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PPPs in the Housing Sector : Lessons for Kenya

Introduction – Need for Infrastructure

Effective infrastructure is being considered as an important aspect of every nation’s economy towards realizing its full potential of becoming a developed nation.
• Effective infrastructure plays a major role in determining the success of the key sectors of every economy;
 The provision of effective infrastructure in housing, water,
energy and transport are critical in achieving improved
standard of living and also helps towards poverty reduction.

The Business Philosophy Behind Public and Private Sector Collaboration in Infrastructure Delivery

Prior to the surge of private sector’s involvement in the provision of infrastructure facilities in the 1990’s, governments have presumed that the technology and economics of infrastructure provision precluded any substantial role for the private sector.
• This reason can be related to the natural monopolies in terms of the earlier known consideration that it is only the public sector that controls all forms of investments in infrastructure,
• Economies of scale, externalities and other social factors that are involved in the production and distribution of these needed infrastructure services,
 which these then made infrastructure services provision to be considered more suitable for public provision than for private.

However, there was wide spread complaints of public sector monopoly in infrastructure delivery notably in developing countries that tended to be plagued by inefficiency and failure to expand services to meet rapidly growing demand.
• Moreover, it is a known fact these nations cannot effectively cope with the huge capital investments needed for the provision of the needed infrastructure.
• Consequently, this has necessitated for the private sector participation towards solving the infrastructure challenges that are facing the public sector.

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PPP Infrastructure Project Delivery

Public Private Partnerships (PPP’s) as an infrastructure delivery approach is adopted to engage the private sector;
 wherein traditionally public organizations and government departments used to operate singlehandedly.
• PPP is defined as ‘a cooperative venture between the public and private sectors, built on the expertise of each partner that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards’.
• PPP provides a means of collaboration between the public and private sector in order to pursue common goals of providing infrastructural facilities,
 while taking advantage of the resources, strengths, competencies and capabilities that do exists in the public and private sectors.

Housing Deficits in Africa

The current housing deficits in the region accounts for at least 51 million units.
• Housing deficits is defined as the difference between the number of households and the number of permanent dwellings.
• The deficit can be estimated for a given period of time (flow), for example, an annual deficit, or it can be at a given date in which case it is referred to as housing backlog (stock).
• The shortage of housing will lead to an increase in slums, which are associated with several social and related economic problems: overcrowding, poor sanitation, high crime rates and limiting labour
participation in the formal sector.

Kenya is East Africa’s largest economy, and a leading financial centre in the region.
 4.2 % urbanisation rate, more than the continent average of 3.5%
 Has an estimated two million units housing backlog
 61 % of urban households living in slums
 200 000 new units required annually, vs the 50 000 currently being constructed.
• In late 2016, a commitment to increasing affordable housing supply was made by the government (the Big four Agenda), promising 500,000 affordable housing units in the course of five years.

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Challenges in Housing PPP’s in Kenya

Unaffordability
• According to Centre for Affordable Housing and Finance (CAHF), Nairobi has the highest housing cost compared to other African states averaging US$63,241.
• 244,000 units are needed annually to bridge the 2 million deficit, whereas less than 50,000 housing units are constructed annually.
• This can be attributed to the following factors:
 Cost of land which is third most costly compared to other African states
 Lack of supporting bulk infrastructure
 Compliances (Land Titling, Regulatory Approvals)
 Construction and other development cost

Low Mortgage Penetration
• There is low uptake of mortgages with the financial sector having issued miniscule 25,000 mortgages,
 Covering only about 2.74% of GDP, which clearly shows that the housing mortgage business in Kenya is still very small.
• Mortgage loans allow buying a house now, pay for it over a long time, and trade it in the meantime through mortgage bonds
• Increases affordability and mobility
• Access to mortgages allows formal private sector housing production, as developers need to off-load housing upon completion
• Security of property makes mortgage loans cheapest form of credit.

Mortgage penetration in other African markets (% of GDP)
• South Africa = 30%
• Namibia = 20%
• Botswana = 2.3%
• Senegal = 2%
• Rwanda = 1.2%
• Algeria = 1.2%
• Uganda = 1%
• Cameroun = 0.5%
• Nigeria = 0.4%

• However, mortgage systems develop with improved property rights and growing GDP
• Non-mortgage based housing loans can help households improve their housing conditions, but are more expensive.

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Public Acceptability
• There may be considerable resistance to private sector participation in the provision of urban development, particularly for more traditional public urban services such as affordable housing, water, sanitation and waste management.
• The result may be a strong public resistance to the partnership and a general distaste for private sector involvement in the urban sector overall.
• Keeping the public well informed and supportive of the urban project is an on-going challenge for all governments.

By Dr Muhammad M. Gambo, Shelter Afrique 

 

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