State’s promised 500,000 low cost homes a drop in the ocean

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Residents flock to their homes on a rainy afternoon in Kibera

Although President Uhuru Kenyatta’s announcement that the government would build 500,000 “decent, affordable” homes in the next five years is seen as a step in the right direction, some players in the housing sector feel it is too little too late.

First, the country has a backlog of more than 2 million housing units, with an annual demand estimated at more than 200,000. Of this, developers provide approximately 50,000 units annually, leaving the backlog to grow by more than 150,000 house units every year.

“The 100,000 units it intends to build every year are not enough to meet the annual demand, leave alone settle the backlog we have been accumulating,” said a real estate insider who requested anonymity.


“With nearly 61 per cent of urban households living in slums,” the World Bank noted in a recent report, “this deficit continues to rise due to fundamental constraints on both the demand and supply side and is exacerbated by an urbanisation rate of 4.4 per cent, equivalent to 0.5 million new city dwellers every year.”

One of the major contributors to the housing crisis has been the lack of affordable finance, which prompted Parliament to pass an amendment to the Banking Act in 2016 that set the maximum interest rate on loans at four per cent above the Central Bank Rate.

However, the law only made banks introduce stringent lending conditions, which locked many people out of the mortgage market. Indeed, World Bank economists noted in 2017 that mortgage lending dropped by two thirds after the introduction of the interest rate cap, pushing the mortgage market to a 15-year low.

Meanwhile, a 2011 World Bank survey said that only about 11 per cent of Kenyans earn enough to support a mortgage. And a survey by The Mortgage Company in 2014 established that only a fifth of Kenyans living in urban areas could afford a home loan of Sh1 million and above.

It also found that at least a quarter of Kenyans living in urban areas can afford a Sh2 million mortgage, out of the country’s nine million households. But the prices of homes have been rising rapidly.

“In 2013, prices were nearly three times those in 2000, creating fewer opportunities for low- and middle-income families. Besides, the lowest-priced house already cost Sh1.3 million in December 2012 and currently (2017), there is almost no supply in the market for homes priced at less than Sh4 million, especially in Nairobi,” senior World Bank economist Allen Dennis said.

A ten-fold rise in house prices since 2000 has locked out millions of potential home buyers, worsening the country’s ownership crisis, said the World Bank.

The property developers who spoke to DN2 said the government should be more creative in tackling the housing deficit even as it rolls out its “ambitious” five-year plan.

Mr Francis Kamande, the national chairman of the National Co-operative Housing Union (Nachu), the umbrella body for registered primary housing co-operatives, said it was a step in the right direction but more needs to be done.

“The government is only creating an enabling environment for the private sector to roll out the anticipated number of houses,” said Mr Kamande said, adding that the provision of the necessary infrastructure such as sewer lines, feeder roads, water and electricity is the responsibility of the county and national governments.

He said making the acquisition of title deeds easier would go a long way in reducing the construction cost for developers and, consequently, the cost of housing.

The government has already intimated that it intends to pursue public-private partnership to achieve what it calls the Kenyan dream of transitioning modest income-earners to the middle class through home ownership, but whether it succeeds remains to be seen.


To begin with, the government will have to narrow the affordability gap in the housing market and improve financing for both developers and users, the World Bank said in a report last year that proposed a raft of measures that could make housing more affordable to the poor.

Also, with the share of savings and credit cooperative-financed housing standing at more than 90 per cent, the government will have to explore the role of Saccos to help bridge the gap in the housing finance market.

“We get most of our funds from abroad because interest rates are lower there. There are investors there willing to put their money to good causes, especially because interest rates here are higher than in their mother country.

So imagine if the government, after looking at what we have done in the country in terms of providing housing, were to guarantee them saying, “Yes, we know Nachu, it is a credible organisation and we have seen its work; we are willing to sign a document that in the event that it is unable to repay you, the government will move in to resolve the issue”.

Such a statement and commitment will give the investor confidence and might see the lender lower the interest rate even further,” says Mr Kamande, who believes the government should consider instituting such a policy.



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