The Impact of government affordable housing program on housing prices: case study of Nairobi, Kenya

Abstract

This study examines the impact of the Kenyan government’s affordable housing program, Boma Yangu, on housing prices in Nairobi. The research seeks to understand how the introduction and implementation of affordable housing initiatives influence the dynamics of the local housing market, with a particular focus on property values in surrounding areas. As housing affordability remains a significant challenge in rapidly urbanizing cities like Nairobi, this study employs a Hedonic Pricing Model (HPM) to analyze the relationship between the affordable housing program (independent variable) and the housing index (dependent variable), while controlling macroeconomic factors such as inflation, GDP, mortgage rates, and money supply. The analysis is based on descriptive statistics and regression modeling, which revealed that the affordable housing program significantly reduces housing prices, with the housing index decreasing by 7.95 units (p = 0.021). This reduction is attributed to increased housing supply, which fosters competition and aligns with the fundamental principles of supply-demand dynamics. Other significant factors influencing housing prices include inflation and money supply, while GDP growth and mortgage rates were found to have negligible effects in this context. Model diagnostics, including tests for multicollinearity and heteroscedasticity, confirmed the reliability of the findings, with the model explaining 89.44% of the variance in housing prices (R-squared = 0.8944). The study concludes that the Boma Yangu program is effective in reducing housing prices, making homes more accessible to Nairobi’s low- and middle-income residents. However, it also emphasizes that affordability is not solely about price reductions. The program should expand its reach to accommodate diverse income groups and address broader housing equity concerns. Policy recommendations include continued government investment, policy adjustments to enhance program efficiency, and consistent monitoring of its long-term impacts. This research provides critical insights for policymakers and urban development stakeholders, highlighting the potential of government-led housing programs to reshape urban housing markets and address affordability challenges. It also underscores the need for further studies to evaluate the program’s impact across different regions, offering a scalable model for similar urban centers facing housing crises.