A glance at the Housing Bill

Kenya’s long search for a comprehensive housing law seems to be finally bearing results following the completion of the draft Housing Bill spearheaded by the Housing Ministry.

The draft law seeks to introduce a raft of measures to increase investment in housing and therefore help reduce the housing shortage in the country.

Whereas the draft Bill, recognises the private sector as the “engine” and the government as a “key enabler, catalyst and partner” in housing development, it proposes the establishment of a Kenya Housing Authority, a one-stop shop for all matters housing in the country.

Other than monitoring and evaluating the performance of the housing sector, the authority will also be charged with mobilising resources and allocating funds to various housing industry agencies.

The other proposed functions of the authority include prescribing and setting standards for housing development and estate management and maintenance, promoting research on housing, building materials and technology, collecting and disseminating data on housing, and obtaining funds for land acquisition, infrastructure development, housing provision and end-user financing.

The Bill also proposes that five per cent of the annual national budget be allocated to housing. The money, to be spent on providing basic infrastructure and planning, and social housing, will be managed by the National Housing Development Fund.

The fund will also receive contributions from all employers who do not have a running housing scheme for all their staff. Employees are also expected to contribute to the fund.

So, what does all this mean in terms of provision of affordable housing and helping to solve the persistent housing crisis?

According to the draft law, the Kenya Housing Authority may facilitate the provision of housing and infrastructure through county governments, the National Housing Corporation (NHC), mortgage financial institutions, banks and non-bank financial institutions, building societies, housing cooperatives, housing developers, and neighbourhood associations.

It also gives the Cabinet secretary (minister) in charge the power to appoint “any other agency” to provide housing with the facilitation of the authority.

Except for the NHC, which will get direct allocation from the National Housing Development Fund for public and social housing and rural housing loans, the other implementing agencies will be required to apply to the authority for funding.

It is also encouraging that the draft law stresses provision of low-cost housing.

It states: “The authority shall facilitate finances for housing development and related infrastructure, and in that regard shall channel through financial and mortgage institutions, including micro-finance institutions and cooperatives, such sums from the fund as shall be necessary to facilitate low-cost housing financing initiatives.”

It adds that the housing authority will, with the help of the Treasury, the Central Bank of Kenya, and “other relevant institutions”, create a mortgage guarantee scheme to cushion providers against lending risks.

But Mr Paul Kihiu, the chief executive of Select Kenya, a local housing microfinance provider, says, “The shortfall in housing is greater at the lower end of the market and therefore the focus should be on lower-income housing. For that reason, the approach must break away from the traditional mortgage since conventional mortgage products are not suitable for the lower end of the market. The Bill should therefore not mention mortgage as the product, but housing finance products generally,” he says.

Unlike traditional mortgage firms, which offer home loans based on the value of the complete house, housing microfinance uses the incremental concept, which basically breaks up a typical home loan facility of eight to 10 years into smaller, shorter loans, thus allowing people to build houses in phases.

The short maturity and relatively small size help to control credit risk since the borrower has an incentive to repay the loan and receive another one. This makes borrowing more manageable and carries the incentive of maintaining credibility by ensuring timely repayment in order to qualify for subsequent loans.

According to Mr Kihiu, this approach enables those who would ordinarily not have a chance for a mortgage to build a home. The Bill is expected to become law by next June.