Housing Affordability in Kenya: Key Determinants and Policy Implications

Recent declines in housing affordability and a growing population have sparked renewed interest in research on housing supply. In Kenya, new construction has slowed significantly since the 1970s, with declining housing supply elasticities, especially in densely populated areas. Housing supply constraints and regulations substantially affect prices and affordability. The study is based on the accelerated investment theory, which posits that housing affordability relies on the rate of change in housing demand and income, as well as how quickly developers can adjust supply to meet this demand. This study aims to identify and quantify the factors influencing housing affordability in Kenya using autoregressive distributed lag analysis. The results indicate that housing supply, income levels, and public investment exert significant negative pressure on housing prices, thereby improving affordability, whereas loan interest rates and inflation serve to reduce it. The findings indicate that supply constraints and regulations impact housing prices and affordability. To improve affordability, the Kenyan government should streamline zoning, provide subsidies for low-income households, invest in infrastructure, monitor interest rates, and address construction cost inflation.