Costings

Based on the prevailing rents in Kibera, our analyses indicate that affordable prices/rents would be approximately 25% to 30% of the market prices/rents. The housing units for Soweto East Zone A under Kenya Slum Upgrading Programme were priced at approximately 40% of the Market values. In the analyses, the revenue is deferred for two years to allow for construction and disposal of the units. Costs of production of the units has been derived by summing up the following components:

  1. Costs of construction of the main building;
  2. Site works – sewer connection, underground water storage tank, gates, security cameras etc;
  3. Cost of capital – loans used by the developers for construction;
  4. Developer’s profit – the profit margin expected by the developer;
  5. Development impact fees – these are levied to mitigate the impacts of the proposed development;
  6. Permit approval fees.

Costs of construction are derived from the Institute of Quantity Surveyors of Kenya (IQSK, 2019); the cost of site works has been applied at 5.6% of the cost of the main building (1); the current cost of credit in Kenya as applied in the analysis is 13% (2). Developer’s profit margin in Nairobi can range from 20% to 40% (3 & 4) and hence an average of 30% is applied in the analyses. Impact fees applied have been determined by incorporating two components.

1.The first is the cost of construction for temporary galvanised corrugated iron sheets structures needed to accommodate the slum dwellers during the development period. These structures will be constructed on public land to be provided by the county government of Nairobi. County officials interviewed expressed support for this proposed model and confirmed that the county government can facilitate the process by availing land for temporary accommodation of the displaced slum dwellers. It was earlier determined that each land parcel will accommodate 12 households.

For temporary accommodation, each household has been allocated a two roomed structure measuring 32 square metres (m2). For 12 households, the total built up area will be 384 m2 and at a construction cost of 5,000 pm2 (1), it will cost Kenya shillings (Ksh.) 1,920,000 to build the complete structure for the 12 households. For easy appreciation, it is important at this point to indicate that the exchange rates as per Central Bank of Kenya as at 12th June 2020 were 1 US$=106.5, 1 sterling £=134.9 and 1 Euro=120.9 (Central Bank of Kenya, 2020b). This cost (Ksh. 1,920,000) divided by the total built-up area of the proposed development (1,293m2) gives a cost of Ksh. 1,500 pm2.

2.The second component of Impact fees covers light infrastructure –access roads and drainage from the main roads to serve the immediate neighbourhood of the land parcels. It is important to note that the main roads have already been tarmacked under Kenya Slum Upgrading Programme. Measurements done using GIS on the masterplan for such infrastructure within Zone C & D resulted into a total area of 7,887 m2. At a construction cost of Ksh. 20,000 per m2 (1), the total cost of such infrastructure will be Ksh. 157,746,000. This cost is divided by 122 land parcels to get Ksh. 1,293,000 per land parcel or Ksh. 1,000 pm2 of the main built-up area of the proposed development.

Combining the two components results into an impact fee of Ksh. 2,500 per m2 of the built-up area of the proposed development. Regarding the cost of permit approvals in Nairobi, Keinvest (5) has given the formula for calculating this as supplied by the Nairobi city planning department. Cost of approvals is equal to Joint Building Council rate × Plinth area × 1.1%. J.B.C rates vary with the nature of development and low-cost high-rise flats of 6 floors and above, the rate is Ksh. 24,000.

The Residual Land Value (RLV) analyses show that the proposed model of affordable housing provision is feasible with both prototypes returning positive residual land values. The analyses show that even with inclusionary requirements imposed, the land parcels would fetch Ksh. 2, 943,632/80 for prototype 1 and 5,702,632/80 if they were offered in the market, with developers making a profit of 30% on their investments.

Residual Land Value Analyses
  1. IQSK. The Quantity Surveyor. Off. J. Inst. Quant. Surv. Kenya 2019, 23, 41–45. Available online: https://iqskenya.org/wp-content/uploads/2020/01/IQSK-issue-29-%E2%80%A2-Interactive-2-3.pdf 
  2. Taylor, L. Value Capture through Voluntary Planning Agreements Part 1, in In Focus, Lindsay Taylor Lawyers. 2016. Available online: https://www.lindsaytaylorlawyers.com.au/in_focus/value-capture-through-voluntary-planning-agreements/ 
  3. Central Bank of Kenya. Discount Window. 2020. Available online: https://www.centralbank.go.ke/rates/discount-window/ 
  4. Kieti, R.M. Urban Housing Affordability in Kenya. A Case Study of the Mortgage Housing Sector in Nairobi. Unpublished Ph.D. Thesis, University of Nairobi, Nairobi, Kenya, 2015. [Google Scholar]
  5. Keinvest. eRegulations: Building Plans and Permit Fees Evaluation Sheet. 2020. Available online: https://eregulations.invest.go.ke/procedure/252/90/step/455?l=en