AFFORDABLE HOUSING IN KENYA: A GROWING MARKET WITH ENDLESS POSSIBILITIES

Article by: M. Nyambura, J. Namutebi, B. Omondi, L. Kanario and E. Ochieng’
Date: 25th July 2024
There are diverse definitions of affordable housing, however, there is a unanimous agreement on cost and accessibility. Banks in Kenya define affordable housing as homes priced at Ksh. 10.5 million or less, this definition is widely accepted in the industry. Further, affordable housing program 2017, defined it as housing units which do not cost more than two hundred times the prevailing statutory minimum wage of Ksh. 15,201 for a two-bedroom unit. These units are the ultimate game changer, for low and middle-income earners who live in developing countries like Kenya.

Market Analysis
Since independence, there have been significant efforts by the government to provide decent and reasonably priced houses. This was in response to the rise of informal settlements caused by rural-urban migration. According to the State Department of Housing in Kenya (SDHK), the Housing Finance Company of Kenya (HFCK) was established in the year 1965, to provide construction and mortgage finance to homebuyers. Between 1970s and 1980s, this effort was complemented by allowing private developers to participate in housing delivery. In the 1990s, the government enacted the National Slum Upgrading and Prevention Policy, aimed at reducing slums (SDHK). Later, in the year 2008 the government of the day launched the vision 2030 blueprint, which prioritized the development of quality and affordable houses.

Based on the World Bank’s statistics, the housing market in Kenya has a cumulative deficit of 2 million units and continues to grow at a rate of 250,000 units annually. This is due to, Kenya’s annual population growth rate of 2.28%, which is approximately 1,282,055 people and a high urbanization rate of 4.4% annually equivalent to 0.5 million people. This is based on data from World Population Review. The supply, on the other hand, is constrained, with only 50,000 units being developed annually. Out of these units only 30% fall under affordable housing market.

To remedy this problem the 2013 to 2022 Kenyan government, through the big four agenda, launched affordable housing initiative. However, as per the ministry of lands, public-works, housing and urban development, the initiative only met 1.3% of its initial target of 397,000 units by the end of the planned period 2021/2022. To complement these efforts, the 2022-2027 government has enacted the affordable housing Act (2024). The Act entails affordable housing levy to be charged at 1.5% of the gross income of a business or an individual and a matching contribution from employers. These pooled funds are earmarked to accelerate the development of affordable housing across the country.

265 Elmer One affordable houses by CentumRe at Kasarani
265 Elmer One affordable houses by CentumRe at Kasarani

In the quest to achieve its goal of 250,000 units annually, the government of Kenya, through the bottom-up economic transformation agenda (BETA) has embraced partnership with private developers. This has been done through provision of government land, infrastructure and tax incentives, such as the VAT exemption on construction materials as well as stamp duty exemption for first time homeowners.

The role of Private Developers
In our opinion, the dream of addressing the housing crisis could be achieved sooner if there were concerted efforts from both the public and private sectors, along with supportive policies and investments from the government. However, there is still confusion on the framework of how private developers can take advantage of the government incentives towards development of affordable housing. To tackle this, Kenya property developers’ association (KPDA), is trying to engage the government through the state department of housing, towards a more streamlined process for the property developers as far as the framework of incentives on affordable housing is concerned.

A notable country that has successfully implemented affordable housing scheme is South Korea. The country’s government, according to Korea Housing Finance Cooperation (KHFC) has provided incentives and support to developers willing to develop affordable housing units. These incentives include low interest loans to both developers and homebuyers, density bonuses that encourage developers to build more units for public benefit, tax incentives and streamlined approval processes.

1255 Palm Ridge at Vipingo Development by CentumRe
1255 Palm Ridge at Vipingo Development by CentumRe

Regionally, a similar model of incorporating private developers has been witnessed in South Africa. According to their social housing regulatory Authority (SHRA), South African government, through Integrated Residential Development Program (IRDP), has fostered collaboration with private developers to create mixed use, mixed income developments. These projects include a range of housing options from fully subsidized units to market-rate homes.

In the sampled countries i.e. South Korea and South Africa, developers use alternative building technologies such as prefabs, 3D printing and eco-friendly materials which reduce construction cost ensuring affordability. Additionally, the developers use energy-efficient appliances which save on operational cost. The big question therefore becomes; does affordability of housing relate solely to the purchase cost, or does it also encompass operational and maintenance costs? We have seen the best practices from the forementioned countries is that affordability should cover both the upfront purchase cost as well as the long-term running cost. Kenyan developers can leave provisions for installation of these technologies later to reduce operational costs in the long run.

256 Bella Vista apartments at Pearl Marina Uganda by CentumRe
256 Bella Vista apartments at Pearl Marina Uganda by CentumRe

Future Trends
As we look to the future, several trends are poised to shape the affordable housing market. These trends are due to significant population changes and growth. According to the national council of population and development (NCPD), 55% proportion of Kenya’s population comprises of young people (millennials and generation Z) who are entering the housing market. This young population, as well as the changing family structures with a shift towards smaller family units, warrants smaller household sizes. This means that the developers in the affordable housing sector should largely focus on compact units with amenities.

Recommendations and Conclusions
From the foregoing, solutions to the housing deficit in Kenya lies in our ability as a country to remove the bottleneck of end-user financing and developer financing. In our opinion, the government should focus on creating policy frameworks and infrastructure development that incentivize private developers to bid and build affordable housing projects on government land. The Kenya Mortgage Refinance Company’s (KMRC) role in providing long-term funding to the end user is a welcome approach. However, to truly bridge the massive annual housing gap, a dedicated social housing fund specifically for low-income earners as well as a fund that lends exclusively to developers at low interest rates are necessary. By implementing these recommendations, we can significantly solve the housing deficit problem in Kenya.