affordable housing

Here’s how to build long-term supply of affordable houses in Kenya

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This article first appeared in my weekly column with the Business Daily on April 14, 2019

Last week I attended the East Africa Property Investment Summit and participated in the affordable housing panel. The summit, and discussions I have been engaging in on the affordable housing pillar of the Big Four Agenda, highlighted several opportunities that can be leveraged to drive the long-term supply of affordable housing in the Kenyan market. According to estimates, the affordable homes under the Big Four will cost between KES 600,000 and 3 million with the Kenya Mortgage Refinance Company (KMRC) established to facilitate the provision of affordable mortgages. However, the reality is that serious constraints impede the supply of affordable homes in the Kenyan market, key of which have been the cost of construction materials, construction-related fees and a myriad of fiscal and non-fiscal regulatory and legislative obstacles. There are three ways through which the affordable housing pillar can be used to stimulate the long-term supply of affordable housing in Kenya.

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The first is to address the exorbitant cost of land in major urban nodes. In this regard, government has indicated a certain level of commitment in the allocation of land for affordable housing developments. However in the long term, urban planning by government has to take a long-term outlook on the development of urban areas and consistently allocate land designated for affordable housing. All rapidly urbanising counties ought to set land aside and then contract private sector to construct the affordable housing units. This will relieve private developers of the cost and hassle of the purchase and transfer of title and thus lower costs in the long-term.

Secondly, there is a need to lower the cost of the manufacture of construction materials. In addition to addressing issues systemic to manufacturing such as lowering the cost of electricity, incentives specific to lowering the cost of locally manufactured construction materials ought to be applied. The Kenya Property Developers Association (KPDA) which represents the residential, commercial and industrial property development sector in Kenya, has an Affordable Housing Taskforce which recommends that government zero rate locally manufactured products used in affordable housing developments.

Thirdly, the domestic private sector ought to be listened to with regards to their ideas on how to stimulate their ability to construct affordable housing on a long term basis. In terms of fiscal incentives, KPDA’s Affordable Housing Taskforce suggests that corporate tax be reduced to 15 percent for approved affordable housing projects and that financing spent on infrastructure linked to affordable housing, be treated as capital expenditure and set off at 100 percent against the tax payable as a capital allowance. With regards to costs linked to regulatory compliance, the suggestion is that government establish a One Stop Shop for all affordable housing approvals and standardise all construction related fees by county governments.

If Kenya is to play the long game in stimulating the consistent supply of affordable homes, government ought to leverage its current focus on the sector and determinedly resolve the factors that prevent private sector from effectively servicing this market segment. In government addressing the structural constraints linked to affordable housing, private sector will be able to more effectively construct homes that Kenyans can afford on an ongoing basis.

Anzetse Were is a development economist



TV Interview: The Big 4 Agenda

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On Wednesday February 20, I was part of a panel on Citizen TV discussing the Big 4 Agenda in Kenya, with a focus on manufacturing and affordable housing.


Factors to Consider in Affordable Housing Scheme

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This article first appeared in my weekly column with the Business Daily on April 22, 2018

The government recently announced that it seeks to develop 500,000 units of affordable housing as part of the Big Four agenda. Government also announced that it seeks to extend affordable mortgages for as low as 7 percent, facilitated by the Kenya Mortgage Refinancing Company (KMRC). Reports indicate that KMRC has secured financing from the World Bank and the African Development Bank which have allocated KES 16.1 billion and KES 15 billion respectively.

Several factors ought to be considered if the affordable housing intent is to translate into home ownership for low-income earners (this piece draws from an article by Dr Mbui Wagacha in the Business Daily on April 4, 2018).

An informal settlement in Nairobi. FILE PHOTO | NMG


Firstly, the criteria of who qualifies for affordable housing and related loans needs to be crystal clear. It is important that government present granular details of and rationale for the specific criteria that need to be met to be eligible for the scheme. Ideally, the target should be low-income households currently living in informal settlements. Once the criteria is established, government should develop a database of all individuals who qualify for the scheme. A system can then be set up where once housing is available, individuals are randomly chosen from the database and granted the houses and linked loan facilities. This can be coordinated through an Affordable Housing Authority.

Secondly, government needs to invest in both sides of the housing market. The demand side is being addressed through the creation of KMRC and subsidised mortgages. Finding the right financial partners to deploy the mortgages will be crucial and here, Savings and Credit Cooperative Organisation(SACCOs) ought to be brought in strategically. SACCOs and cooperative networks currently already provide 90 percent of mortgages in the Kenyan housing market, invariably at more affordable rates than commercial banks. Government should actively pull in and incentivise SACCOs to deploy the subsidised loans, and in doing so, leverage the latter’s knowledge of lending to the housing market affordably and thereby penetrate lower income markets. Linked to this, there ought to be a strategy to finance the construction of affordable homes. This can also be deployed through SACCOS, so that the interest charged on construction loans remains at manageable levels and does not push up home purchase prices. Further, domestic firms ought to be actively engaged to bid for construction tenders, and requisite support to ensure project by domestic firms is prioritised.

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Thirdly, an affordability strategy ought to be developed to comprehensively address the issue of land prices. Land currently constitutes the lion’s share of home prices especially in urban and peri-urban areas, which is where most of the affordable housing ought to be constructed. Government can provide the land at no cost as part of the scheme such that the prices of homes only feature the cost of construction; this will drastically bring down prices.

Finally, conditions of resale of affordable houses have to be specific and stringent. If individuals in the scheme seek to sell their house, they can only sell back to the housing scheme itself; no third party ought to be allowed to buy the affordable homes. If these measures are not taken, unscrupulous investors will target the affordable homes, offer individuals great deals and mop up all the houses through re-sale, thereby defeating the intent of the scheme in the first place.

Anzetse Were is a development economist;

How to Achieve Kenyatta’s Big Four

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This article first appeared in my weekly column with the Business Daily on January 7, 2018

Last month, President Kenyatta indicated that his last term would focus on the big four for economic development in Kenya. These are food security, affordable housing, manufacturing and affordable healthcare; the article focuses on the first three.

A considerable challenge with food security at the moment is that it is dominated by small scale farmers who operate at a subsistence level with limited financial resources and technical support that would allow them to make their farms more productive and get their products to market. A key element for this sector would include a reinstatement of technical support to rural farmers in the form of agricultural extensions officers. Additionally, storage of food products has to be vastly improved in order to ensure food does not rot before reaching market, but also allow farmers to use stored produce as collateral for credit to improve farm inputs. Finally, financial support should be targeted at the sector to improve the quality and cost of farm inputs and encourage the strategic use of farm technology. Linked to this is the crucial need for government entities that purchase food products from farmers to pay in a timely manner such that farmers can have a seamless farm cycle.

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Manufacturing is linked to agriculture. The manufacturing sub-sectors of focus are the blue economy, agro-processing, leather and textiles, all of which require agricultural inputs. Government first ought to coordinate manufacturing inputs with agricultural strategy such that factories have robust source markets. And as the President pointed out, the skills gap for the sector has to be addressed so that there are enough individuals with the appropriate skills sets to drive manufacturing. In addition, the cost of production must be cut in order to make Kenyan products more competitive. Thus the step taken to cut the cost of power is important although clarity is required on how it will be implemented and implications for fiscal policy. Finally, the sector ought to benefit from fiscal incentives such as tax rebates, tax deductions and other strategies to encourage the development of industrial capacity.

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It is encouraging to see affordable housing as a priority, as this sector has been direly neglected in the past. As of 2015, the annual housing requirement in Kenya stood at about 132,000 units with a backlog of 1.85 million units. This has created a dynamic where excess demand fuels price escalation in terms of home prices and rents charged. First, government ought to encourage the adoption of technology and materials that reduce construction costs. Secondly, government must improve access to land and facilitate the registration and transfer of titles. Thirdly, financing for the construction and purchase of affordable homes must be incentivised. Savings and Credit Cooperative Organization (SACCOs) have overtaken commercial banks and mortgage providers in the provision of home construction loans in Kenya and account for more than 90 percent of home loans in Kenya. However, there are no fiscal incentives that target SACCOs- this must be rectified. Finally, government must create a registry of whom qualifies for affordable housing. Currently, when cheap houses are constructed, wealthy individuals purchase several units and rent them, locking out low income individuals from purchasing the homes- this must stop.

Anzetse Were is a development economist;