The Dream of Affordable Housing in Kenya
For the past 16 years, developers in Kenya have been majorly focusing on building housing units for high & upper middle income groups ignoring the lower middle & low income groups who form a sizeable part of the population. What is not so obvious is that a shortfall of supply in the mid-to-lower end of the residential market is putting upward pressure on pricing for such units, exacerbating already severe affordability issues. Superior profit potential has thus skewed recent housing production toward the luxury spectrum but the glut is steadily catching up. Is the dream of affordable housing becoming a reality?
Kenya’s story of real estate development can be traced back to early 2000s when pioneering developers put up the first units. Fast forward to 2016, the real estate market has grown exponentially with the sector now on the booming stage albeit fears of undercurrent bubble are rife. While this journey has been largely rossy, especially for; investors, developers as well as a handful of people who have managed to acquire homes, majority have been left behind due to scarce affordable housing options.
“It has always been my desire to own a home but the current steep cost has been prohibitive,” says Derrick, a Real Estate Associate working in Nairobi.
For the past 16 years, developers have been focusing on building housing units for high & upper middle income groups ignoring the lower middle & low income groups who form a sizeable part of the population. The developers/investors on their part argue that the cost of (serviced) land is too high and that return on investment is much higher for properties targeting upper echelons of the society and extremely little for the lower segment. Superior profit potential has thus skewed recent housing production toward the luxury spectrum. What is not so obvious is that a shortfall of supply in the mid-to-lower end of the residential market is putting upward pressure on pricing for such units, exacerbating already severe affordability issues. As a result of this investment parttern, the cost of housing both under rent and sale categories have skyrocketted leaving the lower income groups vulnerable. The net effect has been rapid mushrooming of informal (slums) settlements in major cities with Nairobi bearing the biggest brunt.
Whereas it’s the state’s obligation to provide affordable housing for its citizens, the government agency, National Housing Corporation (NHC), charged with the responsibility have failed to live up to the expectation as well as meet the ever increasing demand. The demand in Kenya urban areas currently stands in excess of 250,000 units per year with Nairobi metropolis needing slightly more than 80,000 units p.a. The housing pressure has been driven up by the increase in rural-urban migration as people troop the cities looking for gainful employment. The NHC is targeting to construct 30,000 housing units by 2017. While the agency has been in existence for a long time, the targeted population haven’t been able to fully enjoy the low cost housing scheme as the units built have been hijacked by private interests-well do individuals through corrupt means leaving the deserving populace hanging.
However, the party seems to be over for luxury and premium residential projects as the high income & upper middle income market is experiencing a glut due over supply according to research done by Hass Consult in quarter II of 2016. The focus is now shifting to low cost housing targeting lower middle & low income groups who constitute a big chunk of the marketplace. The govenrment, with an objective of encouring home ownership is offering a tax relief for developers constructing over 1000 low cost units. This comes on the background of capping on bank loan rates which will also support home purchasing especially aspiring home owners who were previously locked out by the high lending rate regime.
As the trend steams up, a reasonable expectation is for the homeownership rate to grow steadily in the short run and over the long haul, housing demand will be much greater in the low cost housing segment. Nairobi, whose high land prices is not favourable for low cost developments has resulted to a shift to satellite towns like Athi River, Machokos, Kitengela, Ngong, and Isinya among many others where the cost of land is quite low comparatively. This means that the developers/ investors can make reasonable profits given that they can buy large tracts of land and build multiple units as low cost real estate requires a mass market model approach.
It is with no doubt the pressures already exist, and are building. Since housing affects everyone, it is no wonder that voters will be pushing politicians for action as the country heads to the general election in 2017. Creative low cost housing ideas, though, will likely depend upon the real estate sector’s savvy if they are going to be effective. As the country looks forward to realization of affordable housing outstanding issues like distorted access to land, high land prices, existence of rigid building laws and regulations as well as the deterioration of housing stock due to lack of a maintenance framework should be looked into urgently.