Kenya’s push for affordable housing creates opportunities despite barriers

At the start of his second term in 2018, Kenyan President Uhuru Kenyatta launched an affordable housing program as one of the four main pillars of his agenda to promote long-term economic development. The other pillars are food security and food security, a robust manufacturing sector and universal health.

Kenya needs to build 250,000 units annually for at least four years to meet its combined housing deficit of two million units.

The lowest cost of a new home is estimated at $11,000 (Sh1.1 million) and only about 11% of Kenyans earn enough to get a mortgage. Public and private developers used to concentrate on middle and high incomes.

Little attention is paid to producing affordable housing for the poor, who make up the bulk of Kenyan society – 53% by the end of 2020. As a result, more than 60% of urban households in Kenya live in slums, where they struggle to raise $10 a month for rent .

The government has committed to building 500,000 low- and middle-income housing units by 2022. They were to be sold for between $6,000 and $30,000. But by the end of 2021, only 431 units or 0.8% of the target were produced.

Our research examined the current state of the affordable housing strategy in order to identify the opportunities it presents and the obstacles to progress.

We reviewed the first project in the program, Nairobi’s Ngara Estate, which has delivered 228 affordable units so far. This has created ample opportunities for investment in construction, as well as the production and supply of construction materials and components. But it faces various challenges that will need to be overcome if the program as a whole is to succeed.

Supply and demand

Providing affordable housing remains a challenge not only for developing countries like Kenya, but also for many developed countries. Rapid urban population growth, high construction costs, financial costs and rising urban land prices are obstacles in Kenya.

In the early and mid-2000s, the Kenyan government offered a number of tax incentives to stimulate the supply and demand for housing.

But demand continued to exceed supply. Only 50,000 housing units were built annually in Kenya’s urban centers against an annual need of 250,000. Of these, only 2% targeted low-income families. Accessibility issues remain.

Kenya’s affordable housing program includes:

• Kenya’s state-controlled mortgage refinancing company. Its role is to mobilize cheaper financing from local and international institutions for onward lending by local mortgage providers at 7%, half the prevailing commercial rate;
• National Housing Development Fund for the mobilization of funds of potential home buyers;
• Tax benefits for construction and purchase of housing.

Slow absorption

The project we studied, Ngara Estate, is being built on nine acres of land at a cost of $50 million (Kh5 billion). It is built and financed by the Chinese government. The project includes a kindergarten and a shopping center among other communal facilities. Its 1,370 housing units will sell for $10,000 for a one-bedroom, $20,000 for a two-bedroom and $30,000 for a three-bedroom.

Houses will be allocated by drawing lots. Kenyans interested in houses must register online with personal details such as employment status, household details and preferred residence.

The Kenyan government provided land and mortgages to middle-class buyers of the project.

Based on data obtained from texts, interviews, observations, discussions, media reviews, and government-published guidelines, we found that uptake of the completed units was slow. This is because most applicants cannot raise the 12.5% ​​of the home’s value required to qualify for the home allocation lottery.

Opportunities and challenges

The Ngara project has created 650 direct jobs for artisans in the informal sector. Using local resources, labor and artisans in the housing program can reduce costs and employ thousands of Kenyans.

Another finding is that building structures and components can be standardized and prepared overseas and then transported and assembled. This would reduce costs and time.

Our research has shown that innovative and alternative building materials and technologies can also achieve savings. There are a number of public and private companies in Kenya that produce alternative building materials.

On the other hand, the objectives of the program include:

Funding: Housing and real estate construction is a very capital-intensive enterprise, and funds are scarce.

Lack of land for development: The project requires land that is serviced with infrastructure and in a good location. But such land is scarce in Kenya, and therefore expensive.

Construction cost: Design, materials and labor make up 50–70% of the cost of building a house.

Poor physical and social infrastructure: Many urban centers in Kenya lack infrastructure, and developers often pass on infrastructure costs to end buyers.

Bureaucracy: Many agencies are involved in the approval and licensing of housing development proposals, making the process lengthy, expensive and complex. None of the laws and standards related to the construction of buildings are directly related to the development of mass affordable housing.

Settlement: People are moving to make way for affordable housing projects.

What should be done

• Developers, contractors and other players in the housing industry should take advantage of the opportunities available for mass housing development.
• The government and specialists in the architectural environment sector should inform the public about the advantages of alternative materials and technologies.
• The state should open up more land for affordable housing.
• The National Housing Development Fund should consider more sources of financing, such as the capital market.
• A policy framework is needed to guide design, unit sizes, siting and long-term maintenance.
• In order to avoid resistance to resettlement, there is a need for more active participation and consultation with the public.

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