Speculation in land hurting affordable housing scheme

Completed affordable housing project in Ngara, Nairobi on September 18, 2020. PHOTO | JEFF ANGOTE | NMG

By EDWARD KARIUKI
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Summary

• One of the quickest ways to riches in Kenya is to buy a piece of land, leave it idle and then cash in when the price goes up.
• Individuals and groups resort to speculating in idle pieces as a real estate investment strategy.
• While there is nothing inherently wrong or illegal in speculating in land and other assets, the widespread practice of sub-dividing land into small plots is largely to blame for sky-rocketing prices in Nairobi and other urban areas.

Affordable housing in Kenya will remain a pipe dream if the problem of land speculation and hoarding is not urgently addressed. Inaccess to large pieces, serviced and affordable parcels is discouraging private developers from investing in affordable housing projects.

One of the quickest ways to riches in Kenya is to buy a piece of land, leave it idle and then cash in when the price goes up. Individuals and groups resort to speculating in idle pieces as a real estate investment strategy.

While there is nothing inherently wrong or illegal in speculating in land and other assets, the widespread practice of sub-dividing land into small plots is largely to blame for sky-rocketing prices in Nairobi and other urban areas.

Speculation, which is basically taking an above-average risk in anticipation of high profits within a short time, is undermining affordable housing by pushing up the cost of land thus making it almost impossible for the majority of Kenyans to put up a decent houses of their own.

Given rapid urbanisation and population expansion, many Kenyans in low and middle income segments are being pushed into slums and other informal settlements.

Affordable housing refers to developments targeting low and middle income segments. What is the price of an affordable house?

A good yardstick is the government’s Affordable Housing Programme seeking to build houses priced at between Sh600,000 and Sh3 million.

However, the price of land remains a major stumbling block.

Even worse, substantial sizes of land that would be ideal for large affordable housing projects have been parceled out by speculators who have no intention of building houses for sale or rental.

Most of the land in key urban areas such as Nairobi has been divided into 50 by 100 feet plots, not sufficient for large scale housing projects. The prices have also skyrocketed.

For instance, a 50 by 100 feet piece of land in Juja previously going for Sh1 million in 2012 is now priced at Sh8.5 million, a more than 750 percent increase.

In Ruaka, an acre cost about Sh40 million in 2016 but now attracts Sh100 million.

The trend is similar in other parts of Nairobi and its environs thus explaining the escalating cost of home ownership.

Besides being extensively sub-divided, most of the land that would be ideal for affordable housing projects is unserviced. Without basic support infrastructure such as roads, water, electricity and sewer lines, developers have to fork out a lot of money to provide such services. Not to mention delays in approvals and granting of permits.

The government should consider incentives to encourage private sector investment in affordable housing, and discourage speculation and hoarding of land.

First, government should encourage banking of large chunks of land for housing projects.

In 2018, there was an attempt to create the country’s first ever land bank targeting local and international investors in real estate sector.

However, this process appears to have stalled.

Second, authorities should speed up approval processes for public-private partnerships (PPPs) to attract serious investors with capacity to put up large affordable housing projects.

Third, the government should consider taxing capital gains on sale of land held for speculation in order to discourage hoarding.

Also, government needs to provide tax exemptions on essential construction materials, and eliminate levies that increase the cost of construction.

This will help offset the negative impact of inflation and rising cost of land.

Fact is, private developers have innovated ways of delivering more affordable houses but the exorbitant cost of land and other barriers such as low access to mortgages, as well as high financing and construction costs, continue to impede such projects.

There is, therefore, need to urgently address the most critical factor in housing which is land.

Otherwise, affordable housing will remain a mirage, with majority of Kenyans denied the opportunity to proudly own a decent home.

Kariuki is an architect and director at Delta Homes Limited. architectkariuki@gmail.com