Macroeconomic Drivers of Housing Supply in Kenya

The imbalance between housing demand and supply has prompted an investigation into the role of the macroeconomic factors on housing delivery in Kenya. Although the effects of macroeconomic conditions have been acknowledged, there is a need to analyse the short-run and long-run effects of these factors to precisely understand the behaviour of the housing market, thereby shielding developers from economic losses. The macroeconomic conditions are operationalized using the inflation rate, interest rate, economic growth, housing price and government expenditure. This study employed a Vector Error Correction Model (VECM) on annual data from 1980 to 2024 of the selected macroeconomic variables, sourced from the National Housing Corporation, Ministry of Lands, Housing and Urban Development and Kenya National Bureau of Statistics and the World Bank. The results showed a clear positive effect of house prices and economic growth on housing supply. On the other hand, the study identified a negative effect of the interest rate, inflation rate, and government spending on long-term housing provision. The interest rate negatively impacted housing supply in the short term. The study demonstrated that only the interest rate affected housing supply in both the short and long run. Increased borrowing costs discourage investment in housing construction in the short term and over time. To manage housing policies effectively, it's essential to keep an eye on macroeconomic factors like interest rates, inflation rates, economic growth, and house prices. Staying informed helps predict