Here’s how to build long-term supply of affordable houses

Last week I attended the East Africa Property Investment Summit and participated in the affordable housing panel. The summit, and discussions I have been engaging in on the affordable housing pillar of the Big Four Agenda, highlighted several opportunities that can be leveraged to drive the long-term supply of housing in the Kenyan market.

According to estimates, the affordable homes under the Big Four will cost between Sh600,000 and Sh3 million with the Kenya Mortgage Refinance Company (KMRC) established to facilitate the provision of affordable mortgages.

However, the reality is that serious constraints impede the supply of the homes in the Kenyan market, key of which have been the cost of construction materials, fees and a myriad fiscal and non-fiscal regulatory and legislative obstacles.

There are three ways through which the affordable housing pillar can be used to stimulate the long-term supply of affordable housing in Kenya.

The first is to address the exorbitant cost of land in major urban nodes. In this regard, government has indicated a certain level of commitment in the allocation of land for affordable housing developments.

However, in the long-term, urban planning by government has to take an extended outlook on the development of urban areas and consistently allocate land designated for housing. All rapidly urbanising counties ought to set land aside and then contract private sector to construct the affordable housing units.

This will relieve private developers of the cost and hassle of purchase and transfer of title and, thus, lower costs in the long-term.

Secondly, there is a need to lower the cost of the manufacture of construction materials.

In addition to addressing issues systemic to manufacturing such as lowering cost of electricity, incentives specific to lowering cost of locally manufactured construction materials ought to be applied.

The Kenya Property Developers Association (KPDA), which represents the residential, commercial and industrial property development sector in Kenya, has an Affordable Housing Taskforce which recommends that government zero-rate locally manufactured products used in affordable housing developments.

Thirdly, the private sector ought to be listened to with regards to their ideas on how to stimulate their ability to construct affordable housing on a long-term basis.

In terms of fiscal incentives, KPDA’s Affordable Housing Task force suggests that corporate tax be reduced to 15 percent for approved affordable housing projects and that financing spent on infrastructure linked to affordable housing, be treated as capital expenditure and set off at 100 percent against the tax payable as a capital allowance.

With regard to costs linked to regulatory compliance, the suggestion is that the government establish a one-stop shop for all affordable housing approvals and standardise all construction related fees by county governments.

If Kenya is to play the long game in stimulating the consistent supply of affordable homes, the government ought to leverage its current focus on the sector and determinedly resolve the factors that prevent the private sector from effectively servicing this market segment.

In the government addressing the structural constraints linked to affordable housing, the private sector will be able to more effectively construct homes that Kenyans can afford on an ongoing basis.

Were is a development economist.