By Kibui Butt

I recently read an article that talked about the need for Government involvement in the housing sector. The scribe penned the government support and backing as a necessary aide in the growth and development of the low to moderate-income housing. While the desire to be homeowners is a dream out of reach for most Kenyans, the desire to create an agency/ministry to fill that need is the last thing Kenya needs right now. A quick look across the pond will cement the fact that government involvement is necessary for regulation, but anything beyond that is inviting a fox into a hen’s coop.

Can the government afford another burden?

In a recently posted article by Reuters reporter Jason Lange; the US housing market is on the mend, which suggests that prices are bottoming out in most markets and that there have been robust pricing increases in the more stable markets. 35 out of 38 recently polled economists said that the market was recovering.

But the housing programmes policies (run by quasi government agencies – Fannie Mae and Freddie Mac), have been detrimental to the recovery and in blocking the governments’ attempts to forgive portions of debt in the overpriced markets, they have stymied the recovery and cleansing the lower end of the default market that sorely needs.

Shouldering the risk of development

The irony is the government took control of the agencies during the financial meltdown and despite saving the agencies from bankruptcy, the administration has been unable to effect the necessary changes to forgive debt.

When I look at the Kenyan government, I see an entity that operates well over budget, is pretty ineffectual in adapting to the ever-changing environment, and one that manoeuvres thee highways of change like a dump truck.

The cost of running a ministry or agency specific to any sort of development rests squarely on the shoulders of the Kenyan taxpayers.

The best thing for the market is the development of multiple developers who are focused on expanding outside Nairobi and its environs.

The risk of insuring mortgages against default is spread to two different entities in the American market. There are private mortgage insurance companies; that provide insurance for any buyer who cannot afford to put 20 per cent down.

These policyholders are qualified buyers with better financial portfolios; they typically have good credit ratings, payment histories, and post-close reserves (the money left in the bank after you buy the home). Most mortgage insurance companies are thriving in the market; those that survived the financial crisis are seeing less default with more stringent mortgage underwriting guidelines.

Government agents

The second entity involved in insuring mortgages against default is the Federal Housing Authority, a government agency that facilitates the purchase of homes through a lower down payment (3.5 per cent), but the FHA charges 1.75 per cent fee and monthly premium to insure its loans against default. The FHA has had to continuously raise the premiums to try and increase its capital ratio required by the law.

The alternative approaches

As a private developer, they have the goal of completing their projects in a timely manner and as close to budget as possible. They are conscious of preserving the name they have built and continue to focus on providing value and building brand loyalty through their projects.

In providing housing to the public, the developers are passing on the obligation and risk of home ownership to the banks that provide the finance and the buyers who invest their cash into down payments for the property.

While the demand heavily outstrips supply, there is little the Government can do to remedy the issue directly. A quick glance at the Kenyan government and projects in place would indicate that it is already stretched to its capacity, and over-loaded with cost.

Potential pitfalls

There would be so much opportunity for graft, wasted resources and man hours. Kenyans do not need to be funding the development of the country through a Government agency. County offices will be given the power and funds to develop their domain. In doing so, there will already be Government involvement at the grass-root level, where the county leaders can make decisions.

The need for an umbrella agency that would provide cover for all, funded by the taxpayers would be double dipping into Kenyan pockets.

The way forward?

The reality for most Kenyans, for now, is that informal housing is where they can expect to spend most of their lives. The more crowded the main cities get, the worse the housing situation gets.

The recent focus on satellite towns could alleviate some of the pressure on Nairobi. But the focus needs to be radical and ground breaking. With Konza City being developed as a technology super centre, one needs to look no further than a 100-mile radius for great opportunity for housing.

The Government needs to subsidize and induce growth of several super-cities in areas that are underdeveloped. Towns like Garissa, Mariakani, Mtito Andei, Isiolo are all small and under-developed enough to adapt to plans that would allow for massive development and extensive planning to accommodate the needs for new super-cities.

They are also based on highways that are (will be the life blood) for transportation into the country and beyond Kenyan borders. Kenyans need the Government’s investment in infrastructure and commitment to provide tax relief for companies that invest heavily in those towns.

Exploring opportunities

Looking for opportunities to grow in developed areas is expensive and takes away from the possibility of looking at less developed areas.  The best options, are going to be in the under-developed cities, where a lot of work and investment must go in, and in the end, the result would be free-holding cities within counties that will allow the people to be weaned off the lure of living in the capital city where the dream of owning a home in Nairobi is precisely that, a dream.

Private developers and groups that can develop their own communities can do all the development—there is no need for Government assistance; it will cost more in the long run.

The trend since independence has pushed more people from rural and peri-urban areas to come to the capital and other major cities for work and a livelihood. The government has the opportunity to make the changes and reverse the trend. With development outside Nairobi, there would be a huge incentive to move out for employment and other business opportunities.

 -The writer is a mortgage banker.