While the need to house the nation is obvious, the national strategy to do so is far from clear. The fact that the story line on the level of demand and supply has remained basically unchanged for several years means that the issue on how to house the nation remains unresolved.
The often quoted demand for 200,000 houses per year while the supply remains a subdued 50,000 annually is a clear indication that a significantly more focused strategy is needed to bridge the gap.
The level of mortgages remain a partly 2.5 per cent of the GDP, meaning that we are yet to achieve a housing market. The two main ingredients for creating a housing market; houses and credit remain unaffordable to the majority. In order to solve the housing shortage, these two issues must of necessity be addressed.
Besides the direct cost of a house, there are many other supplementary costs that push the total cost of a house out of reach to many.Both direct costs and supplementary costs have to be addressed in order to reduce the overall cost.
With competing responsibilities and scarcity of resources, the government cannot deliver the demand for housing on its own yet housing is a basic right.
This means the government has a responsibility to mobilise the private sector in a manner that ensures that housing is affordable.
The private sector has played a major part in the real estate boom of the recent years, but as has been quoted elsewhere, the focus has been more on the high end market but this is only half of the story.
A household would need to allocate at least Sh120,000 per month in order to afford a Sh8.5 million mortgage at the rate of 15 per cent for 15 years.
This is the average cost of a house in the middle income peri-urban areas of Athi River, Mlolongo, Ngong, Thika which can hardly qualify for the term upmarket.
This high cost means mortgages have remained inaccessible to the majority. With the banking industry recording less than 25,000 mortgage accounts in a population of over 40 million, mortgage products can indeed be considered exclusive.
Three players in the housing market, the credit providers, the developers and the government are key to its development.
The government provides the regulatory and policy environment that drives the market. The developers provide the skills for product delivery.
The credit providers offer the financial resources the developer requires to delivery the product. A thriving housing market will require that the three players work in harmony to deliver the product that the majority of consumers can afford.
The state of the housing market is a clear indication that the three are far from being successful. While the developers and the credit providers are private entities whose main responsibility is first and foremost to their shareholders, the government has a primary responsibility to ensure that the nation is housed.
Its policy and regulatory environment needs to be one that facilitates developers and the credit providers to delivery of affordable housing. In short, among the three players, the government is not only the obvious leader, but perhaps the buck stops here as well.
There are a few interventions that the government can do to play its rightful role more effectively.
One, a clear urban infrastructure development strategy is required. A look at the cost of developing houses points to cost of serviced land as one of the main barriers. Inadequate investment in urban infrastructure over the years means serviced land is in short supply, amidst ever increasing demand for housing.
With the ever increasing demand for serviced land and stagnated supply, the cost of serviced land is well out of reach for development of affordable housing, particularly in Nairobi. Developers are therefore more inclined to focus on high end market that can help recoup the cost of land.
Where a developer opts for un-serviced land, the cost of providing access roads, connecting electricity, water and waste water treatment means that the house is eventually not affordable either.
Two, the government needs to re-evaluate its charges. Charges in building range from building permits to local authorities irrespective of the services on site that were recently revised, some to double by the country governments.
Then we have costs for National Environmental and Management Authority for environmental assessment approval. Then we have the National Construction Authority fees that were recently introduced.
In total, statutory fees may add up to five per cent of the cost, a cost that when added to the direct cost of building and cost of credit makes the development of affordable housing unachievable.
Three, access to credit for housing needs both incentives and regulation. Besides, as a basic need, credit to this sector may need to be separated from the mainstream banking in order to adequately give focused attention.
Some of the incentive may include reduced cash reserve ratio for funds allocated to housing, with the benefit passing directly to the consumer. It may also involve capping interest rates on housing loans and benchmarking them to long term government bonds.
The other credit option is general reserve incentive based on the proportion of credit that a financial institution allocates to mortgage and developer finance.
It is telling that housing is not a favourite market segment with the banks considering that about 80 per cent of the mortgages are held by about five credit providers out of about 48 licensed banks and housing finance institutions.
Housing markets all over the world have been built through free markets that are highly tampered by policies and regulations that make credit affordable to the developers and consumers.
Housing the nation in the face of rapid urbanisation will require more focus, especially from the government. The barriers in the housing market delivery value chain will need to be addressed in a very realistic and coordinated manner.
The blue-print to the delivery of affordable housing needs to be very clearly spelt out and followed through in policies and regulations that prioritise housing and not revenue collection.
Besides, the rewards for a successful housing market exceed those of immediate revenue by far.
Karen Kandie is a financial & risk consultant with First Trident Capital and a PhD candidate in Ffnance at Catholic University of Eastern Africa. [email protected]