Optimal pricing, housing demand and supply in Kenyan urban Areas: The case of Nairobi County
Karema, Samuel Wanyeki
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The need to have shelter is indispensable to humanity. The price at which it is provided to them should be favorable and affordable to all as well as its availability. This study recognized that despite the establishment of the National Housing Corporation that is meant to provide affordable housing to the low and middle income sectors, house prices were still rising due to the deficiency in supply. This study intended to determine optimal pricing, demand and supply functions of housing in urban Kenya. The study used quarterly data on housing prices, demand and supply collected from 2003 to 2013. This research study used available data on the price fundamentals and employed a simultaneous equations model under two stage least squares regression to determine the pricing, demand and supply functions that would help curb the imbalance between housing demand and supply. This study however found that housing prices are mainly influenced by the levels of income, number of bedrooms and the cost of construction as the demand is influenced by income, number of bedrooms and interest rate. The study also found that housing supply is mainly influenced by the house prices and majorly constrained by the cost of construction. The study therefore sees need for and recommends use of alternative building materials that will see house prices come down as well as see an increase in the supply levels. This would see an increase in housing supply and also mean that the houses supplied are affordable which would reduce the excess demand in the lower and middle income market sectors by increasing the supply of low cost housing in the sectors.