Why is building a house so expensive?
Updated: Jul 23, 2021
A query has been raging for eons now as to why "engineers" make houses so expensive.
Today we seek to debunk the myth and figure out what it is exactly that goes into a building and the factors around it.
Contrary to popular belief, building in Kenya is NOT expensive.
Studies show that building in Kenya is the cheapest in Africa
Further studies show that construction costs in Kenya are one of the cheapest in the world
The perceived high cost of buildings is caused by other social, economic and political factors.
These other factors are more specifically the cost of land and government policies.
NUMBERS DON'T LIE
Average Construction Costs - Africa
According to a survey done by the Africa Property & Construction Cost Guide 2020/2021, Kenya is actually one of the cheapest places to construct in Africa. It is cheaper than Botswana, Ghana, Lesotho, Mozambique, Namibia, Nigeria, Rwanda, South Africa, Tanzania, Uganda and Zambia.
The costs are calculated in US$/SqMt
What goes into a building? A house is simply an assembly of the following items;
Finance - money
We explore each of these items.
Of all construction materials used in building construction, the only item that the country doesn't import are building stones, sand and ballast. Literally, everything else is either imported, or at least 50% of the raw material used depends on importation. If it is imported, as long as we are a net importer, we have little control over the pricing.
Cement - 50% of the raw material is clinker which has to be imported. Even so, Kenya has some of the lowest cement prices worldwide.
Tiles/sanitaryware - 100% imported China, Spain, Turkey etc. The local manufacturers can hardly compete with Chinese imports.
Steel - There are no iron ore deposits in Kenya.
Wood/timber - Since logging was banned to save the water towers, the commodity has to be imported.
Electrical cables - all imported. Local manufacturers like East African Cables can barely compete with imports. Even then, there are no copper ore deposits in Kenya.
Electrical installations - bulbs, sockets, switches etc are all imported.
Mechanical installations (lifts, A/C installations etc are all imported.
Almost 90% of any house you construct is imported material.
Scheming through any Bills of Quantities for a house reveals that walling, which uses stones that are locally available, contributes to 5% of the total construction cost. Hardly any fat to scheme off there.
This is hardly any debate. Kenya rates are some of the lowest globally only rivaled by China. Secondly, we cannot import labour which accounts for the semi-skilled labour on site.
The monetary policies of the country are controlled by the central government. The cost of finance is largely influenced by government borrowing policies. Current interest rates have soared owing to the government's appetite for debt. You try borrowing a construction loan and the collateral requirements are so immense, it probably won't make much economic sense to borrow to build. Either that or finance the construction from other sources.
This has been a thorny and sentimental issue in Kenya. Land is a scarce commodity and it has been made and kept artificially high since the pre-colonial era. All prime land that is serviced with infrastructure is owned and hoarded by Oligarchs or the Cabal. In 2003, the Kibaki administration launched a commission of inquiry into land allocation in Kenya led by Paul Ndungu, dubbed Ndungu Commission. The commission released the Ndungu Land Report in 2005 which has since been gathering dust at the government shelves. Implementing it means going after the Cabal. Who will bell the cat?
5. Government policy
Approvals, licenses, government bureaucracies play a big role here. Recently, on 5th July 2021, a cabinet sub-committee passed a recommendation on the re-introduction of NCA & NEMA application fees. These are policies that will definitely drive up housing costs.
Global construction index - Worldwide
A survey conducted into the International Construction Costs of the world's 100 top cities, was conducted for Q1 2021 it is cheaper to construct in Nairobi than in 95 other cities. You can find the link here Arcadis Construction Report
The only cities that beat Nairobi in cost competitiveness were the ones that actually manufacture finished products from which Kenya imports materials. These were Chinese and South African cities
The cities in the survey were;
Shenzhen - Cheapest city to construct in
Ho Chi Minh City
Rio de Janeiro
New York City
Geneva - Most expensive city to construct