Can affordable housing plan cause market correction?

Modern housing estate viewed from above in Germany. [iStockphoto]

A long-standing discourse in the real estate space is whether properties in the country are overpriced.

This has been explained as a result of increasing demand against the limited supply available in the market.

The State Department for Housing and Urban Development puts the number of units released into the market every year at 50,000, against a shortage of two million units.

The Kenya Kwanza administration aims to put up 200,000 units annually to reduce this deficit, so by the end of the first term in 2027, there should be a million new homeowners. 

It is on this premise that President William Ruto’s administration introduced the Affordable Housing Levy, charged at 1.5 per cent of gross income. This is expected to spur the construction of units.

But as the government works to put out as many units as possible, what effect will these houses have on the real estate market? Will there be a price correction as a result of an ‘influx’ of 200,000 units a year as the government plans?

Samuel Kariuki, Mi Vida Homes Chief Executive, opines that this may not come to pass.

“From a competition perspective, I am not concerned that a significant government supply will distort the market,” he told The Standard.

Mr. Kariuki said that by the time the government scales up and is able to do 100,000 to 200,000 units annually, it will be a long time.

The decision by the government to invest in housing directly instead of creating an enabling environment for the private sector may not be popular, partly due to the additional tax burden, but it is also not a threat, as Mr. Kariuki notes, to the developers who are seeking to serve the same population.

“Even if the government has the capability, they have to build capacity to execute the projects and churn them out very quickly,” he adds.

One of the reasons why Mr Kariuki does not see this agenda by the government as a threat is that he sees Kenya as a predominantly rental market.

“Quality affordable rental is a need, but affordable ownership is a want,” he says.

Additionally, unlike Mi Vida, which prides itself on having not only institutional investors but also buyers, the same cannot be said for the affordable housing program.

In 2023, International Housing Solutions (IHS) acquired 200 units in Mi Vida Homes’ 237 Garden City affordable housing project. These are 100 one-bedroom and 100 two-bedroom units.

The one-bedroom units were priced at Sh4.2 million, while the two-bedroom units were Sh6.4 million.

The closest the government has to such an institutional buyer is the Bomas Yangu platform, which Kariuki says mimics, though with gaps, this kind of buyer.

Units under the government’s affordable housing program range from Sh840,000 to Sh5.7 million.

Having such a buyer, he said, de-risks the developer.

“There is always a concern by institutional investors: are these (Kenyan accounts on Boma Yangu) quality buyers? It is one thing to pay 10 per cent for a unit and say ‘let me go look for the other 90 per cent.’ Is there a guarantee I will keep up with the payments?” he poses.

Kariuki adds: “The observation has always been it is a mixed cup of tea.”

Zaharaa Khanbhai, Head of Commercial Property Finance in charge of East Africa (Kenya, Uganda, and Tanzania) for Absa Bank, details that if a market correction is to happen as a result of the affordable housing program, it will not be soon either.

The urbanisation rate of Nairobi City County, which is currently four per cent and could go up, can keep up with the demand.

Also, she adds, Kenyans seem to be obsessed with owning property.

“From a cultural perspective, Kenyans love property. Unlike the German market, where they are okay to rent, at the end of the day, Kenyans want to own,” she says.

She adds: “And I think there is a big enough demand at this point to spur us for at least five years.”

Kenya’s cost of land, which keeps rising, and construction, which is largely controlled by macroeconomic conditions due to imported materials, also determine the cost of units.

Ms Khanbhai says as it is, due to these reasons, the demand will continue to be there since these costs do not make it possible for an oversupply of units.

Even with the Affordable Housing Levy in place, she says the big question is where the money will be invested.

“Is it deployed towards construction or off-taking to make it cheaper for individuals to buy the houses?” she poses. “It will be a while, if you ask me, before we get into a period where we see an oversupply.”