Mortgage financier HF is turning its focus to affordable housing financing as part of a plan to double its housing loans to 12,000 in the next two years.
The lender’s books have in the past year taken a hit in line with the slowdown in the property market, leading to a net loss of Sh598.2 million last year compared to a profit of Sh126.2 million in 2017 on the back of lower interest income.
It has as well suffered with rate capping with long-term funding becoming a major problem.
Group chief executive Robert Kibaara told the Business Daily in an interview that the shift is informed by the higher demand in the lower-cost housing segment, where there is a market gap that can be exploited.
“We want to double our mortgage loans from the current 6,000 in the next two years,” said Mr Kibaara.
“Our plan is to now focus on affordable housing—in Nairobi these would be loans of between Sh4 million and Sh4.5 million—because that is where the demand is to be found.”
Big Four Agenda
The plan, he added, is partly dependent on the Government’s Big Four housing programme that will in part sort out support infrastructure such as roads, electricity, water and sewerage. Developers of low-cost housing have been unable to put up units in desirable areas due to the high cost associated with setting up the support infrastructure, which has in turn inhibited the mortgage market by pricing out most of the working class from home ownership.
Those setting up such units are forced to do so on the periphery of the city, where it is proving hard to find ready buyers due to the distance and infrastructure factor.
Latest Central Bank of Kenya data shows that there were 26,187 mortgage loans in the market in December 2017, which was an increase of 8.8 percent or 2,128 loan accounts compared to 2016
The average mortgage loan size stood at Sh10.9 million Sh9.1 million in 2016, which is well above the reach of the average Kenyan given that the average interest charge on the loans stood at 13.57 percent during the year.
Part of the reforms that CBK called for in the annual banking sector report of 2017 was the development of low-cost housing options in order to grow the mortgage market.
The Federal Government says it intends to invest N1tn in providing about 500,000 homes through the FHFL by 2023. How much of this fund has been spent so far and how many homes have been provided since you began operation?
First, we have to correct the impression about the financial commitment. The commitment is for N500bn and not N1tn. The N500bn fund translates to N100bn each year. So far, the government has disbursed N20bn. But the process for the disbursement of N45bn has been completed and that money will be disbursed within the next week or so. The reason for the shortfall is basically because there is no need to disburse ahead of the programme. So, the fund is just taking off and therefore the disbursement is in line with the progress of the fund.
I think the disbursement will accelerate as the fund accelerates too, and I think by the end of this year, we will start seeing that acceleration. As of today, we have just over 3600 homes that are either completed or under construction. About 1,025 of them are fully completed and are in the market for sale.
In addition, we have what we call commitments. So these are projects where we have agreements but it has not started on site maybe because the legal agreements are not completed. If done, this will lead to another 2024 units.
There have been several initiatives by the government in the last few years targeted at addressing housing problems within the low income group. But some stakeholders have said the initiatives have not been very effective. What’s your take on this?
My take is that in Nigeria, we have an approach of impatience towards addressing important social issues. For housing, like many important social issues, it takes time for new initiatives to get up to speed. But sometimes because we are impatient, we want results tomorrow; we tend to act like a gardener who plants a seed and becomes impatient when he doesn’t see any plant after three days. Housing is a very complex project. It takes a while for any initiative relating to it to gain ground.
And it is important for it to happen that way because it builds the bases that will sustain it for a long time. So, I wouldn’t accept that many of the initiatives haven’t been successful; I think they have made contributions. Initiatives like the Federal Mortgage Bank of Nigeria, the National Housing Fund, Infracredit bonds, Nigeria Mortgage Refinance Company, Federal Government Staff Housing Loans Board, Federal Integrated Staff Housing and Federal Housing Authority have made a lot of contributions to housing in Nigeria. We can’t abandon them; rather, we need to support them. They are all playing critical roles. Our challenges are significant and one initiative alone can’t solve them. All of these initiatives need to be empowered and enabled to give us a chance of addressing the problem.
But there seems to be so many initiatives in recent times. Would there not be overlapping duties?
Yes there are many initiatives, but let me give an example: the United States has about 187 or so housing initiatives at federal level and at states level to address housing; and that is common in many countries because you can’t just have one.
Of course, when you have many initiatives, there are potential for overlapping, but that is a problem to be solved rather than one to be ignored. As those agencies and initiatives mature, you will find that those areas of overlap would be cleaned out. This is just a normal thing when you have different activities going on. It is just a build-up problem; it is not unusual.
If these initiatives are sustained, what’s your projection on how long it will take for the country’s housing deficit to be addressed completely?
Assuming we go by our famous housing deficit figure of 17 million, which is largely disputed, we have not really started. If you take the numbers, Family Homes Funds wants to do 500,000 homes over five years, which is about 100,000 homes every year. I believe the Federal Mortgage Bank of Nigeria is doing about 20,000 to 25,000 new mortgages per year. If you put all of us together, perhaps we are doing 200,000 homes per year. How long will it take to cover a backlog of 17 million? You can figure that out. But we can’t just set our target on the 17 million.
We should also know that Nigeria is one of the fastest urbanising countries in the world. By 2050, our population will be just under 400 million. By 2030, we are likely to be about 250 to 270 million. Bearing that in mind, our planning should not be for today; it should be incremental to whatever figures we currently have because our cities are growing.
So, this is why I do not agree that there are too many agencies. In fact, we have too few of them. If we are going to have any chance of reducing the deficit, I think we even need to have about four times more initiatives than we have now. We probably need about four different Federal Housing Authorities, four Federal Mortgage Banks, and 10 Family Homes Funds if we are really serious about biting into this shortage.
What is the level of awareness among the people these initiatives are designed for?
As you are aware, we have just started. One of the things we are currently doing in that regard is to hold town hall meetings with our target audience. We have just held one in Mararaba, Nasarawa State, and I was glad to see the people who were there. They are the people we are actually targeting; mostly low to medium income earners. I think we need to do a lot more to improve awareness.
Stakeholders in the industry are of the opinion that affordability is relative when it comes to housing. How affordable is the “affordable housing fund” being provided through the FHFL and are those in the informal sector captured?
Everybody has access to the housing that we support, whether they are in the formal or informal sector. We make no distinctions. For affordability, I think it is a very difficult situation because we are currently banging on the door to improve affordability on a day-to-day basis.
One of the key measures we have taken is to establish what we call target cost indicators. So for example, we want to ensure that one bedroom unit should not be more than N3m; two bedroom unit should not be more than N4.5m, and three bedroom should not be more than N6.5m.
We think that this will significantly help in making the houses that we support affordable to people on low to medium income. I think we will not always achieve it, but our target is that at least 70 to 80 per cent of the homes that we finance are within that range.
How significant has the FHFL been in addressing some of these problems since its establishment?
We have only been here for eight to nine months now. But if I have to reflect, I will say that we have so far made about three significant interventions. The first one is the establishment of collaborative working.
The thing with housing is that it can never be a one-man show or one organisation show. So for example, our collaboration with the NMRC will see a significant increase in the mortgages to be issued in 2019, particularly through our Help-to-Own product. Without that collaboration, it is unlikely that the project will be successful. And I think that is what needs to happen.
We all need to come together. I think the initiative by Family Homes Funds to aggregate some of these agencies is a significant one. People may not see it, but it is a significant intervention.
The second intervention is that we are probably the only agency today in the country that is providing financing for affordable housing outside of the commercial banks where the interest rates, requirements, affordability and development costs are usually high.
The fact that we are able to provide financing at no more than 10 per cent per annum which is about one third of the market rate is also a significant intervention. The third intervention is awareness for states that are actually working with us and our partners that they can provide housing for their staff through the fund. That is a major achievement.
We currently have a very strong relationship with a number of states who have actually given land into the project. Borno State is the latest example, where we are expected to provide about 4,700 homes; 3,000 of those homes will be very low cost homes for Internally Displaced Persons. That is something we are going to achieve over the next couple of months. The sites have been identified; the drawings have been done, and we shall get on to that very quickly. I think those are very significant achievements.
Part of the FHFL’s policy is to support on-going dialogue on local content in building construction. What are the efforts towards implementing this?
Our target is that by 2021, we will make sure that 70 to 75 per cent of the inputs into the process of what we call the white input must be procured locally. Currently, I think we are just under about 50 per cent.
There are still a lot of white inputs (which are things like doors, wiring, light fittings etc.) being imported from countries like China. But we have now put in place in all of the contracts that where it is available, they must procure those materials locally. It takes time for that to pick up because you can’t make it automatic. The industry has to be there. But that is something that we have enabled in all of our development agreements.
The Irish historian R.F. Foster writes about “the tipping point” in revolutions, “the moment when substantive change becomes possible.”
The Irish people are at a tipping point now. Their own government has yet to take notice of course, which could be consequential for them shortly.
Because oddly enough, for years now, they have allowed the Irish property and rental sectors to replicate cut-throat Manhattan investment practices, driving up rents and inflating housing prices as though Dublin were a borough of the Big Apple.
Investor landlords, private equity funds and real estate investment trusts have quietly been given the run of the country with predictably disastrous results for a new generation. Would-be home buyers are being locked out of the possibility of home ownership, as they are locked into an inescapable cycle of ever-rising rents.
These wounds are self inflicted in other words, the result of short-sighted government economic and housing policies that sought to attract international investor funds though NAMA (National Asset Management Agency) which in turn has allowed for unprecedented rent and house price inflation, highly attractive tax laws, and a truly disastrous shift from state-built social housing to private rental schemes.
Deep-pocketed international investors have enriched themselves as they’ve overheated the Irish property and rental market, chiefly by turning properties into investments, in turn adding to the demand for housing and further inflating prices, making them far less affordable now for the less minted (that’s you, me and everyone else).
It’s a new system where the wealthiest always win and the rest of us are priced out. It’s the Manhattanization of the Irish property market, in other words. Other examples of what’s happening to Ireland now can be seen worldwide now. These stories don’t have happy endings.
The Central Statistics Office in Ireland makes it clear that international “banks, holding companies, trusts, funds and real estate management companies” were the largest purchasers of residential property in Ireland in 2017, spending 1 Billion, a 43 percent rise on investor spending in 2011.
Investor flows into real estate in Ireland actually quadrupled from 6.9 billion in 2014 to 27 Billion by the third quarter of 2018.
These figures are telling us a stark tale about modern Ireland, where would-be mom and pop buyers are being displaced by the international investment funds that can ruthlessly outbid them.
As in Manhattan, homes have first and foremost become financialized assets now, disconnecting them from their primary purpose, to provide people a place to live with dignity.
The record-breaking spike in Irish homelessness has coincided with these new cut-throat property practices, of course, introducing Manhattan-style levels of social inequality to Irish life for the first time and changing the whole nature of Irish society.
So it’s a full-blown crisis now.
The thing is, there is a better way, but the government, clinging to its Thatcherite free-market ideology, doesn’t want to hear about it. This week the increasingly beleaguered Minister for Housing Eoghan Murphy suggested that tenement living offers a workable solution to the housing crisis as if he’d never seen a Sean O’Casey play.
The so-called co-living, tenement “solution” to the housing crisis was tried before by the Irish at the turn of the last century, where it became a byword for social inequality and quickly resulted in slums.
And as if to underline how bad this small spaces, high rents solution he proposed really is, Dublin landlords are now advocating for a move towards licensees rather than tenancies, meaning no rent control, no protection from summary eviction, and no rights.
There are alternative routes we could take. As Rory Hearne, lecturer in Social Policy at Maynooth University writes, the government should “Cast aside ideological aversion and build affordable units. This should include a mix of cost, rental and social and cooperative ownership that is available to all income levels like the successful housing systems in the rest of Europe.”
A referendum is also needed, Hearne writes, to put the right to housing in the Irish Constitution to provide a guiding principle for policy and ensure that the primary purpose of the Irish housing system is to ensure that everyone has access to an affordable and secure home.
Meanwhile Irish social inequality can only deepen now that property has become unaffordable for the average worker.
So the choice is clear, we can either fix this now or helplessly watch the Brazilification of our Republic.
The number of Kenyans seeking to buy homes with bank loans is expected to triple over the next three years.Kenya Bankers Association (KBA) said they estimate mortgages to rise to around 66,000 from the current 26,000 due to interventions by the government to create the Kenya Mortgage Refinancing Company and the market adjusting to supply affordable houses.
According to KBA’s Housing Price Index for the first quarter, 62.62 per cent of the houses currently being built are apartments, but this is expected to change as the government pushes its agenda to put up half a million houses.“
Apartments (segment) maintained their dominance in the housing market, accounting for relatively high share of sold units at 62.62 per cent, which is a structural feature that would potentially change with the implementation of the affordable housing programme of the Big Four agenda,” said KBA director of research and policy, Jared Osoro.
Kenya has only 26,187 mortgages worth Sh223 billion, which is a mere 2.7 per cent of the gross domestic product, compared to South Africa whose mortgage market makes up 31 per cent of their GDP.Banks say Kenyans do not save, so lenders depend on borrowed money to fund mortgages and hence the high cost and short duration.
They also claim that without a clean asset register, they factor in additional legal costs to list a charge in case of default.Kenya Mortgage Refinancing Company – which has over Sh35 billion seed capital from the World Bank and Africa Development Bank – is set to offer bulk funding to banks who will then be able to give loans of up to Sh4 million.
The loans are to be extended at fixed rates to borrowers, with a monthly income of not more than Sh150,000.While the house prices are also expected to change, KBA says it may not be as drastic, since the segment being targeted by the state for intervention is entirely a new one which will create more buyers, but not necessarily divert current buyers from the homes being provided by the market.“This will be a creation of a market where none had existed, leading to a structural adjustment,” Mr Osoro said.
More than a third of households in Charlotte are “cost-burdened,” which means they spend more than 30% of their income on housing, according to a city report. The federal government says that leaves them with too little money for food, clothes, medicine and other basic needs.
Charlotte would need roughly 24,000 more units of affordable housing to meet the need, mostly for families and others who make less than $25,000 a year, the report says.
But Charlotte — North Carolina’s biggest city — has failed to take significant steps that have helped other cities and counties address the problem and reduce displacement, homelessness and economic inequality, housing activists say.
Fast-rising rents and home prices, population growth and stagnant wages have been major factors in Charlotte, but specific decisions by developers and city leaders have had negative consequences that reverberate today. Some are as old as the former Brooklyn community, the African-American neighborhood razed under the banner of urban renewal. Others are as modern as the creation of Ballantyne and Charlotte’s light rail line.
Over the next few months and possibly beyond, the Charlotte Journalism Collaborative will be exploring the city’s affordable housing crisis through a solutions journalism lens in a project called “I Can’t Afford to Live Here.” Reporters will search for responses to the problems in part by looking to other areas of the country
The collaborative is in partnership with the Solutions Journalism Network, a nonprofit whose mission is to spread solutions journalism practices to newsrooms on this continent and beyond. The Charlotte Journalism Collaborative is funded by the Knight Foundation. Its members are The Charlotte Observer, Charlotte Mecklenburg Library, La Noticia, Qcitymetro, QNotes, Queens University of Charlotte, WCNC and WFAE.
As part of the effort, former Observer reporter Pam Kelley and other reporters will examine some of the key moments that set the pattern for Charlotte’s current housing environment.
“The status quo is not working,” Fulton Meacham, chief executive officer of the Charlotte Housing Authority, said of his agency’s clients’ ability to find low-cost housing in neighborhoods with solid schools, good jobs and transportation. “We’re 50th out of 50 (big cities in economic mobility) for a reason.”
In response to a lack of affordable housing, Charlotte and Mecklenburg County leaders and big businesses have pledged to spend tens of millions of dollars to build new affordable housing, renovate existing homes and provide rental subsidies. Much of the money will come from $50 million in bonds voters approved in November.
Housing activists and social justice groups said Charlotte should emulate programs that have worked in other places.
Here’s how some other cities and organizations have tried to tackle the affordable housing shortage:
Baltimore is one of the nation’s most troubled big cities.
It has one of the highest murder rates in the country. More than one in five residents live in poverty.
In 2005, a federal judge ruled that the government was responsible for segregated public housing in Baltimore, a violation of federal civil rights law.
That’s how the Baltimore Housing Mobility Program grew. The program takes public housing residents — typically African-American women and their children living in impoverished neighborhoods — and offers them a higher housing allowance than the federal government normally provides if they are willing to take classes and move into new neighborhoods. The new neighborhoods, called “Opportunity Zones,” have stronger schools, more job opportunities and public transit, according a 2018 report from Vox, a news website.
Since 2005, more than 4,000 families have participated.
Successes in Baltimore and other cities such as Chicago and Dallas prompted federal lawmakers last year to set aside $28 million for demonstration programs for an idea that started in the 1970s.
The Charlotte Housing Authority started its program about a year ago and studied the model practiced in Baltimore. But only seven families have participated so far.
The issue is significant because research suggests that where children are raised significantly impacts their ability to climb out of poverty. A prominent national study found Charlotte ranked 50th — dead last — among the nation’s biggest cities for economic mobility.
More than 4,000 families in Charlotte rely on subsidies from the U.S. Department of Housing and Urban Development to help pay rent. Under the program, families and others with low incomes pay 30 percent of their income toward rent and the government covers the rest.
But landlords’ refusal to accept tenants who use Section 8 vouchers undercuts the government’s goal of helping families escape poverty and move to the neighborhoods with good schools, jobs and transportation, said Meacham, leader of the Charlotte Housing Authority.
The agency plans to help as many as 100 families move to neighborhoods with better opportunities by providing them with bigger housing allowances, which would give them the ability to pay for housing in areas where rents are higher.
“It is not housing choice if you can only choose one poor neighborhood or another,” said Barbara Samuels, managing attorney for ACLU of Maryland’s Fair Housing Project, which was part of the lawsuit that brought about Baltimore’s program. “Living in a distressed neighborhood is not good for kids. We have a lot of evidence that children are being harmed.”
New York City, San Francisco and Newark, N.J., have recently enacted laws ensuring some people facing eviction get legal representation in court, according to an April report from National Public Radio.
So-called “right to counsel” programs attempt to address one of the most enduring disparities in the American justice system: Most landlords have legal representation in eviction court while most tenants do not.
A recent study in New York found evictions decreased more than five times faster in areas where the new rules were in effect than in those that were not included.
Charlotte’s eviction rate is nearly twice as high as some of its peer cities such as Atlanta, Nashville, Kansas City and Tampa, according to research.
But Legal Aid of North Carolina represents about 250 of the 29,000 people who face eviction in Mecklenburg County every year, according to a Charlotte Observer report from March.
A proposed budget from Mecklenburg County Manager Dena Diorio includes $500,000 to expand Legal Aid’s office and provide assistance to tenants.
WALL STREET MOVES INTO TRAILER PARKS
Over the last three years, Wall Street private firms have bought thousands of mobile home parks and raised the price to live there.
Wall Street titans such as the Carlyle Group and the Blackstone Group have taken ownership of more than 100,000 home lots, says a recent report from watchdog groups.
The firms have reaped handsome profits, according to a report from The Washington Post.
Often Spanish-speaking immigrants have paid the price.
Large numbers of Latino families in the Charlotte area live in mobile home parks, where prices have shot up.
Residents often own their trailers, but must pay lot rent to the park owner. As corporate landlords have raised the rent, activists say residents have little choice but to pay up because they can’t move.
In many cases, the trailers are prohibitively expensive to move or contracts forbid owners from moving them.
Activists say that means that immigrants have been victimized by predatory operators, including some who charge them more and refuse to make needed repairs.
They said Charlotte leaders have failed to give the issue enough attention and help immigrants advocate for themselves.
Activists point to a recent case in Chatham County.
In November 2017, Mountaire Farms announced plans to expand its poultry processing operations and bought Johnson’s Mobile Home Park in Siler City.
The company offered tenants money for their homes and ordered them to leave in a few weeks.
But the nonprofit organization El Vínculo Hispano-Hispanic Liaison organized tenant protests and made appeals to the Chatham County Board of Commissioners. By March 2018, the group renegotiated with Mountaire Farms and residents got a better price for their homes and more time to leave.
Charlotte city leaders have acknowledged they have not studied the impact of corporate landlords on rents, despite Wall Street firms buying thousands of houses in recent years.
SAFE PLACE TO STAY
The number of Americans age 50 and older who identify as LGBTQ is likely to double in the coming decades to more than 5 million, according to a study from the University of Washington.
Another report found nearly half of LGBTQ older adults have faced rental housing discrimination, according to SAGE, a national advocacy group for older LGBTQ people.
The organization is conducting a campaign to bring more attention to discrimination senior same-sex couples face in trying to find housing in retirement communities and nursing homes.
In other urban areas around the country, there are apartment buildings like the John C Anderson apartments in Philadelphia that offer its residents a LGBTQ-friendly senior community.
But in North Carolina, there are few residential communities and apartment buildings that perform direct outreach.
One is Care Free Cove, a sprawling residential neighborhood near Boone that was developed by a lesbian couple from Florida. Residents buy a plot of land and build their own homes.
IT is baffling how the pursuit of gains has rendered a floor, a couple of walls and a roof an investment instrument, with no consideration for societal norms for the need to own a house as a fundamental human right to shelter.
Real estate has, over the decades, been a much-loved investment avenue, especially among Asians. The sort of property investment we are familiar with mostly involves rental and tenancy. The real estate investment trust is yet another property-linked investment, where investors receive dividends.
The unveiling of a property crowdfunding (PCF) framework by the Securities Commission (SC) yesterday, however, takes property investment to a whole new level.
Housing is now seen from a purely moneyed viewpoint – will house prices rise or fall? The investor would want prices to escalate, as he profits only if it does.
Stranger still is the fact that this legal framework experiments with this “new alternative” by placing the young first-time home buyers squarely as a bait against money-eyed investors chasing after yields and profits. Both have widely different agendas.
Under PCF, you need a platform operator, investors, developers and house buyers. It will not work without someone taking the bait.
Now, the SC has plainly said that it is not going into the property sector, that it is merely providing a legal framework.
As housing is a big-ticket item, there will come a time when the house buyer would need a loan to pay the 80% or 90% he does not own. Or, he can opt out and be homeless. One might say that he could rent, but that is not the point. The point is, how will PCF help a young person purchase his own house?
The banking sector may not be involved in the initial years as the investment runs its course. But just as there is an exit point for investors to make a killing after, say, five years, the house buyer has to decide to exit, or remain.
By all measures, crowdfunding has its merits because it allows like-minded investors to put their money in a project or a business. But is this pooling together of resources linked to home ownership? Instead of a house, let’s take the case of a vintage car (we will forget about that Mercedes because it is a depreciating asset).
Millennials cannot afford a vintage car, but under this crowdfunding alternative, they can put down 10% and “own” it for five years.
The investors will bet that the price of the vintage car will rise. Granted, he can’t live in a car, but this is to drive home the point that crowdfunding as “an alternative” to bypass the bank has its merits when it involves a business, project or even some cause. However, it is unacceptable to promote it as “an alternative” to fund a young person’s hopes of owning a house.
This brings us to the next question, why is the government equating home ownership to an investment proposition when it is so obvious that the young house buyer and the investor have different objectives? Has it anything to do with the fact that the country has more than 32,000 units of unsold residential units with no takers because banks have put in place stringent lending guidelines?
So, the powers-that-be conveniently dig a new path to bypass the banks in providing “an alternative” in a bid to bring these unsold units down, while at the same time quelling the cries of first-time home buyers who find it impossible to buy a house.
If this is the case, then we have politicised housing, without thinking of societal and economic consequences, and without actually bringing house prices down.
Affordability issues are not being resolved here, only new ways of financing are being created.
Read more at https://www.thestar.com.my/business/business-news/2019/05/18/why-pcf-is-considered-a-sham/#ypxAXvpepMmu31vj.99
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.
Indeed, Kenya’s residential property costs stand above most African countries. World Bank Group studies indicate a two-bedroom standalone house (55-square metre) on a 120-square metre plot costs about $65,000 (Sh6.5 million) in Nairobi, which is 61 percent higher than in Johannesburg and 19 percent costlier than in Kigali. Kenya’s higher pricing is the result of multiple layers of development costs piling upon each other, which have ultimately pushed up housing costs.
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.
Family Homes Funds, a Federal Government housing initiative intended to support the development of up to 500,000 Homes targeted at people on low income over the next 5 years has stated that the fund has designed innovative schemes that will help deliver affordable housing in Nigerian and increase the housing options in the market.
While speaking with Housing News, the Managing Director of Family Homes Funds (FHF), Mr Femi Adewole stated that the most transformative thing they can do is to introduce a formal rental system into the market.
He said, ‘’Nigeria is an economy where a significant percent of the population are in the informal sector. So regardless of some of the actions and initiatives that were taken, it will always be very difficult for them to access mortgages and in fact they may not earn enough to access mortgages. Their income profile is not stable enough to support a mortgage system. Therefore you need to think out of the box. And I think our view is that establishing a rental housing fund provides a very low level for people to enter into housing, and from there exercise an option to buy if they so wish. But if they so wish too, they can remain as tenants.
‘’Secondly, we have to be mindful of an important issue in our demographics, that a significant proportion of Nigeria’s population are quite young and mostly below 30. They are very mobile. They are not interested in tying themselves down in on place. They are seeking opportunities everywhere. Therefore, a rental housing programme provides them with that flexibility in terms of their housing choice and we must cater for them. That is our objective. And this is how it is going to work. We are looking to establish primarily with private sector organizations and also partner with housing corporations to establish what we call rental housing management companies. We will provide financing for these companies to buy completed housing from developers in bulk. Then let it to the individuals. The individuals are paying their rents from that rental stream which repays back the financing that the fund gives them. The benefit of this is that it opens up the supply of housing. The major reason why we don’t have developers doing big numbers of housing is because when they build them, they don’t have buyers. And a lot of them are building, hoping that when it is completed they can get somebody who will come forward to buy. We will remove that because even before they put a brick on the ground, there is a buying agreement that a company will buy it for whatever sum had been agreed on. So the developers are certain of their exit. That will promote the supply. You will begin to see more professionals and more competitive development companies building houses.’’
The second reason for the Rental Housing according to him is to boost the capital market.
‘’You find that we have these asset management companies that has tens of thousands of tenants. In some countries, some have as many as a million. These tenant are everyday paying rents. That is a lot of money. And that cash flow is very attractive to the pension funds and banks. It is attractive to them because the houses if well built, will have a minimum of 50 years life. The loans that is used to buy the houses typically should be paid out in about 15 years.
‘’So between year 16 and year 30, you have thousands of houses that have no loan on them but people are still paying rents. And by the way, the rents keep going up each year because you are inflating the rents by inflation. It doesn’t stay still for 15 years. So it is a tried and tested model. And it is not new because actually, 8 out of 10 people interviewed are tenants.
‘’The only problem is that they are tenants to a private landlord who can kick them out anytime. He can also increase the rent whenever he feels like. They have no security at all.
‘’But we are offering a better product, better security, and increasing supply and deepening the capital market. So, for me this is a very big part of what we do. We haven’t started yet because you need a certain amount of financing to be able to feed that fund. And this is why I insist we allow things to mature. It takes time to build trust with a 20 year money. Because that is the kind of money that we need for the rental housing fund. Your organization has to be solid. You have to have good processes in place; good corporate governance before somebody can trust you with low cost capital for 20 years,’’ he said.
Speaking on the Help-To-Buy scheme, he said it is a different thing and that they have made more progress on it because they are financing it with their own capital and have also gotten some support from development partners like the African Development Bank and the World Bank.
Typically, the processes of buying a home in Nigeria are tough and includes the option of either accessing the National Housing Fund loan which can take up to 2 years, or commercial mortgages whose interest rates can sometimes be as high as 23 percent; and most of them can’t go beyond 10 years. The third option would be to pay for a home in cash, which is really difficult and sometimes not a wise economic decision.
So, the Help-To-Buy Scheme according to Adewole is intended to ease this situation and bring something in the middle.
‘’So how does it work? We probably can’t do anything about the rate of interests that the commercial banks are charging because that is based on a lot of wider macro-economic issues. So, what we can do is to reduce the amount of money that people need to borrow form the banks. So rather than borrow 80 or 90 percent of the cost of the house, if they borrowed 50 percent, that brings it to about 30 to 40 percent reduction in the actual physical cash that they pay out. So that is what brought help-to-buy in.
‘’If you are buying a N5 million house, we expect you to have a 10 percent deposit. We think that is good fiscal responsibility that the buyer has a skin in the game. The second is that we will give you a deferred payments loan for up to 40 percent of the cost of the house. So that makes 50. The balance 50 you will borrow from a commercial bank where there is availability because our 40 percent has addressed the issue of the affordability. So we are left with availability and that essentially is what the help-to-buy is.
‘’For our 40 percent loan, you have a moratorium on interest and principal for 5 years, and after 5 years until year 6, the interest on our loan starts graduating. It starts from about 3 percent and goes up each year to 3.75 to 4 percent and on for 20 years. The reason for that payment structure is to align with what we model to be the increase in the buyers’ income, because that is not how mortgages are usually structured. So as his income is going up, what he is also paying is going up so that his affordability is maintained. So that is really what we have done.
‘’When you now take the cost of this as against the other two products the blended cost of the help-to-buy with the commercial mortgage as at today with the partners we are working with it comes to about 8.5 percent because on 50 percent, they are paying 17 percent loan on half of the cost of the house. On our 40 percent, they are paying 0 percent and of course on the 10 percent is their equity, which is also 0 percent. So when you blend it, the average cost of that whole financing comes to about 88.5 percent.
‘’But what is the issue with it? Is it as cheap as the national housing fund? No. the national housing fund is 6 years 6 percent, and this one is about 8 percent. But is it available now? The answer is yes. And that is important for the supply side for a developer because there is nothing that can kill a developer than when he has spent money to build the house particularly when he has borrowed money and when the houses are completed you have to wait for 2 years until the buyers gets their national housing fund loan. By that time the interest has eaten up the viability of the project.
‘’But with the home loans assistance help-to-own some of the targets we are working to is that within a month of completion of the project people are able to move into their homes because the loan is originated right away. That helps the developer because he can get his cash quickly and repay any loan, so we won’t have all these empty houses lying around
‘’It is not as cheap as national housing fund, it is at 200 percent bases point slightly more expensive. I did a calculation of the N5 million house, and it means that it will cost you about N1700 per month more. So you have to ask yourself as a buyer, am I prepared to pay N1700 per month more to move in today or I am happy to wait for 18 months to get a cheaper loan. This is now a tenants’ choice. Like I said, it is like a market, it is good to have alternatives
‘’When you take help to buy, there is nothing stopping you from refinancing your loan with national housing fund down the line. It may not be as cheap as national housing fund, but it is available.
‘’We are really trying to create a middle ground. The initial feedback we are getting is that this is going to be a spectacular success. So, we will push it alongside the rental housing. We are not pretending that it is the solution to the mortgage system, it is just another contribution to the market,’’ he said.
By 2030, nearly half of Kenyans will be living in cities. With half of Kenya’s population aged under 18, many young people are moving to urban areas in search of jobs, opportunities and more choices. Kenya’s growing urban population need sustainable, resilient, affordable housing; getting this right is key to Kenya’s development.
In recognition of this, the UK and Kenya co-hosted a two-day symposium on affordable housing and sustainable infrastructure on 21 and 22 May at Strathmore University, supported by the Global Challenges Research Fund and the UK Collaborative on Development Research.
The symposium brought together more than 200 policymakers, leading researchers, business and civil society delegates to explore the potential for new innovative collaboration on affordable housing and sustainable infrastructure.
Hosted at the request of the UK-Kenya High-Level Oversight Board on Science, Technology and Innovation, the symposium showcased how strong partnerships between UK and Kenyan stakeholders are delivering innovations in housing and urban development – from changing how people apply for mortgages, to using technology to turn plastic waste into pavements.
Among those in attendance were the British High Commissioner to Kenya Nic Hailey, Chief Administrative Secretary Ministry of Transport Hon Chris Obure, Housing Secretary State Department of Housing and Urban Development Patrick Bucha and Katherine Muoki Director of Infrastructure, Science, Technology and Innovation, State Department of Planning.
Speaking at the event, British High Commissioner Nic Hailey reiterated the UK Government’s commitment to progress on affordable housing and sustainable infrastructure.
“The UK is proud to support the Big 4 agenda in Kenya, and to work with the Kenyan Government to address the challenge of delivering affordable housing for all. To deliver on this policy priority, we need to leverage research, technology and innovation, and this joint symposium is doing just that.
Minister for Africa, Harriett Baldwin said:
“Affordable Housing and Sustainable Infrastructure are challenges everywhere, so it is good news that the UK and Kenya are working together to turn world-leading research and innovation into practical solutions to benefit us all.”
Mr. Peter Okwanyo, Secretary Administration, State Department for University Education and Research, Ministry of Education said:
“Research, Science, Technology and Innovation presents a unique platform for the generation of new knowledge to overcome barriers to affordable housing, healthy cities, resilience and affordable urban infrastructure.
Affordable housing is recognized as an enabler to the attainment of Sustainable Development Goals (SDGs) and the UK-Kenya Partnership is a powerful tool for application in the enhancement of their attainment.”
Dr Jaideep Gupte, GCRF Challenge leader for cities and sustainable infrastructure said:
“Ensuring urban residents have access to affordable and adequate housing is one of the big issues in Kenya. Building new houses is only part of the solution which also involves providing access to health and education services, safe public spaces and to the jobs and opportunities that are replete in cities.
Recent GCRF investments support Kenya-UK collaborations doing cutting edge and policy relevant research on issues ranging accessing healthcare to embedding disaster risk management into urban development.”
The symposium was organized by the Governments of the UK and Kenya with support from the UK Collaborative on Development Research (UKCDR), UK Research and Innovation (UKRI) through the Global Challenges Research Fund and Strathmore University. The symposium showcased innovative housing technologies and research from around the world.
A joint statement from the UK and Kenyan Government UK-Kenya Housing Symposium Joint Statement (ODT, 500KB) following the symposium announced a commitment to continue working together on affordable housing and sustainable infrastructure research, policy and practice in Kenya.
An increasing number of associations are striking deals with developers to deliver much-needed homes. Carol Matthews argues that this is one vital way to tackle the housing crisis
England needs four million new homes. Last summer the National Housing Federation and Crisis published groundbreaking research showing that as a country we need to build 340,000 homes every year until 2031 to tackle this backlog of homes and keep up with new demand.
More than two-fifths of these – 145,000 a year – need to be affordable homes.
That is a big task, and many of us in the sector have been making clear to the government that these numbers don’t stand a chance of being met unless there is substantial additional investment in affordable housing.
Last month came further evidence that grant funding is needed to enable providers to step up supply. Homes for the North, along with the National Housing Federation and the G15, published research by Savills showing that even the government’s own target of building 300,000 new homes a year is unlikely to be met.
And the Ministry of Housing, Communities and Local Government appears to agree. Permanent secretary Melanie Dawes has told the Public Affairs Committee that they don’t yet have all the ingredients in place to achieve their target.
So it’s imperative that as a sector we continue to make the case for more grant funding, and do all we can to make sure the Treasury takes heed in this year’s Comprehensive Spending Review.
However, we will only be able to make a credible case for more subsidy if we can also show that, as a sector, we continue to do all we can to maximise our own capacity as co-investors.
At Riverside we have challenged ourselves about what we should do to build more homes. We have set ourselves an aspiration in our corporate plan to build up to 20,000 homes between 2017 and 2027.
But like many other housing associations, we have had to take a new look at how we can deliver in a challenging operating environment. How best can we tackle the barriers to building more?
The Savills research found that joint ventures between housing associations and private sector developers will help to get more homes built, especially for large and complex schemes or when there is market uncertainty.
We agree. So much so that we have decided to invest our own money into a new joint venture with Bovis Homes.
We will be working together to develop more than 1,800 homes at Stanton Cross in Wellingborough, Northamptonshire.
Our joint venture will also oversee the infrastructure for the wider site, including industrial, leisure, retail and office space; community facilities; and road and rail links. The end result will be a brand new community with 3,650 market sale and affordable homes.
Although the majority of the new homes at Stanton Cross will be for open market sale, this does not mean that we are losing our focus on affordable housing.
In addition to affordable homes built as part of the scheme, the joint venture will become a vehicle for investing our own resources to generate a significant return to plough back into the provision of even more affordable housing elsewhere, profits which otherwise would have been returned to our partner’s shareholders in their entirety.
Of course we’re not the first to do this.
Joint ventures have been used successfully between associations and private sector house builders for some time. In fact, our first joint venture – Compendium Living, with Lovell – dates back to 2005.
However many developers are now looking for new opportunities to partner with housing associations, and we at Riverside are certainly keen to explore further opportunities of this nature.
Joint venture arrangements allow associations and house builders to take an active and equal role in decision-making on schemes, and make the most of complementary strengths.
In particular housing associations can bring a long-term perspective on placemaking and neighbourhood development skills, together with the ability to manage tenure mix through the lifetime of the development programme.
“Joint venture arrangements allow associations and house builders to take an active and equal role in decision-making on schemes, and make the most of complementary strengths”
House builders can bring building, site assembly, infrastructure, and commercial sales expertise.
Are there risks in this approach? Of course.
Needless to say we’ve done lots of stress testing and scenario modelling of Brexit effects and a housing market slowdown.
And we’ve also found it essential to ensure there is a fit between our ethos and values and that of our partner house builder. We had to do the right deal, with the right house builder.
Looking forward, we should see the opportunities for joint ventures with private sector house builders as an important ingredient in getting more homes built, but they cannot be a substitute for government-funded and subsidised affordable housing.
As Savills’ research pointed out, there are limits to market capacity to deliver 300,000 new homes annually. This also constrains housing associations from expanding the number of affordable homes we can cross-subsidise from mixed-tenure development.
It can’t be either/or, or them and us. We will need government, housing associations and private developers to work together if we are to build the homes the country needs.