Why is building a house so expensive?

Updated: Jul 23


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.

In summary:

  • 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


See more on the report here

What goes into a building? A house is simply an assembly of the following items;

  1. Materials

  2. Labour

  3. Finance - money

  4. Land

  5. Government policy

We explore each of these items.


1. Materials

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.


2. Labour

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.


3. Finance

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.


4. Land

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;

  1. Shenzhen - Cheapest city to construct in

  2. Guangzhou

  3. Johannesburg

  4. Nairobi

  5. Chengdu

  6. Wuhan

  7. Ho Chi Minh City

  8. Kuala Lumpur

  9. Mumbai

  10. New Delhi

  11. Bengaluru

  12. Hangzhou

  13. Jakarta

  14. Bangkok

  15. Shanghai

  16. Beijing

  17. Athens

  18. Beijing

  19. Bogota

  20. Mexico City

  21. Manila

  22. Buenos Aires

  23. Kiev

  24. Malaga

  25. Porto

  26. Barcelona

  27. Belgrade

  28. Istanbul

  29. Krakow

  30. Madrid

  31. Malaga

  32. Warsaw

  33. Lisbon

  34. Rio de Janeiro

  35. Sao Paulo

  36. Sofia

  37. Prague

  38. Zagreb

  39. Bucharest

  40. Dallas

  41. Houston

  42. Doha

  43. Memphis

  44. Montreal

  45. Santiago

  46. Phoenix

  47. Miami

  48. Dubai

  49. Adelaide

  50. Denver

  51. Abu Dhabi

  52. Milan

  53. Detroit

  54. Toronto

  55. Rome

  56. Singapore

  57. Seoul

  58. Ottawa

  59. Perth

  60. Melbourne

  61. Brisbane

  62. Amsterdam

  63. Riyadh

  64. Belfast

  65. Moscow

  66. Berlin

  67. Washington DC

  68. Las Vegas

  69. Frankfurt

  70. Sydney

  71. Vienna

  72. Chicago

  73. Brussels

  74. Los Angeles

  75. Lyon

  76. Seattle