Uhuru’s ‘Big Four’ agenda: Working with the private sector to provide affordable housing

Monday February 19 2018

By BITANGE NDEMO
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This is the second of four articles addressing President Uhuru Kenyatta’s “Big Four,” agenda. Today I focus on affordable housing.

Let me start with some key points from my speech to members of the Institute of Quantity Surveyors of Kenya last week.

My speech focused on the inevitability of digitisation. I emphasised that it is better for the profession to creatively destruct and recreate itself, as Schumpeter said, than waiting to be disrupted from the outside.

I took the opportunity to emphasise that the construction industry has a role to play in helping the President to achieve his ambition to provide affordable housing to Kenyans.

No sane Kenyan can oppose this vision. However, for it to be attained, we need to think differently.

It will take the disruption of the current thinking in the construction industry if affordable housing is to be realised.

STANDARDISED MASS PRODUCTION

The capitalist in us makes us think of profit first. As such, land, a key resource in housing, is increasingly becoming unaffordable in major cities, thus making affordable housing only possible in new locations far from the centre.

For example, Nairobi’s affordable housing will be achieved in certain areas in the greater metro region (Athi River, Ngong/Kiserian, Thika, Mai Mahiu) but that will necessitate an efficient mass transport system linking the locations to the city.

Ethiopia has done this very well by building a light rail system from distant affordable-housing neighbourhoods to Addis Ababa. Affordable housing therefore cannot be discussed in isolation from infrastructure.

Construction industry professionals must move away from the culture of customised housing to standardised mass production for many of those who cannot afford current housing models.

Expensive customised housing is what is forcing many Kenyans to resort to buying plots. To the contrary, mass-produced housing, where most of the inputs are standardised, will reduce the burden of buying plots and provide housing faster.

DISRUPTING THE JUAKALINISATION OF CONSTRUCTION

Standardisation will be key to greater economies of scale in the production of housing units.

The fear of course is what will happen to self-employed manufacturers of building components such as doors and windows.

In my view, those who lose jobs to technological advances will become installers of mass-produced components that have greater cost reduction than continuing with the current customised real estate development.

Perhaps the greatest benefit the country will realise from an industrial production of housing units is the possibility of disrupting the juakalinisation of construction by cowboy contractors who put up substandard housing.

The tragedy is that these contractors have the lion’s share of the construction industry, leaving professionals with less than 30 per cent of urban housing.

Many of the poorly built units often collapse, in most cases killing dozens of people, but no one has ever been prosecuted.

EMBRACING TECHNOLOGY

Many of the innocent people who buy such contraptions lose their lifetime savings. Yet it is these buyers who will help sustain the nascent private sector investors in real estate and reduce the number of people in need of housing.

Professionals must embrace technology to gain competitive advantage over cowboy contractors.

Indeed, technology can help buyers make choices that they can afford. It is not impossible to give several cost options to clients on the same design based on the kind of materials used.

But some professionals will go for the highest cost since their commissions are based on a percentage of the housing cost, thus making the cost of housing unnecessarily high.

If our own values cannot prevail upon us to be honest, then the law must compel professionals to provide such options.

Indeed, during my presentation one of the professionals argued that such disruptions would significantly reduce their incomes.

Such individualistic concerns undermine the possibility of increasing social housing. Yet the market for those who need pricey housing still exists.

INNOVATIONS AROUND BUILDING MATERIALS

I proceeded to discuss the concept of affordable housing and asserted that there was a need for professionals to engage the government on the matter, since that could lower the government’s financial burden if the private sector were to provide satisfactory social housing solutions and the government agreeing to build the necessary infrastructure.

In my view, the government should call for a stakeholders’ conference to brainstorm on affordable housing, collate the ideas and develop a new enabling legal and regulatory framework.

Part of this must include acceptance of new innovations around building materials, stopping harassing people in the rural areas whenever they are attempting to build and allowing motor homes for those who want them.

Affordable housing isn’t for everybody. By definition, it is for those with a low household income as determined by the national government.

The government has an obligation to identify and protect this category of people from “sharks” that could literally buy all that was meant for the low-income earners and rent it back to the beneficiaries. So there will be a need for legislation with a recognised housing affordability index.

INTRODUCING CREATIVE MORTGAGES

Umoja Estate was built as an affordable housing option but the buyers were the who-was-who in politics at the time. We must avoid that mistake again.

Whilst it is important for the government to execute affordable-housing programmes, it is easier and more effective to encourage the private sector to build social housing and to leverage technology to introduce creative mortgages. For example, the beneficiaries could pay through chamas or other means of savings.

The solution has to be effective to disrupt the banking sector like it happened with payments.

Nevertheless, there is a need to engage the banking sector early on to design affordable home-ownership strategies by lowering initial deposits and extending repayment periods.

To date, Kenya, a country of 50 million, has less than 35,000 mortgages. Here lies an opportunity to disrupt the banking sector once more.
Opportunities exist in building mixed-use neighbourhoods and removing the pressure of people traveling long distances to workplaces.

REDUCING PRESSURE ON NAIROBI

Many of the established cities have satellite towns where economic activity reduces overconcentration of people at the centre leading to many other problems of transportation.

There is a need to fast-track the development of Tatu, Konza, and Northlands in order to remove pressure from Nairobi, where land prices have virtually killed the hope of affordable housing.

These emerging cities will serve as exemplars for emerging concepts of smart cities and enable the country to meet goal eleven of the Sustainable Development Goals that is about making cities inclusive, safe, resilient, and sustainable.

As we think about affordable housing, there are dimensions that either enable or hinder us from any progress.

These are culture, social and economic factors, politics and organisational arrangements.

Unless we overcome issues around these dimensions, achieving affordable housing will be impossible.

WE CAN INNOVATE ON OUR OWN

Since independence, we have had the culture of looking elsewhere for either inspiration or best practices and we forget that we can innovate on our own.

This false belief has misguided many professionals so much that they fail to see opportunities in their vicinity.

The housing problem we have in Kenya today has few equivalents and those equivalents are nowhere near where we draw our inspiration. It is therefore incumbent upon us to think differently and solve our problem. Without this donors will prescribe unworkable solutions.

On the economic side, we fail all the time to estimate latent demand. For example, we have failed to produce a significant amount of energy to attract investors who will need the excess energy.

The talk of electrifying the SGR has generated debate on whether we will have sufficient energy anymore.

Similarly, the fact that 60 per cent of Nairobians live in shanties scares many investors, who fear that there will be nobody to buy low-income housing because they cannot afford it.

WHEN POLITICIANS TAKE ADVANTAGE OF THE POOR

Hence the reason investors go for medium and high-income housing. However, it is a poor assumption, as the latent demand for low-income housing is higher than anyone can estimate. Many who need houses are the same ones buying plots for more than Sh500,000.

Politics that is supposed to take us forward is often used to undermine the very efforts we make to build affordable housing. Far too many projects of urban renewal and affordable housing collapse simply because politicians take advantage of the poor and undermine those who may not be having sufficient information.

Coupled with bad politics is the problem of tenant indiscipline. A lot of people who put up rental houses are discouraged from investing in rental property targeting low-income earners because of the perception that they often gang up in ethnic cabals that refuse to pay rent in places such as Kibera, Lucky Summer, Huruma, etc.

The social networks that we create undermine our success. It is for this reason that a majority of poor housing in cities like Nairobi are built without the input of professionals.

MINIMUM MORAL STANDARDS

The law must be supreme that those who cut corners must be punished. The society must also agree to some minimum moral standards in order to safeguard the lives of many people who suffer from our own moral deficits.

The current organisational structures cannot help the government achieve her objectives within the shortest period. The procurement process takes far too long to effectively provide affordable housing.

The government must encourage public-private partnerships where the private sector takes the lead.

Alternatively, the government can hire a contracting agency to avoid getting into the trap of delayed processes.

Perhaps the government should just provide incentives and leave the private sector to execute affordable-housing projects.

With proper incentives from the government, we can realise more than just housing by creating thousands of jobs.

The writer is an associate professor at the University of Nairobi’s School of Business. Twitter: @bantigito