How Kenya's informal workers hold the key to unlocking the housing market
Real Estate
By
Graham Kajilwa
| Aug 27, 2026
If population is used as the basis for estimating Kenya’s housing demand - which has always been the case with the government - the potential market is undoubtedly vast.
But once this population is broken down into effective demand, it shrinks. It dwindles even further when qualified demand becomes the criterion.
Kenya’s housing shortage is estimated at two million units. Successive regimes have not been able to crack this demand, even with the current 1.5 per cent housing levy imposed on workers.
There is, however, a way, according to Thierno-Habib Hann, Shelter Afrique Development Bank Group managing director and chief executive.
Hann argues alternative underwriting of mortgages can stimulate effective demand to qualified demand. He says the same has been done in other countries, such as India.
It is the same strategy that has been used to facilitate banks to lend to small and medium enterprises (SMEs), which for long were considered unbankable.
Alternative underwriting means not relying on the traditional or conventional threshold of the ability to repay, in this case, payslips or stable income flow. Instead, the bank customises products to fit into the customer’s income profile. The reason being that a majority of income earners in the country are from the informal sector.
“We cannot underwrite these people the same way we do for somebody with a pay cheque. And that is where the masses, the chunk of the two million housing deficit, is sitting,” said Hann during the Kenya Affordable Housing Conference 2026 held in Naivasha.
He said back then, banks were unwilling to lend to the informal sector and concentrated on the corporate side. The argument was that corporates have balance sheets and income statements, the kind of backing they need to lend against.
However, over the years, it has been established that SMEs are actually the engine of economies. In Kenya, MSMEs contribute to about 40 per cent of the country’s gross domestic product (GDP).
Hann, who worked for the International Finance Corporation (IFC) at some point said the institution worked with local banks to devise separate underwriting criteria for SMEs so that they can be issued with loans.
“The way we have been lending to the formal sector has to be different from the way we will lend to the informal income earners,” he said.
He presented alternative underwriting as one of the ways the housing sector can access affordable capital. Other avenues are blended finance, green housing finance, capital markets and strategic partnerships.
“The cost of housing is very high in our economies, and that is not the fault of the sector. It is the nature of the economies where the macros are not helping the housing sector,” he said.
State Department for Housing and Urban Development Principal Secretary Charles Hinga acknowledged the informal sector challenge facing housing needs. He somehow agreed with the claim that Kenya does not have a housing problem but an income one.
“We have an income problem, but do we have a silver bullet for fixing that problem when the division of our economy is so big that 85 per cent of the jobs being created are informal?” he posed.
With only 15 per cent of the job market being formal, it means banks issuing mortgages concentrate on this population due to their risk profile, as they are considered safer, leaving the vast majority of the population underserved yet in dire need of housing.
From the 2026 Economic Survey by the Kenya National Bureau of Statistics (KNBS), there are 18.1 million workers in the informal sector compared to 3.5 million formal. This is a ratio of 83.3 per cent to 16.2 per cent.
“How then do you wake up and change that, because it is a systemic issue? We are a low-wage society. That is a fact, but there is no amount of prophesying, speaking in tongues or laying on of hands or any other thing you can do that is going to double the wage rates,” he said.
Hinga said the government does not have a quick fix to that, particularly considering every year some 800,000 young people leave institutions of higher learning to join the job market.
More so, there are 500,000 individuals leaving rural areas for urban centres seeking job opportunities.
“And when they come, they find a place where rents are very expensive, wages are very low and there is not enough supply of housing stock. As they move in, they form the next informal settlement,” he said.
He said President William Ruto has laid the right foundation that would lead to job creation, citing the affordable housing programme as one of them.
“We have put forth a plan that we believe is working,” he said.
Data from the Central Bank of Kenya puts the number of mortgages slightly above 30,000. The 30,000 milestone was attained in 2023.
The average size of a mortgage in the country, as per the CBK’s Bank Supervision Annual Report 2024, is Sh9 million.
The report contained a survey that speaks of the leading challenges affecting access to mortgages, where low income level featured.
“Based on the above ranking of mortgage market constraints, banks identified low level of income, high cost of property purchase and limited access to affordable long-term finance as the major impediments to the growth of their mortgage portfolios. These were similar constraints identified in the 2023 mortgage market survey,” the report says.