by Mukami Githagui
Housing is a fundamental human need. With the rising cost of inflation and other economic drivers making life very expensive, President Uhuru’s focus in affordable housing is a much welcome reprieve. In 2017 the President launched “The Big Four” agenda for economic development in Kenya, focusing onfood and nutrition security, manufacturing, affordable healthcare and affordable housing as his blueprint not only to deliver a legacy government, but also to bring long-term meaningful change to Kenyans.
The government plans to deliver 1 million housing units over the next five years. The president’s ambitious housing plan aims for at least half a million more Kenyans to own homes by the end of his second term. In Nairobi for instance among the areas to be covered include Park Road, Shauri Moyo, Bachelors’ Quarters, Suna Road/Toi Market, Pangani and Mukuru Kwa Njenga. It has also been reported that at least 36 governors have signed agreements with the national government to extend the project to their regions. Can this dream become a reality or is it going to become yet another white elephant?
According to the National Affordable Housing Summit Group of Australia, affordable housing is housing that is reasonably adequate in standard and location for lower or middle-income households and does not cost so much that a household is unlikely to meet other basic needs on a sustainable basis.
The National Housing Corporation, puts the housing deficit at 2 million units cumulatively and it’s growing by 200,000 units per year. With a rapid population growth of 2.6% per annum and the rate of urbanization standing at 4.4% it presents a dire situation. For context, the global average is 1.2% for population growth and 2.1% for urbanization respectively. The supply of housing in Kenya is constrained and the Ministry of Transport, Infrastructure, Housing and Urban Development estimates the total annual supply to be at 50,000 units.
To further underscore the need for affordable housing, the ministry indicates that 83% of the existing housing supply is for the high income and upper-middle-income segments, with only 15% for the lower-middle and 2% for the low-income population. In summary, while 74.4% of Kenya’s working population requires affordable housing, only 17% of housing supply goes into serving this low to lower-middle income segment.
Long story short, it’s not good. But what’s going wrong?
According to a Cytonn Investments report there is an inadequate supply of serviced land at affordable prices due to soaring land prices in urban areas. In Nairobi, for example, land prices have been growing at a 6-year compound annual growth rate of 17.4%. This has led to increased development costs as land costs account for 25% – 40% of development costs in urban areas, which consequently impacts on end-user prices. Even in most of the areas earmarked for this housing land prices are steep, which again begs question.
The report also cites costs of construction. Mid-level construction costs in Kenya range from Ksh44,000 – Ksh64,000 per square metre depending on the level of finishes, height and other related factors, and account for 50% – 70% of development costs.
According to Hass Consult Ltd, in Q3 of 2017 the prices of housing dropped by 5.1% due to the political instability we faced last year. However, the average value of a residential property in the country surged to KES 29.8M in September last year. The same report cites that property purchases in Kenya are purchased cash, mainly because the mortgage industry remains underdeveloped.
What solutions are available?
The government, the Capital Markets Authority, NSSF, Retirement Benefits Authority, Kenya Revenue Authority, private sector finance and development, all have a role to play and the specific solutions need to be wider.
Given the need for funding businesses in a growing economy where SMEs create majority of jobs, private markets such as structured products offer a compelling alternative for developers to seek financing.
Strong government support and strict housing policies are also necessary in order to boost home-ownership. It is necessary to set up and adhere to strict rules and eligibility measures for house-purchase such as minimum occupancy periods and housing to income ceilings, so as to restrict to prospective home-owners only as opposed to speculative buyers.
There’s need for efficient planning to allow the best use of land in a sustainable manner to cater for the growing population with key considerations on the provision of services such as water, power, garbage and sewage disposal. Hand in hand with this is exploring cheaper building technology to lower construction costs. Training of labour on the use of alternative building technology is essential so as to boost its application.
An article in Nairobi Business Monthly, argues that the construction industry needs to embrace technological changes that will result in a mind-shift on the use of innovative products and services whose aggregate effect would be to lower the average cost of building. Despite the emergence of innovative construction materials, building a house in Kenya is still costly.
In Nairobi where land prices have sky-rocketed significantly, we need to make use of land in the neighbouring areas outside the metro region such as; Kitengela, Ruiru, Ngong, Kiserian, among others to put up low-cost houses.
An efficient mass transport system linking the above areas to the city’s central business district will incentivise private sector investments in the greater metro region. Ethiopia is a perfect example where they have built a light rail system that connects Addis Ababa to the neighbouring towns where low-cost houses have been built. Due to the efficient mass transport system, Ethiopians are able to work in cities and towns but put-up kilometers away.
Given the rising cost of land, the cost of construction materials, taxation on these materials and of course corruption which sees title deeds irregularly issued, buildings constructed on riparian land and other irregularities, becoming a property owner is not a walk in the park. Only time will tell whether the government’s ambitious project is feasible or not.
Mukami Githagui is a freelance writer based in Nairobi. Mukami has covered business and written features for two of Kenya’s leading media companies, the Standard Group and Nation Media Group.