Soaring Construction Costs Render Affordable Homes Unattainable
The cost of home loans within the State-backed affordable housing initiative has surged by approximately one-third this year, nearly reaching an additional Sh1 million. This significant increase is attributed to the escalating cost of construction materials.
Soaring Construction Costs Render Affordable Homes Unattainable
The cost of home loans within the State-backed affordable housing initiative has surged by approximately one-third this year, nearly reaching an additional Sh1 million. This significant increase is attributed to the escalating cost of construction materials.
Data analysis reveals a 32.65 percent rise in the average mortgage size over the 12 months through September, reaching Sh3.96 million, compared to Sh2.98 million in the preceding year and Sh2.36 million in 2021. The Kenya Mortgage Refinance Company (KMRC) reported this Sh0.97 million increment in a period marked by high inflation and a depreciating shilling, both contributing to the elevated cost of building materials.Key construction components like steel, paint, and cement have experienced price hikes, coinciding with a 25.7 percent depreciation of the shilling against the US dollar from January to December 22.
The Architectural Association of Kenya’s latest report indicates that the cost of building per square meter has risen from Sh34,650 to Sh77,500 at the beginning of the year to Sh41,600 to Sh100,800 by year-end, reflecting a growth rate of 20 to 30 percent.
The escalating costs, driven by factors such as currency devaluation and increased import expenses, have significantly impacted project budgets and timelines, according to AAK.
High construction costs have been a major obstacle to the realization of affordable housing units, and they were a significant factor in the failure of the government’s plan to construct 500,000 units in five years by 2022.
Despite these challenges, Housing and Urban Development Principal Secretary Charles Hinga stated on December 5 that the government would take necessary steps, including providing infrastructure and land to private developers, to achieve the ambitious target of up to 250,000 housing units per year set by President William Ruto.
The thin retail mortgage market in Kenya, comprising 27,786 home loans worth Sh261.8 billion in December 2022, has seen an increase in the average loan size for commercial banks from Sh9.2 million to Sh9.4 million in 2022, excluding many low- to mid-income workers.
The Kenya Mortgage Refinance Company, established to cater to workers locked out of homeownership due to high-cost loans with short repayment periods, offers funds to banks and saccos at a fixed annual interest of five percent, ensuring repayments are not affected by inflation and interest rate increases.
President Ruto, prioritizing the construction of affordable houses, had initially planned funding through a 1.5 percent housing levy, which the courts later deemed unconstitutional in November.
The housing units, priced from Sh840,000 for a single room to Sh1.68 million for a three-room unit, have deposit and monthly payment structures, with the aim of making homeownership more accessible over a 30-year period.