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Ten-fold rise in prices in 15yrs deepens housing crisis, says World Bank

World Bank Country Director for Kenya Diarietou Gaye (left) and Central Bank of Kenya Governor Patrick Njoroge during the release of the Kenya Economic Update in Nairobi on April 12, 2017. PHOTO | DIANA NGILA | NMG
World Bank Country Director for Kenya Diarietou Gaye (left) and Central Bank of Kenya Governor Patrick Njoroge during the release of the Kenya Economic Update in Nairobi on April 12, 2017. PHOTO | DIANA NGILA | NMG 

A ten-fold rise in house prices since 2000 has blocked millions of potential buyers from the market, worsening Kenya’s home ownership crisis, the World Bank said Wednesday.

Kenya stands alone in the region as the country that left home prices to rise beyond the reach of the majority of its citizens —with the cheapest homes in the capital Nairobi now priced at Sh4 million, up from Sh500,000 in 2000. 

High prices have rendered more than 90 per cent of Kenyans incapable of buying the cheapest houses, leaving only a tiny segment of the population in the homes market.

Kenya’s housing market has also failed to meet the ever rising demand in the lower-income segment of the economy, pushing more than 60 per cent of those living in Nairobi and other towns into informal settlements.

Nairobi, for instance, only gets an average of 15,000 units out of the 150,000 demand per year, underlining the fast pace at which prices are rising.

“In 2013, prices were nearly three times those in 2000, creating fewer opportunities for low- and middle-income families. Besides, the lowest-priced house already cost Sh1.3 million in December 2012 and currently, there is almost no supply in the market for homes priced at less than Sh4 million especially in Nairobi,” senior World Bank economist Allen Dennis said.

Kenya needs to build two million affordable city homes to meet a growing housing deficit and stem the growth of sprawling slums, home to six out of 10 urban households, the World Bank said.

Investment in housing, it said, would also create jobs, improve economic growth and strengthen the country’s financial services sector.

“Many Kenyans are unnecessarily living in slum dwellings, because of limited supply and lack of affordability,” the World Bank says in a report.

“The problem will only become more acute over the next decades without a serious focus on housing and the finance of housing for the average Kenyan.”

Africa has the fastest-growing cities in the world, with 40 per cent of its one billion people in towns and cities, but most new homes target the middle and upper classes as it is easier to make a profit from high-end sales.

The high cost of houses is mainly driven by speculative land dealers who have overpriced the most critical element in real estate development.

The local banks have aggravated the situation by starving the market of mortgages, which currently stand at fewer than 25,000 home loan accounts or equivalent to 3.15 per cent of GDP in 2015.

World Bank economists say mortgage lending dropped by two thirds after Kenya introduced interest rate cap last year, pushing the mortgage market to a 15-year low by the end of 2016.

Central Bank of Kenya Governor Patrick Njoroge, however, insisted that the rate cap is not the only factor influencing low uptake of mortgage loans.

“Something else is going on. Last year, we had a freezing of the land registry as it was being digitised and no titles were produced for a while, which means no bank lent during that period,” Dr Njoroge said.

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