Affordable housing still a mirage

Meagre Government investment coupled with the private sector’s preference for the higher-end market are some of the reasons why home-ownership is beyond the reach of many, writes Ferdinand Mwongela

With an annual deficit of over 100,000 housing units, the real estate sub-sector though widely regarded as one of the best performing sectors of the economy is still an industry in the doldrums, with a myriad of problems affecting it. The cry for more affordable houses has yielded little with the Government being blamed for the low investment in the sector coupled with the abdication of its role in the provision of trunk infrastructure.

But the Government is not taking the criticism lying down. According to the Ministry of Housing, the introduction of the National Housing Policy redefines the role of the Government as an enabler, catalyst and partner in housing production. According to Margaret Wanjiru, assistant minister in the Ministry of Housing, the ministry will play the role of a facilitator and work closely with the private sector, which is regarded as a main player in housing production.

The blame game has sucked in the private sector blamed for its fixation with the high end market. This infatuation is, however, attributed to the low returns in the middle and lower segments of the market. The rising cost of land and construction materials as well as scarcity of land with the necessary trunk infrastructure have also proved to be major hurdles to the growth of the sector, something the minister accepts.

"The cost of building materials went up by as much as 40 per cent between 2007 and 2009 pushing up the cost of the final product as these materials account for as much as 40 per cent of the final cost," says the assistant minister.

"At the same time land cost also accounts for about 40 per cent of the final cost. So when the cost of land and buildings materials are added, they make the cost of houses quite prohibitive," adds the minister.

Chief Executive Officer of Mentor Holdings Dan Ojijo concurs with the minister.

"Land, poor infrastructure, high cost of building materials and high interest on development finance are some of the major hurdles facing the housing sector," he says.

According to Ojijo the focus on the high-income areas is because of returns expected.

Inftrastructure

A house in Kihingo in Nairobi. The Government has been blamed for low investment in housing sector. [PHOTOS: MARTIN MUKANGU/STANDARD]

"However, some developers have moved to the middle market areas like Mlolongo, Ruiru, Kitengela and Syokimau," adds Ojijo

Suraya Property Group Ltd Director, Sue Muraya, points out that in order to facilitate provision of low cost housing there is need to look at the issues of infrastructure and land in totality. She argues that despite the efforts of the Government more still needs to be done.

The last few years has seen increased spending, especially, on roads like the main highways of Mombasa Road and Thika Road but the irony is that these has increased the cost of land in these areas. The increased cost of land in turn will affect the cost of houses.

"Given the significant part that the cost of land plays in the final cost of the house this only pushes up the prices and in effect creates pressure points. It is not so much about infrastructure as it is about land," says Sue.

According to Wanjiru, over 50 per cent of Kenyans live below the poverty line with the median income levels in the country being between Sh15,000 and Sh20,000. This kind of an earner cannot access a mortgage so if one were to buy a house on mortgage of say Sh1.5 million repayable in 15 years at an interest rate of 15 per cent the monthly repayment rate would be about Sh21,000.

"This is way above the internationally recommended one third of gross income to be spent on housing," says Wanjiru.

She encouraged the private sector to seek low but consistent returns, which can be achieved by investing in low-income housing.

Speaking as he presided over the commencement of the trading of the first ever-infrastructural Housing Finance Bond at the Nairobi Stock Exchange recently, President Mwai Kibaki said access to mortgage financing was still out of reach of many and was still a preserve of those enjoying reasonable and predictable sources of income.

Another developer, Tamarind Properties Limited CEO Joe Mungai says that private developers can only go into the provision of low cost housing if something is done to mitigate the cost. He says there are a number of things the Government must do before inviting private developers.

National crisis

"For low cost housing, as a developer I have to go for virgin land, which in most cases has no infrastructure (roads, sewer and electricity)," he says.

This forces the developer to put up infrastructure such as sewage systems and roads and pass this cost on to the buyer. This is in contrast to areas with infrastructure and all the developer has to do is to tap into the same.

"We have asked the Government and though they agreed to do this, it is not happening," says Mungai.

According to Ojijo, to help realise the dreams of affordable housing for all, the Government must prioritise the provision of housing for the lower income bracket and even declare it a national crisis. This should be followed by a strong partnership between the Government and the private sector.

"Pragmatic public and private partnership is the only way the lower income group can access affordable housing with the Government taking the role of facilitator and the private sector acting as the engine," says Ojijo.

The Ministry of Housing’s dismal performance has also been attributed the lack of resources. According to Wanjiru, unless there is a change, the Government investment in the sector between 2009 and 2012 will stand at about Sh4.5 billion. This is only enough to develop about 3,000 units at the cost of Sh1.5 million per unit.

Resources

This is especially significant, considering that with the rising cost of house developments, the Government’s intervention remains the only hope for the lower income groups. According the Minister for Housing Soita Shitanda, the ministry needs more money. In the 2010/2011 budget the ministry was given a paltry Sh3.9 billion, which is far below the required amount.

All efforts in the housing seem to have hit a snag as evidenced in the growth of informal settlements in major towns. The Ministry of housing has, however, proposed several other interventions, chief among them the use of appropriate building technologies (ABT) that the Minister for Housing Soita Shitanda has been fronting for some time with little success.

The Ministry has set up ABT centres in the hope that more people will embrace these technologies and ease the pressure from the now conventional brick and stone.

"These centres will facilitate the improved and affordable housing. To this end, the ministry is in the process of seeking out consultancy services for the comprehensive research on the cost effective local and foreign building materials and technologies," says Wanjiru.

Other incentives proposed include the encouragement of private sector participation, reduction of tax on building materials and the removal of unnecessary legal frameworks. Whether this will help increase the supply of the country’s urban housing stock to about 127,000 in 2015, 184,000 in 2020 and 343, 000 in 2030 is still a matter of conjecture.