World Bank report faults State over neglect of rental market

Status of rental houses within Nairobi's Pipeline Estate. [Denish Ochieng, Standard]

The government has largely ignored the rental market despite its significant role in achieving affordable housing, a new World Bank-sponsored report says. 

The report compiled by Kenya Mortgage Refinance Company (KMRC), the government’s primary vehicle for implementing the affordable housing programme, poked holes in existing legislation and revealed unfavourable terms hindering the segment.

Titled Positioning Affordable and Backyard Rental Housing Programme as a Key Target in Kenya’s Housing Programme, the report details how this sector has been overlooked to the extent that it is largely driven by the private sector.

Players in this sector get little to no government incentives when putting up houses and as such, the living conditions in these houses are, in most cases, deplorable. This is despite this segment of the market growing exponentially when compared to those who own.

For example, a previous report published by the Centre for Affordable Housing Finance in Africa (CAHF) notes that between 2009 and 2019, new urban renter households grew by 158,000 every year compared to 39,000 over the same period for those who own their homes.

The CAHF report says there are 3.67 million (78 per cent of the urban population) who rent their primary dwelling. And, 89 per cent of these rental houses are provided for by private individuals.

“This is shaped by many factors including, but not limited to, access to land and formal tenure, access to finance, construction costs, access to skilled builders and professionals, provision of critical infrastructure and services (water and sanitation) and government capacity to drive compliance with appropriate building standards,” the report says.

The report was commissioned in June 2022 by World Bank which appointed CAHF among other players to profile the affordable rental market in Kenya.

The report, which contains draft findings, in part looked at the policy and regulatory environment and found it unfavourable for investors who would otherwise be interested in the rental market.

This is even with the new administration led by President William Ruto which has re-affirmed the affordable housing programme as part of the development agenda.

“Rental is hardly mentioned, however, and the activities of small scale or individual landlords in the affordable market are not accommodated,” says the report.

The report, citing Kenya Vision 2030, Sessional Paper No 3 of 2016 on National Housing Policy, notes that it explicitly focuses on housing and acknowledges the need for landlord and tenant legislation.

“Beyond this, no attention is given to rental,” the report says.

While the 2016 Housing Policy makes explicit reference to rental in detail, this new report says, none of the proposed measures have been implemented and the heavy reliance on National Housing Corporation (NHC) is misguided when compared with the dominance of household landlords.

“The affordable housing programme is clearly focused on a new build of ownership housing – it makes no reference to the rental,” the report reads. “While the National Land Use Policy acknowledges the need for densities to overcome price increases, as well as in service delivery, it does not address rental tenure arrangements.”

Apart from Kenya Vision 2030, the report has also analysed policies on building and refurbishment, financing of rental housing, management of rental housing and taxation on their favourability to this segment of the market,

On taxation and governance of rental activity, the report lauds the Kenya Revenue Authority’s (KRA) 10 per cent levy on rental income. However, it raises concerns about the pending adoption of the National Tax Policy and the lack of attention to the governance of dense urban spaces.

The report says there is an unclear regulatory context on rental housing even with the Rent Restriction Act of 1959, The Distress for Rent Act of 1938, the Landlord and Tenant Bill, and The Housing Bill 2021 that proposes a tribunal.

On financing, a role the Government is cheerleading for home ownership through KMRC, this report notes a gap of the same for the rental market. It notes that the Housing Act of 1953 established the Nation Housing Corporation(NHC) which provides funding for development and undertakes development itself and The Housing Bill of 2021 which acknowledges rentals don’t do much.

The same also goes for Capital Markets Authority-regulated Real Estate Investment Trusts (Reits) Collective Investment Schemes Regulations of 2013 which the report says its application to affordable housing is questionable.

On building and refurbishment of rental housing, the report notes that poor enforcement at the bottom end of the affordability ladder is a hindrance.

Fundi builders often do not follow National Construction Authority requirements and are not called to account, the report notes. It adds that the draft National Building Code also does not accommodate small-scale rental developers.

“State has the power to condemn and demolish bad buildings but has no plan to recover lost units,” says the report. 

The report goes on to list gaps in policy and legislation which include failure to engage with small-scale landlords, lack of incentives to rentals in the affordable housing programme, poor integration of NHC with counties, failure of National Building Code to recognise other professionals apart from architects and engineers and jurisdiction overlap on tribunals in Landlord and Tenant Bill and The Housing Bill of 2021.

The report also cites that the National Building Code is unenforceable as it sits in a regulatory vacuum, with poor enforcement of building approval guidelines.