According to the Economic Times, affordable housing refers to housing units that are affordable by that section of society with the median household income or below. Based on this definition and with the statistics from Kenya National Bureau of Statistics (KNBS) on income distribution in the formal sector indicating that 74.4% of employees earn the median gross income of Kshs 50,000 or below per month, affordable housing in Kenya would therefore be units employees in median gross income bracket can afford; assuming a maximum of 30.0% of their gross income is spent on housing costs, these are individuals who can afford to pay rent of Kshs 15,000 per month and below.
The concept of affordable housing was not entirely new as of 2017. Kenya’s Vision 2030 first medium-term goal (2009-2012), had a target of increasing housing production from 35,000 units annually to 200,000 units annually for all income levels. However, the Kenyan Government delivered approximately 3,000 units only during that period, compared to a target of 800,000 houses. This is according to the World Bank Economic Update of 2017. With the fact that less than 1.0% of the target had been achieved, the Affordable Housing Program initiative became a pillar under the Big 4 Agenda in 2017. It aimed at delivering the promise, of constructing 500,000 units by 2022.
The timely delivery of the Affordable Housing program has, however, been impeded by several bottlenecks, with the Government only delivering less than 5,000 housing units which is a far cry from an ambitious target of 500,000 units at the end of 2022. Some of these bottlenecks include;
- Inadequate funding for both the government and the private sector players,
- Unaffordable mortgages,
- Inadequate supply of development land,
- High construction costs,
- General government bureaucracy,
- Ineffective policy actions,
- Ineffectiveness of Public-Private Partnerships (PPPs) for affordable housing development, and,
- Unsustainable funding model for the Kenya Mortgage Refinance Company (KMRC)
With the above challenges, the following can be implemented by the Government to accelerate the affordable housing initiative in the Nairobi Metropolitan Area;
- Remove obstacles in the Capital Markets by allowing for sector funds, reducing the minimum investments to reasonable amounts, eliminating conflicts of interest in the governance of capital markets, and, improving fund transparency to provide investors with more information,
- Focus on enabling environment for developers and investors, as well as stimulating economic growth to ensure that even citizens can afford housing on their own,
- Focus on urban planning in the NMA where the government can adopt the technique of high-rise buildings with compact plinth areas in the Nairobi Metropolitan Area (NMA) to cater for the growing population, and,
- Reduce bureaucracy and regulatory hindrances in the working of PPPs by addressing regulatory gaps in PPP deals.
The government has made some progress towards affordable housing by delivering units in the Nairobi Metropolitan Area and initializing several other projects in other counties. We believe that for affordable housing to properly take off and meet the existing demand in the NMA, the government has to implement comprehensive solutions with a main focus on increasing financing for affordable housing development. If the financing gap can be bridged, the government will be a step closer to achieving the Big Four Agenda.
For more information, please see our topical on Affordable Housing in the Nairobi Metropolitan Area (NMA).