High cost of housing locks out many from homes, says lender

What you need to know:

  • The effective demand, from our own estimates is probably about 25,000 and that is due to the affordability gap,” Mr Ireri said in an interview with the Nation. 
  • In addition, access to cash for construction is a challenge due to the terms imposed by lenders who are mostly banks.
  • “In Kenya, we continue to see a shortage of affordable housing estimated to be around 200,000 units per year, for middle-income earners as well as for student accommodation,” the investment firm said in its first quarter 2015 report.

Only about 25,000 Kenyans can afford to buy homes in any given year at the current prices, a mortgage lender estimates.

This is despite an estimated 200,000 units being required in the same period to meet growing demand, said Housing Finance Managing Director Frank Ireri.
“The housing need in the country as we are informed is about 200,000 a year.

The effective demand, from our own estimates is probably about 25,000 and that is due to the affordability gap,” Mr Ireri said in an interview with the Nation. 

For more Kenyans to afford homes, there is need for an economic growth rate that translates into more money and for property developers to focus on coming up with more affordable units, he said.

“On the other hand, you need more affordable housing being supplied to the market,” said Mr Ireri.

FACE A SHORTAGE

Cytonn Investments said its estimates indicate that the country continues to face a shortage of affordable housing not only for middle to low income earners, but also for students.

“In Kenya, we continue to see a shortage of affordable housing estimated to be around 200,000 units per year, for middle-income earners as well as for student accommodation,” the investment firm said in its first quarter 2015 report.

According to the 2012/2013 Kenya National Housing Survey, despite housing having the potential to contribute significantly to the country’s socio-economic development, the shortage being experienced poses a big challenge to policy.

Population growth, rapid urbanisation and the high cost of financing housing development are some of the factors the report, released last month by the Ministry of Lands, cites as some of the issues contributing to demand and supply challenges.

It is projected that by 2030, about 50 per cent of the Kenyan population will reside in urban areas.

“The urban population increased from 19 per cent in 1999 to 32 per cent in 2009 and is expected to rise to 50 per cent by the year 2030. This has resulted in the need to increase the number of housing stock in the urban areas,” says the report.

High lending rates have constrained financing for housing development, further exacerbating the supply challenge.

For instance, the steep ascent of interest rates from the second half of 2011 resulted in “very low proportion of Kenyans being able to borrow money for outright purchase of housing or for construction”.

FINANCE THROUGH BORROWING

Most housing costs are financed primarily through borrowed funds from various sources. Considering the time needed for construction, potential delays during setting up as well as high and fluctuating interest rates, the cost of debt can weigh negatively on total financing structure.

In addition, access to cash for construction is a challenge due to the terms imposed by lenders who are mostly banks.

Likewise, the government takes a share of the blame for doing little to improve the state of housing. This is due to low national investment in the sector.
For instance, between 2009 and 2012, the government outlay amounted to about Sh4.5 billion.

This could only help develop 3,000 housing units during the period, assuming a cost of Sh1.5 million for each.

“This does not include the cost of related infrastructure and development licensing charges. On the other hand, investment by private sector players in low income housing has been minimal because returns are not as high as in the high income bracket.

The private sector has tended to concentrate on the high end of the market,” indicates the Kenya National Housing Survey.

The high cost of building materials, which account for about 40 per cent of the construction expenses, continues to push up the cost of housing. This is not to mention the spiralling land prices, especially in urban areas.

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