Is there enough land to build affordable housing units?

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

04 June 2023

The debate about the National Housing Fund just won’t go away. Last week I illustrated that the fund will not have money to refund to contributors who miss out on the houses. My calculations elicited more questions from readers. Many protested that my assumptions were unrealistic, but when I asked them to show me their projections with realistic assumptions, nobody did.

In a thread of tweets, David Ndii, the Chairperson of the President's Council of Economic Advisors, indicated that the affordable housing concept targets at bringing the cost of housing to under 25 per cent of an individual’s monthly income. Thus, with the median salary of Sh50,000 per month, it should be no more than Sh12,500.

With the government’s plan of offering mortgage at 5 per cent for 30 years, it turns out that a person earning the median salary (Sh50,000 per month) qualifies for a house worth about Sh2.3 million. Now, Principal Secretary Charles Hinga has stated that the houses under this project are priced at about 60 per cent discounted rate. Therefore, the Sh2.3 million affordable housing unit has an open market value of about Sh5.75 million. That’s a pretty good house; if you can get it!

Unfortunately, the cash-flow problem illustrated last week will still be with us at the end of seven years. Apart from capital injection from government, the only way that the affordable housing project can get enough money to refund to all those missing houses after seven years is to build a lot more units. How many more?

Last week we saw that, at Sh 9 billion monthly, the total contribution in the 7-year period comes to Sh756 billion. Assuming all this money builds houses and they are all bought, and total amount raised from monthly installments will be Sh110 billion.

This Sh110 billion is the only money available for refunds. It represents about 15 percent of total contributions. Therefore, the government needs to build enough houses for about 85 per cent of the contributors within the seven years.

There are about 3.5 million formally employed people in Kenya; 85 per cent of this is 2.975 million. So, 2.975 million houses will be needed by the end of 7 years. That is about 35,400 units every month!

If we factor-in the l8-month lead time for construction, it turns out the project will need to build about 45,000 houses each month. Is government ready for this? Is there enough land, for example?