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Build modest houses, grow the economy

REAL ESTATE
By Gayline Vuluku and James Gachanja | May 21st 2015 | 2 min read

It is estimated that the construction industry in Kenya contributed 4.8 per cent to gross domestic product (GDP) in 2014 up from 4.5 percent in 2013. At the same time, the real estate sector contributed about 8.1 per cent to the GDP from 2010 to 2014.

Despite this, statistics illustrate an enormous and unmet demand for decent housing from low and lower-middle-income earners.

This is an indication that there is a lot of potential economic gain to be drawn from investing in adequate low-cost housing for sale or rental purposes. Depending on the taxes and fees levied, county governments also stand to benefit from one off or continuous revenue collection.

Evidence exists to prove that poor living conditions directly affect the productivity of the labour force and the efficiency and competitiveness of cities, resulting in slower economic growth. Highly-priced homes push the labour force far away from their places of work in search of affordable residential units.

A modified reference to the Tiebout hypothesis implies that people would relocate to counties that spend more on provision of decent affordable housing, attractive infrastructure and improved living conditions, turning those that don’t into ‘ghost towns’ due to out-migration.

Recently, some developers have focused on supplying housing for the lower income groups. But, can they decently house the poorest citizen?

 Sales volumes

Private developers can still benefit by selling to the huge ‘investment hungry’ urban workforce and reduce the sale waiting period.

Better still, if they attract fair rent rates, the occupation rate will be high and so will the return on their investment.

Investors in low-cost housing can learn from the Equity Bank strategy of banking the unbanked who form a big proportion of the Kenyan population.

However, the high cost of input material and land, hikes housing prices beyond the reach of low -income earners, especially in urban areas.

The public sector, therefore, remains the best option to adequately house the neediest citizen. Whereas a housing unit is a private good it is considered a merit good for political, social and welfare reasons.

To encourage supply of low-cost housing and the economic benefits that come with it, there is need to implement private-public partnerships where the government supplies land and the private sector does the construction. County governments should take the opportunity to undertake forward planning to secure land for immediate and future development of housing. This may help to  mitigate the escalation of land values due to speculation.

Availability of funds is also a prerequisite in the supply of housing and slum upgrading. One source of funds the Government has considered and needs to implement is the use of pension fund to invest in public housing.

The Government would avail the housing at a value that caters for public welfare, while catering to revenue objectives and subsidising the neediest citizen.

— The writers are researchers at Kenya Institute for Public Policy Research and Analysis

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