One of the inequality-related challenges that the government is currently facing is figuring out the crisis of affordable housing to its citizens. But this is not the bone of the matter. It is avoiding a housing bust in real estate. The housing bubble in real estate will occur through a run-up in the prices associated with housing that are currently fueled by demand, speculation and exuberance. The increase in demand was occasioned by face of limited supply that has currently taken relatively longer period to equilibrate. Speculators are spilling into the real estate market further driving up the demand. We are almost at a point of inflection and still there is increase in supply. This will result to sudden drop in prices (the bubble bursts) resulting to micro-economic and macro-economic effects with disastrous implications. While macro-story will be an all-round effect looking like a ‘shared value’ throughout the nation and beyond, the micro-story will not be easier to tell.
Currently, the government will in the next medium term focus on addressing the challenges Kenyans are facing through investments that enhance the attainment of desired development objectives. One of the key pillar in realizing this is investment in affordable housing as envisioned that, “every Kenyan a property owner” and that by the end of the medium term, half a million more Kenyans will own homes. For the same amount of money you pay today as rent, you will be able to own your home, and it will be a decent house, built to modern standards as per the government target. This would be achieved by reducing the cost on mortgages and construction materials. Quit ambitious- I will tell you why.
The status quo is that the ordinary Kenyans are moving way out into the suburbs and this has an economic implication in that it increases transportation cost including time and other environmental hazards such as pollution. This is happening simply because the real estate market including housing is unaffordable given the ordinary Kenyan budget constraint. What the government is trying to do is a brilliant idea of creating communities with diversity, income diversity and other forms. However, this cannot exist in an economy that is pricing ordinary people out of the very cities they spend more than proportionate time working.
The situation will not be reversed by 500,000 units of affordable housing either. First, the government has weakly(failed) addressed the challenge of the oligarchs who are buying multi-billion worth houses including land and other building, a situation that has and will consistently drive up rents therefore making living within the city unaffordable-maybe the end will be a housing bust. I further speculate that the first Kenyans who will own up the ‘affordable houses’ will be a certain club. Second, though the government indicated an intervention of reducing the cost on mortgages, what will become of the expansive infrastructural development in real estate made through the financial wherewithal of spending more than the income necessitated by mortgages? The current Kenya’s household savings rate of either negative or zero thereabout and the speculated talks about interest rates caps will depress housing price and the game will be over. Third, the Kenya Public Private Partnership structure remains weak and running the strengthening of the PPP and development concurrently may not yield much fruits.
The affordable housing move would have started with encouraging more integrated and economically integrated cities/towns through such interventions as, one, capital gain taxes on higher priced real estates and second, policies or say taxes that target uninhabited/unoccupied homes/houses to help ease the levels of inequality and boost the economy.