Africa needs in excess of Sh100 trillion to be able to effectively address the growing housing crisis, according to Pan African housing development financier, Shelter Afrique, whose Chief executive Andrew Chimphondah attributing high population growth, increased urbanization, poor urban planning, dysfunctional land markets, rising construction costs, the proliferation of informal settlements, and underdeveloped financial systems as some of the key areas African markets need to tackle if they are to address the housing deficit.
Research from our Centre of Excellence (CoE) shows that the overall shortage of housing in Africa is estimated now to be 56 million housing units. Out of this, more than 90 per cent (or 45 million units) are in the affordable housing bracket.
This means that for Africa to fully address the issue of the affordable housing shortage, at an average construction cost of USD 25,000 per unit, the continent requires at least USD 1.4 trillion excluding the cost of the bulk infrastructure; and we believe that this is substantial.
Closer home, the Kenyan government has prioritized housing as one of the key sectors of focus with President Uhuru Kenyatta desiring his second term in office, which began in November 2017, to be defined by what he has called the big four: universal healthcare, improving food security, boosting manufacturing and building affordable housing.
The housing deficit in Kenya stands at 2 million continues to grow at a rate of about 200,000 units a year. … In addition to limited access to land and insufficient income, lack of affordable housing finance is another limiting factor for low-income families to improve their housing conditions.
The World Bank in May approved a $250 million International Bank for Reconstruction and Development (IBRD) loan to enhance access to affordable housing finance for Kenyans who are unable to access long-term housing finance.
The Kenya Affordable Housing Finance Project (KAHFP) will support the establishment and operationalization of the Kenya Mortgage Refinance Corporation (KMRC) a largely private sector-owned and non-deposit taking financial institution under the supervision of the Central Bank of Kenya.
KMRC’s goal is to drive affordability of mortgages by providing more long-term funding to financial institutions, an incentive to enable them to offer long tenure loans to homebuyers.
The project will also assist the Ministry of Lands and Physical Planning to improve property registration and address structural constraints in the land management system in Kenya.
“We believe that Kenya’s vibrant private sector offers an excellent opportunity to crowd in privately held skills and resources towards achieving the country’s Big 4 affordable housing goals and in alignment with the World Bank Group’s Maximizing Finance for Development agenda,” said Felipe Jaramillo, World Bank Kenya Country Director. “Urban housing currently remains unaffordable for most Kenyans due to cost of financing, the short loan tenures and the high cost of properties.”
Currently, commercial banks in Kenya hold only about 26,000 mortgage loans of an individual value of $110,000 (KES 11,000,000). The interest rate cap of 2016 coupled with an overall Non-Performing Loan (NPL) ratio of 12% led banks to tighten their credit standards and offer variable rate loans locking out middle to low income would-be homeowners.
Kenyans largely access loans from Savings and Credit Cooperatives (SACCOs) that are estimated to provide almost 90% of Kenya’s total housing finance. While SACCOs’ interest rates remain low at 12% they remain highly constrained by the short-term nature of their deposits liabilities and short loan tenures of not more than five years.
The KAHFP support will target households that are classified by the Government of Kenya to fall within the mortgage gap and low-cost categories and represent 95% of the formally employed population.
“The project will endeavor to boost shared prosperity for all Kenyans by addressing rapid urbanization which often manifests itself through the development of slums,” said Caroline Cerruti, World Bank Senior Finance Specialist and Task Team Leader for the Project. “The World Bank has supported many mortgage refinance companies in emerging markets, and Kenya has the right pre-conditions for KMRC to be successful, such as supportive macroeconomic conditions, well developed capital markets and financial institutions active in housing finance.”
KAHFP is expected to increase access to finance by tripling the proportion of urban households having access to a mortgage. The project will promote inclusive finance through KMRC serving SACCOs and microfinance banks which target borrowers on low and irregular incomes. Investment into affordable housing will have a strong economic multiplier effect given the number of linked sectors and could support 132,000 new jobs. Better housing conditions are also linked to improved health and education outcomes.
Home ownership for most Kenyans is also being stalled by tedious financing models with the need to reducing costs and providing finance for aspirant homeowners thought to be ideal move in locking the industry’s potential.
Available data shows that associated-costs of bringing up an average house have increased dramatically in Nairobi since 2010, ten-fold jump from Sh400,000 to Sh4 million for the most inexpensive home. Yet mortgage uptake remains low with only 25,000 mortgage-purchased homes in total.