The Future Of Affordable Housing Is Green; Popularity In Kenya Takes Shape

Green housing is a novel type of building that advocates energy and water saving, environmental protection and general wellbeing of house occupants. Owing to the increasingly serious environmental pollution in recent years and call for corporates to conduct their businesses responsibly and embrace sustainability, green housing has certainly attracted much attention. According to the United Nations Environmental Programme (UNEP), real estate contributes about 30 percent of global annual greenhouse gas emissions (GHG), hence the plea for the sector’s stakeholders to support global efforts to adapt to and mitigate against climate change in order to ensure sustainability.

According to the Kenya Population and Housing Census (KPHC) 2019, Kenya has 12.2 million households, out of which 7.4 million live in urban areas. Further, about 90%w of Kenyans living in urban areas are on rental housing with about 65% of them living in informal settlements. Although significant effort and attention has been focused on affordable housing in the recent past, there is still a lot to be done in order to provide decent and affordable housing to the low-income segment of our population. The Kenya Economic Report 2021 estimates that only 2% of the formally constructed housing units are targeted to the this (low-income) population. This means we have a long way to before parity and inclusivity in housing can be achieved.

It is principally important that the housing sector stakeholders support greening of residential buildings given that cities, towns and peri-urban areas are sprawling with new residents every year. We all have a role to play to see to it that we not only provide housing solutions for this target population, but that these housing solutions are adequate and sustainable.

On 14 September 2022, the Kenya Mortgage Refinance Company (KMRC), in collaboration with the World Bank Group (WBG) and the Kenya Green Building Society (KGBS) hosted a Green Affordable Housing Workshop to discuss the prospects of integrating sustainability in affordable housing. The objective of the workshop was to unpack the expanding opportunity in green affordable housing and establish linkages that would help drive green residential housing development. There was also the need to create awareness so that lenders and borrowers understand their obligation to meet environmental, social and governance standards and for developers to recognize the potential offtake, which is a key consideration in housing construction. The stakeholders particularly recognized the importance of green finance with its duality effect of financing green and greening finance.

The central feature of green buildings is a significant reduction in environmental and social impacts. Foremost, buildings use power to run, water for occupants and building materials during construction. Each of these generates carbon emissions. Some of the key features that make buildings sustainable include efficient use of energy, water and materials; use of renewable energy and waste management measures such as reuse and recycling. Adoption of suitable construction methods and appropriate material, as well as use of innovative practices in developing green affordable housing can lower annual operating costs for developers, which may in turn enable them to build more affordable units. Green developments avoid the need for major future renovations and reduce costs associated with energy use, water use and maintenance. It is therefore critical that we consider the house development as an end-to-end process and build houses with as many green features as possible. Households can in turn, use the freed-up funds for other living expenses or put them away as savings.

As the industry continues to evolve, developers are keen on greening some of their projects whose designs, construction and operations reduce or eliminate negative impact (and can create positive impact) on the climate and natural environment. The popularity of green building technologies in Kenya is rising, with more stakeholders employing green or environmentally sustainable architecture in housing development. According to a survey by Knight Frank, 29% of home buyers in Africa prefer green homes and do not mind the extra costs on green houses. Another survey by KGBS estimates that 19.3% of Kenyan homes use solar power, indicating affinity towards green housing.

Property Developers

Superior value comes down to just three fundamentals: lower operating costs, higher sales or rental income and lower long-term risk vis a vis changes in regulation and cost. Moreover, data from mature markets shows that green buildings have higher sales prices, quicker sales cycles, lower operational costs, lower mortgage default rates and higher resale values. Whilst there is a marginal incremental cost in greening buildings, the benefits more than justify the costs. Greening also implies specifications towards certain design requirements including standardization which ultimately supports creation of more employment opportunities among the various value chain actors towards supply of green affordable housing. Taken altogether, emerging global trends are driving a shift in attitudes amongst home buyers and property developers worldwide.

Financial Institutions

Financial institutions play a huge role in the affordable housing sector. Best practice would be for these stakeholders (financial institutions) to continually engage with developers to help reinforce their understanding on the economic benefits of green houses and provide technical support on how to cost-effectively construct green. To demonstrate impact to potential buyers and catalyze interest, financial institutions need to endeavor to educate on how long-term benefits of green homeownership outweigh the marginal incremental cost of green houses. Development Financial Institutions can help the Primary Mortgage Lenders in generating viable pipelines of greenhouses through enhanced capacity building. Green finance products, including Green mortgages, is also a very viable area that financial institutions can explore. Hence expanding their client base and diversifying their product offering, building a higher-value and lower risk portfolio, and providing incentives to green mortgage takers.

Way Forward

During the Green Affordable Housing Workshop, the consensus was the need for enhanced capacity building both on the demand and supply side to demonstrate the importance of green housing development and strengthening synergies given the complex nature of the affordable housing sector. It was agreed that every player in the entire value chain should do their part collaboratively. Other proposals included a need for capacity building of contractors and construction workers on green solutions. There was a call for learning institutions to incorporate and mainstream green housing construction courses in the curriculums and enhancing involvement of professionals and focus on retrofitting already built environments to incorporate green aspects. Strategic partnerships to make the sector as stout as possible and a call to simplify green certification in addition to customizing to the local environment was also made. The need to involve and have the government both at the national and county levels lead the green agenda was also underpinned.

As a stakeholder in the affordable housing sector, KMRC plans to promote Green Affordable Housing in Kenya including by issuing green bonds to fund climate-friendly affordable housing projects. Since start of its lending business, KMRC has been instrumental in increasing the accessibility and affordability of housing finance enabling more Kenyans to own homes. This has been made possible through KMRC refinancing on single digit, fixed interest rates and long repayment tenor, up to 25 years. This has and will continue to increase the number of qualifying borrowers and is ultimately expected to reduce default rates. Through forums like the Green Affordable Housing Workshops, we continue to enhance linkages between the demand and supply sides.