Why a good job doesn’t guarantee you decent housing

The majority of Kenya’s working class may not be in a position to pay more than Sh3,500 rent, says the Ministry of Housing and Urban Development, underlining the financial strain that urban dwellers routinely undergo every month.

Principal Secretary Aidah Munano says about 60 per cent of the country’s workforce takes home about Sh25,000 or less a month, making it difficult to comfortably afford rent and settle other bills.

An average residence in Nairobi, Mombasa, Kisumu, Nakuru and Eldoret costs about Sh10,000 a month.

“The majority of our population earn about Sh25,000 per month. They can only release about Sh3,500 for their rent,” Ms Munano, an architect said. “We need to start speaking of affordability of housing.”

The State has ramped up plans to put up 200,000 “affordable” units every year in partnership with private developers as stipulated in Vision 2030, the country’s long-term development blueprint. 

The renewed push follows a directive by President Uhuru Kenyatta on November 28 that at least 500,000 “affordable” units should be constructed by 2022 as part of his legacy projects.

What constitutes “affordable” housing, however, remains contentious.

Affordability, Ms Munano said, may mean a decent house whose monthly rent does not exceed Sh3,500 and which will cost a buyer not more than Sh3 million.

READ: Govt to build a million affordable homes in Uhuru's last term

“We are thinking of houses where the sale value will be around Sh3 million. These are houses such as studios, two bedroom and three bedroom units. If we go beyond Sh3 million, it will not be affordable housing any more,” Ms Munano said.

The annual housing supply in urban areas is conservatively estimated at 50,000 units, largely in the mid and high-end segment of the market, resulting in proliferation of informal settlements for low-income residents in the country’s five major urban centres.

Amid rapid growth in urbanisation, estimated at 4.4 per cent by the World Bank in 2015, the housing deficit is now estimated at about 1.85 million units a year.

To meet the one-million low-cost units a year target in less than five years at a cost of about  Sh2.3 trillion, the State has pledged to offer private developers about 7,000 acres of public land as part of an incentive package. 

“We are putting together a land bank because one of the ways we are going to realise affordable housing is when the government provides land for the private sector to work on because 30 per cent of the cost of housing is actually land,” Ms Munano said.

“If the government can provide land, then we may be 50 per cent there (meeting the target in affordable housing).”

The plan is to give incentives to private developers to put up 800,000 affordable units to be sold under an off-plan arrangement — sale before the units are built — and a further 200,000 social housing units through redevelopment of land in slums.

“We are looking even into affordable mortgages. This is something that has been said before because we have about 22,000 mortgages against a working population of about 15 million,” Ms Munano said.

Mortgage volumes fell to 24,085 in 2016 from 24,458 in 2015, Central Bank of Kenya statistics show, signalling a quick decline in uptake of home loans in a decade.

READ: Mavoko houses set to cost as little as Sh1m

The fall has largely been linked to inadequate long-term funds available to banks, exacerbated by capping of loan charges at four percentage points above the Central Bank Rate, currently at 10 per cent.

A task force on expanding affordable housing finance has been set up with a mandate to establish Kenya Homes Refinance Company (KHRC), a wholesale financial institution which will issue bonds in capital markets.

The proceeds will be extended as long-term loans to banks as security against mortgages, said Treasury Secretary Henry Rotich in the Draft Budget Policy Statement for 2018 last month.

“It (KHRC) is expected to operate as a private sector driven company with a public purpose of developing primary and secondary mortgage markets by raising long-term funds from capital markets, thus providing access to affordable housing finance,” Mr Rotich said.

Barclays Bank of Kenya managing director Jeremy Awori has singled out red-tape in registration of property and approval of construction permits as a disincentive to investors in housing as it builds up inefficiencies.

Getting approval for construction permits takes 159 days in 16 procedures, while it takes investors 61 days to register property in nine procedures, the World Bank Group said in its annual “Doing Business Index, 2018” last November.

“We need to remove the friction from the system. We haven’t even got 30,000 mortgages in this country, yet you are hearing about these high number of housing units,” Mr Awori said. “If we can make it easier for you to register a charge and do a transfer of property so that instead of taking weeks or months, it happens within a  week, I think we would be in a much better system.”

The Treasury in 2016 halved corporate tax for developers who put up at least 400 low-cost residential houses to 15 per cent to encourage construction of at least 200,000 affordable units every year.

The 0.5 levy on total cost of housing by the National Construction Authority and the 0.1 per cent with a minimum of Sh10,000 charge by the National Environmental Management Authority, were also scrapped that year.

“The government’s initiative, as far as tax exemption is concerned, is wonderful,” said Sirtaj Singh Bedi, a senior manager for business development in Africa at L&T Construction, the India-headquartered construction giant.

“But what’s important now to an investor is the rate of return on investment and how we are going on with the PPP (Public Private Partnership) format because it is not clear who’s going to be husband and who’s going to be wife.”

Housing and Urban Development Secretary James Macharia has said 35 private developers have been identified for the low-cost housing project, with the first task being building of 8,000 low-cost houses on 55 acres at Mavoko in Machakos County.

Incentives to private developers will also include development of support infrastructure such as access roads, water, electricity, health centres and schools, with cash to be drawn from the proposed National Social Housing Development Fund.

Support will largely be supported by the National Social Security Fund, the State-run retirement scheme.

“Too much theory does not help. Let’s get practical. Let the government give the go-ahead,” said the strategy supervisor at Avic International Real Estate Kenya, Mr Brian Kiragu.