ROLE OF CAPITAL MARKETS IN AFFORDABLE HOUSING

The issue of #affordablehousing has become a major challenge for many countries around the world. Despite the importance of having access to decent housing, many low- and middle-income families struggle to find affordable homes. In this context, capital markets have emerged as key players in facilitating the development of affordable housing projects. Through their ability to mobilize large amounts of capital and create investment opportunities, capital markets can help address the financing gap that often hinders affordable housing development. This article aims to contribute to a better understanding of financial markets' role in promoting social welfare and inclusive economic growth.

According to a report by the World Bank, Kenya has an estimated housing deficit of 2 million units, and the number is growing by 200,000 units per year. Kenya's population growth rate is approximately 2.2% per year. This means that the population of Kenya is increasing by around 1 million people annually; this deficit, plus the housing supply, is not enough to meet the growing demand.

The past administration pioneered the Big four agenda, which included the pillar on affordable housing geared to curb this looming problem of affordable housing. However, several issues emerged from this ambitious project, including the single-phased procurement model that compromised the quality of houses we were getting. As a result, the former government only managed to complete around 14000 out of the intended 500000 units, a 2.8% delivery.

The affordable housing project was a great idea, but like most projects of this scale, funding is always a huge issue. The current government has launched several projects under the same interests, such as the Kings Boma Estate affordable housing project located along the Ruiru-Kiambu road, which seem pretty promising but might also have a low delivery rate if the issue of cost is not put to the lens.

According to a 2018 survey by the Kenya Bankers Association, the average cost of an affordable house in Kenya is Ksh 3 million (about USD 27,000), while the average mortgage is Ksh 1.5 million (about USD 13,500). This is compared to the average income of a household; then, we see a vast disparity.

The question then becomes clear; how can we meet our housing needs affordably and sustainably without resulting in huge loans that come to haunt us later? The solution lies in our capital markets. Capital markets are defined as financial markets where individuals and organizations trade financial securities, such as stocks, bonds, and other long-term investments.

There are 65 publicly listed companies under the #nse , all of which, according to the Capital Markets Authority (CMA), have a total market capitalization of Ksh 3.12 trillion as of 2021. It is, however, a bit ironic that despite our heavy emphasis on the need to meet affordable housing, the dominant stocks in the NSE are Safaricom (a telecommunications company) which owns about 70% of the Market capitalization. Other popular stocks are mostly Bank stocks such as Equity and Co-operative. I have no problem with the companies mentioned above; however, if we are serious about the affordable housing agenda, we need to see more investment in companies related to construction and housing in general.

Capital markets can help us by first creating investment opportunities in affordable housing projects by attracting investors interested in earning a financial return and making a positive social impact. This can include institutional investors, private equity firms, and impact investors.

One of the most critical roles of capital markets in affordable housing is to provide financing for the construction or renovation of affordable housing projects. This financing can come in debt (mortgages or bonds) or equity (private investment in affordable housing funds). This will offset the country's over-reliance on domestic borrowing, which chokes the capital base of #smes as government borrowing skyrockets interest rates making it difficult to finance local businesses.

Capital markets can also improve the overall efficiency of the affordable housing development process by providing liquidity and standardizing investment terms. This can make it easier for developers to access capital and investors to invest in affordable housing projects.

Lastly, the markets generate a sense of social benefits which is the most critical aspect of the project. Capital markets can play a crucial role in developing social benefits for #kenyan citizens by increasing the supply of affordable housing. This will help to reduce homelessness, especially for the urban poor, improve access to education and employment opportunities, and promote social mobility for low-income families.

What is your take?