Kenya's affordable housing headache

Unlike the previous regime, this time it appears President Ruto has his work well cut out as he has roped in pension funds who have agreed to mobilise up to Sh1 trillion for affordable housing projects.

President Ruto also seeks to increase statutory contributions for the National Social Security Fund (NSSF) to Sh2,000 from Sh200 monthly to avail more funds for low-cost housing.

Counties have also been tasked to provide land for the same with the Lands Ministry headed by CS Zachariah Njeru tasked to ensure that developers find it easy to get title deeds and benefit from the incentives offered by the government.

Yet despite these efforts, somehow, it looks like the government's premise on what the country considers affordable is wrong, at least according to data.

The question then becomes: Do a majority of Kenyans want affordable or social housing? If the answer is affordable housing, as the government is providing according to its agenda, then how many Kenyans can actually afford it?

At the concluded affordable housing conference held in Nairobi and organised by the Kenya Mortgage Refinance Company(KMRC), this issue cropped up.

KMRC chief executive Johnstone Oltetia shared some figures at the conference which he referenced to the Kenya National Bureau of Statistics(KNBS) indicating that there are 18.3 million Kenyans in wage employment where three per cent earn Sh100,000 and above, 68 per cent make between Sh50,000 and Sh100,000 while 29 per cent go home with between Sh30,000 and Sh50,000.

For the affordable housing programme sponsored by the government through KMRC by facilitating a single-digit interest rate, most of the beneficiaries earn about Sh150,000 a month.

It means of the 18.3 million Kenyans who are on wage employment according to KNBS data, just 549,000 can get one-digit interest loans from the government.

Even so, it also means the rest of those in wage employment cannot afford the double-digit loans offered independently by commercial banks. And this is a fact KMRC acknowledged.

"It means most Kenyans cannot spend Sh30,000 monthly towards owning a home either through rent to own or mortgage. That explains the informality of our neighbourhoods where houses are built, yes, for the purposes of accommodating people but potentially not decent housing," said Mr Olteita.

Olteita said every year, about 50,000 units are delivered to the market and this is seen by the developments in satellite towns of Kiambu, Kajiado, Machakos.

"The question is: What is the nature of those houses and how are they funded?" he posed.

"Should we consider doing some kind of market survey or research to determine the actual position of housing in our market?" he pondered.

What makes the situation a sort of a missed target by the government overall, is that 98 per cent of the 50,000 units, as noted by Olteita, are for high income, the three percenters of those in wage employment.

Only two per cent of the units is left for moderate to low-income earners.

"So how affordable is affordable?" he again poses.

This dilemma is what immediate former Treasury PS Julius Muia noted as well during the conference insinuating that somehow, despite the efforts the government has made in the sector, a majority of Kenyans cannot afford a home.

"We all know the disappointing status of the fact that the majority of Kenyans up to now cannot afford to own a house, and so this raises a lot of questions," he said. "What should we do differently so that we can enhance the supply of affordable housing?"

"We have tried for a long time but we haven't gotten this," he added saying this incapacity is an obvious sign of market failure.

Dr Muia said there has to be a business case for developers in order to entice them to invest in affordable housing.

From how the market operates, it is obvious that developers and investors have no interest to put their resources into the purpose of providing housing to low-income earners, and it is a fact that Housing PS Charles Hinga acknowledged.

The solution, according to PS Hinga, is the National Housing Development Fund, which he believes will enable the pooling of resources and offer an off-take guarantee to such investors.

"And by the way, they (low and moderate-income earners) are the majority," he said. "Through the same pooling, we will offer affordable financing to low and moderate-income earners who are not able to access low-interest mortgages."

PS Hinga insisted that affordable housing is not synonymous with poor quality or cheaply built homes.

However, one option for building many units at a lower cost is to buy land in places far away from the central business districts of the major towns. This is an option the government sees not economical either even as it notes that land constitutes 30 to 40 per cent of the construction cost.

"If you buy a house for Sh1.5 million, but it costs you Sh30,000 to Sh40,000 monthly to commute to work, will this be considered affordable?" posed KMRC CEO Mr Oltetia. "As you can see, affordability is relative. It narrows down to a particular borrower, customer and it depends on what unit and of what size."

PS Hinga said to cater for the majority of the population, housing must be done at scale and this needs master planning so that the government does not end up putting up units in places so far away, just because it might be cheaper, yet there is no development in the areas.

"That is what Joe (KMRC chief executive officer) was saying. We can bring the cost of a unit down but the cost of transport becomes prohibitive," he said. Our development will be mixed-use and mixed-income so that we create cross-subsidisation in these models."