What really causes housing shortage?

When he announced that provision of decent and affordable housing was one of the items in the Big Four Agenda, President Uhuru Kenyatta raised considerable expectations in the hearts of more than two million people who live in shanties and slums across the country. This is according to World Bank’s Kenya Director Diarietou Gaye.

Recent revelations, however, indicate that this may not be achieved in the short run, thanks to the bureaucratic nature of our system of governance and the way of doing things.

Just last week, the State Department for Housing and Urban Development revealed that the blueprint for the proposed 500,000 government funded low-cost housing units is behind schedule by approximately one year while the procedure for distribution of the units to Kenyans is yet to be settled on despite the Tenant Purchase Model (TPS) being mooted earlier on.

And even though the housing plan has been popularised this year after President Kenyatta included it in his Big Four key priorities, records at the State Department for Housing indicate that it had been in the pipeline since early last year.

The Ministry Of Transport, Urban Infrastructure and Housing had initially planned to build nearly two million units at a cost of Sh1 trillion in the next five years.

According to the then Principal Secretary Moses Nyakiongora, the ministry planned, under the Engineering Procurement Contract (EPC) delivery model, to promote the use of low-cost construction technologies to lower the purchasing cost of the units (three bedroom houses) to as low as Sh500,000 each.

These technologies include precast wall panels, pillars, and interlocking blocks. They are already being produced locally by several local and foreign companies.

Many Kenyans shun these technologies because they view them as inferior to the conventional building technologies.

But in February, Housing Cabinet Secretary James Macharia reviewed the cost to Sh2.6 trillion for the same number of housing units.

On April 16, the then Statehouse spokesman announced plans to establish Kenya Mortgage Refinance Company to facilitate mortgages to would-be homeowners.

Amongst its peers, Kenya has the lowest mortgage uptake( with just 24,458 loans valued at sh200 billion or 3.15 per cent of GDP in 2015, compared to about 30 per cent of GDP worth of outstanding mortgages in South Africa), and thus this was good news in the country's real estate sector. "We've already discussed setting up the Kenya Mortgage Refinance Company within the next month…,” Mr Esipisu said.

"Housing finance in Kenya remains below its potential," the Treasury said in a document outlining the creation of the Kenya Mortgage Refinance Company (KMRC) to be owned by the State, commercial banks, and financial co-operatives.

The announcement by Mr Esipisu, however, significantly contradicted earlier announcement by Treasury, which said KMRC would be established and licensed by Central Bank in February next year, and then receive an initial funding of $160 million from the World Bank for lending to financial institutions.

But amidst these contradictions, delay and confusion, experts whom DN2 talked to believe housing self-sustenance can be achieved if we first look at the root of the problem and then come up with a way to solve it.

“Yes, the housing problem is big, with World Bank giving as a deficit of two million housing units, whereby 61 per cent of our urban dwellers live in slums,” says, Mr Newton Kanene, a building and construction expert.

But this, according to him, does not mean that the housing problem is cast in stone “as with careful planning, Kenya can navigate through the issue of housing deficit and become self-sustaining”.

But how?
“The first step is acknowledging that we have a problem of housing and then asking ourselves what causes it,” he offers.

A report released last year by World Bank indicated that the main cause of housing deficit in Kenya is the high rate of rural-urban migration and population growth versus few housing units that are built annually.

"The 50,000 housing units built in Kenya annually are far below the required amount of 250,000 units annually to cope with the high population growth in urban centres,” it noted.

The cause of this low turnover of new housing units, according to the report, is affordability, lack of finances for developers, prohibitive land rates, laws that make foreign investors shy away and lack of prioritisation by the government in ensuring that its citizens live in comfortable houses.

With the knowledge of what brings about the housing deficit, Mr Kanene explains that both the government; the private sector as well as the would-be homeowner, can now plan on how to become self-sufficient in matters housing.

“Most problems we are facing in the country do not necessarily boil down to money, but rather to affordability," says Ms Lydia Murage, a credit officer with Equity Bank Meru branch.

"Yes you have some money, but is it enough to acquire and develop that plot you desire or should you be content with just renting? If you come to me armed with your pay slip or your forecasted farm harvest portfolio, will the bank be inclined to lend you the remaining amount for you to acquire the plot or will it view it too risky a venture?" she poses.

Sadly, continues Ms Murage, there is a general stigma by Kenyans towards mortgage financing, and thus most people tend to shy away from seeking capital from banks.

She admits there is no laid-down structure for financing or even policy on the same.

“We will be in a much better place regarding comfortable houses if Kenyans of all walks of life embraced mortgages,” she says.

But all is not lost as there are ways of ensuring that more Kenyans own houses.

While it is natural for one to want ownership of a decent and habitable house, according to Ms Murage, it is the finances which are prohibitive to the ordinary citizen, and thus many Kenyans resort to renting for life.

According to the World Bank report released last year, Kenya has the right fundamentals in place to achieve results on a significant scale, but collaborative efforts between the government and the private sector are required, together with a supportive policy and strengthened regulatory environment so that facilitative tools can succeed.

The report notes that some of these tools are narrowing the affordability gap in the housing market and improved financing for both developers and users as well as exploring other financing solutions such as establishment of mortgage refinance companies.

Treasury Cabinet Secretary Henry Rotich recently promised that one would be created in Kenya and be financed by World Bank).

The other tool is innovative financing instruments such as standardisation of mortgage contracts and relying on the private sector to provide financing for affordable housing, with the government actively supporting the industry by creating the right environment for lenders and developers.

According to Ms Murage, while the broad World Bank’s suggestions are noble and well-intended, the most important thing is to have a clear policy that will govern and direct this affordable finance structure.

“The legislative arm of the government needs to come up with an all-round policy that will guide us in achieving affordable financing for our homes,” she says.

Dr Dennis Makori, a business lecturer, agrees with Ms Murage, drawing a football analogy to explain his point.

"Right now, our mortgage industry is like a football game without a referee, there are no clear rules, and therefore the game is played rough. Fans and some players shy away from that kind of a game. "

Low-cost materials

With the issue of finance sorted, Mr Kanene, the building and construction expert, explains that the next focus should be on how to achieve more with the little funds realised.

"The answer to this is low-cost building materials, and there are numerous if only we can put our mind into it," he says.

While the conventional method has been to use quarry stones, cement, timber and iron sheets in construction, he urges Kenyans to think unconventionally and opt for other ways of building.

For instance, mazera stones, or matofalis, are a good substitute for stones, and they are proven to be less costly while using lesser cement, he adds.

Mr John Wanguya, an expert in making the stones, agrees with Mr Kanene. He explains that using the mazera stones to build a three-bedroomed house will cut your cost by one third.

"Matofali's cut the price and help in reducing the use of cement and sand (its mixture is known as mortar in building circles)"

Other cheap and locally available materials, according to Mr Kanene, are precast wall panels, precast pillars, and interlocking blocks.

"Both the precast wall panels and precast pillars are made from precast concrete, which is designed by casting concrete on a steel pallet in a workshop and then curing it in a regulated curing chamber before shipping to the construction site for installation. These steel pallets are different for wall panels, pillars, and interlocking blocks."

Boleyn Magic Wall Panel Limited, a Chinese company which recently set up shop in Kenya to produce the precast materials, explains that materials are expected to cut the total construction cost of a building by more than 20 per cent.

Mr Daniel Ojijo, CEO Home Universal Limited, explains that precast solutions reduce construction period and labour by up to 60 per cent and overall capital investment by over 4 per cent.

Tenant purchase agreement

Another way of ensuring that more Kenyans own houses is through Tenant Purchase Agreement (TPS).

As Mr Isaac Mungai, partner at MMC Africa Law and expert in banking explains: “With risk-averse banks scaling down on loans and mortgages due to the interest capping law, TPS is the way to go.”

Simply put, it is an agreement whereby the house owner, agrees to sell it to the tenant using the annual or monthly rent proceeds from the tenant as payment.

"The tenant and landlord come up with an agreement, which stipulates how rent will be calculated and for how long until the tenant is allowed to own the house fully,” explains Ms Murage.

She points out that the deal is some sought of mortgaging or hire purchase if you like to see it that way. But the experts concurr that there is no legal framework to guide TPS.