Factors That Influence Funding of the Supply-Side Of Housing in Kenya: Case Study Nairobi

Abstract

The purpose of this study was to establish the effect of economic, risk, legal and regulatory, and innovative financing and technological factors on funding of the supply-side of housing in Kenya, case study Nairobi. The moderating effect of major stakeholders on the relationship of these factors and funding of housing construction in Kenya was also examined. A random sample of 212 financial institutions comprising commercial banks and micro finance institutions was drawn from a population of 451 branches in Nairobi got from 43 commercial banks, 9 deposit-taking micro financing institutions and three other financiers (Shelter Afrique, East African Development Bank and IFC) of housing development in Kenya. Two hundred and twelve (212) questionnaires were hand-delivered to managers involved in credit disbursement in the branches. One hundred and fifty eight (158) useable questionnaires were collected, which translated to a response rate of 74.5 per cent. SPSS software version 22 was used for data analysis starting with factor analysis then correlation analysis. Several diagnostic tests were carried out before running regression analysis to determine the appropriateness of the data. Ordinal Logit Regression Model was used to determine the relationship between funding of housing and the four categories of factors (Economic, Risk, Legal and regulatory and Innovative financing and Technological factors). The empirical results revealed that there exists a negative relationship between of Economic factors and funding of housing in Kenya and a positive relationship between Risk, and Legal and regulatory factors and funding of housing in Kenya. No significant relationship was established between the Innovative financing and Technological factors and funding of housing in Kenya. The stakeholders moderating effect on the relationship between funding of housing and risk, and legal and regulatory factors was negative but positive for economic, and innovative and technological factors. vi The major conclusion was that in order to boost funding of housing from financial institutions, the economic, and legal and regulatory environments have to be improved. The role of the stakeholders in influencing of funding is of importance also. Innovative financing and technological factors were found to be enablers of loan uptake not motivators hence the observed insignificant relationship with funding of housing. The recommendation is that the government and policy makers should use the monetary policy effectively, in that both interest rates and inflation rates were found to have a big impact on credit provision in the housing sector, so they need to be kept at a level that will encourage investments in the housing sector. Reduction of the volatility of the foreign exchange rates to create stability, for most building materials are imported is also recommended. These would help keep the cost of inputs at a level that would boost supply of housing. Policy makers should ensure that the legal and regulatory framework is effective enough to allow enforceability of contracts because this would improve efficiency of the systems in place. On its part the government needs to harmonize the various laws and regulations that govern the construction industry as the study found that this may impede efficiency in the systems therein. The government can come up with regulations that specifically support the housing sector to work with collaboration with financial institutions‘ credit allocation. The government and the professional bodies should enhance education on ethics so as to bring down the cases of malpractices reported in the construction industry.