Hard part of the affordable housing targets in Kenya

Affordable homes under construction in Nairobi on January 21. PHOTO | JEFF ANGOTE | NMG

By IAN HENDERSON More by this Author

First things first — what is affordable housing? May we agree that affordable housing is at a

price point of up to Sh3 million for a house that is suitable for a family of two adults and two children.

The house will have two bedrooms and a living, dining, and kitchen area, one bathroom and the total floor area will be at least 65 square metres.

With a selling price of Sh3.0 million, the developer will aim for a minimum net profit of at least 15 percent on each sale, meaning that the total cost of each house including land, professional fees and infrastructure should be within a budget of Sh2.6 million.

If one is to be financed, they will have to pay 10 percent deposit and be financed the balance. Assuming a loan of Sh2.7 million at 13 percent per annum for more than 20 years and monthly mortgage payments of Sh31,000, there is no question about the depth of the market and the huge demand for a quality house that satisfies the above parameters.

There are many questions that must be addressed while considering an affordable housing project and the right answer must be found because with low profit margins, it may only take one cost to go over budget to take the project into the red.

It is this fear that has seen private sector developers shy away from venturing into the space.

First, the project must be large scale with at least several hundred units, to allow for economies of scale. An often-overlooked factor is that the development site must be reasonably close to the workplace of the occupiers to save on travel costs.

If the cost of travel to work is high then a higher proportion of the family income must be spent on travel and the project will not deliver as it is intended.

The Government of Kenya (GoK) has recently introduced some tax breaks for developers and it should go further and take the necessary steps to reduce the time and costs that developers face while getting the required permits and approvals in place.

The master planning of any project is important to long-term success and the emphasis should be on fit for the target market, the provision of suitable amenities, and the building of communities.

Lessons can be learned from past mistakes made in European countries where architects and town planners tended towards idealistic rather than practical design solutions.

Professional fees for environmental impact, survey, master-planning, house design and engineering often account for up to 14 percent of project costs and this percentage must be drastically reduced for affordable housing projects.

Low-cost housing

The economies of scale and repetition of the product help when negotiating fees with service providers and total fees should account for less than two percent of construction costs.

Governments can play a vital role in stimulating this market sector by reducing fees and by oiling the wheels of bureaucracy and by ensuring that the public sector utility providers do the same for low-cost housing projects.