Solving Kenya's affordable housing challenge

Why Startups ?

Startups have proven to be quite successful in cracking open challenging problems in sectors like healthcare, agriculture, and clean energy, including those who are usually the focus of public sector interventions. By developing and testing new products and services along with new business models, entrepreneurs often have the flexibility to look at an old problem in a new and creative way to efficiently scale solutions.

When it comes to housing in general and affordable housing in particular, recent efforts from the government have served as a welcome push for new programs and projects in the area. However we believe that public sector initiatives alone are not sufficient to drive sectoral changes that will be required to meet the growing housing deficit.

Challenges in Kenyan Housing Value Chain

A recent World Bank report states that out of an annual demand of 250,000 housing units in Kenya, developers can only put up 50,000 units. More worrying is that 49,000 of these units go to upper-middle and high-end segments of the market, leaving the low-income group seriously under-supplied, with only 1,000 units to share.

Kenya’s President, H.E Uhuru Kenyatta, launched ‘The Big Four’ plan for economic development of Kenya, key among them was affordable housing. The Government of Kenya plans to deliver 1 million units over the next 5 years with 20 percent for social housing and 80 percent on affordable housing. The National Treasury’s 2018 Budget Review had legislative and administrative interventions to support and encourage achievement of the affordable housing plans. These interventions included changes in policy, programs to leverage public land for development and the introduction of public-private partnerships to precipitate administrative approvals, enhance access to well-located land, and improve inter-governmental coordination.

With such government support, the future of Kenya’s affordable housing sector looks very positive. National Treasury estimates that the real estate and construction sectors will contribute 14 percent to GDP.

The ShelterTech Accelerator in Kenya is committed to addressing this through supporting startups and scaleups that are bringing in various innovative solutions that could positively disrupt the Kenyan housing value chain.

The complicated and vast value chain provides a huge opportunity for private players to intervene with interesting innovations and disrupt the established value chains or create new avenues.

Themes for startup founders

As a startup, while your solution may align to the abovementioned core themes, some of the challenges enumerated below can serve as a good starting point:

Land, titling & construction permissions

Land is perhaps the costliest aspect of construction and also scarce for homeowners. Primarily a state subject, accessibility to land is governed by the respective state governments. High-value land parcels in prime locations are not easily available for development and are often subjected to land uses which do not utilize the full potential of these parcels. Besides this, one of the top challenges faced by individual and institutional stakeholders interested in developing the available land parcels is the lack of authentic tenure and titling information available on land plots.

The program is looking for start-ups that can help this distress in the sector through innovative solutions. This could be through new ways of recording land transactions, or by solving the issues of transparency in the management.

Access to finances for housing

Recent push by the government in affordable housing, has created a lot of demand for financing, but on-ground results appear to be mixed. This outcome is partially due to the lack of data about the lenders. Thus, the adoption of well intended schemes and diffusion of the incentives to clients leave a lot to be desired. Additionally, private lending in the affordable segment has been a challenge mainly due to lack of financial credibility of borrowers and malicious interest rates.

The program is looking for start-ups that enable lenders to identify, screen and select applicants will increase efficiency in disbursing loans and subsidies. Similarly, solutions that increase the availability of data about the informal or non-salaried segment of low-income markets are critical in enhancing the diffusion of capital.

Construction technology & new materials

A large amount of new construction technologies and alternative construction materials are available in the market. However these have not been sufficiently absorbed, due to several reasons including viable business models, production challenges and distribution networks and incentives.

High construction cost and poor quality of material often leads to high maintenance cost for a structure and low quality of life. Many a times, lack of money and awareness regarding other possible materials leads to such decisions by the homeowner.

The construction industry in Kenya needs to incorporate building and construction and new technologies. The program is looking to promote these materials and techniques that can further lead to reduce the time and cost of construction for both permanent and temporary shelters.

Labour productivity and quality

Labour contributes to over 30% of the cost of construction. One of the biggest challenges plaguing developers and owners alike is a very low labour productivity.Construction being a labour intensive function with a huge chunk being artisans. Little progress is evident in standardization of on-site procedures. Construction techniques are mostly taught informally to potential labor force, thereby increasing the inefficiencies. Further, due to the absence of a standard way to measure and improve quality and performance, the measure to enhance productivity are seldom identified Labour absenteeism coupled with rising labour costs increase the project timeline and reduce quality.

Although, all of these underlying issues can't be addressed by startups, their involvement could address some of them with innovative approaches and solutions. The program looks forward to these startups alleviating some of these needs through their innovations and consequently receiving support through the accelerator

Material supply and procurement

Construction materials contribute to 70% of the cost of housing construction. Inefficient procurement and complexities in supply chain management practices are the major causes of construction delays. Availability of material on-site, fluctuating material prices, know-how about material options are just some of the aspects that developers struggle with. Other factors include delays in shipping, handling, storage and pilferage also contribute to the high cost of materials management, thereby, driving up the overall cost of construction.

Hyperlocal and mobile first discovery platforms for materials (like marketplaces) may empower developers improve the quality and timing of the procurement process. The program is looking for start-ups that have solutions for helping developers manage inventory and ideate new models of procurement and solutions that enable efficient tracking of the supplier fleet and material pilferage.

Professional services (Design, engineering and structural solutions)

Planning and designing of a house is one of the most neglected service while planning and budgeting for the overall construction of a house. This is the case especially for the low income housing which is being developed and promoted by the Kenyan government. More often than not, the homeowners do not have the knowledge and access to these kind of services and they don't have any aspirations from these services due to lack of the knowledge.

There are various technological options that can help the homeowner take informed decisions regarding the kind of spaces they aspire for themselves. These solutions could be AR VR 3D visualization of the houses etc. The program is looking for start-ups that are either providing these solutions or easing the access to these solutions for general public.

Project management or Project/Task Management and Collaboration

About 65% of the total housing created nationally is owner driven construction. This construction is done through a small investment and is taken care of by small or medium level contractors. These contractors generally use outdated methods of project management where the chief engineer receives the full picture of the development once every week. Inefficient project management often leads to delayed schedules resulting in increased costs, material mismanagement, loss of productive labor hours and overall project delays.

Although ERP software are present in the market, they are expensive and not user friendly for owner driven construction. The program is looking for start-ups with solutions that are user friendly, simple to adopt, cost effective, which can help developers and contractors to track all aspects including scheduling, material procurement, inventory management and other management aspects.

Sales and marketing support for housing

The rate at which housing stock is sold, both completed as well as under construction, impacts the capability of developer in enhancing supply.

According to the latest house price index report released in September 2018 from the Kenya Banker’s Association, there was a 1.76 percent overall increase in house prices during the second quarter of 2018.

Developers that wish to scale up their projects depend on quick sales cycles to manage their working capital. The lack of sales reduces their ability to finance their project and demonstrate a higher Internal Rate of Return (IRR), consequently, reducing their ability to scale.

The program is looking for solutions that support developers with sales and marketing options and increase access to market segments, while making housing inventory discoverable.

Home improvement, maintenance and livability

Owner driven construction occupies 65% of the share of the housing construction. Usually the construction is done incrementally on account of the availability of funds, especially for the low income households. There are various aspects that hinder the livability of a house or a housing community. These can be Poor ventilation in the house. Lack of community spaces, poor condition of the structure etc.

As of now, there is very little focus on enhancing the livability of housing communities. We believe start-ups can play an important role through finding solutions for livability of space and community, through various tangible and intangible solutions.

Resident energy solutions

The availability and consumption of energy are two aspects which concern every household at a day to day level. While the aspect of availability is being address by Government in most of the urban as well as rural settlements, its usage couldn't be monitored. The cost of energy is again an issue that one ponders over.

Energy consumption by households leads to recurring cost for residents. This cost is variable depending on the number of appliances & duration of use. While there are devices that consume smaller amount of energy, their cost is not affordable for majority of households. Further, this excessive usage of energy doesn't just cost the homeowner but also affects the environment.

The program is looking for start-ups with solutions that positively disrupt the availability and consumption of household energy and its environmental impacts.

Water and sanitation for housing

Water and Sanitation are two of the indispensable resources for a healthy living. Numerous households, both in rural as well as urban India lack these facilities.Drinking water is scarce, and the households tend to rely on ancient household purification methods which sometimes are unable to remove harmful impurities from the water.

Access to toilets is another issues that needs to be addressed. Although, lack of toilets at household levels are being addressed by Government of India through Swachh Bharat Mission (SBM) yet there are a lot of other issues, including higher cost of construction which can't be addressed by the government alone.

Hence, the program is looking for start-ups that are fulfilling the requirement of potable/drinking water and access to proper sanitation and other solutions to the underlying problems related to WASH (WAter Sanitation and Hygiene)

Rental and Special Housing Solutions

Large urban migration and insufficient supply of high quality affordable units has led to a large population living in substandard conditions. Rental and co-living areas are a viable business alternatives to building whole affordable housing units. Large stock of unsold inventories, with the potential of being used for alternative housing, such as managed rentals, already exist on the outskirts of several cities. Alternative shelters like containers homes can also be explored and have gained a foothold in the commercial market, but haven't yet been fully explored in India.

The program is looking for startups with viable and scalable alternatives to traditional construction such as container homes, etc. or new business models like renting.

1 - Interpreted from JLL report on affordable housing

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