Unlocking affordable housing calls for a pragmatic approach

Housing units under construction in Bondeni, Nakuru City on February 6, 2022. [Kennedy Gachuhi, Standard].

The government has yet again said it will prioritise affordable housing to ensure millions of Kenyans in need of affordable and decent homes realise their ambitions. This presents a fresh opportunity for Kenya to pursue this dream which has somehow been elusive.

The need for housing is almost morphing into a crisis. In virtually every city across the continent, evidence of inadequate housing can be found in the proliferation of informal settlements and overcrowding. With an annual urban growth rate of 3.9 per cent, Kenya faces a serious housing backlog that continues to impact negatively on the health and well-being of low-income households.

Kenya's Vision 2030 Third Medium Term Plan (MTP III) 2018-2022 identifies affordable housing as one of the key planks to the realisation of inclusive growth. Specifically, Vision 2030 committed the government to construct at least 150,000 housing units per annum for the entire duration of the plan.

However, the realisation of this dream especially for Kenya has been hampered by a limited flow of investment finance to the sector, increased costs of construction for developers as well as low consumer affordability levels across the housing and demand value chain. In addition, the supply of affordable serviced land is inadequate amid soaring prices in urban areas, leading to increased development costs.

Only 28 per cent of the population in Kenya is urbanised. Sixty one per cent of the urbanised live in informal settlements. An estimated 10 million Kenyans countrywide, and 36 per cent of Nairobi's population, live in slums. Urban centres are also characterised below levels of homeownership at 21.3 per cent, compared to the national average of 61.3 per cent. Consequently, Kenya trails its peers like South Africa and Ghana whose urban home ownership rates stand at 53.0 per cent and 47.2 per cent respectively.

While the government has made commendable progress in driving housing supply, accelerating this needs encouraging the use of alternative building materials to lower construction costs and thus achieve affordable houses; reviewing the public-private partnership framework to enhance effectiveness; fast-tracking incentives; investing in urban planning to enhance sustainability; and providing infrastructure, the lack of which is due to limited budget allocation to county governments that has crippled the opening up of critical areas for development.

Where is the missing link? Affordable housing has been defined as housing that costs between $8,000 and $30,000 while social housing is in the range of $6,000 and $10,000. The need for decent housing has been lauded as having a profound effect on household living conditions, addressing at least 14 of the Sustainable Development Goals, and enabling active participation in the economy and the financial sector. It also supports the development of a sustainable future with a direct impact on the factors that contribute to or mediate the effects of climate change, thereby driving access to basic services and contributing towards inclusive growth.

Estimates from the Centre for Affordable Housing Finance in Africa (CAHF) indicate that Kenya has a cumulative housing deficit of 2 million units; a deficit whose size grows by 200,000 units per year whereas supply lags at 50,000 units yearly. Eighty three per cent of the housing supply is directed towards high-income and upper-middle-income segments of the population, with only two per cent of this being for the low-income market against an annual demand of 250,000 units.

Here is the missing link. With the current high commodity prices and skyrocketing inflation being experienced across the globe, the net effect is that households will be hit by lower incomes which will reduce their affordability as housing consumers, putting pressure on developers with depressed demand, leading to rising non-performing loans. This is because households will be forced to shift their spending priorities to immediate health and safety needs with fewer resources going to housing.

Additionally, the high cost of land and titling procedures, bulk and internal infrastructure provision, inefficient planning, zoning and land registration systems and land speculation continues to restrict access to land for development as investors hold back monies amid market uncertainty.

The affordable housing reality has not escaped the new administration of President William Ruto as it plans to construct 250,000 houses yearly. It hopes to achieve this by focusing more on adopting a framework that explores the value add-ons by sectors such as finance and manufacturing into the challenge. These will be through creating synergies between the two sectors to build a local construction technology sector, efforts that will comprise employing scale to reduce construction costs and timelines and applying global best practices in innovation.

Kenya has the right fundamentals in place to achieve results on a significant scale. However, collaborative efforts between the government and the private sector need to be nurtured with an accompanying supportive policy and regulatory environment in place.

To achieve this, both the supply and demand sides of this industry must be rejigged for the country to realise optimal progress. The supply side policies will be geared towards unlocking land and financing for development, government-led projects and building relationships with the private sector and inducing them to participate in projects that serve the Affordable Housing Agenda while the demand side will look into the laws governing housing sector construction, building standards, design procedures and green building codes to ensure that they are reviewed for sustainability and safety.

The operationalization of the Kenya Mortgage Refinance Company (KMRC) is a welcome initiative that will ultimately increase the flow of finance into the housing lending agenda.