The dream of a home in Addis Ababa is a peculiar kind of fever. It grips the young professional, the returning diaspora, the family saving for generations. It is a dream built on a foundation of concrete, steel, and a paradox so profound it defines the city’s skyline, a forest of half-finished towers and condominiums. To understand this city is to understand why a man will commit to a twenty-year loan, shackling himself to a monthly payment of eighty-five thousand Birr for a house, when that very same house, just next door, can be rented for a mere fraction, perhaps fifteen or twenty thousand. This is not a simple miscalculation of the market. It is rather a symptom of a deeper structural malaise, a collective spell where logic has been suspended in favor of a desperate, and ultimately fragile, belief.
The arithmetic is brutal in its clarity. Consider a home valued at five million Birr. To purchase it with a bank loan over two decades is to sign up for a financial marathon where the path is paved with monthly installments that dwarf the average annual income of many Ethiopians. That eightyfive thousand Birr is not just a number. It is a weight that dictates life choices, forgoing education, healthcare, and simple pleasures for the distant promise of ownership. Meanwhile, the rental market whispers a different, more rational truth. For a fifth of that crippling payment, one can live in an identical structure, in the same neighborhood, with the same walls and the same view. The renter enjoys a liquidity and freedom that the buyer, for twenty years, can only dream of. Yet, the true cost is even deeper. Even if one buys the same house with their own cash, the opportunity cost remains. That five million Birr could have been invested elsewhere, potentially attracting a return as significant or more than the loan repayment amount. The buyer is essentially forgoing that potential income in favor of the concrete, a choice that is only rational if the property’s appreciation wildly outpaces the market. This chasm between the cost of owning and the cost of renting is not a natural economic phenomenon; it is a fracture in the system itself.
This fracture is forged in the fires of several converging crises. The first is the staggering cost of construction. In Addis Ababa, building materials are not merely expensive; their prices are often inflated by a complex web of supply chain bottlenecks, limited local production, and import dependencies that leave the market vulnerable to volatility. Cement, steel, and sanitary ware carry price tags that seem detached from reality, embedding a high baseline cost into every brick laid.
This initial sin is then compounded by the second, and perhaps most crippling, element: irrationally high bank lending rates. The financial institutions, operating in an environment of perceived risk and limited capital, offer loans with interest rates that would be unthinkable in other contexts. These rates are not designed to facilitate ownership but to protect the bank, effectively ensuring that the buyer pays for the house several times over by the time the final installment is cleared. The monthly repayment becomes less about paying down a principal and more about servicing a perpetual debt.
Yet, if the financial burden is so immense and the rental alternative so starkly economical, why does the scramble for ownership persist with such fervor? The answer lies in a third, more insidious factor: information asymmetry and a profound shift in the perception of what a house represents. For many, the house in Addis Ababa is no longer primarily a shelter, a place to raise a family and build a life. It has been altered into the ultimate investment vehicle in an economy with painfully few alternatives. The Ethiopian capital market remains a distant horizon, a promise of stocks and bonds that has yet to materialize for the average saver. Where does one park their life’s savings to guard against inflation and currency devaluation? The answer, for a growing and anxious middle class, is in four walls and a roof.
This investment mindset creates a self-perpetuating cycle. People buy houses not to live in, but to hold, betting on perpetual appreciation. This speculative demand further fuels the construction boom, which in turn drives up the cost of materials, making houses even more expensive and reinforcing their status as luxury assets rather than basic infrastructure. It is a closed loop of irrationality, where the high cost justifies the investment thesis, and the investment thesis justifies the high cost. The actual utility of the house – as a home – becomes almost incidental. This is why the rational calculation of renting versus buying holds no influence. The buyers are not comparing monthly payments, but are making a long-term bet on the city’s future and their own financial security. They are, in a sense, renting money from the bank at an exorbitant rate to own an asset they believe will outpace that cost.
But every fever breaks. The arrival of a formal capital market, with its array of stocks, government securities, and corporate bonds, promises to be the cold compress that shocks the system. It would offer that long-awaited alternative, a channel for savings that does not require a five-million-Birr entry ticket and a two-decade debt sentence. It would finally provide a rational benchmark against which to measure the opportunity cost of real estate. If people can earn a reasonable return by investing in the productive capacity of Ethiopian businesses – in manufacturing, in technology, in agriculture – then the frantic scramble for residential real estate as the sole store of value may begin to subside. The house could slowly return to its original purpose: a home.
This potential paradigm shift is not just about correcting a market inefficiency; it is about redirecting the lifeblood of the nation’s economy. The billions of Birr currently locked into concrete, in buildings that often stand half-empty as speculative assets, represent a monumental misallocation of capital. This is capital that could be funding startups, expanding factories, and fueling innovation in sectors that create jobs and generate real, sustainable wealth. The housing shortage in Addis Ababa is real and acute, but the solution is not, and cannot be, a continued frenzy of construction under the current terms. The solution lies in untangling the knot of high finance and speculative fear that has made building a home a losing proposition for everyone except the speculator.
A new consciousness is needed, a coming to one’s senses. Why willingly choose to “rent” money at a devastatingly high cost to own a house, when one can simply rent the house itself for less and direct the savings towards more fruitful endeavors? The answer has been fear and a lack of choice. But as the city evolves, so too must the logic of its inhabitants. The dream of a home in Addis Ababa does not have to be a nightmare of debt. It can be recalibrated, separated from the burden of being one’s only investment. It is a shift that would not only liberate countless families from financial servitude but could also unlock the capital needed to build a more productive, diversified, and resilient economy for all. The skyline of the future need not be a monument to speculative anxiety, but a testament to a society that has learned to invest in its people, not just in their property.
Befikadu Eba is Founder and Managing Director of Erudite Africa Investments, a former Banker with strong interests in Economics, Private Sector Development, Public Finance and Financial Inclusion. He is reachable at befikadu.eba@eruditeafrica.com.
