This archive report was first published on 5 September 2019.
Kenya's Affordable Housing Conundrum: A Call for Alternative Financing ¶
Published on September 5, 2019, the affordable housing initiative has been a cornerstone of the government's Big Four agenda. However, the implementation has been slower than expected, with a huge housing demand of 200,000 units per annum driven by rapid population growth and urbanisation pressures.
The government has been heavily engaged in policy and fiscal reforms to make the affordable housing initiative a reality. However, the current devolved system has led to a lack of clarity on the roles of both county governments and the national government in provision of housing.
One of the main reasons for the slow implementation is the lack of successful public-private partnerships (PPPs) in Kenya. The main reasons for this are regulatory hindrances, lack of clarity on returns and revenue-sharing, and extended time-frames of PPPs.
Additionally, insufficient access to financing for both developers and homebuyers has affected the supply-demand dynamics. Developers are unable to provide for the low-end markets due to high costs of financing, lack of infrastructure in areas where land is affordable, and tight lending practices by banks following the cap on interest rates.
On the other hand, as home values rise, the pool of potential homebuyers continues to shrink, exacerbated by relatively low wages and growing unemployment. To curb the situation, a lot needs to be done, including revitalizing the Real Estate Investment Trusts (REITs) market.
REITs serve as an alternative financing vehicle that allows all types of investors to diversify their portfolio by investing in income-generating properties. In Kenya, we have a single listed REIT, the Stanlib Fahari I-REIT. A strong REITs policy framework is needed to allow private developers to access public funding which is more efficient and better priced to finance their projects.
Strategic policies are also needed to link the informal sector with the mortgage sector. This can be achieved through special mortgage underwriting standards for their undocumented incomes. With clear structures and policy reforms for private developers, it is possible to achieve the government's goal of 500,000 affordable housing units.
