Nairobi working classes suffer soaring rents, as high interest rates dampen construction industry

By Ben Kinyanjui

House rents in Nairobi have risen 20 per cent in the last two years forcing workers to seek cheaper shelter in the outskirts of the city. Rents in upper market fall as workers seek cheaper shelter in the outskirts

The situation is worsened by the existing high interest rates that have slowed down construction of new housing units to meet the ever rising demand for housing in major urban areas.

“With cost overruns, developers with construction underway are now finding it hard to refinance, and new finance is close to unavailable,” says Ms Farhana Hassanali, head, Hass Property Index

According to Hass consult special report on housing prices in Nairobi's suburbs, Nairobi property prices rose in 23 districts and fell in 19 over the last 15 months.

It says by category of housing within the city, the lowest end of the market has delivered the most consistent, steady and largest price rises of all segments of the market.

A breakdown by area, comparing the average price per suburb with the average price of 15 months ago, revealed notable price falls in some areas of the city, most notably Thika, where the average house price fell by six per cent, followed by Brookside and Westlands, where the average prices fell by five per cent.

These changes reflected ongoing changes in the mix of properties to some degree, as more apartments went in, and property became more dense and smaller in these areas - indicating a degree of downmarket movement in these suburbs.

But these areas were also characterised by intense building activity, which added a considerable new supply of properties.

Conversely, the biggest rises in average prices over the last 15 months were recorded in South B, and in Tena, where the averages rose by nine per cent, followed by Fedha, Nairobi West and Nyayo, all of which recorded eight per cent increases in average property prices.

When grouped by market segments, Nairobi's suburbs recorded the steadiest price rises in 2010 at the bottom end of the market, and the lowest rises at the very top of the market, in areas such as Muthaiga and Runda, albeit with exceptions.

A similar pattern has prevailed over the last 10 years, with the most steady and largest price rises happening in the lower end Zone C suburbs, including Donholm, Buru Buru, Nairobi West, and South B and C.

Property prices are now more than three times higher in these areas than 11 years ago, a somewhat greater increase than at the top end of the market. The mid-market, classed as Zone B and spanning areas such as Westlands and Riverside has recorded price rises that have been lower in percentage terms than either the top or the bottom of the market.

In the rentals market, average rentals fell markedly in 2010 at the very top of the market, stabilised in the mid-market, and continued rising at the bottom end of the market, where average rents rose by 20 per cent across the year.

This concentration of sharp rent rises in Nairobi's zone C suburbs explains the mismatch between the experiences of the city's working classes, which has been of recent steep rises in rent, with the relatively static rentals according to the amalgamated rent index covering all of Kenya and all classes of areas.

The latest breakdown reveals that the Nairobi's working class has experienced very sharp rent rises, at odds with the changes recorded in other zones.