EFFECT OF ECONOMIC DETERMINANTS ON AFFORDABLE HOUSING IN KENYA

Abstract

Shelter is a vital necessity and comfort for life. Housing significantly impacts health, community, economy, education, and social equity, influencing overall welfare. However, like many developing nations, Kenya struggles to provide affordable housing for it’s citizens. This study aimed to explore factors affecting affordable housing in Kenya. Specifically, it examined the relationship between economic determinants and affordable housing, and the moderating effect of inflation on these relationships. Using a causal research design and Vector Error Correction Model regression analysis, the study analyzed data from 2010 to 2022. Data on FDI were sourced from the Kenya National Bureau of Statistics (KNBS) and the Central Bank of Kenya(CBK),and both remittance and Mortgage was obtained from the CBK. The Affordable housing and inflation data was sourced from the National Treasury,Ministry of Housing and development, KNBS, and the Kenya Bankers Association. Qualitative data was summarized using tables and figures. A pre-estimation test was conducted to validate the findings, with the Augmented Dicky Fuller (ADF) test confirming that all variables had a unit root at the level, while they were stationary at the second difference. Variance inflation factor (VIF) values were below 10, indicating no multicollinearity. The Jarque-Bera test result of 0.072994 (greater than 0.05) confirmed that the data were normally distributed throughout the study period. Descriptive statistics illustrated the sample's general characteristics. Correlation analysis revealed a moderate negative relationship between Economic Determinants and inflation on the Affordable Housing (-0.484778, -0.585630, and -0.280741, respectively), while there was a positive correlation between remittances and the Affordable Houing (0.613619). The Johansen test for cointegration identified two cointegrating equations. Model regression estimates were (5.407022, p < 0.05), (-0.215188, p < 0.05), and (-0.383195, p < 0.05) for foreign direct investment, remittances, and mortgage interest rates which are generally referred to as economic determinants in this study.The results also indicated a significant negative moderating effect of inflation on the relationships between foreign direct investment, remittances, and mortgage with the Affordable Housing in Kenya (0.814135, p < 0.0000), representing a 13.13% decline when inflation was included as a moderator. The Kenyan government should implement specific initiatives or incentives to promote affordable housing, and remittances should be included in future discussions beyond 2025.