Only 19 per cent of families in urban centres across Kenya live in their own houses, with the capital Nairobi having the smallest share of homeowners at nine per cent of the city population.
Not that town dwellers love renting; the high cost of homeownership has simply locked most of the population out.
Developers had previously focused more on building upmarket apartments targeting a few high-income customers who can mobilise own cash or qualify for mortgages matching prevailing housing prices. The average mortgage in Kenya is Sh11 million, above the reach of millions of middle-and lower-income homes presently locked out of the housing marketplace.
Starved of decent, affordable housing units, lower income households in urban areas find themselves pushed by conditions into rental accommodation in crowded informal settlements.
With the renewed interest in affordable housing as outlined within the Big 4 agenda, how then can we make homeownership a more feasible reality for most Kenyan workers?
A blend of factors has made owning a townhouse a pipe dream for most families. It all comes down to the high cost of land, high cost of constructing houses and high cost of finance inaccessible to the vast majority of the population. It’s both a question of supply and demand.
For the supply side of the affordable housing equation, the cost of land is unnecessarily exorbitant, driven by frenetic speculative-buying and selling around towns, a situation that has long gone unchecked. Tied to the price of land is the high cost associated with servicing the land, including laying infrastructure like power lines, water and sewerage, along with roads. The serviced land cost segment alone can add as much as 40 percent to the total cost of the unit. To help cut prices, the government should strategically plan to lay such public utility infrastructure in areas of potential residential property development.
Lengthy and high cost of property registration is yet another contributor to the overall high cost of construction. While the time to register property has somehow improved, there is a serious issue with the reliability of titling. There are cases of multiple persons claiming ownership of a single title. Registration cost is also higher than in neighbouring countries (six per cent of property value in Kenya versus 0.1 per cent in Rwanda).
Until recently, it was very difficult to obtain sectional titles on large developments in a timely manner and the implementation of the revised Sectional Property Act should help developers obtain titles for multi-storey units efficiently.
High cost of construction is another a hurdle in the path towards unlocking affordable housing supply. Construction costs are, on average, 51 percent higher in Kenya than in South Africa, due to both labour and material cost, along with outdated building codes.
While informal labour costs are lower in general in Kenya, the professional skills required for conventional construction are scarce and relatively more expensive, including artisanal skills. The input costs (like steel, cement, timber, plastics) are exacerbated by high import tariffs, constraints in the local steel value chain including high transport costs, and a recent ban on logging activities that has affected local timber production.
On the demand side, the cost of a new home is often determined by the interest rate charged on the loan. This is in addition to any further fees charged by the lender to process the loan or mortgage. The short-term nature of financing is a limiting factor that is often overlooked but can make a significant difference in affordability, much more than the interest rate itself.
The longer period given to the borrower to settle a long-term mortgage repayment has the effect of lowering the income eligibility threshold needed for banks to underwrite the home loans, meaning lower income households get to qualify for financing.
In conclusion, making housing more affordable requires working on several fronts to reduce the cost of building a house, the cost of financing and critically extending the time for repaying home loans. By setting up the Kenya Mortgage Refinancing Company (KMRC), the government will help financial institutions extend the term of the loans to Kenyans.
This will make loans cheaper and make home ownership possible particularly for the low and middle-income families. However, KMRC is only one piece of the equation. Kenya also needs to pursue policies to have more people eligible for a loan to purchase their home.
Access to affordable housing also requires actions on the supply side, to lower the cost of the houses. This means availability of reasonably priced serviced land for private developers to build (serviced land currently contributes to 30 to 40 percent of a development cost) and efficient value chains to lower the cost of building materials.