The extent to which pension funds can be used to address the affordable housing gap in Kenya

Abstract

The government of Kenya developed the Big Four Agenda in 2017, which is inclusive of affordable housing provision among the other three agendas. However, challenges with housing provision have led to an estimated 2 million-unit deficit. This study investigates how pension funds can address Kenya's affordable housing gap through constructing optimal hypothetical portfolios and evaluating the effectiveness of investments in private equity and real estate. The Shapiro-Wilk normality test was used to determine if asset class data follows a normal distribution to justify Mean-CVaR method optimisation in place of MVO. The asset classes were optimised and subsequently portfolios inclusive and exclusive of private equity and real estate asset classes were optimised, with performance compared. The returns of the optimal portfolio were used in a model to estimate the number of housing units the pension fund could purchase. The analysis showed that equity data alone follows a normal distribution hence justifying the use of Mean-CVaR optimisation for the multi-asset portfolio and that the traditional asset portfolio is the most profitable, rendering private equity and housing as ineffective investments. Further research is required on expanding pension portfolio asset class range and identification of better proxies for private equity and real estate data .