.
While all these costs have resulted in rising home prices, a corresponding increase in disposable income has not been recorded, making residential real estate unaffordable for the average Nigerian. On the contrary, national disposable income was seen to contrast by 2.52% in 2021 compared to 2020 figures.
According to paylab.com, individuals between the ages of 25 and 34 years old in Nigeria collect a monthly salary between ₦66,000 and ₦350,000 depending on the type of job. This translates to an annual salary in the range of ₦792,000 and ₦4,200,000. The average salary collected within this age range is NGN 191,000/month, while the median is ₦161,000/month.
In this article, we highlight the impact of different wage levels in Lagos towards general rent affordability. We further highlight income level considerations for renting two-bedroom apartments across various areas such as Ikoyi, Victoria Island and Epe in Lagos.
Ideally, individuals should spend upto 30% of their income on rent
A number of rules of thumb have been established to determine how much an individual should place aside for their rent based on their income. However, the most widely used rule is the 30% rule proposed by the United States Government in 1981. This rule proposes that an individual should set aside at most 30% of their monthly salary to pay for their monthly rent or 30% of their annual salary to pay for their annual rent.
This means that any individual or household that spends more than 30% of their salary on rent is ‘burdened’.
Another notable rule of thumb is the 50-30-20 rule proposed by Senator Elizabeth Warren and her daughter in the book: “All Your Worth: The Ultimate Lifetime Money Plan”. This rule of thumb divides one’s income into 3 parts namely: Essential Needs, Wants, and Savings/debt payments. It recognizes that rent could go above the 30% and therefore sets a 50% cap on all needs including bills such as rent, transportation, feeding, and other spending. This allows for flexibility in budgeting.
Based on average income, areas such as Ikoyi, Victoria Island, and Lekki Phase 1 remain unaffordable for the average Lagosian
In Lagos State, 2-bedroom apartment prices for example, vary according to the specific area being mentioned as well as facilities and amenities available in the development. The map below shows the average rental prices of 2-bedroom apartments in areas we track in Lagos State.
According to the map above, it can be seen that Ikoyi and Victoria Island account for the highest price of a 2-bedroom apartment, going at an average of about ₦12,947,311/annum. On the other hand, Epe and Ajah account for the lowest price going at an average of about ₦584,091/annum.
Using the 30% rule, if an individual was staying in Ikoyi and paying the average rent of ₦12,947,311/annum, they would have to be earning an annual salary of ₦43,157,703.3/annum. On the other hand, an individual renting a 2 bedroom apartment in Epe at an average price of ₦584,091/annum s(he) would have to be earning an annual salary of ₦1,946,970/annum.
With the average annual salaries ranging between ₦792,000 and ₦4,200,000, 83.33% of the areas we are tracking in Lagos would be ideally out of reach for the average Lagosian based on the 30% rule.
Co-living and the suburbs are emerging as alternatives for Lagosians to meet rent implications
As such, we decided to run an online survey to understand the current happenings and typical rent allocations for individuals within Lagos. From our findings, the majority (43%) of the respondents, fall within the range of 11-20% allocation of their income to rent
Quite notably, while most allocations fall within the 30% mark, anecdotal evidence suggests that increased cost of living means that individuals are still spending over 50% of their salary on feeding, transportation, and other bills. With inflation rate increasing, cost of food, transportation, and power also increasing, for example, diesel prices have increased by up to 136% in the first half of 2022, this has resulted in an additional toll on citizens.
As such, alternative options such as co-living and outskirts living have emerged as ways to bear the cost of rent, effectively reducing rent allocations for individuals. As a result, areas in the outskirts of Lagos are seeing increased interest especially along the Lagos-Ogun State borders being a cheaper location for individuals working in Lagos city centres. For example, places like Agbado, Arepo, and Magboro saw a 30% increase in rents between December 2020 and April 2021.
On the other hand, anecdotal evidence from our online survey showed that about 15% of the respondents were co-living with someone else.
Overall, residents in Lagos are finding ways to make their living cheaper and more convenient by either adopting living in farther areas or co-living.
We love your feedback! Let us know if you spend more than 30% on your rent or more, and if you have other sources of your rent payment by sending an email to insights@estateintel.com.
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