Affordable Housing in Kenya Still a Dream Yet to be Achieved

Low-income levels, soaring property prices, cost of mortgage financing and the exclusion of employees in the informal sector have been termed as the main challenges facing the demand side of the affordable housing in Kenya.

Kenya needs a total of 250,000 housing units annually with the gap mainly being in the lower middle of the low-income segment.

Housing demand in the country grows by 250,000 units annually whereas supply only grows by 50,000 thus the deficit grows by 200,000 units annually.

The Ministry of Housing estimates that out of the existing supply, 83 percent is for the high and upper-income segments, 15 percent for the lower middle segment and only 2 percent for the low-income segment.

The Real estate and construction sectors contribution to GDP has been increasing from 10.5 percent in 2000 to 12.6 percent in 2010 to 14.6 percent in Q3 2017. The Real estate sector in Kenya is expected to continue growing on the back of high returns and the entry of institutional developers to the market.

According to a study conducted by Cytonn Investments on the demographics and housing requirements of adults in Nairobi Metropolis in 2016, the majority of persons in Nairobi metropolis were found to be earning a salary ranging between 30,000 shillings and 100,000 shillings per month.

Going by the statistics, if Nairobi residents spend a maximum of 30 percent of their salary on rent, the majority of resident in the city pay rent between 10,000 shillings and 30,000 shillings per month.

The study further disclosed that 88 percent of Nairobi residents live in rented houses with 75 percent of them paying rent of below 20,000 shillings per month.

Inadequate supply of affordable development land, high construction costs, high cost and access to financing and ineffectiveness of PPPs are the main limitations to the supply of affordable housing.

Part of the Kenyan Governments Big 4 Agenda’s in the next five years is ensuring that there is affordable housing. Here, the government intends to use funding from budgetary allocation, the NSSF and the private sector at 10.0 percent, 30 percent and 60 percent allocation, respectively to deliver 1 million affordable homes in the period.

A report presented during the Structured Finance Conference noted that increasing sources of funds as key in enhancing the achievement of affordable housing in Kenya through the Development of Structured Products in the Kenyan market, lobbying and tax amendments and conducting of a review on REITs (Companies that own, operate and finance income-producing real estate. They often trade on exchanges like stocks and provide investors with a liquid stake in real estate).

The report stated that real estate developers could rely on alternative sources of funding that can be achieved through structured products such as REITs, Project-Backed Notes and Cash Management Solutions.