Developers in Kenya's housing sector have identified costly bank finance as a significant obstacle to the construction of residential houses, contributing to the country's rental housing squeeze. According to industry players, tough borrowing conditions have slowed down the construction of residential houses, keeping rents high in Kenya. This challenge is particularly significant as demand for rental housing continues to outpace supply in Nairobi and other urban centers.
The Ministry of Housing and developers are now urging banks and other lenders to develop financing products that match the long repayment periods required for rental housing projects. This, they argue, will enable investors to recover their money gradually through monthly rental income. International Housing Solutions Kenya managing director Kioi Wambaa emphasized that rental housing requires "patient capital" that is affordable and available over a longer period.
Unlike houses built for sale, rental projects require investors to commit capital for years before recovering their investment through monthly rental income. Wambaa noted that for one to buy land, build, and then rent over time to get returns, they need a longer period of time. He stressed that the rental model basically needs patient capital, which is not expensive.
Housing Principal Secretary Charles Hinga stated that housing delivery requires the right combination of land, finance, affordability, and appropriate loan tenors. In a speech delivered by an official in the ministry, Don Kagisha, Hinga said Kenya needs long-term capital suited to the risks and timelines of housing development. He emphasized that the test is whether households can occupy the homes intended for them.
The government estimates that Kenya has a housing deficit of about two million units, with the gap growing by roughly 250,000 units annually. Developers cited estimates showing that only about 50,000 units are supplied each year against annual demand of 250,000 units. This persistent supply shortfall leaves households competing for the available established housing stock, contributing to higher rental costs in areas where demand is strongest.
The financing challenge is more pronounced on the rental side because projects cannot rely on customer deposits to the same extent as developments targeting home ownership. Developers argue that for houses for sale, there are various financing models that can be used, including bank financing, equity, or customer deposits. However, on the rental side, patient capital is required.
The Sh1.8 billion Muzi Enzi rental housing project at Tatu City was recently launched, with developers hoping to address the housing shortage. The project is expected to provide affordable housing options to Kenyans. Key stakeholders are calling for a collaborative approach to address the housing deficit and make housing more affordable for Kenyans.
Key points
- Developers cite costly bank finance as a major cause of Kenya's rental housing shortage.
- The government estimates that Kenya has a housing deficit of about two million units.
- Developers are calling for more affordable, long-term financing options to address the housing shortage.
