Category Archives: Economics

Reflections, my thoughts

SUCCESS OR FAILURE ON AFFORDABLE HOUSING- KENYA BIG FOUR DEVELOPMENT AGENDA

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.

Strategy

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.

Status Quo

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.

What then?

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.

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Ending Global Poverty; The Economic freedoms of the other half

As a new day dawn in Africa, Latin America and some parts of Asia, people throughout these continents wake up under very different circumstances. Some live in more comfortable homes with more than enough food to eat, at least a car to drive to work and drop kids to schools, imported entertainment gadgets and will in most cases have a higher degree of financial freedom. The other half, which constitutes the majority of the world’s 7.5 billion people, are by far less fortunate. Some live on an average of less than $1 per day with little, or just the required minimum, food for survival to feed on.

In Africa for instance, about 15 million people die every year because of preventable diseases such as malaria, typhoid, malnutrition, etc. Others will die simply because less than a half dollar worth inoculations are too expensive for them.

Majority of the poor from these three continents live in poorly constructed houses with each house being shared by extended family with an average of eight to ten members with every adults required to work for long hours to place food on the table. This might not always be possible.

A good number of children from these regions will not attend school. They will be forced into hard labour to help their parents in acquiring basic necessities. If they do, they do it irregularly and will hardly find any teacher in class. These schools will in most cases lack the basic necessities such as desks and books.

This half will not enjoy economic freedoms which include the ability to make informed choices, ability to appear in public without shame, freedom from servitude, access to quality basic education, access to reliable health clinics, be informed and be able to participate in dialogues and so on…….. They may not have a say or may not even know what they really want.

ARE WE DOING IT RIGHT?

In 1930, John Maynard Keynes, a world known economist wrote a book titled The Economic Possibilities for our Grandchildren which was looking into the future of the world economic stability. Keynes suggested that the future of his grandchildren would only be made possible through investment in technology. He was more concerned that throughout history there was no really great change in the standards of living of the average man living in the civilized centre of the earth. Ups and downs, visitation of plagues, famine and war, golden intervals , but no progressive violent change.

It’s eighty seven years down the line and we are left with no option but to question our whole commitment and preparedness to ending global poverty in a world of plenty, we cannot afford not to do it.

We have either chosen to ignore it, run away from it and pretended that all is well when we well know that it isn’t, or we have altogether chosen to move forward and forget about the other half. What we have forgotten is that the destinies of the haves are intrisically linked to the fate of the haves-nothing-at-all.

Every financial year, huge budgets are set aside to fight terrorism and finance our military. Well, while I am not here to suggest otherwise, we should keep in mind that some of the world’s terrorism activities are contributed by the very same condition we are running from, absolute poverty. Aren’t most terrorism attacks done by individuals who have found succor and sanctuary in the most neglected parts of the world? There is rigor to the logic!

POSSIBILITIES FOR OUR TIME

While this column will not suggest what we should do because we all know it, we will continue looking at economic freedoms that the other half does not enjoy and give possible suggestion of what might happen, or has happened.

In so doing, we must think about the future of the other half and ending absolute poverty as our priority. We must think about improving the economic freedoms that majority of the world’s poor lack. We must think about thousands dying daily because they were too poor to survive. We must also think where we are going in a world of abundance and where technology determines who your neighbour is.

Remember as noted earlier in this column, the future of this world will not be solved in boardrooms where delegates coin acronyms with huge paper works towering on the desks. It is smart just to do it now.

 

…….to be continued.