Cash is the most preferred home financing method for most Nairobians according to a discussion paper by a public policy think tank.
The paper notes that the majority of individuals who own their own homes in Nairobi acquired the properties in cash, revealing the gap that exists in access to affordable financing for home loans.
The acquiring of homes in cash is for those who either constructed or bought ready-built houses.
According to the paper, published in November 2022 detailing the situation of housing and infrastructure in the capital, one in every ten Nairobians owns a dwelling place.
The Kenya Institute for Public Policy Research and Analysis (Kippra) paper documents that most households (91 per cent) occupy rented and provided dwelling units.
About nine per cent of the households own their dwelling units.
It adds that owner-occupied housing units are mainly acquired through construction (53.7 per cent), followed by purchase (30.8 per cent) and through inheritance at 15.5 per cent.
“The preceding tenants characterise Kenya’s housing market. Therefore, affordable housing initiatives should also focus on homeownership and the affordable rental market for the population that prefers to reside in rented units,” reads the discussion paper titled, Analysis of the Housing Status and Access to Basic Infrastructure in Nairobi City County: Disparities and Level of Deprivation.
Among individuals who purchased their dwelling places, 66.7 per cent did it cash while 16.7 per cent through loans. Another 16.7 per cent purchased homes with both cash and loans.
When it comes to those who constructed their homes, 80 per cent did it in cash while 6.7 per cent constructed through loans. Another 13.3 per cent was constructed through loans and cash.
Further, results indicate that most of the households purchase the housing units in cash (66.7 per cent) and construct in cash (80 per cent) compared to construction through loans and loan and cash,” the paper reads.
“This indicates that home financing preferred by the majority of households is construction and buying in cash.”
These details on cash preference seem counterproductive to what the government is doing to improve access to finance, specifically for home ownership.
Part of these efforts saw the incorporation of Kenya Mortgage Refinance Company (KMRC) which facilitates a section of commercial banks and Saccos to lend to Kenyans at a single-digit interest rate for the purpose of home ownership.
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This is unlike the 13 per cent average interest rate being charged by commercial banks when one is taking a mortgage.
The number of mortgage accounts in the country averages 27,000 yet the country needs in excess of 200,000 units annually to accommodate the shortage.
Incentives to developers
According to the paper authored by Charity Mbaka and Humphrey Njogu, even with these efforts by the government that include incentives to developers, the majority of homeowners still choose to construct their dwelling place by themselves, primarily through cash.
“Constructing a house is deemed affordable compared to buying already built housing units, and high interest makes it expensive to acquire loans for construction purposes,” the paper reads.
“Most households consider constructing dwelling units of their preference, attributable to the high cost of buying homes and the flexibility of time and other factors such as designs and size in constructing their dwelling units.”
The paper further notes that the low incidence of owner-occupation is attributable to the high cost of housing and the low purchasing power, adding that the Nairobi county government’s key area of focus should be increasing homeownership through affordable housing initiatives among low-income earners.
The majority of these individuals, it notes, fall under the social housing category.
“Besides, rent continues to be alarmingly high and out of line with incomes, forcing most of the population to pay more than 50 per cent of their income each month on housing,” the paper adds.
The paper states that a household income bracket is critical in targeting affordable housing beneficiaries. From the paper, a high proportion (61 per cent) of households earn below Sh20,000.
“This indicates that the largest population of households in Nairobi County will require formal social housing as defined in the National Housing Development Fund regulations 2020,” it states.
“Currently, formal housing is inaccessible to most low-income earners due to the low purchasing power.”
Further, as the paper confirms, the mortgage far cry reaches the larger population, the mortgage gap comprises 20.7 per cent of households, while the low-cost housing category stands at 16.2 per cent and the middle to high-income segment comprises only 2.2 per cent of the households.
“Therefore, the government’s plan for social, low-cost and mortgage gap housing under the affordable housing project will go a long way in supporting most households in Nairobi City County,” it adds.
The study used the Kenya Integrated Household Budget Survey (KIHBS (2015/16) Nairobi sub-set comprising 550 urban households.