Extending Homeownership in Kenya

Lee M Cashell
Lee M Cashell
3 min read

The delivery of affordable housing confronts governments globally and few have addressed it satisfactorily. It is salient in developed economies, but in frontier and emerging markets it often assumes even greater importance given twin pressures of urbanization and high birth rates. Kenya is known for many things: the ethereal splendour of the Masai Mara and its status as the de facto commercial hub for East Africa. But it is also known for Kibera, one of the largest areas of temporary accommodation anywhere in the world. With the population expected to grow significantly in the next few decades, the government has sought to remedy the situation with intervention on both the supply and demand side.

According to the Centre for Affordable Housing Finance in Africa (CAHF), nearly 27% of Kenya’s 48 million population live in urban areas. With cities perceived to offer greater economic opportunities, the urbanisation rate is around four per cent per annum. Banks and Savings and Credit Cooperatives (SACCOs) are the principal sources of housing finance in Kenya, with the mortgage sector still under developed, owing to insufficient access to long term sources of capital, and relevant collateral and security. A challenging legal and regulatory framework has likewise frustrated the private sector, leading to necessary intervention by the Kenyan government.

 

nairobi, kenya

 

Announced in 2017, the Kenya Affordable Housing Program (AHP) placed improved provision as one of its central pillars for economic growth, alongside comprehensive healthcare and the expansion of manufacturing and agriculture. According to research by Seeta Shah, there is a housing backlog of 1.85 million units, with a requirement to deliver around 200,000 properties each year to keep pace with demand. The program has made a number of eye catching innovations, from home ownership savings plans to waivers on building approval fees. It has introduced a National Housing Development Fund and improved liquidity through the Kenya Mortgage Refinancing Company. These together with exemptions on value added tax (VAT) and incentives for developers building at scale, should help stimulate supply.

The truth, though, is more nuanced. Research by Kecia Rust, presented to the Africa Union for Housing Finance (AUHF), suggests there is no silver bullet, with actual delivery of new units amounting to 228 up to May 2020. Rust highlights challenges such as a lack of bulk infrastructure, an opaque system of public land contributions and an underdeveloped Integrated Project Delivery Unit (IPDU). The lack of transparency is of particular concern, since it makes it difficult to assess successful models and attempt extrapolation. This analysis suggests housing is one of the most effective means to resolve some of the issues facing Kenya. Rust contends investment can help resolve the risk (of housing issues), stimulate recovery post COVID and contribute to resilience through sustaining small enterprises and encouraging landlordism.

For Rust, market failure can be observed in a lack of diversity in suppliers, both large and small scale. It is manifest, also, in the focus on homeownership and lack of recognition of the role of the rental sector. This particular problem is not unique to Kenya, but is an observable characteristic of many markets, where governments (and electors) have preferred owner occupation. Housing as an instrument for increased domestic productivity, is also identified by Rust. By prioritising resources in this direction, it may contribute to functioning rental markets and recovery of household income streams. Lastly, resilience can be delivered by improving the asset base of the country.

 

the alma, kenyaThe Alma, Nairobi

 

With COVID placing pressure on government budgets globally, Kenya’s housing challenge will not be resolved by recourse to government alone. Ultimately, the days of expansive state involvement in direct delivery have probably passed, at least for now. Instead, the government can look to accelerate the AHP, such that the frameworks and protocols are in place to encourage investment. The CAHF rightly identifies the crucial role of renting to cater to Kenyans unable to either raise deposits, show conventional income or maintain high monthly payments. The reality is, for many developers and investors, this area is also most appealing, with appropriate government support. Impact investors typically have access to long term capital, requiring sub-commercial returns. If the government is able to craft an appropriate and legally enforceable framework, and then offer some form of rental guarantees (at sub market levels), it may be possible to accelerate delivery just at the time government finances are most straitened.

Leave a Comment
Recent Articles
Subscribe


Sign up to receive the Propeterra's newsletter and exclusive property news and updates. You can unsubscribe at any time by clicking on the unsubscribe links in our emails.

 

 

posts by tag

See all

Market Cover_Emerging Markets-1

 

Market Cover_Frontier Markets-1

 

Market Cover_Special Situations-1-1

 

Market Cover_Developed Markets-1

 

Recent Articles

3 minutes read

Mongolia’s Active Diplomacy in a Post-COP World

In November, Mongolia celebrated sixty years as part of the United Nations (UN). For many countries, this means little, as such milestones, by definition, come and pass on a regular basis. It assumes greater importance for Mongolia, though, given the particular geopolitical framework it has to work with. By dint of geography, this vast country has an unusual position. In a strategically important location between Russia and China, it is relevant to not only its own prosperity but also the broader world. Since independence, Mongolia has tried to maintain constructive relations with those it shares borders, but also to project beyond North Asia. Its successful third neighbour policy, takes in partners from South Korea to Japan, India to the United States.

Mongolia

4 minutes read

Investing in Good or a Good Investment?

How can we judge the environmental impact of property development?
‘Sustainable’, ‘green’, ‘eco-friendly’, ‘ethical’: too frequently seen as - and
used as - zeitgeisty buzzwords to allay any discomfort investors may feel
over looking for the next most profitable venture. But anyone with even
half an eye on the news and weather reports can see that environmental
sustainability can not be merely an optional consideration when planning
developments or deciding where to invest – especially when it comes to
real estate, given that almost 40% of carbon emissions are from the built
environment. But in a world with such interconnected systems and
ecologies, how can we predict impacts that may be surprising and far
reaching?

AidData, a research lab at the College of William and Mary, Virginia, has
been developing the technology and resources to do just that. Their team
includes economists, political scientists, geographers, developers,
program evaluators, policy analysts, and communications professionals,
and they work with 21 different countries in Asia, Latin America and
Africa, using data and hard evidence to improve policy and development
outcomes, helping policymakers to move towards the UN’s 17 Sustainable
Development Goals.

Using satellite, household survey, economic, health, and other spatial
data, along with machine learning analysis and super-accurate data on
geographical boundaries, AidData have created various tools to analyse
the impacts of various development programs, and to predict whether
similar programs would work in other locations. Their Geospatial Impact
Evaluation methods enable fast and rigorous analysis of outcomes for
localised development projects, replicating the standards of a randomised
controlled trial. Development agencies and governments are able to very
quickly discover whether some certain infrastructure project, for example
irrigation systems or village road improvement, had the desired effect on
outcomes like infant mortality, poverty, or deforestation. The highly
localised and granular data can also show whether outcomes are uneven
from region to region, allowing more targeted development in future.
Is there a way we can apply the same rigorous impact-analysis to our
small-scale investments that AidData is enabling international
development agencies and world governments to apply to their
investment in aid, infrastructure, health, and other initiatives?

Environmental, Social, and Corporate Governance are becoming ever
more important criteria when analysing an investment’s risks and
opportunities. In many emerging markets such as Malaysia and Indonesia,
the Islamic finance sector is growing more and more influential too, with
its strong alignment to ESG principles. Propeterra is looking at ways to
adapt the Geospatial Impact Evaluation methods created by AidData and apply them to affordable and social housing projects in emerging and

Social Impact

4 minutes read

Addressing the Global Affordable Housing Shortfall

 

Housing Crisis