A low cost house. The national housing deficit currently stands at about 1.85 million units.
Rents are scary. The number of low cost houses is deteriorating. Efforts to address the present-day housing crisis in Kenya have yielded little fruit, and millions of citizens are living in squalor.
Statistics from the World Bank paint a grim picture of the situation with six out of 10 households living in slums. There is a deficit of over two million houses countrywide as annual production remains at a paltry 50,000 units, way below the targeted provision of 250,000 units.
Exorbitant prices of land, high cost of construction and low purchasing power are the root causes of the deficit exacerbated by high population growth and rapid urbanisation.
Interestingly, most new homes target the upper and middle classes since they produce better profits. Worse still, scarcity and excess demand has resulted in a swift price escalation that has subsequently displaced low-income households from affordable housing market.
Although no silver bullet can resolve this issue, it is possible to turn the tide by exploring the following ways of mitigating housing problems in Kenya:
1.) Increased financing
Housing is a capital-intensive sector and insufficient funding is one of the main problems facing the industry.
Currently there are about 25,000 mortgage accounts in the country due to high credibility criteria, high interest rates and liquidity challenges in the local banking sector since mortgages are long term yet banks mostly depend on short-term deposits.
To curb this, a mortgage refinance company with shareholding from government, primary banks, insurance firms, venture capitalists and pension firms should be set up where the banks can draw funds with minimal interest and offer longer-term mortgages at much lower interest rates to clients. The government has initiated this process.
2.) Provision of infrastructure
Development of infrastructure such as roads, power and sewer lines by the government has not been as quick as the rate at which private developers are putting up housing projects. This forces developers to put up their own infrastructure and transfer the costs to buyers.
To stop this costly trend, the government should be proactive in building the requisite infrastructure for development especially in areas where new satellite towns are emerging.
3.) Alternative building methods
Presently, most Kenyans favour the use of brick and mortar, which is expensive, at the expense of low cost building technology – which many believe to be of inferior quality.
Since low cost construction technologies, especially prefabricated building technology, have helped many developed countries to solve their housing woes, there is need to educate Kenyans on the benefits of adopting these technologies.
The government and the private sector should conduct rigorous sensitisation campaigns to create a change of attitude towards technologies such as precast wall panels and interlocking blocks, which have been used in many places to significantly cut costs and construction timelines.
4.) Encourage public-private partnerships
There is an urgent need to encourage joint ventures between the government and the private sector. Land availability remains one of the major hindrances to adequate housing yet most state corporations and ministries possess idle land.
The State should avail this excess land to private developers for free to allow them to construct low cost homes and redirect the land acquisition budget towards construction of more units.
READ: Kenya’s first ever land bank to fight off property speculators
5.) Tenant purchase agreement
With soaring house prices and exorbitant mortgage interest rates, raising the amount required to purchase a home remains a mirage for most Kenyans. A tenant purchase scheme makes this dream possible by allowing tenants to eventually own the houses they occupy.
The house value, rent and period of payment before change of ownership are predetermined. A tenant pays a deposit of up to 20 percent of the house value, occupies the house, and then makes monthly rents that go into offsetting the cost of the house.
Tenant purchase agreement is better than a mortgage since the owner is allowed to occupy before making full payment. The model has a low initial deposit, low interest rate and the monthly payment is often lesser than prevailing rents.
6.) Incentives
To build mass housing at low costs and still maintain a profitable margin, more incentives for developers are necessary. Exemptions and waivers on some taxes such as the 30 per cent income tax and 16 per cent value added tax can play a big part in reducing house prices.
READ: Kenya scraps stamp duty for first-time homebuyers
7.) Curtail corruption and bureaucracy
The process of land acquisition, real estate transactions and approval of housing projects needs to be quicker and less susceptible to bureaucracy and corruption. A complete overhaul of the land registry including addition of staff is imperative.
Considering that over 500,000 people move to cities every year, there is need to adopt all imaginable ways of mitigating housing problems in Kenya. It is time for action.
A low cost house. The national housing deficit currently stands at about 1.85 million units.
Rents are scary. The number of low cost houses is deteriorating. Efforts to address the present-day housing crisis in Kenya have yielded little fruit, and millions of citizens are living in squalor.
Statistics from the World Bank paint a grim picture of the situation with six out of 10 households living in slums. There is a deficit of over two million houses countrywide as annual production remains at a paltry 50,000 units, way below the targeted provision of 250,000 units.
Exorbitant prices of land, high cost of construction and low purchasing power are the root causes of the deficit exacerbated by high population growth and rapid urbanisation.
Interestingly, most new homes target the upper and middle classes since they produce better profits. Worse still, scarcity and excess demand has resulted in a swift price escalation that has subsequently displaced low-income households from affordable housing market.
Although no silver bullet can resolve this issue, it is possible to turn the tide by exploring the following ways of mitigating housing problems in Kenya:
1.) Increased financing
Housing is a capital-intensive sector and insufficient funding is one of the main problems facing the industry.
Currently there are about 25,000 mortgage accounts in the country due to high credibility criteria, high interest rates and liquidity challenges in the local banking sector since mortgages are long term yet banks mostly depend on short-term deposits.
To curb this, a mortgage refinance company with shareholding from government, primary banks, insurance firms, venture capitalists and pension firms should be set up where the banks can draw funds with minimal interest and offer longer-term mortgages at much lower interest rates to clients. The government has initiated this process.
2.) Provision of infrastructure
Development of infrastructure such as roads, power and sewer lines by the government has not been as quick as the rate at which private developers are putting up housing projects. This forces developers to put up their own infrastructure and transfer the costs to buyers.
To stop this costly trend, the government should be proactive in building the requisite infrastructure for development especially in areas where new satellite towns are emerging.
3.) Alternative building methods
Presently, most Kenyans favour the use of brick and mortar, which is expensive, at the expense of low cost building technology – which many believe to be of inferior quality.
Since low cost construction technologies, especially prefabricated building technology, have helped many developed countries to solve their housing woes, there is need to educate Kenyans on the benefits of adopting these technologies.
The government and the private sector should conduct rigorous sensitisation campaigns to create a change of attitude towards technologies such as precast wall panels and interlocking blocks, which have been used in many places to significantly cut costs and construction timelines.
4.) Encourage public-private partnerships
There is an urgent need to encourage joint ventures between the government and the private sector. Land availability remains one of the major hindrances to adequate housing yet most state corporations and ministries possess idle land.
The State should avail this excess land to private developers for free to allow them to construct low cost homes and redirect the land acquisition budget towards construction of more units.
READ: Kenya’s first ever land bank to fight off property speculators
5.) Tenant purchase agreement
With soaring house prices and exorbitant mortgage interest rates, raising the amount required to purchase a home remains a mirage for most Kenyans. A tenant purchase scheme makes this dream possible by allowing tenants to eventually own the houses they occupy.
The house value, rent and period of payment before change of ownership are predetermined. A tenant pays a deposit of up to 20 percent of the house value, occupies the house, and then makes monthly rents that go into offsetting the cost of the house.
Tenant purchase agreement is better than a mortgage since the owner is allowed to occupy before making full payment. The model has a low initial deposit, low interest rate and the monthly payment is often lesser than prevailing rents.
6.) Incentives
To build mass housing at low costs and still maintain a profitable margin, more incentives for developers are necessary. Exemptions and waivers on some taxes such as the 30 per cent income tax and 16 per cent value added tax can play a big part in reducing house prices.
READ: Kenya scraps stamp duty for first-time homebuyers
7.) Curtail corruption and bureaucracy
The process of land acquisition, real estate transactions and approval of housing projects needs to be quicker and less susceptible to bureaucracy and corruption. A complete overhaul of the land registry including addition of staff is imperative.
Considering that over 500,000 people move to cities every year, there is need to adopt all imaginable ways of mitigating housing problems in Kenya. It is time for action.
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