patrick njoroge : affordable housing finance in kenya – developing a strategic framework remarks by dr patrick njoroge, governor of the central bank of kenya, at the workshop “ developing a strategic framework for affordable housing finance “, co - hosted by the national treasury and the world bank, nairobi, 27 april 2016. * * * good morning! i am indeed honoured to be here today at the opening of this workshop on affordable housing finance, and i thank the national treasury and the world bank for co - hosting it. the theme of this workshop – developing a strategic framework for affordable housing finance – is timely given the state of the real estate sector in kenya. the country continues to experience acute problems of affordable housing and to deal with this, there is need for higher investment, both private and public. as you may be aware the country needs approximately 240, 000 new housing units per year to meet the ever growing need. this is a big challenge given the high cost of construction material and other related expenses. in addition, shelter without the supporting infrastructure of water, sewerage, electricity, and social services fails to achieve the desired benefit. affordable housing therefore is a herculean and multi - faceted objective for which practical solutions are needed. in the words of nelson mandela, “ it always seems impossible until it is done ”. allow me to share with you some statistics on the real estate sector : • the sector continues to receive a small but rising share of bank credit. this now accounts for 13 percent of credit to the private sector, rising from 7 percent in 2010. • the real estate and construction sectors contributed approximately 13 percent to gdp in 2015. • the residential mortgage finance market has more than tripled in the last five years, from ksh. 61 billion in 2010 to ksh. 203 billion in 2015. • the number of mortgages in the banking sector has grown from 13, 800 to 24, 500 over the same period. • though the data is weak, we understand that saccos have provided substantial support to the sector. a critical piece in the puzzle is the role of the financial sector in driving this objective. it is important that this be probed, also highlighting the opportunities but also the significant risks. in particular, the seemingly perennial issue of high interest rates, in addition to high property prices and transaction costs, are often cited as key drawbacks. evidently, the mortgage industry does not seem to provide adequate solutions for affordable housing. however, kenya ’ s outstanding mortgage

gases, fertilisers and food products, in particular grain, have become, at least in the meantime, notably more expensive. furthermore, the war and the related sanctions are again distorting various supply chains, as both russia and ukraine produce a number of goods needed in the retail trade and at upstream stages of production. in february already, disruptions to ukrainian supplies of cable harnesses for motor vehicles led to production stoppages at many car plants in germany, including volkswagen ’ s factory in wolfsburg. another critical good is neon gas. before the war, ukraine was producing more than half of the global supply of this noble gas, which is a key ingredient for making microchips. shortly after the start of military hostilities, production came to a halt. in particular, ingas, one of ukraine ’ s two neon producers, is located in the city of mariupol, which has been occupied and heavily destroyed by russian troops. this production stoppage might impose significant constraints on the worldwide output of microchips. 2 additional distortions of supply chains are being caused by airspace closures, blocked seaports, shipping avoiding the black sea, and a lack of truck drivers. all these factors are adding to the upward pressure on inflation that already existed due to pandemic effects. however, the russian aggression could also affect price dynamics through a change in economic activity. before the war, our experts had been expecting to see a notable economic recovery in spring. the russian aggression, however, clouded the economic outlook in germany. as the war continues, there is a significant risk of a further escalation, which would entail larger direct and indirect effects on inflation. tougher economic sanctions, e. g. including a complete embargo of russian energy exports to europe, have become increasingly likely. these would cause another spike in energy commodity prices and weigh on the economic outlook, at least in the short term. the bundesbank recently published a model - based scenario analysis estimating the effects of an immediate stoppage of energy imports from russia on the german economy. in this scenario, the german economy might even slide into recession, with real output contracting by up to 2 % in 2022. 3 this could exert a degree of disinflationary pressure. nevertheless, on balance, the inflationary factors of sanctions such as an energy embargo would clearly prevail, at least in the short term. 2 / 7 bis central bankers'speeches it