The figures are mind-boggling. According to Shelter Afrique, a pan-African finance institution that supports the development of Africa’s housing and real estate sectors, the African continent requires four million housing units per year to meet its housing needs.
The problem has been exacerbated by rapid population growth, increased urbanization, and a scarcity of affordable housing.
Closer to home, Kenya faces an annual housing demand of 250,000 units, despite government plans to provide 200,000 housing units per year for all income levels.
However, the construction of housing units is currently at less than 50,000 units annually, well below the target number, culminating in a housing deficit of over 2 million units, with nearly 61% of urban households living in slums, according to Habitat.
This construction deficit continues to rise due to fundamental constraints on both the demand and supply side and is exacerbated by an urbanization rate of 4.4%, equivalent to 0.5 million new city dwellers every year.
Interventions
Housing affordability is a key challenge in Kenya with many people unable to afford to buy or build their own home. Only 2% of the formally constructed houses target lower-income families.
Several interventions have been put in place in a bid to tackle housing deficit in Kenya.
The affordable housing initiative, for example, which was launched in December 2017 as one of the national government’s four pillars of growth, aims to address the country’s housing shortage. The Affordable Housing Programme (AHP), as it is now known, promises to build 500,000 low-cost homes over a five-year period.
The program’s first project, in Nairobi’s Ngara Estate, has so far delivered 228 affordable units. It has created numerous opportunities for construction investment, as well as the manufacture and supply of building materials and components.
The houses are being built on nine acres of land at a cost of KSh5 billion. The project includes a nursery school and shopping centre, among other communal facilities. Its 1,370 housing units are to be sold at US$10,000 for a one-bedroom, US$20,000 for two-bedroom and US$30,000 for a three-bedroom house.
Another affordable housing project is Buxton Point currently ongoing in Mombasa County. The project is a joint venture partnership of the County Government of Mombasa and investors led by Hon. Suleiman Shahbal. The affordable housing units will be sold at Ksh 1.2m for a bedsitter, 2.3m for a one bedroom and 3.6m for a two bedroomed house. The project will have a total of 1850 units.
In Kitui County, 509 affordable houses are under construction. The project is a Public Private Partnership (PPP) between the Kitui County Government and Tecnofin Kenya Ltd, a local real estate company. Flexible payment terms and proximity to the town and other social amenities such as schools and hospitals are a major selling point for the project that is located along Kalawa Road, opposite WARMA offices.
In Ongata Rongai, Kajiado County, construction of 736 affordable housing units has been completed. The units will go for Ksh 4 million each. The project was developed by Kings Developers and targets families seeking serene and tranquil residential areas.
and targets families seeking serene and tranquil residential areas.
The government plans to construct such houses across the country. President William Ruto for example has detailed his plan to deliver 200,000 housing units annually that will heavily rely on support from counties. In order to enable efficient delivery of thousands of houses in counties, the government will also be working with private developers.
However, the program faces a number of challenges that must be overcome if the program as a whole is to succeed.
In the early and mid-2000s the government proposed a raft of housing incentives to stimulate the housing market and address both the supply and demand side of housing.
Such incentives included incentives under the Income Tax Act such as tax deductibility for housing loans and expenditures on social infrastructure; incentives under the VAT Act that proposed exemption of VAT for construction of low-income housing; incentives under the Stamp Duty Act where stamp duty fees on mortgages was reduced from 0.2 percent to 0.1 percent; lower taxation of housing bonds and assignment of retirement benefits.
More recently, President Ruto proposed that first-time home buyers be exempted from stamp duty.
“We have said as a government that if you are buying a house for the first time, we won’t tax you. We’ll remove stamp duty. But when we remove stamp duty (for first-time homebuyers), you should pay land rates because if you don’t where will we get funds for water supply, road construction, electricity connection and garbage collection?” posed the President.
Key impediments
Even with all these incentives and strategies and with a constitution supporting adequate housing for all, the housing problem has refused to go and housing affordability remains a thorn in the flesh of the government.
But industry players have put land at the centre of housing affordability.
In order to roll out a successful affordable housing project, land must be serviced with infrastructure and in good location. But such land is in short supply in Kenya, and therefore expensive.
“From market studies, the cost of land should constitute between 10 per cent and 15 per cent of the total cost of a housing unit for it to be affordable, but this isn’t the case in many countries,” says Kingsley Muwowo from Shelter Afrique.
In Kenya, the cost of land makes up between 40 per cent and 60 per cent of the total cost of a housing unit, Muwowo notes.
A market report by real estate firm–HassConsult shows the average value for land in Nairobi suburbs has gone up from Sh30.3 million in December 2007, to Sh191.3 million in March 2022.
Most land also lacks infrastructure to support development of mass houses. Without basic support infrastructure such as roads, water, electricity and sewer lines, developers have to fork out a lot of money to provide such services. Not to mention delays in approvals and granting of permits.
“Although private developers have innovated ways of delivering more affordable houses, the exorbitant cost of land and other barriers such as low access to mortgages, as well as high financing and construction costs, continue to impede such projects,” says Edward Kariuki director at Delta Homes Ltd.
Furthermore, most land that could potentially be ideal for affordable housing is in private hands. In Singapore, where affordable housing has been carried out successfully, the Land Acquisition Act of 1967 empowered the government to acquire land at a low cost for public use and thus today 90.0% of land is government-owned. In this way, the government was able to acquire land that was not under its control and use it for housing development.
Bureaucracy has also been cited as a major impediment to affordable housing. Many agencies are involved in the approval and licensing of housing development proposals and this makes the process lengthy, costly and complicated. None of the laws and standards in connection with building construction directly addresses development of large-scale affordable housing.
Then there is the problem of funding. Housing and real estate development is a highly capital-intensive venture and funds are in short supply.
Kariuki urges authorities to speed up approval processes for public-private partnerships (PPPs) to attract serious investors with capacity to put up large affordable housing projects.
However, given Kenya’s low income, with the majority of the population surviving on less than US$2 per day, providing decent affordable housing may remain elusive for decades to come.
