Affordable housing
Affordable housing
Business Model Description
Construct affordable housing for low and middle income households in urban and suburban areas.
Expected Impact
Provide safe and suitable housing to low and middle income households.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Kenya: Nairobi (Province)
- Kenya: Coast
- Kenya: Nyanza
Sector Classification
Infrastructure
Development need
Kenya’s progress towards SDG 6 - Clean Water and Sanitation, SDG 7 - Affordable and Clean Energy and SDG 11- Sustainable Cities and Communities demonstrate major problems. The most important issues lie in access to clean water and sanitation, reliable energy transmission and last mile energy connections.(1)
Policy priority
Infrastructure is a main policy pillar for Kenya. Key policy documents/ initiatives such as the Third Medium Term Plan and Kenya Vision 2030 set the goal of providing an equitable access to utilities such as clean water and sanitation. The government also has plans to undertake affordable housing projects in partnership with the private sector.(2)
Gender inequalities and marginalization issues
Almost 46.5% of the Kenyan population lives in slums.(22) Informal settlement dwellers often have to pay high rates for low quality services. Informal settlements tend to lack basic amenities such as sewage disposal, water/sanitation and electricity.(23) Although the necessary laws were established, land ownership in Kenya is also disproportionately geared towards men.
Investment opportunities introduction
Kenya provides several incentives for infrastructure sector investors such as tax reduction rates, regional investment allowances, and wear and tear allowances on machinery for investors. There are also opportunities for public-private partnerships (PPPs) in this area. This is a policy priority for the country, and therefore high investment momentum is expected.
Key bottlenecks introduction
Some infrastructure sector bottlenecks include inequalities in the regional penetration of essential sanitation services/ facilities and housing, affordability issues for the local population, the high costs of inputs/machinery/technology for investments, high logistics costs and low levels of financial inclusion preventing the purchase of houses.
Real Estate
Development need
In 2019, Kenya's population growth rate was 2.3% overall and 4% in the cities, creating an urgent demand for affordable houses.(3) SDG 1- No Poverty and SDG 11 - Sustainable Cities and Communities targets demonstrate major challenges in Kenya. Overall, the population has low financial inclusivity, especially in the mortgage market. Therefore, home ownership rates are at 30%, and housing is largely informal.(4)
Policy priority
Kenya's Constitution recognizes access to housing as a priority in the country, and the development and expansion of affordable housing is one of the four priorities of the 'Big Four Agenda' of Kenya Vision 2030. This means it has one of the highest priorities and support from government entities and national strategic plans.
Gender inequalities and marginalization issues
While 32% of Kenyan households are headed by women, only 1% of land titles in are held by women alone. 5% of land title deeds are held by women jointly with men. Although the necessary laws have been established, women are still disadvantaged in practical terms.(21)
Investment opportunities introduction
The government is committed to provide approximately 400,000 affordable housing units in partnership with the private sector, international financial institutions and donors.(2) A National Housing Fund will be established to prepare financing. The mortgage sector will be developed to this effect.
Key bottlenecks introduction
The high costs of inputs, which are often imported, increase the cost of investments in this subsector.
Real Estate
Pipeline Opportunity
Affordable housing
Construct affordable housing for low and middle income households in urban and suburban areas.
Business Case
Market Size and Environment
> USD 1 billion
"Percentage of the population in slums (46.5%) (7). Annual need of 240,000 new houses (9)"
In 2018, 46.5% of the urban population in Kenya lived in informal settlements due to the lack of affordable housing options.(7)
In 2016, house production value added equalled USD 1.19 billion and related services contributed another UDS 1.53 billion. While it accounted for around just 6% of total gross domestic product (GDP), the government actions and the promotion of new projects may increase it to more than 14%.(8)
The government estimated an annual need of 240,000 new houses. Low production creates a shortfall of 132,000 houses every year.(9)
Indicative Return
15% - 20%
The dominant house investment models in Kenya, medium and high density models of projects, report an internal rate of return (IRR) of 16% - 17%. (10)
However, the rate of return depends on the project. Some benchmark examples from Africa report an IRR of 23% - 26%. (8) (11) International Housing Solutions, a private equity investor in Africa, achieved an IRR of 25.2% by constructing affordable housing projects in the region.(12)
Investment Timeframe
Short Term (0–5 years)
The timeframe depends on the size of the project and the business model. According to a case study from Kenya, the developer of affordable housing is paid 2 years after delivering the project. In this example, the estimated time of construction for 150 flats was 18 months, which means the total investment timeframe can be considered short term.(11)
Ticket Size
USD 500,000 - USD 1 million
Market Risks & Scale Obstacles
Capital - CapEx Intensive
Capital - Requires Subsidy
Business - Supply Chain Constraints
Impact Case
Sustainable Development Need
In 2019, Kenya's population growth rate was 2.3% overall and 4% in the cities.(7) This creates a high pressure to construct new and affordable housing.
Around 95% of the formally employed population belong to a 'mortgage gap', meaning they are creditworthy but cannot access mortgages. In 2018, there were only 24,000 mortgages valued at around USD 2 billion, which does not cover demand. (8)
In cities, around only 30% of households own their place of accommodation while the rest are forced to rent. These numbers vary from e.g. 40% in Kitui to 10% in Nairobi. Also, most renting is done informally.(8)
Gender & Marginalisation
Although 33% of female-led households and 66% of joint decision making households (man and women together as a family head) plan to purchase a house in the next 5 years, access to affordable housing and mortgage is limited particularly for women. This may explain the percentage difference.(13)
Expected Development Outcome
Decreased overall prices of housing, reduced slum sizes
Decreased inequalities in accessing housing for low and middle income families, reduced poverty
Reduced communicable and non-communicable diseases connected with living in informal settlements, improved quality of life
Gender & Marginalisation
Increased access to land ownership for women
Primary SDGs addressed
1.2.1 Proportion of population living below the national poverty line, by sex and age
1.4.1 Proportion of population living in households with access to basic services
36.1% (Share of the population living in extreme poverty-national poverty line) (24)
Based on 2015 data: 63.20% - improved water source 41.60% - electricity 30.10% - improved sanitation services 12.76% - clean cooking fuels and technologies (24)
N/A
100%
11.3.1 Ratio of land consumption rate to population growth rate
N/A
N/A
Secondary SDGs addressed
Directly impacted stakeholders
People
Planet
Indirectly impacted stakeholders
People
Outcome Risks
House construction causes soil sealing, which contributes to possible land degradation and changes in groundwater, as well as changing the landscape (14)
Mortgages can create a long term financial burden for households
Gender inequality and/or marginalization risk: informal settlement dwellers are often low income groups. Constructing new houses can affect the value of already existing buildings in the surrounding areas.(7)
Impact Risks
Gender/marginalization: Unexpected impact risk - The geographic concentration of low income housing might contribute to gentrification and increase suburban poverty; that is, produce spillover effects.
Impact Classification
What
Providing affordable housing can improve the health and wellbeing of the citizens by providing stability and freeing up resources for food, healthcare and other services.
Risk
There is a risk that limited availability of construction materials and mortgage loans as well as the fear of indebtedness may negatively affect the scale of the projects.
Impact Thesis
Provide safe and suitable housing to low and middle income households.
Enabling Environment
Policy Environment
Kenya's Constitution recognizes housing as a priority. Developing and expanding affordable housing is one of the 'Big Four' Agenda priorities in the Medium Term Plan of 2018-2022.
Medium Term Plan of 2018-2022: Under this plan, the government committed to provide 500,000 affordable houses across the country. 400,000 of these are to be delivered through strategic cooperation with the private sector, international financial institutions and donors.(9)
Medium Term Plan of 2018-2022: To facilitate the plan, the government will establish the National Housing Development Fund and prepare other specific financing strategies.(9)
The government will set up the Kenya Mortgage Refinance Company, which will provide long term funding or extension of home loans.(8)
The government will also boost research and technology transfer on building materials, buildings safety inspections, urban planning, housing databases, and constructing housing-related infrastructure like roads, foot paths and sewage systems. (9)
Financial Environment
Fiscal incentives: Investors who provide at least 100 low cost housing units annually are granted a reduced tax rate of 15%.(3) Construction inputs for affordable housing projects are exempt from value added tax (VAT).(17)
Fiscal incentives: A deduction is granted on the cost of buildings and machinery in: Nairobi, Mombasa and Kisumu – with a 100% investment allowance. Investments of at least USD 2 million outside of these areas receive a 150% investment allowance. Newly listed companies receive preferential corporate tax rates.(18)
Other incentives: First-time home buyers do not have to pay a stamp duty of 2% - 4% of the total house cost. This reduces the total house cost and increases demand.(19)
Regulatory Environment
Sectional Properties Act: The government wants to digitize land registration, improve sectional titling by introducing the Sectional Properties Act. It also wants to enable strategic land acquisitions as well as prohibit land speculations by introducing the Idle Land Tax and Potential Land Tax.(8)
Finance Act 2018: Introducing the Finance Act 2018 and the National Housing Development Fund created an obligation for employees and employers to contribute 1.5% (3% in total) of their salary to an individual account named the Housing Fund Credit.(15)
Land Act 2012 and Land Registration Act 2012: These Acts regulate the purchase and registration of land, while the National Land Commission is responsible for allocating public land and developing a land information system.(15)
Constitution 2010: The Constitution changed the land lease duration from 999 to 99 years. This change allows the government to check if the land was used productively after this period and confiscate it if it is not.(16)
Marketplace Participants
Private Sector
Firm Factory Africa, Mineco Group, Kwangu, Koto Housing Kenya, Boma Yangu
Government
Ministry of Housing, Ministry of Transport, Infrastructure, Housing and Urban Development, National Housing Development Fund, National Housing Corporation
Multilaterals
Kenya Mortgage Refinance Company, World Bank, UK Climate Investments, Acumen
Non-Profit
Kenya Union of Savings and Credit Cooperatives, Centre for Affordable Housing in Africa
Target Locations
Kenya: Nairobi (Province)
Kenya: Coast
Kenya: Nyanza
References
- (1) Sachs, J., Schmidt-Traub, G., Kroll, C., Lafortune, G., Fuller, G., Woelm, F. (2020). The Sustainable Development Goals and COVID-19. Sustainable Development Report 2020. Cambridge: Cambridge University Press.
- (2) Republic of Kenya (2018). Third Medium Term Plan 2018 – 2022 Transforming Lives: Advancing Socio-economic Development Through The 'Big Four'.
- (3) World Bank database. https://data.worldbank.org/
- (4) World Bank (2019). Country Private Sector Diagnostic - Creating Markets In Kenya: Unleashing Private Sector Dynamism to Achieve Full Potential.
- (5) Word Bank (2018). Kenya: Using Private Financing to Improve Water Services.
- (6) Office of the United Nations High Commissioner for Human Rights (2020). Right to Water in Kenya: Assessment of Access to Water in Informal Settlements. https://www.ohchr.org/Documents/Countries/KE/Assessment_right_water_Kenya2020.pdf
- (7) Hitzhusen, F. (2011). An Economic Analysis of Poorly Sited Septic Systems. Conference Paper. Water Resources Management. https://www.researchgate.net/publication/271435555_An_economic_analysis_of_poorly_sited_septic_systems
- (8) Howard, G., Calow, R. and MacDonald, A. (2016). 'Climate Change and Water and Sanitation: Likely Impacts and Emerging Trends for Action', Annual Review of Environment and Resources. https://www.annualreviews.org/doi/full/10.1146/annurev-environ-110615-085856
- (9) Graham, J. and Polizzotto, M. (2013). 'Pit Latrines and Their Impacts on Groundwater Quality: a Systematic Review', Environmental Health Perspectives. https://ehp.niehs.nih.gov/doi/pdf/10.1289/ehp.1206028
- (10) Van Minh, H. and Nguyen-Viet, H. (2011). 'Economic Aspects of Sanitation in Developing Countries', Environmental Health Insights. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3212862/
- (11) Denmark in Kenya. Ensuring equal access to health services. https://kenya.um.dk/en/danida-en/gender/ensuring-equal-access-to-health-services/
- (12) World Life Expectancy. Kenya: Diarrhoeal diseases. https://www.worldlifeexpectancy.com/kenya-diarrhoeal-diseases
- (13) Fraym (2019). Women's access to health facilities in Kenya. https://fraym.io/womens-access-to-health-facilities-in-kenya/
- (14) Government of Kenya. Kenya Environmental Sanitation and Hygiene Policy 2016 – 2030. https://www.wsp.org/sites/wsp/files/publications/Kenya%20Environmental%20Sanitation%20and%20Hygiene%20Policy.pdf
- (15) Nakweya, G. (2019). Fix Africa’s Sanitation Challenges To Prevent Diseases. SciDev.Net Sub-Saharan Africa.
- (16) National Treasury and Planning (2016). Kenya Vision 2030. https://kfcb.co.ke/wp-content/uploads/2016/08/vision_2030.pdf
- (17) water.org. Kenya's water and sanitation crisis. https://water.org/our-impact/where-we-work/kenya/
- (18) United Nations International Children's Emergency Fund. Water, Sanitation and Hygiene. https://www.unicef.org/kenya/water-sanitation-and-hygiene
- (19) National Treasury and Planning. Kenya Vision 2030. https://kfcb.co.ke/wp-content/uploads/2016/08/vision_2030.pdf
- (20) Wanjiku Ndungu, P. Why Kenya’s sanitation challenge requires urgent attention. https://blogs.worldbank.org/africacan/why-kenyas-sanitation-challenge-requires-urgent-attention
- (21) Federation of Women Lawyers Kenya. Women’s Land and Property Rights in Kenya. https://land.igad.int/index.php/documents-1/countries/kenya/gender-3/625-women-s-land-and-property-rights-in-kenya/file
- (22) World Bank (2020). Population living in slums (% of urban population) - Kenya. https://data.worldbank.org/indicator/EN.POP.SLUM.UR.ZS?locations=KE
- (23) The Conversation (2018). Nairobi's slum residents pay a high price for low quality services. https://theconversation.com/nairobis-slum-residents-pay-a-high-price-for-low-quality-services-104063
- (24) SDG Tracker (2021). End poverty in all its forms everywhere. https://sdg-tracker.org/no-poverty
- (25) Boma Yangu (2021). Pangani Affordable Housing Project, https://bomayangu.go.ke/#:~:text=The%20Pangani%20Affordable%20Housing%20Project,homes%20for%20residents%20of%20Nairobi.