Rising population, and urbanisation drive demand for affordable housing

Houses in Pipeline Estate,Nairobi build together without giving space.Poor housing planning in the area has left many people confused. [COLLINS KWEYU,Standard]

Kenya’s housing market is facing a significant crisis, driven by rapid urbanisation and population growth, which are exacerbating the country’s growing housing deficit.

By the end of 2024, Kenya’s population was projected to reach 52.4 million, up from 45.4 million in 2019, further intensifying the already alarming shortage of housing units.

Current estimates suggest that Kenya faces an annual shortfall of 200,000 housing units, with an accumulated deficit of more than two million units since the introduction of Vision 2030 in 2008.

MilikiSpace Properties Ltd chief executive Milkah Ndegwa, in a recent interview, attributed the rising demand for housing to the country’s high urbanisation and population growth rates.

Kenya’s urbanisation rate stands at four per cent, and its population growth rate is 2.3 per cent, both of which far exceed the global averages of 1.8 per and one per cent, respectively, as of 2020.

“The rapid increase in urbanisation and population growth directly translates into heightened demand for housing across the country,” Ndegwa said.

African nations

She noted that homeownership in Kenya remains alarmingly low.

As of 2020, urban homeownership in Kenya was pegged at just 21.3 per cent, a stark contrast to other African nations like South Africa and Ghana, where urban homeownership rates stand at 53 per cent and 47.2 per cent, respectively.

This signals a major challenge for many Kenyans who aspire to own homes but are priced out by escalating housing costs.

Kenya’s housing market is caught in a web of challenges that further complicate efforts to meet the growing demand for affordable housing.

High land costs of building or buying, coupled with escalating housing unit prices, are pushing many would-be homeowners further from the possibility of ownership.

Substantial incidental costs such as stamp duty, legal fees, and difficulties with property registration create additional barriers to entry.

One of the most pressing issues, according to Ndegwa, is the complex and slow approval process for housing projects.

“The delays in getting project approvals are a major hindrance, locking out many developments and limiting the sector’s growth potential,” she said.

“The regulatory processes should be streamlined to better align with the industry’s pace and needs, particularly for affordable housing initiatives.”

The high cost of housing in urban areas is pricing out many Kenyans, especially low-income earners.

Mitchell, a resident of Imara Daima, Nairobi, who currently lives in a rented house, explains how the current economic climate has made homeownership a distant dream.

“The cost of living in Kenya is extremely high right now, with taxes being imposed on us without much consultation. The thought of buying a house never crosses my mind when I’m spending most of my income on taxes,” Mitchell said.

For many like her, saving for a home is simply not a realistic option under the current conditions.

The Centre for Affordable Housing Finance (CAHF) emphasises prioritising the informal market when determining financing models for the masses.

Citing a challenge with mortgage structure that works more for the formally employed and in a stable market, the continental think tank on housing matters says the informal market is delivering more housing than the State and private sector.

 “There are more instances of lending and investment that happen informally – whether from hand to hand, through rotating schemes or cooperatives or in the form of remittances – than formally through regulated channels,” says CAHF in a recently published analysis titled Cities that Think, Fast and Slow.

In addition to high costs, there is a notable surge in demand for rental housing, further exacerbating the housing shortage.

With the dream of home ownership out of reach for many, renting has become the only viable option for a large portion of Kenya’s urban population.

The challenge lies not only in increasing the supply of housing but also in ensuring that it remains accessible to the low-income segments of society.

This housing crisis underscores the urgent need for more investment in affordable housing, particularly for Kenya’s rapidly growing urban population.

To bridge the gap, experts agree that a combination of policy reform, incentives for developers, improved access to financing, and a streamlined approval process for projects is essential.

Without such changes, the housing deficit will only continue to grow, and many Kenyans will remain excluded from the prospect of homeownership.

Another significant challenge lies in the availability and accessibility of long-term, affordable mortgages.

Ndegwa points out the disparity in interest rates between local banks and international investors, noting that while foreign developers can secure financing at rates between four per cent to eight per cent, Kenyan developers face interest rates of 18 per cent to 22 per cent.

“This creates a competitive disadvantage for local developers and significantly impacts the affordability of housing projects,” Ndegwa added.

According to the 2023 Economic Survey, the real estate sector contributes 8.6 per cent to Kenya’s GDP, a testament to its importance in the economy.

However, the sector is plagued by a severe lack of affordable housing options, particularly for low-income families.

Lives in slums

A 2023 report from the Centre for Affordable Housing Finance in Africa reveals that 46.5 per cent of Kenya’s urban population lives in slums, a figure that is more than double the global average of 24.2 per cent.

This high proportion of slum dwellers underscores the urgency of addressing the housing affordability crisis.

Despite ongoing government efforts to address the housing deficit through initiatives like the Affordable Housing Program under the “Big Four Agenda,” the challenges remain.

A significant 74.4 per cent of Kenya’s working population is in need of affordable housing, yet only 17 per cent of the current housing supply is aimed at serving the low- to lower-middle-income segments.

This gap is largely attributed to high construction costs, insufficient development land, and a lack of adequate infrastructure.

As Kenya’s population continues to expand, and its cities grow at an accelerated pace, addressing the housing shortage is not just an economic challenge—it is a critical social issue that requires immediate attention and concerted effort from both the public and private sectors.

The time to act is now, to ensure that all Kenyans, regardless of income, can aspire to and achieve the dream of owning a home.