How Kenya's affordable housing plan crumbled

Kenyans qeueing to view the 228 completed units out of 1370 being constructed by government at Parkroad Nairobi under the affordable housing programme [Jonah Onyango, Standard]

President Uhuru Kenyatta’s regime promised to build at least half a million low-cost housing units between December 2017 and June 2022.

The government was to spend Sh127 billion to help make the affordable housing project for middle-class Kenyans a reality by providing cheap credit, roads and water.

With less than two months to the end of June, the government has spent Sh2.2 billion — or just 0.3 per cent of the total estimated cost of the affordable housing project.

Now, the government reckons the project, which is part of President Uhuru’s Big Four agenda, is a journey rather than a destination.

But this is just goal shifting. Experts say there are no developers interested in building low-cost housing. The upcoming polls have only made matters worse.

“On low-cost housing, let me be very emphatic that the challenge we face on our side is a supply shock,” said KCB Group Chief Executive Joshua Oigara.

With a mortgage portfolio of around Sh70 billion, KCB is one of the main players in the affordable housing space.

The lender has given loans for the 1,370 Park Road units — which are still incomplete as well as the Mavoko project, along Mombasa Road, for 8,000 units, which are also incomplete.

There are 198 housing units under the Mavoko Sustainable Neighbourhood Housing Project. They will soon be offered for sale.

However, Mr Oigara feels there is something amiss about the low-cost housing project. “What I must say is a lot of low-cost housing projects are not coming up as fast as we wanted,” noted Mr Oigara, adding that he appreciates some of the work that has already gone into the projects, including the Park Road units.

The affordable housing project has also faced a number of headwinds. The government, in its official books, also cited “lengthy periods of negotiating with would-be investors.

One of the ways that the government planned to de-risk developers was through the National Housing Development Fund.

Salaried workers were to contribute 1.5 per cent of their gross pay to the National Housing Development Fund. Employers were also going to contribute the same fraction to the kitty. 

However, three months after the President signed the Finance Bill, 2018 into law, the Employment and Labour Relations Court temporarily suspended its implementation, arguing that the contribution was unconstitutional and amounted to double taxation.

To make the project a success, the government came up with the Kenya Mortgage Refinance Corporation (KMRC), which was supposed to refinance, de-risk primary mortgage lenders including commercial banks, Saccos and microfinance banks so that they could lend to homeowners at a low rate.

Mr Oigara noted that KMRC, which has been lending to banks at around 5.5 per cent, has given them around Sh1.5 billion.

He admitted they have already lent to customers seeking to acquire houses in the Park Roads and Mavoko projects. “We should appreciate that they have done some work. We are very committed to lending,” he said.

At the height of the Covid-19 pandemic, mortgages took a hit as occupancy levels went down, with tenants asking for moratoriums and discounts. 

Besides Park Road, the government says it has built some 872 affordable housing units in Nairobi’s Kibera area.

It also says that there are five sites of affordable housing projects being designed and documented, awaiting tendering.

These housing projects include the ones in Starehe, Shauri Moyo, Ruai, Kibera and Mariguini in Nairobi.

Besides availing credit to KMRC, the government is also supposed to avail water services to affordable housing projects and build roads.

In total, the government is planning to build 7,125 social housing units.

In the 2019-20 financial year, the State had targeted to build 20 units and two in the next financial year.

However, it only managed five in 2019-20

No housing units were built in the last financial year, 2020-21.

The government was to spend Sh4.2 billion to build access roads to affordable housing units, but it had only spent Sh322 million by the end of June 2021.

The poll jitters have only added to the delay in the construction of affordable houses, with investors reluctant to put their money in projects that might be rejected by the next administration.

“Investors are reluctant to continue pumping money into affordable housing because you don’t know if the Big Four agenda will be adopted by the next administration,” said Johnson Denge, a real estate expert.

KMRC’s recent inaugural corporate bond attracted a 579.6 per cent over-subscription—which was not only a shot in the arm of the struggling corporate bond market but also a seal of approval for the affordable housing project.

KMRC Chief Executive Johnstone Olteita said the Sh1.4 billion will be used to refinance primary mortgage lenders through commercial banks, microfinance banks and Saccos.

In this financing arrangement, KMRC is supposed to release large-scale, cheap financing to primary mortgage lenders who will then give loans to homeowners at long tenures and low-interest rates.

Under the current environment, mortgage rates are much higher than what many people are paying as rent, which has made house ownership unaffordable.

In the upcoming budget starting July, the National Treasury has allocated KMRC Sh4.6 billion.

In the current financial year ending June, KMRC was allocated Sh3.5 billion.

The National Treasury Cabinet Secretary Ukur Yatani noted that since September 2020, KMRC had disbursed over Sh2 billion to seven primary mortgage lenders and is currently processing an additional Sh7 billion.

Between March 2019 and June 2022, the government had planned to build a total of 10,000 social housing units like those in Kibera at an estimated cost of Sh40 billion.  

However, by the end of June 2021, it had only spent a cumulative total of Sh5.38 billion. 

According to the Housing Ministry, there have been delays in the commencement of the building of some 2,960 social housing units for Mariguini, South B, Nairobi, which was delayed due to a court dispute.

This, said the ministry, has since been resolved pending Attorney General Kihara Kairuki’s advice on contract signing for Kibera Soweto East Zone B (4,435 units).