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How home ownership can trickle-down to the poor

The affordable housing project located at Mukuru in Nairobi that was its construction was inspected by president William Ruto ion October 03, 2022. [Denish Ochieng, standard]

Since retired President Uhuru Kenyatta launched his infamous Big Four Agenda in 2017, affordable housing has arguably been one of the most discussed pillars compared to the rest - food security, affordable healthcare and manufacturing- and for a good reason. Uhuru’s Jubilee administration sought to deliver 500,000 affordable houses by the end of its reign in 2022.  

The dream - which included a promise to do an audit to ensure the safety and security of 6,000 buildings per year- failed to materialise as was envisaged.

Earlier this year, government spokesperson Cyrus Oguna said the State had delivered 250,000 affordable houses, “with another 650,000 in the pipeline, way more than the 500,000 promised by the Jubilee administration”. Other sources indicated the real figures of delivered units were just on the upside of 10,000.

Urban population

In President William Ruto’s manifesto - The Kenya Kwanza Plan: The Bottom Up Economic Transformation Agenda 2022-2027, the Head of State promised to close the deficit amid a rapidly rising urban population.

“The requirement for new urban housing is estimated at 250,000 units a year, against a production of 50,000 units, translating to a deficit of 200,000 units,” says his manifesto.

“The cumulative deficit is estimated at two million units. As a result, more than 60 per cent of urban Kenyans live in slums and other low-quality housing without adequate sanitation, undermining their dignity and exposing them to health hazards. This is also a reflection of the bias towards upper-income housing.”

But what other interventions could the government take if it were to arrest the problem of lack of proper, affordable housing for its population?

A deliberate government effort to incentivise people at the topmost cadres of society so they can afford new houses would be part of the solution. This group will, if convinced by the incentives, rush to get new housing - often dream houses.

Once these people construct, aided by these attractive government incentives, they will move into those houses, in essence leaving the houses they occupied vacant.

Like what happens when hermit crabs are exchanging shells, where they line up and every crab moves into the next bigger shell which has been abandoned by a vacating crab, which has also graduated into a more spacious unit, houses trickle down.

The upper middle class then enter the houses vacated by the rich, and they leave their houses for the lower middle class.

This spirals down to the very bottom of the pyramid where the lowest earners in society can afford decent houses, vacated by an upgrading group.

“Thus, housing is said to be filtering down to the lower income brackets from the rich in the same way that automobiles and other consumer durable goods filter,” writes George King’oriah, an economist, in his book Introduction to Land Economics.

“In some instances, the rich emigrate from some localities altogether, leaving the middle class in their former impressive residences. Later, the middle class may also abandon the area gradually, leaving it for the use by the low-income earners.”

This is called the adoptive model of the housing market, whereby incentivising those at the top of the pyramid, the very poor can get a roof over their heads.

However, this method, where housing spaces filter down to the less socio-economically privileged groups, is only viable if the rate of construction can exceed the rate at which new family units are formed.

“This approach to solving the problem of housing shortage with minimum government intervention tends to have a political appeal, especially among the high-income, because most types of construction are too expensive for low-income families,” writes Prof King’oriah.

“It favours the giving of loans and other incentives to the high-income groups for the improvement of their housing and the acquisition of new housing. This way, the rich can opt out of their old units to the newer ones.”

Government programmes

He says the model has been popular in the US since the end of World War II, with central and local government programmes making housing construction and acquisition of credit more readily available and at a lower cost to high-income groups.

And while this might not suffuse in a city like Nairobi where the population growth is rapid and where poor planning creates a strain on land and infrastructure, it could be applied in smaller urban areas in the country where population surge has been kick-started by devolution.

World Population review notes that Nairobi is growing at a rate of over four per cent annually, “primarily because of the high birth rates and immigrants that come to Nairobi searching for employment opportunities”.

It also estimates that the city will reach a population of five million people in 2025. The population was 4.4 million in 2019, according to the Kenya National Bureau of Statistics (KNBS) census report.

The process of filtering down is slow, says Prof King’oriah, as is the market process and “no matter how good an economy is, the processes will not be efficient enough to offer a decent house for each member of the community”.

As such, governments have sought other methods of influencing the market, and accelerating its functioning in various ways, such as through direct subsidies to the poor, rent controls, various types of zoning, urban renewal and slum clearance.

But these have also not been honoured to the letter in Kenya, with a huge city population consigned to substandard housing units and no panacea in sight.

One other reason those who can develop new housing and reduce the shortage in the housing sector are not doing it is that housing is often not an immediate priority even to the wealthy.

“In addition to the market imperfection, housing tends to take a low priority in consumer budget allocation. If ordinary town-dwelling people in the streets are interviewed and asked to list the order of priority of their economic wants, housing needs tend to take a low priority after jobs, food, clothing, and need for other consumer goods,” Prof King’oriah says.

Acquiring housing is seen by many as a prospect, with many not keen on building if they can, in the short- to medium-term, afford to rent accommodation. Financial outlays that are involved in the construction of housing are a discouragement for many who could easily construct, move out of their current residences and start the process of filtering down residential units.

“Housing falls into the category of merit good, more of which people should be consuming, but very little of which is consumed. This is because consumption of more housing increases the welfare of the society, but the society tends to defer this kind of consumption in favour of other goods of less benefit to society,” he writes.

Targeted government interference, to encourage housing consumption at the expense of commodities that the public is wont to consume without government interference, could be a step in solving the housing crisis.

Material and financial help, says Prof King’oriah, make it less strenuous for people to construct, and an increase in taxation of demerit goods to fund subsidisation of housing could boost housing construction.

On the flip side, when the rate of construction is lower than that of the formation of new family units, then what filters down is the rent. Demand for available housing to the lowest levels of the pyramid causes an increase in rents, pushing people lower down the rungs until the very poor cannot afford decent shelter; their houses now attract occupancies of way wealthier people.

This leads to a rise in slums as the lowest-income earners look for shelter. Housing gets overpriced, as is the case in many areas of the city, with a return to normalcy a near-impossible feat.

In the urban areas in counties, intervention by county governments to encourage the construction of houses for an adoptive model could complement the government’s own efforts to construct affordable housing for a huge population that, at the market rate, might never afford decent shelter.