Kenya’s construction industry is divided into two; small local informal builders comprising of households and small informal businesses developing one house at a time often incrementally, and the large formal developers and construction companies (mostly foreign).
A recent survey by the Centre for Affordable Housing Finance (CAHF) determined that a limited number of mid-sized local developers and contractors exist but continue to struggle to gain recognition and access to formal housing project opportunities.
At the heart of local developer struggles are allegations of poor-quality construction work in both the informal and formal housing markets and prolonged project delivery timelines, making it hard for investors to carry out financial planning.
First, most local developers do not have the technical capacity to execute on large projects since construction is capital-intensive. This together with the need to minimize cost has seen some developers resorting to lower quality materials.
However, use of low quality materials and construction are a problem in large housing projects, while informally developed accommodation often does not meet Kenya’s outdated building standards. In June 2018, the country’s Bureau of Standards issued a statement that construction firms have until January 2021 to do away with the 50-year old British building codes and familiarize with the European Building Codes known as Eurocodes.
Until now, the vast majority of houses built in Kenya have been constructed by individual households and micro-developers one at a time. This means that with the exception of a few, most local developers, do not have the experience to deliver on large scale projects. To avoid risk, most investors shun local developers.
However, the government has recently began mass construction of affordable housing which if sustained may change the data.
CAHF says there is great opportunity for growth since the formal construction industry in Kenya is estimated to produce less than 10 percent of total housing, and all of this is at the upper end of the affordability pyramid.
Kenya’s housing sector has also faced financing challenges which have limited the flow of investment finance for the production and maintenance of residential markets. This has limited the scope of projects that local developers can undertake.
The various contributors to the lack of investment across the housing supply and demand value chain ultimately contribute to increased costs of construction for developers, as well as low consumer affordability levels, further compounding the problem.