Urban housing affordability in Kenya: a case study of the mortgage housing sector in Nairobi
Kieti, Raphael M.
Over 70 % of urban households in Kenya experience severe housing affordability challenges. Affordability problems are manifested in the high levels of homelessness, poor human settlement conditions, high price of housing relative to the incomes of households, mortgage delinquencies, defaults and foreclosures. This study investigated factors affecting housing affordability in Kenya. Previous studies on housing in Kenya have been descriptive in nature and little or no emphasis has been made on empirical studies on factors affecting affordability
especially with regard to contribution of the factors to housing affordability. The result has been a lack of knowledge on which factors are critical in explaining the affordability problems of urban households in Kenya. The objectives of this research work were therefore to: identify significant factors that affect housing affordability, determine the influence of the significant factors and rank them with respect to contribution to housing affordability and, suggest policies necessary to address the urban housing affordability problem in Kenya.
The research focused on affordability in the home-ownership mortgage housing sector in Nairobi. The methodology was based on a questionnaire survey to households with mortgage loans from Housing Finance Institutions and Banks. A total sample size of 390 households was targeted for the study. However, 353 households responded to the survey yielding a response rate of 90.5%. Information relating to social-economic characteristics of the households, loan and property data as well as macroeconomic data was analyzed in order to address the objectives of the study. The analyses were done using qualitative and quantitative approaches with the aid of the Statistical Package for Social Sciences (SPSS) software. Three statistical procedures, namely; descriptive statistics, correlation analysis and regression analysis were performed on the data with the aim of identifying factors which are significant predictors of housing affordability. The research found that there is a significant linear relationship between housing affordability and the factors: Interest on loan, Number of dependants (outside the nuclear family), Number of family members with income, Construction cost, Size of the household, Loan-to-value (LTV) ratio, Land value, Real gross domestic product (GDP) per capita, Job position/status of the individual paying the mortgage, Type of mortgage instrument, Loan term, Loss of regular
employment income and the rate of inflation. The results indicated that the interest charged on mortgage loan has the greatest influence on the affordability of the households. The interest on loan which reflects the mortgage interest rate charged by the banks influence affordability because it determines the borrower's monthly mortgage repayment amounts. The results showed that an increase in the amount of interest charged on the loan increases
the monthly loan repayment placing a higher repayment burden on the households thus affecting their affordability.
Applying Multiple Regression Analysis (MRA) to determine the contribution of the significant factors and, therefore, rank them with respect to contribution to affordability, the results showed that eight (8) factors namely; Interest on loan, Number of dependants (outside the nuclear family), Loan-to- value (LTV) ratio, type of mortgage instrument, Number of family members with income, Loan term, real GDP per capita and size of the household,
have a significant contribution to affordability and are therefore the most critical factors that influence affordability in the home ownership (mortgage) housing sector in Kenya. The regression model comprising of the eight critical factors has a correlation coefficient (R) of 0.833 and a coefficient of determination (R2) of 0.693. The model has a significant Fvalue of 97.127, indicating that the eight factors are significant predictors of housing affordability. Among the eight factors, interest on loan is the most important factor accounting for 52.8% of the variance in affordability, while the size of household is the least important factor. From the literature review and the results of the analyses performed in this study, it was concluded that housing affordability is influenced by clusters of factors related to the households' social economic characteristics, loan characteristics, property attributes and
macro-economic factors. The households social economic characteristics among others include; the Loss of regular employment income, Number of dependants, Number of family members with income and Size of the household. The loan factors include the Interest charged on loan, Loan-to-value (LTV) ratio, Loan term and the Type of mortgage instrument. The property attributes are the Cost of construction, Land value, Developers profit and Property transfer costs. The macro economic factors include the Rate of inflation, Real gross
domestic (GDP) per capita and Unemployment rate. The results of the analyses showed that the social economic factors affect affordability because they influence households' income. The loan factors influence affordability because they affect the price of housing and the monthly mortgage repayments of the households.The
property factors affect the price of housing and therefore the monthly loan repayments. The macro economic factors affect both the income of households and housing price as well as mortgage interest rates charged by the banks and financial institutions. Policy measures have been proposed to reduce or stabilize mortgage interest rates, reduce the price of housing, and improve household's income so as to enhance access to housing and improve affordability among urban households in Kenya. The research thesis is organized into six chapters. Chapter one covers the general background to the study in the form of introduction, problem statement, study objectives and hypothesis as well the significance and limitations of the study. At the end of the chapter, the
organization of the study is presented. Chapter two provides a general over view of the urban housing problem with reference to developing countries. The purpose of the review is to develop a frame work and lay a solid foundation necessary to contextualize the urban housing affordability problem generally and in particular factors affecting affordability in Kenya. Chapter three provides the theoretical and conceptual framework of the study. In particular, the theories that explain the urban housing affordability problem in developing countries are
identified and explained. Review of theories in research studies is important because they offer a theoretical basis for undertaking the research study. Theories explain the phenomenon that is being studied and offers tentative theoretical answers or solutions to the problem that is being investigated. The last section of the chapter reviews literature on the factors affecting affordability and formulates a conceptual model of affordability and its determining factors. Chapter four defines the research design and methodology adopted to address the research
questions and objectives of the study. The chapter begins with a brief description of the case study area, Nairobi, its location in Kenya, population dynamics and the housing situation that necessitates the need for policy interventions to address the affordability challenges of households in the City and Kenya in general. The chapter then discusses the research design adopted for the study by highlighting the sources and types of data used, the procedures employed in deriving the research variables and a description of the relevant variables and
data used in the study. Chapter five identifies the factors that affect housing affordability in the home ownership mortgage housing sector and ranks them with respect to contribution to affordability. Chapter six provides a summary and discussion of the main research findings, the conclusions drawn from the research findings as well as contribution to knowledge, policy recommendations and suggested areas of further research.
University of Nairobi
Type of publication
Nairobi - University of Nairobi
Added to C-A: 2023-11-22;14:10:41
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