Affordable housing lessons for Kenya from Colombia

In July, President Uhuru Kenyatta announced that he would be launching flagship projects for his Big Four development agenda. Affordable housing is among them.

The Government has allocated more than Sh400 billion for the Big Four agenda, with Sh6.5 billion allocated for ‘affordable and decent’ housing. Seven key housing projects are due to be launched in Nairobi alone according to recent reports.

After living and working in Colombia for four years, it occurs to me that there is an interesting country comparison.

Both Colombia and Kenya have populations of approximately 48 million.

However, Colombia has far healthier economic fundamentals; 2018 GDP per capita of $6,625 against $3,657 for Kenya. The minimum wage for 2018, which plays a key factor in providing affordable financing is also higher; Colombia $265 versus $150 for Kenya.

In 2014, Colombian President Juan Manuel Santos launched a new social housing programme, Mi Casa Ya (My House Now) to have 450,000 new houses constructed between 2015 and 2018. The framework consisted of interest subsidies on homeowner mortgages and lower down payments.

In 2016, a total of 178,300 homes were sold across the country; 25 percent or $2.4 billion in value were through the sales of social housing units.

In terms of housing units, social housing accounts for 40 percent of the residential market, with about 90,000 units built per year.

Could the Colombian case be used as a blueprint for Kenya?

Under Mi Casa Ya, the government has subsidised two initiatives, a five percent mortgage interest subsidy with local banks where the government funds the shortfall, unit prices fixed at 70 times the minimum salary (70 x $265) totaling $18,550. Buyers typically pay one percent deposit, nine percent across construction period, 90 percent balance paid by lender on unit handover.

For the second programme, a four percent mortgage interest subsidy was levied with unit prices fixed at 135 times the monthly salary (135 x $265) totaling $35,775. Buyers typically pay five percent deposit, 25 percent across construction period with the 70percent balance paid by lender on unit handover.

The Colombian Government has been heavily reliant on the banks to provide the mortgage facility to target buyers and the private construction sector to develop product en masse. The latter were incentivised by tax concessions. This framework has also allowed private land to be openly transacted without the need for any government intervention or reliance on using government landholdings.

Creating a level playing field where the private sector is able to successfully operate with transparency and efficiency, has been an important factor in proactively reducing the housing shortage.

Although countries like Colombia, Brazil and Mexico are economically more advanced than Kenya, they have all implemented successful social housing programmes. Some of the key hurdles are similar to Kenya’s: off-take, pricing, private sector role, construction resources, and long-term government investment and transparency.

The writer is real estate expert and the CEO of Mi Vida homes.