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What is ‘Affordable Housing’ and is Kenya on the Right Path?

BY Juma · April 24, 2018 05:04 am

In the past few days, there has been a raging debate about Kenya achieving affordable housing for every Kenyan.

As the debates rage on and as people continue to discuss whether the talk will materialize or now, what is the meaning of ‘affordable housing’ and is Kenya on the right path towards achieving it?

According to The Economic Times, affordable housing are units that are reasonably priced for that section of society with the median household income or below.

The National Affordable Housing Summit Group of Australia defines Affordable Housing as housing that is reasonably adequate in standard and location for lower or middle-income households and does not cost so much that a household is unlikely to meet other basic needs on a sustainable basis.

Going by the first definition and Kenya National Bureau of Statistics (KNBS) data on income distribution in the formal sector, affordable housing would be units that can be afforded by individuals who earn 50,000 shillings and below per month, which is a total of 74.4 percent of persons employed in the formal sector in Kenya.

To gauge the price of a house affordable by these income levels, Analysts at Cytonn Investments Limited assumed a 20-year mortgage, at a 13.5 percent interest rate with a 10.0 percent deposit and using the rule of the thumb of a maximum of 40.0 percent of their income being used to pay monthly instalments, then the median income individual can afford a maximum of 1.8 million shillings for a house.

The very best case scenario would be to assume twice the monthly income where a household has 2 income-earners, then the median income household can afford a maximum of 3.6 million shillings for a house.

As per the Big Four Agenda Blue Print, the Kenyan Government intends to offer affordable housing at 0.8 million shillings to 3.0 million shillings per unit, at lower interest rates of up to 5.0 percent and longer mortgage tenors of up to 30 years.

Using the affordability method described above, the houses that the government is targeting, at 0.8 million shillings to 3.0 million shillings per unit, will, therefore, cater for individuals earning an income of between 9,700 and 36,600 per month, at 5.0 percent interest and a 30-year tenor.

So the unit prices, if they can be achieved are clearly within the affordability bracket of below 50,000 shillings per month income, assuming two income earners, but assuming 1 income earner, the maximum house price would be 1.8 million shillings.

According to the National Housing Corporation, Kenya has a cumulative housing deficit of 2 million units growing by 200,000 units per year being driven mainly by:

  • Rapid population growth of 2.6 percent per annum compared to the global average of 1.2 percent,
  • A high urbanization rate of 4.4 percent against a global average of 2.1 percent.

Supply, on the other hand, has been constrained by the Ministry of Housing estimating the total annual supply to be at 50,000 units.

Notably, the Ministry indicates that 83.0 percent of the existing housing supply is for the high income and upper-middle-income segments, with only 15.0 percent for the lower-middle and 2.0 percent for the low-income population. In summary, while 74.4 percent of Kenya’s working population requires affordable housing, only 17.0 percent of housing supply goes into serving this low to lower-middle income segment.

Juma is an enthusiastic journalist who believes that journalism has power to change the world either negatively or positively depending on how one uses it. (020) 528 0222 or Email: info@sokodirectory.com

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