Which way aspiring home owners?

If you asked a Kenyan adult whether he or she would prefer to buy a house or rent one, the answer would be obvious: buying a home is by far better than renting.

The problem, however, is that not many people have the money to buy their dream homes. Renting has thus become the obvious option for about 80 per cent of Kenyan urban dwellers.

But what if we got to a point where buying was cheaper than renting? Would more Kenyans be homeowners? It would probably be so, at least if what is currently happening in America is anything to go by.

A new research by real estate website Trulia shows that home ownership is less expensive than renting in all of the country’s 100 largest metropolitan areas.

According to a New York Times story, nationally, the average cost of home ownership, including mortgage, insurance, taxes and maintenance, is 38 per cent less than the cost of renting.

 Big gap

The story, based on the Trulia data, says that this is an even bigger gap than last year when Trulia estimated home ownership was 35 per cent cheaper.

It quotes the website’s chief economist as saying that rents are rising faster than home prices because of strong demand. “Young adults are moving out of their parents’ homes now,” the chief economist said. “For many people, the down payment is still a barrier to buying a home. And for people who lost a home in foreclosure, it might still be a while before they can buy.”

But it is what the New York Times story said next that would break the hearts of many Kenyans if the American situation was to obtain in Kenya.

“A separate study confirms the notion that even though it is a good time to buy, many renters are stuck in place,” said the story, quoting a national survey sponsored by the Financial Industry Regulatory Authority, which found that 74 per cent of renters have annual household incomes below $50,000 (Sh4.4 million), compared with 41 per cent of homeowners, and an equal percentage find it either somewhat or very difficult to pay all their bills.

 Study

In addition, 58 per cent of renters said they would be unlikely or unable to come up with $2,000 (Sh176,000) within 30 days to cover an unexpected expense — never mind a down payment on a house.

In Kenya, low income is the little-talked about factor hindering home ownership. Yet it is a major contributor to non-home ownership. It is something that even the recent rebasing of the economy does not solve.

The recently released Hass Property Index revealed that the asking prices for properties had “taken off” in the third quarter of this year, whereas rent rises had slowed down and were likely to remain stable for some time.

This means for one to buy a house, their income has to keep up with the increase in property prices or better still, increase more rapidly than the rise in property prices.

Unfortunately, that is not practical not only in Kenya, but in many parts of the world, including developed nations.

So what can one do? “People need to be realistic about their time frame,” advises Trulia’s chief economist. “You need to do what you can to see into the future as to how many years you’re going to stay put.”

— fayieko@standardmedia.co.ke