James Woodward, Head of Transport & Infrastructure, East Africa, KPMG in Kenya
Governments across Africa are struggling to meet their affordable housing goals
So rather than just doing more of the same, Kenya has decided to take a different approach to the issue. The foundations are sound; only time will tell if the audacious plan will deliver the right results.
Africa is in the midst of a massive housing crisis. In many markets across the continent, birth rates continue to rise; Africa's families are getting bigger and younger. Yet, generally speaking, economic growth rates have been unable to keep up. Affordability has become a key issue.
Unfortunately, our experience and research across Africa suggests that current approaches to delivering low-cost housing have not been working. Almost every African government has a national housing agency whose job is to churn out as many low-cost houses as possible. The problem is that they rarely (if ever) deal sufficiently with the affordability issue. And that makes them largely unstainable.
The affordability issue cuts two ways. On the one hand, families that are moved into low-cost housing are often unable to afford the increase in costs that often come with a new home. Vertical slums quickly form. At the same time, few governments have the financial resources to supply subsidized housing at the scale required. Neither governments nor their citizens can afford the current approach.
A different approach
When Uhuru Kenyatta was re-elected President in 2017, his Government outlined what they called Kenya's Big 4 Agenda: universal healthcare coverage; food and nutrition security for all; an increase in manufacturing to 20 percent of GDP; and - critically - 500,000 new affordable homes. Half-a-million homes would make a huge dent in the country's affordable housing gap.
More than just setting a target for more low-cost housing (which would likely carry the same affordability risks as before), Kenya's Government has taken a rather different approach. Here are 5 innovative elements of the plan:
Creation of new funding mechanisms. The Government has created a National Housing Development Fund that will be funded through a 1.5 percent employee payroll levy and a further 1.5 per cent employer contribution. Employee funds will be held in a segregated account to be used by the employee as an offset against a deposit for purchasing affordable housing. If not utilised for affordable housing, the funds accrue to the employee after 15 years or on retirement.
A clear linkage between manufacturing GDP and affordable housing. Kenya's Government is focusing on encouraging growth in manufacturing sectors that would support the development of the housing agenda - concrete manufacturers, construction materials, and so on. The hope is that, by creating a strong local supply chain and a stable source of demand, the Government can encourage growth in the manufacturing sector while also reducing the cost of input material for the housing program.
Reduction of development costs and risks. In most cases, Kenya's Government will not only provide the land for development, they will also provide the connecting infrastructure required to link each of these new estates to the grid. Standardized and pre-approved unit designs allow for rapid planning approvals. Perhaps most importantly, the government is providing a guaranteed offtake for every unit built through the National Housing Development Fund.
Upside opportunity for private developers. While the developer will be expected to utilize at least 70 percent of the land to build affordable housing, the remainder can be developed for a wide range of commercial or residential uses. Ultimately, the developer will also benefit from the real estate uplift that will come from higher quality development.
Access to affordable mortgages. In partnership with The World Bank, Kenya's Government has created the Kenya Mortgage Refinance Corporation with 20 per cent ownership by the Kenyan Government and 80 per cent owned between 20 local banks, savings cooperatives and The World Bank. The KMRC will provide long-term funding to local banks and savings cooperatives, which in turn, will enable these institutions to extend loan tenors to mortgage buyers. In a country with a population of over 45 million people and less than 30,000 mortgages, the KMRC is a positive step forward in supporting affordable finance for the 97% of formally employed Kenyans with household incomes of less than $1,000 per month.
Go big and go for homes
While, at the time of writing, the plan was still clearing a few regulatory and legislative hurdles, it is clear from President Kenyatta's Big 4 Agenda that there is significant political appetite for making sure that shovels are put into the ground as soon as possible.
Building 500,000 new affordable houses is an audacious goal. Making sure they are affordable for the people who live in them will make it a goal worth achieving. Kenya's progress will certainly be worth watching.