Bill to control rents does not make economic sense

Kilimani residential and office blocks.

I read somewhere that a new proposed law, the Landlord and Tenant Bill of 2021, is in the offing to control rents in the country. Why so soon after repealing the Banking (Amendment) Act No 25 of 2016 that controlled interest rates? If you recall, the new law came into effect just before the 2017 polls.

Is the new Bill being fronted in the same spirit and is it driven by politics or economics? 

I was one of the few Kenyans who opposed the interest cap and got bashed for it.

True to my prediction, the law was repealed after two years following opposition by bankers and the International Monetary Fund (IMF).

Some argued that the law gave the government a window to borrow at low rates. The fact is that Kenyans never queued to borrow money from banks because the interest rates were capped. Clearly, there is more to borrowing money than interest rates. Noted how shylocks and online lending platforms have flourished?  

Indexing rent to the inflation rate is a great idea in the Bill. We should do the same with salaries to forestall perennial strikes.  

Back to housing. There is more to housing than rent. In the housing market, the demand far outstrips the supply.

We promised 500,000 units per year, but delivered less than 50,000 units. This keeps the rent rising as economics 101 predicts. Higher rents mean more money for developers.  

If we leave the market to do its work, we shall reach a stage when so many houses are in the market that rents either stabilise or start to go down like the prices of potatoes or maize during the harvesting season. 

That is already happening in commercial residencies, going by the number of empty office buildings. The government might be worried that it will take too long to reach that equilibrium point for housing.  

Controlling rent will postpone reaching that equilibrium. Without the high returns, developers shall shift money to alternative investments, leading to fewer houses. This will, in turn, make the shortage worse. One could argue that there are limited investment alternatives; but not anymore. We can even cross the borders.

By trying to control rent, the government is perhaps acknowledging the housing problem. My concern is providing a legal solution to an economic problem. Let us suggest better solutions to the housing shortage instead of controlling rents. 

One is improving security. This will end the need for building high walls and putting metal grills on doors and windows. 

It will at the same time reduce the cost of houses and rent by extension. The developers can recover their costs and make a profit more easily. The money that goes to walls, grills and razor wire can build more houses. Two, who said we must use stone blocks? Why not use alternative materials like plastic and wood? Poor uptake of such building materials is linked to insecurity. 

Three, governments - both national and county - can supply more houses through cheaper mortgages, which they can guarantee. Less than 30,000 mortgage accounts in a population of 53 million is a national joke. Noted how developers have skirted banks by asking for a deposit and offering a longer repayment period?  

Four, the biggest cost in housing is land, whose price has been skyrocketing driven mostly by speculators. Simply make buying and selling of land easy. More land will get into the market and prices will go down.

Five is rezoning the city. It is envisaged that we can make economic use of land by putting up high-rise apartments in previously restricted areas like Lavington or Westlands.

Unfortunately, this will turn the city into a giant slum and dilute its “coolness.” We need to protect some historical sections of the city against “development.” Six, improve on the transport network. Provide better roads and rails so that people can commute more easily.

Anyone living within 100km of the central business district should get to the city in an hour or less.

With alternatives, rents will go down around Nairobi. Rents are reasonable in other towns. We can also make devolution work to rid Nairobi of overpopulation.  

Seven, who said we can’t live in the CBD? Many office blocks can be turned into houses and apartments. Some Kenyans live in Kijabe Street and on Koinange street. Living in the city centre is common in Europe and other regions of the world. Who said you must take a bus to work?  

Eight, change our culture. Why can’t we live with our brothers, sisters, grandparents and other relatives? Does this sound old fashioned? 

Nine, reduce the populating growth in the long run; it means there will be fewer people to be housed. Land is limited but our ability to populate the Earth is unlimited. Ten, seek land among the exoplanets - planets found outside the solar system. Elon Musk, can you hear me? 

Finally, in solving our national problems, the legal route is the easiest but not the most effective. 

- The writer is an associate professor at the University of Nairobi