Financial innovation is key to unlocking affordable housing
Opinion
By
Njora Waweru
| Dec 15, 2023
In the intricate dance of supply and demand within a capitalist society, the glaring absence of affordable housing in the real estate market raises perplexing questions.
Despite a colossal demand, developers appear hesitant to tap into this potentially vast market, opting instead for high-end properties that promise greater profit margins.
The crux of the issue lies in the financial dynamics of affordable housing. Developers, driven by profit motives, find the returns from affordable housing to be meager, given the emphasis on quantity over quality. While high-end properties yield substantial profits, affordable housing units often offer slimmer margins, making them less appealing to developers.
To delve into the heart of the matter, one must question why the cost of affordable housing remains prohibitive. The obstacle lies in the difficulty faced by the masses in financing home purchases, especially without mortgage assistance. The prevailing interest rates render even a Sh3 million unit nearly inaccessible to the target market.
A solution emerges in reshaping the credit and mortgage landscape. By adopting a mortgage scheme mirroring the one enjoyed by MPs at a nominal three percent interest rate, the cost of owning a house could rival that of renting. This shift would incentivize potential buyers to opt for ownership over renting, fostering a conducive environment for affordable housing.
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Addressing the exorbitant cost of building materials and approval procedures is paramount. Government intervention, through tax reductions on building materials and streamlining bureaucratic processes, can significantly contribute to lowering overall construction costs. Furthermore, the government, in possession of vast land resources, can sell these at reasonable prices to developers, contingent on earmarking them for affordable housing projects. This collaborative effort between national and county governments would pave the way for cost-effective land acquisition.
Contrary to the notion of direct government provision, a more efficient approach involves creating an enabling environment for private developers to spearhead affordable housing projects. Modifying building standards to incorporate locally available and cost-effective materials, such as bricks, promotes efficiency and reduces construction expenses.
The proposed housing fund should not finance the construction of houses directly but should function as a mortgage scheme. By extending affordable mortgages to Kenyans, the fund can become self-sustaining over time as buyers repay their mortgages, mirroring successful schemes like the Settlement Fund. In the pursuit of affordable housing, the government's role is to facilitate. By steering clear of the pitfalls associated with past government-funded housing schemes, a focus on providing cheap mortgages through the housing fund will effectively address demand, allowing market forces to organically drive the supply of affordable housing units.
-The writer is an advocate and expert in property law. njorawaweru@gmail.com