Kenya’s housing market has long defied basic economics of supply and demand as developers scramble to build high-end homes targeting a small pool of wealthy families while neglecting the rest of the market where demand is highest.
Most of the targeted affluent families, constituting only a small fraction of the country’s population, are already homeowners, anyway.
As a result, this top band of customers wouldn’t be in a hurry to purchase the thousands of new houses and apartments sprouting up every year, especially not during a liquidity squeeze in the economy.
No wonder many report a supply glut in the top-end housing market! Only two per cent of formally constructed houses are targeted to the lower income segments of the market, which account for the largest share of demand.
On the other hand, demand for decent, affordable housing units is high and ever rising among the majority of Kenyans occupying the lower rungs of the income ladder.
Three quarters of the population is aged below 35 years and the country is urbanising at a rate of 4.3 percent per year, yet housing stock has not kept pace. As a result, urban centres face a shortage of 200,000 housing units annually whereas only 50,000 new residential units are being constructed every year most of which target the higher income segment.
The annual deficit has over the years created a huge backlog of housing units, pushing about 61 percent of urban households into slums in Kenya (compared to 50 percent in Nigeria and 23 percent in South Africa).
Delivering 500,000 new affordable housing units as per the government’s Big Four development agenda would cost the State about $21 billion (Sh2.1 trillion) including infrastructure cost; nearly the size of the country’s annual budget.
Where would this capital come from? Given this reality, the government should focus on setting the tone for the affordable housing agenda, with the private sector handling the actual implementation through innovative financing and construction solutions. But for that to happen, an enabling environment is necessary.
First, property registration processes must be simplified through digitisation. Currently, it takes nine manual procedures and an average of 61 days to register a property in Kenya. Inefficient property registration and land titling systems raise transaction costs, causing property ownership uncertainty and opening avenues for corruption. Only 26,000 mortgage loans have been issued, out of the three million salaried workers in Kenya.
Secondly, provision of serviced land could be yet another big enabler for affordable housing. Estimates indicate the cost of serviced land (with basic infrastructure like power lines, water and sewage, and access roads) can represent up to 30-40 percent of overall costs.
The third enabling factor would be to lower government borrowing to allow financing costs to come down from current levels and make loans more affordable for average citizens.
Lastly, there is need for long-term mortgage funding. Housing Saccos are significant providers of housing finance and a unique model in sub-Saharan Africa, but they lack long-term funds.