Opinion and Analysis
Prioritise provision of housing
Posted Thursday, July 26 2012 at 21:12
Shelter is a human right that is really underserved in urban Kenya. Even after the Kibaki government promised at least 200,000 housing units a year from 2003, there has always been a deficit, not to mention that a majority of the new housing units are targeted for middle and upper income earners.
It also occurs that majority of the slum upgrading projects have had little impact on reducing the sheer squalor that exists in the major slums of Nairobi.
There is a multiplicity to the problems of low income housing. First, land is not only scarce, but more important it is very expensive that low income rent would not provide enough return for investment feasibility.
Indeed even high income residential properties are moving out of the city, not only due to fashion trends but by the invisible hand of land prices.
To address this, several solutions can and are being made for this. Nairobi is being made into a commuter city, like its global peers.
This needs to be intensified. Cheap transport is what makes a commuter city so urban railway is a step in the right direction
The second big problem is capital. Real estate giant Knight-Frank declared Nairobi a hot city for investment.
This has lead to massive investment middle and upper income housing and commercial developments for those seeking superior returns.
Low income housing therefore is neglected in the process. The government should make investment into low income housing feasible by introducing targeted subsidies.
This is being done with Tatu City, which by its own definition is targeted at the middle class. However, a push for low income dwellings should now be made priority.
A big source of capital is Pension Funds (PFs). PFs face huge liabilities as their members age. In line with this, their assets ought to be of high return and liquid but stable enough to provide cash when claims are made.
This has led to many PFs utilising real estate especially for high and middle income residential and commercial real estate.
A concerted effort to encourage low income development should be made via targeted subsidies through taxation and through adoption of REITs in the sector.
REITs provide the structure for both liquidity, stability (as the underlying asset is real estate) and scalability matching the PFs capital, all prerequisites in PFs allocation of assets.
Additionally, PF managers need not worry about the logistics of managing the asset as the REIT structure is self sufficient.