Determinants of housing demand in Nairobi, kenya

Abstract

Housing is a key component of urban development. Improved housing is not only a desirable goal in its own right, but it also contributes to economic growth, social development, improved governance and enhanced security and stability. Failure to deal with housing issues will lead to the continued growth of slums and poorly serviced informal settlements on the urban periphery. This study therefore set out to investigate the factors that determine demand for housing in Nairobi City using annual time series data from 1979 to 2009. The Schwarz‟s-Bayesian Information Criterion (SBIC) was used in lag selection. The tests for stationarity and cointegration were done to avoid spurious results in the estimated model and to depict if there was a long run relationship between two or more non-stationary variables. The Error Correction Mechanism was estimated to capture the long run relationship. The results of the study show that for Nairobi city, the major determinants of demand for housing are income proxied by GDP, the number of households and housing prices. The prices of other goods and interest rates have no significant impact an indication that households are more concerned about housing prices and growth in their income. The study findings could be used to guide policy on urban infrastructure, slum upgrading projects, housing finance and affordable land for housing in both National and County governments.