Bridging the Affordability Gap: The Nairobi Special Housing Fund

by James Tayler

The Kenya Federation has the second oldest Urban Poor Fund in the network: Akiba Mashinani Trust. Based on its experience with community upgrading fund management, the federation and its partners in government have developed a detailed proposal for the establishment of a Special Housing Fund for Nairobi. The Special Housing Fund will establish a long-term source of affordable housing finance at the county level.

The Nairobi affiliate identified sources for financing the Special Housing Fund and recommended the use of subsidies and various incentives to help bridge the affordability gap for housing and services for the urban poor. Based on the analysis of profiling and enumeration data, the affiliate illuminated how funds currently circulating in the housing, services, and land markets of Nairobi’s informal settlements could be harnessed and leveraged to provide housing at scale for all citizens.

The Nairobi federation’s profiling and enumeration data made this case in a compelling way, by quantifying the poverty penalty faced by Nairobi’s slum dwellers. In Mukuru for instance:

  • Electricity: Households in Mukuru pay 45% – 142% more than the formal electricity tariff when connected to informal connections (called Sambaza).
  • Water: the penalty on water provision is especially high as residents can only access small amounts of very low quality water, at a cost that is 172 percent more per cubic metre than the water utility tariff.
  • Housing: a 10 by 10 foot shack, constructed using iron sheets, with inadequate ventilation costs more per sq meter than the equivalent space within Nairobi’s middle class housing.

Based on a conservative basket of services (electricity, water, toilet access, and rent) Mukuru’s annual economy is estimated at 7 billion Kenya shillings, much of which ends up in the hands of informal service providers. Beyond the monetary value, there is a far higher indirect cost associated to safety, security, time and even the indignity of accessing these services.

And while this poverty penalty presents a huge challenge, it also demonstrates the latent capacity of communities to make significant contributions for the upgrading of their housing and an ability to pay for better quality services.

Critically, much of the land in Mukuru is in the hands of owners of the slum shacks, often referred to as structure owners. Muungano’s research shows that up to 94 percent of Mukuru’s population are tenants to 6 percent of structure owners. There is also evidence that with a court injunction in place against the eviction of residents, some private landowners have resorted to entering informal agreements to transfer land ownership to structure owners in order to recoup the value of the lands.

By unlocking land value, rental incomes and the poverty penalty for water and energy suffered by the informal dwellers, the affiliate has shown how to finance informal settlement upgrading at scale.