Rationalise housing, land markets to unlock wealth

This week President Uhuru Kenyatta launched a campaign to upgrade informal settlements around Nairobi by providing public services like hospitals, accessible roads and drainage. This is commendable.

The fact of the matter is that about 60 per cent of Nairobians live in estates that easily pass for slums. Only a small sliver of the city actually passes the “formal settlement” test. And even in the so-called leafy suburbs a recent upsurge in construction is increasingly overwhelming the old existing infrastructure – including roads, water and sanitation.

In effect, our utter lack of forward thinking and planning means we are growing nothing but a giant informal settlement. The ‘green city in the sun’ is becoming no more than a dusty concrete jungle, with unplanned housing units of questionable structural integrity dotting the landscape, and well-connected shady individuals grabbing every piece of land they can lay their hands on.

The odd thing is the housing sector in Nairobi is booming despite the ineptitude of the County Government, and the Lands Ministry. Kenyans continue to pour billions of shillings into constructing expensive homes and apartment blocks on land with dubious titles.

The present peri-legal state of affairs in the land and construction industries means only those with the right connections are able to reap benefits off this important segment of the economy. Honest players are subjected to months, if not years, of chasing approvals from the county government or titles from Ardhi House.

But things need not be this way. Home ownership is one of the ways in which the government could help households increase their wealth. Anyone who has ever constructed anything in Nairobi, or any of our other towns and cities, knows how difficult it is to undertake such an endeavour.

The banks will rarely give you loans, and if they do it is usually under usurious terms. Contractors are unregulated, which means many of them will try their best to swindle you of your hard-earned building materials. And lastly, the regulators have a knack of shaking you down whenever they feel like, even if you try to do things the right way. This has to change.

Rationalising the housing sector in Nairobi and other towns will have multiple benefits. For one, it will lead to a balancing of the supply of the housing stock. Presently, most of the new planned construction is only targeting the upper middle class.

Middle class and lower middle class Nairobians have to make do with collapsing structures in crowded estates, with minimal amenities. This has to change. If Nairobi is to be a decent city we must supply housing stock for the entire income spectrum.

Second, it will reduce the risk that banks and other financial institutions – including Saccos – have to deal with when lending out money for housing-related projects. Uncertain titling and the lack of clear government approval schedules mean that engagements in the housing sector come with significant risk for financial institutions.

 

Thirdly, a more open “free market” housing and land market would allow us know the true price of land and housing in Kenya. Are we in a bubble? How would we know if we were in one? An open and transparent market would allow us answer both questions. Yes, we may not always avoid bubbles, but grater transparency would allow concerned players to hedge against the downside risks involved in an intelligent manner.

This is unfortunate. If well regulated, and with government backing, the financial sector can play an important role in unlocking the pent up value in the housing sector. Allowing Kenyans to own homes through reasonably affordable long-term loans would create enormous wealth and increase the spending power of consumers.

The knock on effects on job creation would be significant. Furthermore, homeowners in the expanded middle class would provide a strong base for anchoring our political economy and serve to moderate our national politics.

With a big enough middle class, there would be a shift in the demands we put on the political class. Instead of flashy leaders specialising in dishing out targeted handouts, we would demand for actual universal policies that are sustainable in the long run.

We must commend Devolution Cabinet Secretary Anne Waiguru and the President for the recent focus on informal settlements. But more needs to be done. In particular, we should shift from palliative interventions and dream big. What we need are not programmes that make our people comfortable in the slums, but housing policies that will allow our people to live in dignity.