However, supply has failed to meet the consequent growing demand for housing. It is estimated that Kenya has a housing deficit of over two million units with the bulk of the urban population living in the slums. The World Bank estimates that an average 50,000 residential units are constructed annually despite an estimated demand of 200,000 units. The constraints in both demand and supply, according to the government, are as below:
Supply Side Constraints:
1. Developers have limitations on the number of units they can build because there are no guarantees on who will buy.
2. Instead of building thousands of units, they limit their risks and build only limited number.
Demand Side Constraints:
1. Buyers lack adequate funding to take up units.
2. They do not qualify for mortgages because of lumpy cash flows.
3. Existing mortgages are too costly due to high interest rates and short repayment periods.
In support of shifting demographics, the government is seeking to add 500,000 residential units by the end of the year 2022 through its Affordable Housing Programme (AHP). Affordable housing is a requirement under the Sustainable Development Goals (SDGs), the Constitution of Kenya (Article 43. (1) (b)), Vision 2030 and in line with President Uhuru Kenyatta’s Big Four agenda.
The conceptualization of the Affordable Housing Programme began in August 2017. So far, the national government is in the process of signing memorandum of understandings (MOUs) with county governments for the development of 10,000 housing units, by the end of the year 2022, in each of the counties. This is expected to not only complement the national government’s efforts to plug the housing deficit but also boost the successful construction and completion of housing units given that county government’s get to ‘own’ the projects.
That said, the construction of 500,000 residential units in three years would be an admirable achievement for the current administration. However, the consequent allocation will be no small feat. The government has developed a strategy that ensures fairness and transparency in the allocation process through applicant registration on the Boma Yangu platform. Furthermore, the government intends to use artificial intelligence (AI) to help assess eligibility to the Affordable Housing Programme using data sourced from credit reference bureaus (CRBs) as well as smartphone wallet applications (via third party providers) that will help build credit profiles for those without a conventional banking history.
So far, interest in the housing program has steadily built with 219,499 registered applicants on the Boma Yangu platform as at 14th May 2019 since the programme’s launch in late December 2018. That said, those eligible are citizens above 18 years of age, with proof of registration under the scheme, proof of contribution to the scheme and a first time home-owner under the affordable housing scheme.
Core to the Affordable Housing Programme will be addressing the affordability question, albeit for certain income brackets, by creating accessible financing solutions. The formation of the Kenya Mortgage Refinance Company (KMRC) seeks to drive the affordability of mortgages by providing more long term funding to financial institutions, an incentive to enable them offer long tenure mortgages.
KMRC seeks to use the funds raised through the Housing Fund (established under Section 6(1) of the Housing Act in 1967), under the control of the National Housing Corporation (NHC). The Housing Fund will raise funds through debt and borrowings, statutory member contributions (employee contributions matched by the employer) and public contributions (voluntary contributions, grants/donations form development partners, other equity investors and rental revenue from the current available stock of housing provided under existing public housing). With that said, employee contributions, for those who do not take advantage of the benefits of the programme, will be reimbursed after 15 years from the contribution start date or as soon as the member attains retirement age acting as a source of savings for the employee.
So far, efforts to raise funds through debt and borrowings have borne fruit with the World Bank having injected US$250 Million while Pan-African financier Shelter Afrique injected US$2 Million in the second quarter of 2019. However, the initiation of the statutory member contribution, as underlined The Finance Act 2018 being 1.50% of the employee’s monthly basic salary as well matched by the employer and in any case not exceeding KES 5,000, has experienced some hurdles. Recently, the Labour court issued fresh orders to temporarily halt the government from implementing the 1.50% housing fund levy on employee salaries potentially presenting a delay to the implementation of the Affordable Housing Programme.
Besides obvious public concern of the implementation of the Affordable Housing Programme, given previous fraud in housing schemes, the reasoning behind the programme is noble and supported by a solid need to improve the supply and affordability of housing. However, as the programme name suggests, affordability is the key issue being addressed. While addressing the general affordability question through the issuance of ‘cheap’ mortgages is a start, other issues such as the cost of property development, cost of land, improved infrastructure and most of all ensuring mortgage repayments will need to be addressed in tandem.
Furthermore, the question of who benefits from the programme is also a burning one. For one, employees earning over KES 150,000 and those whom are not first time homebuyers will not benefit from the programme yet they will be compelled to contribute to it. Moreover, those who can benefit from the programme will be selected through a lottery process that takes into consideration applicants credit histories (be it from CRBs or otherwise). This then brings to question, the end beneficiary of the programme. With all that said, 288 homes are about to completed in Nairobi’s Park Road flagship project, it would therefore be interesting to note whom the 288 beneficiaries will be.