Absa Bank Kenya has significantly bolstered its commitment to addressing Kenya’s persistent affordable housing deficit, earmarking KES 4 billion for onward lending to the retail segment. This substantial allocation represents an increase from its previous KES 3 billion investment portfolio with the Kenya Mortgage Refinance Company (KMRC), signaling Absa’s intensified focus on making homeownership a reality for more Kenyans.

Speaking at the inaugural International Housing Solutions (IHS) Affordable Housing Conference in Nairobi, Absa Bank Commercial Property Finance East Africa Director, Zaharaa Khanbhai, emphasized the bank’s pivotal role in tackling the financing gap and broader challenges related to affordable housing, not just in Kenya but across the East African region. “If we are truly to unlock Kenya’s housing potential, we must collectively address the barriers from land availability and infrastructure cost to regulatory complexity and access to finance,” stated Khanbhai. She further affirmed Absa Bank’s dedication to being a comprehensive solution provider, extending beyond mere financing to act as a “thought partner, advocate, and enabler of change,” as reported by Citizen Digital.

Kenya’s Pressing Housing Crisis: A Deep Dive

The conference’s timing is particularly pertinent, as Kenya grapples with a severe housing deficit exceeding 2 million units, with annual demand surging by more than 200,000 homes. This critical shortage is not unique to Kenya; similar trends are observed across East Africa, fueled by rapid urbanization, burgeoning population growth, and widening economic disparities. As of mid-2025, Kenya’s population stands at over 53 million, with a high urbanization rate of 3.8% per annum, significantly higher than the global average, according to the Kenya National Bureau of Statistics (KNBS) and a Cytonn Investments report. This rapid influx of people into urban centers places immense pressure on existing housing infrastructure, leading to the proliferation of informal settlements and exacerbating the housing crisis.

The demand for housing far outstrips the current supply, which stands at approximately 50,000 units annually. This disparity creates a challenging environment for low- and middle-income earners, who often struggle to access decent and affordable housing. The Center for Affordable Housing Finance Africa (CAHF) has highlighted that Kenya’s housing deficit reached 80% in 2024, with the low-income segment being particularly underserved, receiving only about 2% of newly constructed residences. This demographic reality underscores the urgent need for scalable and inclusive housing solutions.

Government’s Vision: The Affordable Housing Program (AHP)

The Government of Kenya has proactively stepped into this space with its ambitious Affordable Housing Program (AHP), laying a firm foundation for investments through enabling policy frameworks. The AHP is a cornerstone of the government’s development agenda, aiming to increase homeownership, stimulate economic growth through the construction sector, and create employment opportunities. Under the Kenya Kwanza government’s housing agenda, the AHP seeks to deliver a significant number of housing units across various income segments: 50% for affordable housing units, 30% for affordable middle-class housing units, and 20% for social housing units.

Key government incentives designed to attract private sector participation include:

• Reduced Corporate Tax Rate: A lowered corporate tax rate of 15% for developers constructing a minimum of 100 residential units within a financial year.
• VAT Exemption: Exemption of Value Added Tax (VAT) on the importation and local purchase of goods for the construction of affordable housing units.
• Reduced Import Levies: A reduced Railway Development Levy (RDL) of 1.5% and Import Declaration Fee (IDF) of 2% on goods imported for affordable housing schemes.
• Stamp Duty Exemption: Exemption from stamp duty for first-time homebuyers of affordable housing units.
• Affordable Housing Tax Relief: A tax relief of 15% of savings/contributions made towards homeownership.

These incentives aim to lower construction costs and make housing more accessible, thereby encouraging private developers to invest in this crucial sector. More details on these incentives can be found in documents like the Affordable Housing Tax Incentives from eCitizen and insights from WKA Advocates. The government’s commitment is further evidenced by the Housing Levy, which has generated KES 88.7 billion in its first year of enforcement, although concerns about fund utilization and project delays have been raised, as highlighted in the Cytonn Weekly report. Despite these challenges, the AHP has facilitated the creation of over 206,000 direct and indirect jobs since 2022, supporting the local Jua Kali industry by allocating KES 4.4 billion for artisans and MSMEs integrated into the program.

KMRC: De-risking Mortgages and Boosting Liquidity

A critical component of Kenya’s affordable housing ecosystem is the Kenya Mortgage Refinance Company (KMRC). KMRC is a non-deposit-taking, public-private partnership (PPP) firm licensed and regulated by the Central Bank of Kenya (CBK). Its primary mandate is to ensure sustainable home financing by providing long-term funds to primary mortgage lenders (PMLs) – including banks, microfinance institutions, and SACCOs – at low and fixed interest rates. This mechanism de-risks mortgage lending for financial institutions, encouraging them to offer more affordable home loans to a wider segment of the population.

Absa Bank’s increased investment portfolio with KMRC underscores the strategic importance of this partnership. By leveraging KMRC’s refinancing capabilities, Absa can extend more affordable mortgages, with lower interest rates and longer repayment periods, directly addressing a key barrier to homeownership for many Kenyans. KMRC’s operations, which began lending in September 2020, aim to increase liquidity in the mortgage market and promote standardized lending practices. As of December 2023, KMRC had refinanced 3,128 mortgages at a low interest rate of 5.0%, significantly contributing to making homeownership more accessible, as detailed in a Cytonn Report on KMRC. The company also plays a role in expanding Kenya’s capital markets through the issuance of corporate bonds for long-term financing, supervised by the Capital Markets Authority of Kenya (CMA).

Absa’s Pan-African Vision: Beyond Kenya

Absa Bank’s commitment to affordable housing in Kenya is part of its broader, ambitious pan-African strategy. The Absa Group aims to leverage its extensive capabilities and presence across the continent to provide developers and investors with more sophisticated, large-scale financial solutions. This strategic approach extends beyond residential housing to encompass commercial, retail, hospitality, and green infrastructure projects, all aligned with the group’s overarching focus on smart, sustainable, and affordable development.

Absa Group’s real estate and construction financing standard outlines its commitment to supporting Africa’s economic growth through sustainable financing. This includes a focus on green building finance and social real estate finance, ensuring that projects are environmentally, socially, and economically feasible. The group’s presence in key African markets, including Botswana, Ghana, Kenya, Mauritius, Mozambique, Seychelles, South Africa, Tanzania, Uganda, and Zambia, allows it to identify and support impactful projects that align with national development agendas. By fostering partnerships and providing diverse financial instruments, Absa aims to catalyze significant investment in critical infrastructure and housing across the continent.

Overcoming Barriers: Innovation in Housing Finance

Despite the significant investments and policy frameworks, several barriers continue to impede the full realization of affordable housing potential in Kenya and across Africa. These include:

• Land Availability and Cost: The scarcity of serviced land in urban areas and the high cost of land acquisition remain major hurdles. Innovative approaches like land banking, public-private partnerships for land development, and streamlined land titling processes are crucial.
• Infrastructure Costs: The high cost of developing essential infrastructure such as roads, water, sanitation, and electricity significantly adds to the final price of housing units.
• Regulatory Complexity: Cumbersome approval processes, inconsistent regulations, and bureaucratic delays can deter private sector investment and slow down project implementation. Streamlining these processes is vital.
• Access to Finance: While KMRC is making strides, access to long-term, affordable financing for both developers and homebuyers remains a challenge, particularly for those in the informal sector with irregular incomes, as discussed in a KIPPRA report on housing finance models.

To overcome these barriers, the sector is increasingly exploring innovative financing models. Green bonds are emerging as a viable option for funding sustainable and eco-friendly housing projects, attracting impact investors. Public-private partnerships (PPPs) are essential for de-risking large-scale projects and sharing the financial burden. Furthermore, advancements in construction technology, such as prefabrication and modular building, can significantly reduce construction timelines and costs, making housing more affordable. Digital platforms for property registration and mortgage applications can also enhance efficiency and transparency.

The Socio-Economic Ripple Effect of Affordable Housing

Investing in affordable housing extends far beyond merely providing shelter; it serves as a powerful catalyst for broad socio-economic development. The benefits ripple through various sectors of the economy and society:

• Economic Growth and Job Creation: The construction sector is a significant employer. Large-scale affordable housing projects create direct jobs for skilled and unskilled labor, and indirect jobs in related industries such as manufacturing (building materials), logistics, and services. This stimulates local economies and reduces unemployment.
• Improved Health and Well-being: Access to safe, decent, and affordable housing is a fundamental determinant of health. It reduces exposure to disease, improves sanitation, and provides a stable environment conducive to physical and mental well-being. This, in turn, reduces the burden on public health systems.
• Enhanced Education Outcomes: Children living in stable, quality homes are more likely to attend school regularly, perform better academically, and have improved access to educational resources. Reduced housing instability positively impacts educational attainment.
• Poverty Alleviation and Social Equity: When housing costs are manageable, households have more disposable income to allocate towards other essential needs like food, healthcare, and education. This helps break cycles of poverty and reduces income inequality, fostering a more equitable society.
• Urban Development and Planning: Affordable housing is crucial for sustainable urban development. It helps prevent the growth of slums and informal settlements, promotes planned urban expansion, and contributes to more organized and livable cities. It can also free up urban land previously used for informal housing for other productive uses.
• Increased Government Revenue: A formal housing sector leads to increased property taxes, stamp duties, and other levies, providing governments with additional revenue to invest in public services and infrastructure.

The importance of affordable housing to the economy is underscored by the fact that high housing prices can stifle local economies, leaving jobs unfilled and reducing spending power. Conversely, readily available affordable housing creates opportunities across all income levels, leading to increased local spending and long-term societal change, as highlighted by Point Properties Ltd.

The Way Forward: Collaboration and Sustainability

The International Housing Solutions (IHS) Affordable Housing Conference in Nairobi served as a vital forum, convening leading voices in housing, finance, and policy from across the continent. The discussions centered on the intersection of innovation, sustainable finance, and inclusive development in addressing Africa’s housing challenges. Such platforms are crucial for fostering collaboration between public and private sector stakeholders, sharing best practices, and developing integrated solutions.

Absa Bank’s commitment, exemplified by its KES 4 billion allocation and its partnership with KMRC, represents a tangible step towards bridging Kenya’s housing gap. This commitment, combined with the government’s supportive policy frameworks and the growing interest from international investors, paints a promising picture for the future of affordable housing in Kenya. The emphasis on sustainable and green housing initiatives, as championed by organizations like the Kenya Green Building Society, further aligns these efforts with global environmental goals and the nation’s Vision 2030.

As Kenya and the broader East African region continue to experience rapid growth and urbanization, the need for affordable and quality housing will only intensify. The collaborative model, where financial institutions, government bodies, developers, and international partners work in concert, will be paramount to achieving the ambitious housing targets and ensuring a dignified living environment for all citizens.

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By: Montel Kamau

Serrari Financial Analyst

4th August, 2025