Kenya’s housing cost burden problem is severe, with Nairobi leading the crisis. The average selling price for a decent 131sqm-apartment in Nairobi is KES 15 million in 2024. Additionally, no newly constructed homes on the formal market are selling for less than KES 2 million. These prices are already out of reach for majority of the city’s middle-low income dwellers, and are still rapidly rising.
Only about 8% of Kenya’s urban population earns enough to qualify for institutional finance, such as bank mortgages. People are unable to purchase or construct their own homes, forcing them to rent in perpetuity.
Cost burden is the ratio of housing costs to a household’s income. The recommended rate in Kenya is anything not exceeding 30% of the total household income.
How Much Do You Need to Qualify for a Home Loan in Kenya?
To paint a worrying picture, a household needs to afford minimum monthly payments of KES 15,300 to purchase a KES 1 million house through mortgage at 15% annual interest rate paid over 15 years. This household would, therefore, need to formally earn at least KES 51,000 per month to afford this mortgage without exceeding the recommended cost burden ratio of 30%.
To afford a KES 3 million house through mortgage in Nairobi given a similar payment period and interest terms; the household would need to triple its income to about KES 153,000 monthly.
Renting as a solution to the high cost of Buying houses
Not only in Kenya, but in many other regions of the world, the majority of the urban population is made up of renters. Renting is the most easily affordable form of housing for middle-to-low income households in Nairobi.
The economic approach to determining the percentage of one’s income that should be spent on rent begins with the assumption that urban change is driven by individual decisions. You can decide whether or not to live in a given location. People consider location-specific factors such as decent amenities, income, and housing supply.
A landlords’ market, is characterized by overcharged tenants. Herein, renters are forced to pay high rents, often as a result of the high competition for limited or premium units. Nairobi is overall a landlords’ market.
The future outlook of the Nairobi Real Estate market
The report that there are no houses selling on Nairobi’s formal market for less than KES 2 million is worrying.
It paints a grim picture for the average middle-to-low income household, usually earning a net income less than KES 102,000 each month.
The number of low-income, cost-burdened renters in Kenya is very high. Developers building appropriate homes selling for less than KES 2 million will easily find renters and buyers if positioned in strategic locations.
Also Read: The Unaffordable ‘Affordable Housing’ Units