Low-cost housing? In Kenya that's a myth

Thursday November 6 2014

By KWAME OWINO
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Many Kenyans with an interest in how the overall economy works will have understood that the recent adjustment of the weights of industries showed the country's GDP is 25 per cent larger than we previously believed.

One glaring fact is that after the rebasing exercise, the weighting accorded to the real estate sector doubled to 10.6 per cent, and displaced wholesale and retail activity to become the fourth-largest sector in Kenya’s economy.

The posh and serious applaud this, because in their view, the elevation of real estate heralds the rise of a middle class purchasing high-value houses with the lower income people who rent houses in the queue to purchase houses in turn.

FOUR PEOPLE PER HOUSE

The myth that owning a house is superior to renting is pervasive, but the bigger problem is the assumption that there is such a thing as low-income housing.

The idea that government and investors will be able to construct low-income housing in Kenya’s larger urban areas is strongly held, but flies in the face of the economic circumstances that prevail in a low-income country.

The National Population and Housing Census data in 2009 showed that there are about 10 million households, with an average of four people per dwelling.

Thus taking it that the average household would hold four people suggests that at the most ideal, a basic house in Kenya should have two bedrooms, a kitchen and a living room.

My estimate is that this basic house would occupy an area of about 70 square metres, with a cost of construction using materials made in Kenya at Sh15,000 per square metre.

DON'T THROW SMALL MONEY

The total construction cost for this basic house would be about Sh1.05 million, representing up to 11 years of average income in 2013, excluding the cost of the land.

Even for counties with an abundance of land, the annual construction of a sufficiently high number of houses to reduce the pressure for new housing in the main urban areas of Kenya would be nearly impossible.

Like many development problems, the solution to the prevalence of poor housing in Kenya’s urban areas is not to throw small money at it.

This situation is a manifestation of the fact that the costs of constructing a reasonably sized house with basic amenities is large in comparison with the income of working people in Kenya.

A MATTER OF MATHEMATICS

Therefore, for as long as incomes do not grow sufficiently to compress the ratio of incomes to the cost of the most basic dwelling in both urban and rural areas, reference to low-cost housing will be meaningless.

This is because in a country in which poverty is pervasive, a cheap house will necessarily be a bad house. That claim is just a matter of mathematical truism and not prejudice against poor individuals.

Urban areas show the most visible forms of deprivation in poor housing conditions based on scarcity of land, compared to rural areas. The reality is that Kenya’s most affluent people live in urban areas, and this includes those who dwell in the unplanned settlements of Nairobi and the major cities.

ONLY BAD HOUSING

That they live in bad conditions is not to indict them as much as a broad indicator that their incomes are not large enough to purchase good housing. At an income level of $100 per month, the only housing service they can purchase is a bad one, in spite of their best efforts.

A common claim about the inequality of land ownership in Nairobi is that the vast majority of residents live on less than 20 per cent of the land.

This information often finds the interpretation that a more even distribution of this land would in turn reduce the cost of house ownership.

Skewed land ownership truly does not in itself constrain the amount that is available for house construction, though there is scope for a few owners to use their ability to limit supply to drive unit prices of land upwards.

BUILD UPWARDS

Admittedly, there is need for discourse about this concentrated ownership and the political forces that have created it. For those concerned with raising the total housing stock available to workers in urban Kenya, the primary proposition is to ensure that developers can compete and develop houses at the most competitive prices.

Without doubt, the market solution would be to build Nairobi upwards, not horizontally, because there are definite cost advantages to using scarce land more efficiently.

In summary, reference to low-cost housing is an oxymoron because the incomes that obtain in Kenya are too low to use as a base for housing today. What is referred to as a housing problem is actually an income and employment problem.  

Kwame Owino is the chief executive officer of the Institute of Economic Affairs (IEA-Kenya), a public policy think tank based in Nairobi. Twitter: @IEAKwame