The impact of foreign exchange rate on building materials and residential building construction cost in Nigeria (1999-2021)

Abstract

Nigeria has a housing deficit of over 17.5 million. Over the years, the government has articulated several policies to encourage investment and development of the housing sector. However, the housing construction sector imports most of the building materials which is affected by the various government directives on foreign exchange policies, with significant impact on the cost of housing production. This study examined the impact of foreign exchange rates on the costs of residential building materials in Ibadan, with a view to proposing policy directives on the local production of building materials in Nigeria. A survey research design was adopted and the retrospective longitudinal approach was employed to obtain data for the study. It was revealed that two types of rates (the fixed exchange rate and the floating exchange rate) dominated the trend of foreign exchange in Nigeria. The prices of building materials indicate an upward price movement and correlations exist between changes in exchange rates and changes in the price of building materials. A unit increase in the foreign exchange rate affects the price of building materials as seen in this study, where the foreign exchange rate positively increased by 1 value, the interbank and the parallel market exchange rates rose by exchange rate values of 0,807 and 0,705, respectively. To reverse the current trend of dependence of prospective house owners on foreign materials for housing production, the use of quality-assured local building materials in housing development should be encouraged.