Unlocking Affordable Housing in Kenya calls for a Pragmatic Approach

The Government has yet again said it will prioritize affordable housing as one of the key initiatives, to ensure millions of Kenyans in need of affordable and decent homes realize their ambitions.

This presents a fresh opportunity for Kenya to pursue this dream which has somehow been elusive. The need for housing is almost morphing into a crisis. In virtually every city across the continent, evidence of inadequate housing can be found in the proliferation of informal settlements and overcrowding. With an annual urban growth rate of 3.9%, Kenya faces a serious housing backlog that continues to impact negatively on the health and well-being of low-income households.

Kenya’s Vision 2030 Third Medium Term Plan (MTP III) 2018-2022 identifies affordable housing as one of the key planks to the realization of inclusive growth that is capable to support the development of a sustainable future. Specifically, Vision 2030 committed the government to construct at least 150,000 housing units per annum for the entire duration of the plan.

However, the realization of this dream especially for Kenya has been hampered by a limited flow of investment finance to the sector, increased costs of construction for developers, as well as low consumer affordability levels across the housing and demand value chain. In addition, the supply of affordable serviced land is inadequate amid soaring prices in urban areas, leading to increased development costs.

Only 28% of the population in Kenya is urbanized, while 61% of the urbanized live in informal settlements. An estimated 10 million Kenyans countrywide, and 36% of Nairobi’s population, live in slums. Urban centers are also characterized below levels of homeownership at 21.3%, compared to the national average of 61.3%. Consequently, Kenya trails its peers like South Africa and Ghana whose urban home ownership rates stand at 53.0% and 47.2% respectively.

While the government has made commendable progress in driving housing supply, accelerating this needs encouraging the use of alternative building materials to lower construction costs and thus achieve affordable houses; reviewing the public-private partnership framework to enhance effectiveness; fast-tracking incentives; investing in urban planning to enhance sustainability; and providing infrastructure, the lack of which is due to limited budget allocation to county governments that have crippled the opening up of critical areas for development.

Where is the missing link? Affordable housing has been defined as housing that costs between $8,000 and $30,000 while social housing is in the range of $6,000 and $10,000. The need for decent housing has been lauded as having a profound effect on household living conditions, addressing at least 14 of the Sustainable Development Goals, and enabling active participation in the economy and the financial sector. It also supports the development of a sustainable future with a direct impact on the factors that contribute to or mediate the effects of climate change thereby driving access to basic services and contributing toward inclusive growth.

Estimates from the Centre for Affordable Housing Finance in Africa (CAHF) indicate that Kenya has a cumulative housing deficit of 2 million units; a deficit whose size grows by 200,000 units per year whereas supply lags at 50,000 units yearly. 83% of the housing supply is directed towards high-income and upper-middle-income segments of the population, with only two percent of this being for the low-income market against an annual demand of 250,000 units.

Here is the missing link; With the current high commodity prices and skyrocketing inflation being experienced across the globe, the net effect is that households will be hit by lower incomes which will reduce their affordability as housing consumers, putting pressure on developers with depressed demand, leading to rising Non-Performing Loans. This is because households will be forced to shift their spending priorities to immediate health and safety needs with fewer resources going to housing.

Additionally, the high costs of land and titling procedures, bulk and internal infrastructure provision; inefficient planning; zoning and land registration systems; land speculation continues to restrict access to well-located land for development as investors hold back monies amid market uncertainty.

The affordable housing reality has not escaped the new administration of President Dr. William Ruto as it has planned to construct 250,000 houses yearly. It hopes to achieve this by focusing more on adopting a framework that explores the value add-ons by sectors such as finance and manufacturing into the challenge. These will be through creating synergies between the two sectors to build a local construction technology sector, efforts that will comprise employing scale to reduce construction costs and timelines and applying global best practices in innovation.

Kenya has the right fundamentals in place to achieve results on a significant scale. However, collaborative efforts between the government and the private sector need to be nurtured with an accompanying supportive policy and regulatory environment in place.

To achieve this, both the supply and demand sides of this industry must be rejigged for the country to realize optimal progress. The supply side policies will be geared towards unlocking land and financing for development, government-led projects and building relationships with the private sector and inducing them to participate in projects that serve the Affordable Housing Agenda while the demand side will look into the laws governing housing sector construction, building standards, design procedures and green building codes to ensure that they are reviewed for sustainability and safety.

The operationalization of the Kenya Mortgage Refinance Company (KMRC) is a welcome initiative that will ultimately increase the flow of finance into the housing lending agenda. Already, its engagement with financial institutions like KCB Bank has witnessed the underserved segments of the market benefit through single-digit and longer-tenured facilities. Beyond serving as a game changer for persons in such populations, it is yielding a positive impact on the supply of long-term finance to Saccos creating the “housing multiplier effect” that creating indirect benefits to the country including job creation and deepening of the financial sector.