What can be done to make housing more affordable

The acute housing shortage in the country is often blamed on the fact that developers have concentrated on building for the high-end market, to the disadvantage of low-income earners. Besides, the cost of property in Kenya is among the highest, not just in the continent, but also in some countries in the West. 

For instance, the average price for houses and apartments in the middle and upper market at the end of 2015 was Sh29 million. This is about the same as the price of a 90 square metre apartment in Berlin, Germany, a much wealthier country than Kenya, the Business Daily reported mid last year.

“Values in Kenya’s residential property market continue to rise sharply, amidst robust economic growth and a sharp increase in the population of middle-class and expatriates. Residential property values in Kenya have risen by a staggering 4.34 times from 2000 to Q2 2016,” the Global Property Guide reported last year, quoting figures from Kenyan real estate consultancy firm HassConsult.

These figures should worry Kenyans who are hoping to own their own homes. 

The average value of a residential property in the country skyrocketed to Sh31.1 million in June 2016 —it could be much higher now— from just Sh7.1 million in December 2000, according to HassConsult.

The average price of a one to three-bedroom residential property is currently Sh14.1 million, while that of a four to six-bedroom residential property is Sh47.6 million, the Global Property Guide reported.

In 2012, global real estate managers Knight Frank conducted  a survey to establish where some of the world’s prime residential properties were located and the results were startling. Out of the 71 cities surveyed, Nairobi recorded the highest growth, with a 25 per cent increase in high-end residential properties. The country’s coastal towns came second with a 20 per cent increase.

The other top 10 positions went to some of the world’s popular cities including Miami (US) Vancouver (Canada) and London UK), to name a few. Cape Town, the other African city to feature in the survey, came 21st.

Fast forward to 2017 and the property market in the country is at an all-time high.

While an intervention such as capping of loan interest last year was intended to reduce  the cost of financing and, thereby, make housing affordable, it is not enough. In fact, some developers say the move has made it more difficult for low-income earners to get housing loans. So, what other interventions can be made  to cushion  ordinary Kenyans against the ever-rising cost of housing?

DN2 spoke to Dr Raphael Kieti, a lecturer in the Department of Real Estate and Property Management at the Technical University of Kenya, and Morris Okoth, a director at ProLand Realtors Ltd, to look at some options.


Dr Kieti believes Kenya should go the way of India and Israel, which raised $11 million (Sh1.4 billion) and $25 million (Sh2.6 billion) respectively through diaspora bonds a couple of years ago for infrastructural development. Closer home, he cites the case of South Africa, which also raised funds  through a bond known as Reconciliation and Development Bond in 2006.

“If people were given an opportunity to invest in their country, they would gladly do it. Part of that money can be used for infrastructural development such as sewer and water systems, and roads in residential areas,” says Dr Kieti.

He adds that such initiatives would act as subsidies and help developers put up residential houses at lower costs.

“You see, the reason housing is expensive is because of lack of supporting infrastructure such as sewer systems and roads, so developers put up their own and pass the cost on to buyers.

If these were provided, developers would just come in and put up houses and not factor in that cost when pricing their houses. This would make housing more affordable,” says Dr Kieti.

While a number of African countries embarked on this fundraising vehicle to tap into  migrants’ savings across the globe about 10 years ago, information on Kenya’s much-publicised diaspora bond, which was supposed to be launched  in June 2015, remains scanty. The Treasury referred DN2 to the Central Bank of Kenya for further information but CBK refused to comment on the matter on phone, and had not responded  to our e-mail by the time we went to press.

With success stories already recorded elsewhere, Dr Kieti says, diaspora bonds are a viable option.


The Building Code has stuck to the traditional brick-and-mortar method of construction, despite alternatives such as precast concrete panels, container and timber houses, says Mr Okoth. Besides being outmoded, he adds, brick and mortar technology is expensive and takes a lot of time.

However, Kenyans’ attitude towards new building technologies would also have to change.

“Because we are so used to brick and mortar, if a house is built using any other material, we think it is of inferior quality. Kenyans need to embrace alternative building materials so that if the Bill is enacted, developers using alternative building material will not feel disadvantaged,” says Mr Okoth, referring to the Building Code under review by Parliament.

Also, the perception by Kenyans that living near the city is “cool” should end, says Mr Okoth. “Places are opening up. The only problem is that the rate at which infrastructure such as roads are coming up is slower than the speed at which developers are putting up houses.”

He cites the case of Karibu Homes in Athi River, where a three-bedroom house is going for between Sh2 million and Sh4 million, which is more affordable than houses near the city.

“People should be willing to live far from the city so that they can enjoy affordable houses because the further you are from the city, the cheaper land is. If land is cheap, developers can build affordable houses,” he says.


There are an estimated 2.5 million Kenyans living abroad, and their cash remittances to the country have been increasing.

Last year they sent home Sh156 billion, an increase of Sh12 billion over the previous year’s. Reports indicate that many Kenyans in the diaspora would like to invest back home  since it offers higher returns than most developed markets. Defining migrant remittance as the money sent by a person in a foreign land to his or her home country, Dr Kieti says such money should be considered a stable source of finance for housing. 

Institutions should also take advantage of this money by setting up sound Saccos and societies for people in the diaspora.

“This is one way of tapping into migrant remittances that could bring about tremendous real estate development, thereby lowering the cost of housing, besides fetching handsome returns for the members of the societies,” he says.


A secondary mortgage market, Dr Kieti explains, is a concept where there are secondary financial institution(s) that lend to, and buy, mortgages from commercial (primary) banks.

“To a bank, a mortgage is an asset, so a bank can sell its mortgages to a secondary institution. This enhances the liquidity of the primary bank. So rather than, say the Kenya Commercial Bank (KCB) holding on to a mortgage until it matures in 20 years, it can sell it. KCB can then lend the money it gets from this sale to other people,” says Dr Kieti.  

He adds that the reason why loans are expensive is because commercial banks lack funds, and especially long-term funds, so they rely mostly on deposits, which are short-term in that a customer can deposit money today and withdraw it two days later.

So, since banks rely on deposits to lend, they charge high interest rates to take care of this risk. To reduce such risks, Dr Kieti suggests, banks should look for long-term funds, and having a secondary mortgage market is one source of long-term funds. He says that this is a major factor the government ignored when capping loan interest, adding that  it was a mistake. 

“Once the secondary lenders acquire mortgages, they use them to issue bonds known as mortgage-backed securities in the capital market.

Therefore, if the mortgagor continues repaying the mortgage, the returns go to the person who bought the bond.

The beauty of having a secondary mortgage market is that it relieves commercial banks of mortgages, which it  helps them  liquidate. This earns them money which they can then lend at affordable rates,” says Dr Kieti, adding that this could see more people afford to buy or build houses.

But there is a snag to having a fully-fledged secondary market, which Dr Kieti suspects might have made the government and other stakeholders in the financial sector reluctant to  take this route: the possibility of a financial crisis.


He notes that for a country to sustain a secondary financial market, it would need to have many primary banks. But in the event that the country has many secondary institutions, which would pose a regulatoty challenge, dishing out money to commercial banks would lead to a  financial crisis.

“It happened in Europe once. There were so many secondary institutions lending to commercial banks, which prompted commercial banks to also dish out mortgages to consumers. This led to an oversupply of houses which, consequently, pushed the prices down. So people stopped servicing their mortgages because the value of their houses was much lower than those of the mortgages. They simply returned the keys to the banks. But you see, these mortgages had already been issued in the capital market as mortgage-backed securities, meaning bond buyers could no longer receive returns, leading to a huge financial crisis,” says Dr Kieti.

But this does not mean that having  a secondary financial institution is tantamount to digging one’s own grave. Dr Kieti says a mortgage liquidity facility (MLF) is the solution and cushion to a potential financial crisis.

He says that in Tanzania, an MLF has helped raise the number of people with mortgages. 

“You  need just one institution that draws shareholding from the government, venture capitalists, insurance firms, pension firms, and primary banks. In this case, all of them pool resources and participating primary banks, being shareholders themselves, draw funds here at minimal interest to give loans,” Dr Kieti offers. “An MLF operates much like a secondary institution, only that it is easy for a country to regulate one institution as opposed to many.”

If set up, an MLF should also source for long-term funds from overseas to lend to commercial banks, says Dr Kieti.

Tax incentives

Meanwhile, Mr Okoth says developers too need to  benefit if they are to build affordable houses, and there’s no better way to get them on board than offering incentives.

“Exemption from VAT and income tax will encourage many developers to supply affordable housing, he says.

If they are spared the 16 per cent VAT and 30 per cent income tax, developers will pass this benefit on to the buyer, he says.


“The supply of houses has been skewed towards bigger houses in terms of space. So you find a house that has a very big living room, a big kitchen, a very big balcony and so on. There is so much extra space that you don’t really need. Remember, the bigger the house the more expensive it is,” says Mr Okoth.

If developers could provide, and people were willing to live in, slightly smaller but functional houses, fewer construction materials would be used, which would lower the prices of the houses, he says.

He gives the example of the Suraya Property Group’s The Lynx project on Ngong Road as an example of this type of house.

“Their motivation is to enable people to afford houses in Nairobi,” he says. “And affordability comes with a smaller size. So the houses are small but very functional and because of that, they can reduce the unit price significantly so that you can have a two-bedroom house for about Sh4 million somewhere on Ngong Road, which is very prime, down from Sh15 million.”


– This article was published by Daily Nation  on 14/06/2017.

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