�THE HOUSING SECTOR IN KENYA - OPPORTUNTIES AND CHALLENGES�

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Introduction

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• Housing/property ownership and control formed the basis of many countries independence struggle

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• The housing market and more so housing in Kenya has evolved considerably since independence in 1963.

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• Historically, throughout the post-colonial period up to now the private sector has been consistently active in housing provision, supported by private land buying companies and constructions and building materials industries.

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Definition of Key Terms

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• Property-something of value, either tangible, such as land, or intangible, such as patents, copyrights, etc. One has the right to own, use and dispose

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• Land Administration- Process of regulating land and property development and the use and conservation of land, gathering of the revenues through sales, leasing and taxation and the resolving of disputes/conflicts concerning ownership and use of land

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• The rising costs of land/construction materials in urban areas have deprived the many members of society of the chance for owning land and housing.

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• Housing costs rise due to land value speculations and the problem is aggravated further by the high demands of housing especially in urban areas.

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• The housing/property market in Kenya has evolved considerably since independence in 1963. The 1966/67 Sessional Paper and National Housing Policy promoted a strong role for the government in providing affordable housing for the citizens of the country through its parastatal or quasi-government institution, the NHC and municipal councils.

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• For many years, the NHC was the market leader in the housing industry, responsible for the development of government run/ managed public housing.

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• The Nairobi City Council and local authorities throughout the country augmented the public housing of NHC by developing and managing a considerable stock of housing units, largely in urban centers.

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• Historically, throughout the post-colonial period up to now the private sector has been consistently been active in the housing sector, supported by private constructions and building materials industries.

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• Private housing developers and private service providers, however, worked largely in the high-end of the market among a small but growing middle class of non-civil servant wage earners. The private sectors have also been active in urban areas and in most cases in Nairobi.

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Genesis of Private Sector Participation in Property Industry

• Sessional Paper No. 1 of 1986 - Economic Management for Renewed Growth.

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• The policy sets out the government’s role as that of facilitating the private sector, cooperatives, local government and individuals to provide housing and related services.

�THE HOUSING SECTOR IN KENYA

• It is acknowledged by various policy documents that land and housing as a social good cannot be left entirely to market forces – the Government is also lacking capacity to undertake the administrative and technical tasks required for efficient public interventions

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• The Kenyan housing sector is char by inadequate affordable/decent housing for low-income, low-level of urban home ownership (16%), inappropriate dwelling units and informal settlements proliferation – of 200,000 housing units annual required in urban areas, only 35,000 are produced.

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• Urban housing shortage causes - rapid urbzn, inaccessibility to land/housing finance, planning regulations, building stds, high cost of infrastructure, poor economic performance/increased poverty, low level of investment in housing - units produced by public/private accounting for 20% of the total number of new urban households.

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• Other constraints include an outdated legal and regulatory framework, uncoordinated policy implementation, low private sector participation, insufficient capacity, poor governance and inadequate financing to buyers and developers. In addition, research on low cost building materials and construction techniques has been limited thus not providing viable guidance to the development of the low cost housing in the sector.

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• The urban housing sector is characterized by inadequacy of affordable and decent housing, low-level of urban home ownership, extensive and inappropriate dwelling units, including informal settlements. This is attributed to under-investment in low and middle-cost housing by both the public and private sectors.

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• The shortage of housing for low-income households is particularly acute in urban areas, with only an estimated 6,000 units, or 20% of all houses produced caters for this group – due to under-investment in low/middle-cost housing by both the public and private sectors.

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• To address this problem, there is need to build 200,000 housing units annually. In this regard, incentives should be provided to private sector and individuals to construct houses through establishment of a secondary mortgage finances.

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• The capacity of county governments to provide serviced land to produce low cost housing should also be enhanced and they should also be encouraged to construct low cost housing through Public Private Partnership (PPP) arrangements.

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Areas of Concern in Housing Industry

• According to UNHABITAT (2006), the public sector has been able to produce only a small portion of units planned for in the successive development plans and the Government is also loosing grip of strategic land in urban areas thus app 80% of urban housing properties is owned by private sector.

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• The importance attached to quality and quantity of housing has resulted in the housing policy which can either be institutional/ comprehensive or residual/ social in nature.

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• Donnison and Ungerson (1982) and Ronald (2007) describe institutional / comprehensive housing policy as a situation where provision of housing becomes the responsibility of governments and the residual / social housing policy is when governments supports those that cannot compete in the housing market to acquire one.

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Legislation Governing Property Administration in Kenya

The Constitution of Kenya- Supreme law

• The Government Lands Act (Cap 280)- It regulates all transactions and dealings on land emanating from Government alienation
• The Trust Land Act (Cap 288)- Trust Land refers to land held under trusteeship by various county councils under the constitution of Kenya, for the benefit of the people who are ordinarily resident on that land.- The act empowers county councils to grant leases and licenses in trust lands
• The registration of Titles Act (Cap 281)- The act stipulates the process of titling of first registration or subsequent registration
• The Registered Land Act (Cap 300)- The Act lay down the procedures for registration of land and mode of ownership identification under the act.

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• The Sectional Properties Act -The Act provides for floor ownership of floor
• The Land Control Act (Cap 302)- The Act vests all land administration powers over land to the land control boards
• The Land adjudication Act (Cap 284)- provides ascertainment/recording of rights and interests in trust land and for the purposes connected there with.
• The Surveyors Act (Cap 299)- Provision in relation to surveyors- licensing/regulation of practicing surveyors
• The Physical and Land Use Planning Act (2019)- relates to Planners including the licensing and regulation of practicing planners
• Environmental Management and Coordination Act of 1999- guidelines on undertaking Environmental Impact Assessment and Auditing (EIA/A)
• The Land Consolidation Act (Cap 283)- Prevention of fragmentation/ subdivision of land
• County Government Act- County control development within their areas of jurisdiction.

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��National Housing Policy in Brief �

• The overall goal of housing policy annunciated by the Sessional Paper No. 3 of 2004, is to facilitate the provision of adequate shelter and a healthy living environment at an affordable cost to all socio-economic groups in Kenya in order to foster sustainable human settlement.

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• The major elements of the housing policy are grouped into two, namely;

(a) Policy targets including-

(i) Poverty alleviation, ii)Public housing, iii) Urban housing, iv) Rural housing and v) Vulnerable groups

(b) Housing inputs including-

i) Land use planning and management, ii) Infrastructure, iii) Building Materials and research, iii) Financial resources for housing iv) Management and v) Legislative and institutional framework

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• The policy paper notes that level of urban owner-occupancy has been declining. This is to be addressed through: -
• Development/facilitation of urban middle-income and low-income housing;
• Upgrading of slums and informal settlements; and
• Encouraging construction of rental housing

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• For middle income – provision of housing through the NHC, County Government and other agencies through re-capitalizing the Housing Fund under NHC/re-structuring the corporation to enable it develop affordable housing. The Government also to set up a Civil Servants Housing Scheme to cater for special housing needs of civil servants under the Housing Fund.

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• For urban low-income earners - tax incentives such as investment allowances to individuals/institutions investing low-income development, investment of proportion of provident/pension funds on low-income housing

• On land use planning and management – Encouragement of innovative partnerships at local levels btwn the public sector agencies/private developers to provide serviced land for housing development. The Ministry in charge of county governments to facilitate this through drawing std agreements for such partnerships.

Kenya’s Land Policy Principles

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a) Equitable access to land;

b) Secure land ownership;

c) Effective regulation of land development;

d) Sustainable land use;

e) Access to land information;

f) Efficient land management;

g) Vibrant land markets; and

h) Transparent and democratic administration of land.

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�Sector’s Vision and Market�

• In the last 15 years, there has been a robust growth in housing development. However, there remains unmet demand particularly in the urban areas across the country. Under the Vision 2030, a target of over 200,000 units per year is required - expected to be met by the private sector investments

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• As such, the government is ready to work out modalities of partnering with private sector to construct and sell houses, including low cost houses to Kenyans. For example, 100 ha of land was set apart at Athi River, which is about 20 km from city of Nairobi for this purpose. Alternatively investors can partner with NHC to put up houses on their parcels of land

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• Land can also be purchased around the urban areas from private owners at a reasonable market price for housing projects. Returns on investment in this sector have been very attractive.

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HOUSING FINANCE

Introduction

• Many Governments/private sectors are looking at various ways of how the growing need for housing can be satisfied by converting this need into effective demand and at the same time assisting in making the best use of resources are available.

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• Adequate/affordable housing finance is the cornerstone of sustainable housing dvt programme - without a well-conceived housing finance policy/programme, there can be little effective action for improving urban housing conditions or implementing housing policy and programmes.

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• This has been recognized by GoK. However, households in rural and urban low income have problems of housing finance in Kenya.

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• The problems are compounded by widespread poverty, underdeveloped housing finance systems, lack of access to financing from formal finance institutions, high cost of Finance, poor asset portfolio among others

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The poor have a tremendous need for housing finance throughout Kenya yet relatively little funds have been directed to development of housing for them. They tend to be discriminated by private financial institutions because:-

• Many small loans are costly to administer and difficult to make profitable.
• They are risky to financiers but financiers cannot charge them higher interest rates to cover the interest risks.
• Demand for large loans is high and usually consumes all available funds leaving nothing for small loans.
• They have no collateral to use as security for securing loans as is always demanded by finance institutions.
• They lack regular income to enable the financiers to determine affordability. Their irregular or fluctuating incomes make it difficult for financiers to predict their loan repayment.
• They normally have no adequate funds to provide down-payment or equity for financing housing development.

Sources of Housing Finance

Can be summarised as: -

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• Building Societies

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• Mortgage Societies

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• Savings and Credit Unions

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• Housing Cooperatives

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• Workers Housing

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• Public housing

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• Infrastructure Bonds- Bonds issued by a housing finance authority to finance housing projects. The money is normally used for onward lending to clients and to increase Housing Finance participation in housing supply. In Kenya, the Housing Finance Company

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• Traditional and Informal sources of Finances

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• At the end of 2009, the financial institutions in the country comprised 43 commercial banks, 2 non-bank financial institutions, 2 mortgage finance companies and 4 building societies.
• The structure of commercial banks can be described as oligopolistic as 9 of the 43 banks control 74% of the total assets in the sector.
• Between the 1980s and 1990s there were over 20 housing finance providers in Kenya.
• Less than 10 of these institutions remain, namely: Housing Finance, Savings and Loans (a subsidiary of Kenya Commercial Bank), NIC, Equity Bank (formerly Equity Building Society), East Africa Building Society, and Family Finance Building Society.
• The general improvement in the financial sector in Kenya has had a positive impact on housing finance
• The vast majority of Kenyans still cannot meet the terms of borrowing.
• The long-term mortgage products now available on the market offer interest rates that range from 15-20% with repayment periods ranging from 7-20 years.

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Other Emerging Housing Financiers

• Kenya is among the most advanced countries in sub-Saharan Africa in the establishment and development of micro-finance institutions.
• Four innovative micro-finance institutions that have touched on the edges of housing, or what is known as housing micro finance, are: The Kenya Rural Enterprise Programme (K-REP), Faulu Kenya, the National Association of Cooperative Housing Unions (NACHU), and Jamii Bora Trust
• The National Association of Cooperative Housing Unions (NACHU) also established in 1980s
• It supports member of cooperatives by:
• providing them with assistance in acquiring and registering land,
• developing housing, and securing finance for land acquisition and property development.
• NACHU does not, provide long-term finance, and its support is confined to its membership.

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• The Jamii Bora Trust was started in 1999
• Initiated by 50 street families.
• The main objective of the trust is to provide a platform for all poor families to improve their lives through:
• Tailored financing
• Savings products and
• Rehabilitative programmes.

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• Financing of housing development has taken the following forms in Kenya: -

(i) Direct government financing of pool, institutional, mortgage and staff housing: Where national government through Ministry in charge of housing finances, develops and manages institutional rental estates for civil servants mortgage in institutions such as police, army, hospitals, schools/other high income to civil servants – also provision of bridging finance for the construction of mortgage houses for civil servants particularly in the 1970s and early 1980s when loans were provided to civil servants through HFCK, now HFC and other financial institutions such as EABS.

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(ii) Government financial Institutions and state corporations: - This category includes HFCK/HFC, NHC, NSSF, etc. HFC was set up in 1966 as a result of an agreement between the government of Kenya and CDC which provided for a 50% shareholding by both. It was meant to cover long-term housing finance for medium and high-income earners with a repayment period spanning 5 to 20 years. A borrower has to provide a 10% down payment for a new construction and about 15% for existing construction. In addition, one is to provide the necessary security for the mortgage and prove a steady and adequate income to guarantee repayment. NHC was set up to provide housing for the low-income groups and help local authorities develop rental housing.

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(iii) Private Sector Finance:-This includes Private Institutional Housing Finance such as commercial banks, building societies, savings and loans associations, mortgage societies, contractual savings, savings banks, co-operative societies and life insurance companies. Institutions such as Kenya Commercial Bank, National Bank of Kenya, East African Building Society (EABS), Savings and Loans of Kenya, Family Finance, Equity Bank, NSSF, Post Office Savings Bank, CIC, Kenindia, Kenya Re, Old Mutual and Pan African insurance companies fall under this category.

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(iv) Quasi Government Institutions: Corporations such as EBL (KBL), KPL, Postal Corporation save funds and assist in providing housing for their workers/offering loans to workers for owner-occupier housing. In addition, pension funds such as NSSF have constructed houses for tenant purchase.

(v) Non-Institutional Housing Finance: These include Savings and Credit Unions and housing co-operatives. These have provided better alternatives to people who have been left out by mortgage financing system. They operate where there is communal land ownership or absence of title deeds and serve where technical services are required.

(vi) Workers housing: These are employer financed housing for workers. The employer may be a big organisation or a single employer providing servant quarters for domestic workers e.g. EBL, KPL, Postal Corporation. Such houses are confined to employees and remain company property occupied only during such employment. Besides, they sometimes provide loans to employees to get owner-occupied housing.

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(vii). Informal Housing Finance: Are normally based on community activities with various members offering assistance of a particular skill, materials, or direct equity or home banking systems such as merry-go-round. This form of financing could also be called self help and funds are at times not repaid. Security is not required since the community arrangements are of an insurance nature. The self-help assistance received by a member has to be reciprocated when need arises. Very important for the rural households, informal settlement dwellers and low income households. KREP, Faulu Kenya, Kenya Women Finance Trust and Jamii Bora are examples of such finances.

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(viii) International Source of Funds: This falls into three categories namely;-

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• Private Funds such as those from Commonwealth Development Corporation (CDC) which extended long term capital specifically for housing in the 1970s through existing local domestic institutions such as local authorities and HFC. USAID Funds were also directed to Savings and Loans association. Local institutions in turn either constructed houses and sold them under normal commercial terms or provided funds to owners who built for themselves. Other agencies channelling funds for housing development include Federation for Co-operative Housing, International Savings Bank Institute, Church organisations, International Union of Building Societies and Savings Bank Association.

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• Public Bilateral Funds obtained on government to government level and may incorporate technical co-operation all carried out on bilateral basis. Most of the time they include experts, training and equipment (GTZ, KFW, JICA, etc.)

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• Public Multi-Lateral Funding from and through organisations such as World Bank, UNDP, EU, UN-Habitat and Shelter Afrique. The World Bank funded housing projects in the 1970s and 1980s through the 1^st, 2^nd, and 3^rd urban projects. This was through a grant to the government of Kenya channelled to local authorities to promote provision of shelter for low income groups. UNDP has indirectly provided support for housing by aiding provision of shelter through cash and expertise to local building materials industries. Shelter Afrique is a company for habitat and housing in Africa, formed in 1982 with its headquarters in Nairobi. Kenyans shareholding in Shelter Afrique is enormous but apart from the KMA housing project in Lang’ata, and Balozi estate, the country has not benefited in any way. Which were approved employment and trade.

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Conclusion and Recommendations

• Work with other partners, promote new financing products (including those that lend to progressive housing and seek alternative forms of collateral) and institutions

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• Establish a housing levy similar to the National Social Security Fund (NSSF) to enable the construction of low-income housing intermediate between the financial sector and the housing market

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• Property investments require in-depth market analysis and intelligence

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• In addition with the company’s knowledge it is always important to seek professional opinion and advice before committing resources.