Discussion Paper No. 135 of 2012 on Demand for Housing in Urban Kenya: The Case of Households in Nairobi and Mombasa Counties.

Abstract

This study sought to understand what influences urban household demand for housing in Kenya, given the persistent inadequacies of housing amidst various policy interventions. Limited understanding of housing demand among urban households contribute to housing mismatch, ineffective targeting and distortion of the urban housing market. Household data from the urban counties of Nairobi and Mombasa was applied to hedonic price model to capture the heterogeneity of housing as a commodity before conducting household demand analysis for urban housing. Results showed a price elasticity ranging from 0.318 to 0.328 for different tenure categories, and income elasticity of 0.50 to 0.52. Other household factors influencing demand for housing, such as household size, age of household head, length of urban stay and living together with spouse produce mixed results. The price inelasticity indicates limited choice for housing among urban households. The income variable, especially when disaggregated along tenure and income categories, indicates unwillingness of the poor and renting households to spend more with an increase in income. The limited effect of household characteristics on housing demand is indicative of a constrained urban housing market in which housing is demanded as an aspect for survival and not responsive to specific household preferences or needs. The recommendations highlight the need for mass supply of urban housing, checking of extensive commercialization of housing and related services, innovative approaches to subsidization of the cost of access to housing services, and finally legislation on minimum floor size per standard household, and quality standards to minimize over-crowding in urban housing.