President Uhuru Kenyatta during the launch of the affordable housing programme. (Credits: Standard Media)
There is no doubt that the President means very well with this affordable housing initiative and it should be done, however how it’s being structured and executed leaves many key questions unanswered, and leaves doubt as to its sustainability.
The key issues being raised by the public seems to be around public participation and operating the fund, but for me, the key issue is that the math does not seem to add up. If the math does not add up, it shall be a very short-lived legacy.
1. On pg. 9 of the presentation below, the cost of construction is Kshs. 31,328 per square meter. On pg. 12, a One bed will be 30 SQM and will be sold for Kshs. 1M. Now, 31,328 times 30, is Kshs. 940, 000 for construction costs alone. Before the cost of funds, assume even 10%, and consultants costs - architect, QS, C&S, etc... Let’s assume even 8% in total, that brings the basic cost to Kshs. 1.1M (940, 000 * 1.18), without even a profit margin. So who is this developer who will be producing houses for Kshs. 1.1M and selling for Kshs. 1M? And I have not even included the cost of land, which I have assumed will be free.
Affordable housing is at the centre of the presient’s Big 4 Agenda. (Credits: Standard Media)
2. As per the framework on page 29, the fund will get funds from banks and the housing tax and lend at 7% to homebuyers. The housing tax is just a tax so no issues there as the money will come. But for the banks part, the fund will borrow at what rate to be able to lend at 7%? It would be good to know what is the assumed rate of borrowing from banks to lend at 7%. Better still, the fund should at least bring just one bank onboard to demonstrate the viability of the model.
3. Kenyans will be taxed to build the fund, which will lend at 7%. What is not clear is what will it cost to run/administrate the fund itself? If the fund is collecting 7% per annum from borrowers before costs, if the running costs exceed 7%, there is a very real possibility that contributors may end up with less than the amount they contributed after their 15 year contribution period, not to mention inflation which may wipe out the 7% fund earnings, even before any costs. It would be good to limit how much of the fund can be spent on expenses so that returns to contributing members is known just like cost to borrowers is known.
A housing project targeting low income earners. (Credits: Standard Media)
4. Fund governance is a well-established framework in Kenya, why not bring in the typical checks and balances? A board or a trustee, a custodian, administrator, etc? It would enhance public confidence and bring transparency to the whole initiative.
The idea is great, the framework has a lot of progress made, but key fundamental gaps threaten its viability and sustainability.
Download the Affordable Housing Program Delivery Framework here
