Why country is not ready for the President’s affordable housing

President Kenyatta is a man in a hurry. He wants to tax Kenyans to build 500,000 affordable housing units before he leaves office in three years’ time. That’s a tall order, considering that the government has only managed to build 3,000 units against an annual goal of 200,000!

UPPER INCOME

To achieve his target, the President would be looking for big money — Sh1.4 trillion, about 20 per cent of the gross domestic product (GDP). If financed entirely by debt, that translates to Sh30,000 for each one of the 50 million Kenyans.

A World Bank report shows that more than 60 per cent of Kenya’s urban dwellers live in high density poor settlements and to get them out of that squalor, we need at least two million houses, which will rise by about 250,000 units a year.

Supply of new homes to the market has increased to 15,000 a year, but 80 per cent of those target upper income earners. There are a little under 25,000 mortgages, valued at a mere 3.15 per cent of GDP in 2015. (It is 70 per cent for the US.)

The President’s housing agenda is likely to fail for the usual reasons: Weak political leadership, corruption, ‘tenderpreneur’-driven cost overruns, poor planning, lack of funds and general implementation weaknesses.

Again, the “affordable” housing agenda isn’t affordable to many, with each unit costing Sh2.8 million on average. Universally, mortgages for affordable housing should be the same as monthly rent payment, around 30 per cent of a family’s gross income. For Sh25,000 a month earners, affordable housing would cost Sh7,500 or less in rent or mortgage.

CLOSING FEES

Using mortgage parameters applied by the World Bank for affordable housing in Kenya, only households with a monthly income of Sh100,000-110,000 would afford such a house. Besides the monthly mortgage payment of Sh30,000, one would cough up Sh400,000 in down payment and closing fees.

For our level of income, an affordable housing scheme would need to have units that start at Sh1.2 million.

Persuasion, not coercion

This is only feasible for the government if it systematically addresses supply-side and demand-side constraints to home ownership.

The government would also need to promote its agenda through persuasion, not coercion. It must hold meaningful consultations with key stakeholders and address the concerns raised by all, including intended beneficiaries.

Given many cases of failed and underperforming state projects, widespread corruption in public tendering and procurement and capacity limitations at the national and county levels, the development community should support the country to rethink, re-engineer and retrofit its institutions through new policy instruments, processes and mechanisms necessary for a Sh1.4 trillion programme.

POLICY GAPS

A well-executed large-scale housing programme of this magnitude can be a game changer. It can fuel a construction boom, lift the economy and create thousands of quality jobs over a long period of time. Not only would it be a boon to architects, quantity surveyors, urban planners and civil engineers, but it could also underpin the centrality of technical vocational education and training (TVET) institutions in nation-building.

Don’t focus exclusively on affordable housing, but also on sustained double-digit growth to lift the citizenry out of abject poverty. The housing agenda can create the relevant interventions to the widening inequality, social exclusion, income-based segregation and the emerging dual society.

Since the government is likely to pursue public-private partnerships, it will need to update its oversight and regulatory capacity. The State would have to pursue social benefits just as vigorously as the private enterprise chases profits.

The Jubilee regime should be addressing policy gaps, institutional weaknesses and funding mechanisms and explore ways of engaging the diaspora as well as aligning national and county priorities. They could look at how China, Rwanda, Ethiopia and other developing countries are tackling housing challenges.

Mr Chesoli is a New York-based development economist and global policy expert. [email protected] @kenchesoli