This post was written by Amos Njuguna, a former EASST fellow and Assistant Professor of Finance and United States International University (USIU) Kenya. He reflects on the findings of his recent publication, "Economic Factors Influence on Funding the Supply-Side of Housing in Kenya: Case Study Nairobi", published in the International Journal of Business and Management, and available here.
The U.N.’s Department of Economic and Social Affairs estimates that by 2050, 70% of the world’s population will be living in urban areas. As a result of this increased urbanization, countries around the world are compelled to prioritize housing.
McKinsey Global Institute’s (MGI) estimates that 1.6 billion people globally (about a third of the urban population) are living in second-rate housing or are foregoing essentials in order to pay for their home within 10 years. MGI suggests that $16 trillion will be required by 2025 to tackle the housing problem. In Kenya, the annual deficit of housing units in the urban areas amount to 150,000. The Central Bank of Kenya further shows that by the close of 2015, the country had only about 20,000 mortgage accounts.
The availability of formal funding from financial institutions for housing is difficult, as it is estimated that half of the adult population worldwide does not have an account at a formal financial institution, and 75% of poor people are “unbanked.” This unbanked population relies on their savings to finance their housing projects and when savings are nonexistent, they are forced to turn to informal sources.
Henceforth, policy makers must focus on innovation and creative ways to enhance supply of decent housing. In this vein, we undertook a study to establish the effect that economic factors have on funding the supply side of housing in Kenya.
Our study sought to unveil the influence that economic factors have on supplying housing development in Kenya. Our findings indicate a negative relationship between economic factors and funding of housing development; also establishing a positive moderating effect of stakeholders on the relationship between economic factors and funding of housing development. The implication being, government and policy makers should ensure that interest rates and inflation rates are kept at a level that will encourage investments in housing, with the government acting as an enabler of these developments.
To read the full study, go here.