Home ownership is critical, don’t let dream of affordable housing die

An aerial view of Imara Daima Estate, Nairobi. [Gilbert Otieno, Standard]

In 1976, John Kamau was a dashing young engineer working for Kenya Railways.

That year he took a momentous decision to buy a house and took a mortgage. He bought a bedsitter in Umoja, Nairobi, for the princely sum of Sh36,000.

His monthly mortgage payment was Sh300, which he sometimes struggled to pay. As his children grew up, he raised some money and converted his bed-sitter into a small two-bedroom apartment.

In 2010, he sold his apartment for Sh3 million and bought a bungalow in South B for another princely sum of Sh5.8 million.

He used the Sh3 million from the previous apartment as a down payment and took another mortgage of Sh2.8 million. This time, his children took over the onus of remitting the monthly mortgage payments.

In 2020, his house was valued at Sh20 million. He is now thinking of selling his house and buying a new one in Syokimau for Sh15 million in cash and still have five million in spare cash. This true story is typical of the value appreciation in home-ownership over time. 

Many people fear taking the risk of getting a mortgage, worrying that if they lose their jobs they will lose their home. For a family man, the risk of not buying your own home is higher than buying one. If you lose your job you also cannot afford the rent anyway. If you take a mortgage and drop-dead, your family will own the home and the home insurance will pay the remaining mortgage.

Developers have now confirmed that they can deliver reasonable apartments for around Sh3 million. The challenge is how to make the mortgage payments affordable. Like Kamau’s challenge, the biggest challenge is that monthly payment.

On a Sh3 million house, the current monthly payment on a 20-year mortgage is around Sh35,000. This is difficult for many families. However, if mortgage rates are at 5 per cent, then the monthly payment comes down to Sh20,000, which falls within the affordability range for many two-income families.

Most pension funds struggle to get a 6 per cent return, yet if they invest in mortgage financing then they would easily achieve their return target. We must unlock this opportunity by regulations and enticement to the pension funds if necessary.

Home-ownership lifts families into the middle class. Kamau, in his retirement age, is not a poor man anymore and the years of struggling to pay the Sh300 has paid off. Had he depended on the cash payment from his pension he would have been in serious financial problems today. Government policy of allowing people to use up to forty per cent of their pension savings in buying a house will help in home ownership.

Social and political implications for Kenya are enormous.

In England, council houses which were a national disgrace suddenly morphed into high-value apartments once ownership moved from the council to the residents. Politically, the emergence of a middle class brings political stability in most counties. People who own property do not go around burning things.

Kenya cannot afford to let this dream of affordable housing die when the Uhuru regime ends in 10 months.