Construction Cost and Growth in Supply of Real Estate Housing in Kenya

Abstract

The provision of affordable housing is one of the goals of achievement of vision 2030. Affordable housing was also an important deliverable in the millennium development goals. However the growth in supply in real estate has been poor. For instance the demand for housing has been 150, 000 per year as compared to 35, 000 housing units that are delivered in the market annually. Thus, the supply has fallen below target in this deficit has been a practical and policy problem that has led to the debate of what could be the cause of the slow growth in supply of real estate housing in Kenya. The main purpose of this study was to the effects of construction cost on the growth in supply of real estate housing in Kenya. This study was guided by the following specific objectives: to establish the effect of finance cost on the growth in supply of real estate housing in Kenya, to determine the effect of cost of building materials to the growth in supply of real estate housing in Kenya, to establish the effect of cost of land to the growth in supply of real estate housing in Kenya and to determine the effect of tax cost to the growth in supply of real estate housing in Kenya. The study adopted a descriptive research design. The target population was 78 registered real estate companies in Kenya. The sample size was therefore 39 registered real estate companies in Kenya. Primary data was collected through the administration of the questionnaires. The study found that finance cost, cost of building materials, cost of land and tax cost have a statistical and negative influence on the growth of supply of real estate housing. The study also concludes that increase in growth of real estate market despite the high interest rate could owe to the price inelastic demand for housing owing to economic disparity in the country. While low income earners, who are majority, are pushed away to less glossy and crowded homes where survival supersedes luxury, the upper middle income purchase of housing units is on the upward spiral. The study recommended that the government should lower interest expenses so as to encourage the increase in supply of affordable real estate housing. The bank should also lower their interest rates so that the real estate firms can be able to increase the supply of housing. The study also recommends that investors should consider investing in the real estate market despite the erratic interest rates.