Through Irfan Keshavjee’s organization, Karibu Homes, he is working to close the housing market gap by developing affordable solutions that meet the needs of low- to middle-income earners, a currently underserved population.
The New Idea
Irfan’s Karibu Homes is closing the housing gap through partnerships with developers, construction firms, banks, and insurance providers in order to drop the costs of building and financing a home. By doing this, he is able to achieve economies of scale and supply affordable housing at an unprecedented scale, something no other organization has achieved due to the high upfront costs. The houses have been designed to include income-generating potential that can contribute to family income and mortgage payments. All houses have an additional room that can be rented or used for a small business. Most importantly, all home owners have a stake in the ownership and management of the larger community. Karibu Homes provides an underserved group with the opportunity to enjoy a better quality of life (i.e. safety, access to better sanitation, and education services) with an asset that could provide the foundation to create wealth for themselves and their children.
Irfan has employed a number of creative project financing strategies, including the innovation of an investment facility, and the Affordable Housing Bond, to mobilize inexpensive and patient capital from social investors committed to the social impact of this project rather than its potential profits. In addition to achieving economies of scale through the sheer size of the Karibu Homes project, he has further reduced construction costs per house by designing contractual agreements that incentivize inexpensive and creative building solutions.
Kenya’s population is rapidly urbanizing as people migrate to towns and cities in search of employment and other economic opportunities. An increasing urban population correlates with the growth of slums—60 percent of Nairobi’s four million people live in slums that cover only 1.5 percent of Nairobi’s land. Kibera, the largest slum in Kenya, has a household concentration of over 250 per hectare and is home to an estimated population of half a million people (growing rapidly at 6 percent per year). With the current rate of urbanization at 4.2 percent, it is estimated that 70 percent of Kenya’s population will live in urban areas by 2050 and the number of people living in slums will have doubled. In addition to increasing in size and density, slums lack infrastructure and basic services, such as sanitation, electricity, and water. An estimated 94 percent of all slum dwellers do not have access to toilets or fresh water; the child mortality rate is 150 out of every 1,000 (15 percent, compared to 0.6 percent for Nairobi as a whole). Thus, there is a growing segment of the urban population that continues to live in degrading conditions without much access to affordable housing. This group’s discontent can pose a risk to society at-large, as was demonstrated during the 2007 post-election violence that broke out in Nairobi’s slums and eventually engulfed the nation leaving hundreds dead and tens of thousands displaced.
Neither the government nor the civil sector has provided a solution at the scale that is necessary to make housing affordable for low-income earners. It is estimated that the annual demand for affordable housing in Kenya stands at 150,000 houses while supply barely reaches 50,000 houses. The current deficit stands at over two million houses. Houses built through public programs are quickly snatched up by opportunistic middle- to high-income buyers who put them back on the market at higher rates. Although civil society initiatives correctly target low-income groups, they employ approaches that are tied to group savings and community-ownership schemes. These approaches are difficult to scale to meet the demand. These initiatives are also mostly grant-funded, making them unsustainable in the long-term as systemic solutions to the housing shortage. As such, most projects—unable to leverage economies of scale and raise large amounts of capital—resort to acquiring cheap land that is often far from town centers and the workplaces of beneficiaries, who will often choose to live in slums because they are closer to work.
Real estate investments in Kenya fetch returns of at least 70 percent and sometimes up to 100 percent or more in a single year. The high rate of return makes housing for high-income earners far more attractive to investors than affordable housing for low- and middle-income earners. Therefore, even though banks have developed mortgage products targeted at low-income earners (i.e. paying $100 a month over 20 years), these ideas have remained on paper due to the shortage in supply of low-cost houses. The cheapest houses available cost around $40,000 and are for salaried employees earning at least $1,000 a month, which represents only 10 percent of Kenya’s salaried workforce. With over 90 percent having to rent houses, rental rates have also shot up beyond the means of most; thereby pushing the majority into slums. Through Irfan’s research in Nairobi, he recorded at least 100,000 people earning between $200 and $300 living in slums and the surrounding areas with no hope of ever owning a home or renting better quality housing.
Irfan understood that slums tend to sprout in areas close to busy town centers or at the outskirts of a city due to their proximity to slum dwellers’ workplaces. He saw that the daily commute between home and work was an important factor to consider as he developed a solution, a point that most civil society approaches had missed entirely. Irfan established Karibu Homes in 2009, and identified a twenty acre piece of land in Athi River, a town twenty minutes east of Nairobi and home to some of East Africa’s biggest factories, including cement and steel industries. Slums in Athi River are home to some 90,000 people, most of whom are employed in these factories.
Irfan envisions Karibu Homes as more than simply houses and the buyers as more than just low-income homeowners. He sees both the homes and the homeowners as a part of a community with water, electricity, and green spaces for every house and with paved roads, recreation grounds, health facilities, and daycare centers for all to enjoy. Irfan sees the social equilibrium created by a community structure as a significant source of hope and dignity for a group that has been conditioned to undeservedly accept inhumane living conditions as part of life. To reinforce a sense of community, Irfan created a community management company that is owned by all homeowners who, along with their house, will each own one share of the company. Every homeowner will have a say in determining how the community will be governed and managed to provide a safe and nurturing environment for all to thrive and raise their families.
Irfan strategically chose to structure Karibu Homes as a social business because he understood the challenge that alternative non-profit models posed to ensure both affordability and scalability. The first challenge he faced was raising capital to finance the pilot and acquire the necessary land in an ideal location. This endeavor took three years to accomplish. Irfan set out to raise money from a unique type of investor who was looking for a higher return in social impact than profit. In order to filter out the profit-motivated investors, he capped the rate of return at 30 percent and wrote this into contractual agreements to protect the integrity of his mission. To present a well-packaged opportunity for these extremely rare socially-motivated investors, Irfan created an innovative investment facility called the Affordable Housing Bond that promised a compelling social return and some profits to investors. After reaching out to a multitude of international investors, he succeeded in raising over $2 million to buy the land (i.e. which appreciated to three times the originally quoted price by this point). In addition to another US$2.6m he raised, he will employ a cross-subsidy model, in which half of the houses sold at market rate will finance the other houses targeted at low-income buyers. With these elements in place, he has enough financial capital to begin construction of the first 300 homes as the first phase of his pilot. With the initial risk fully financed, Irfan has several other investors and banks waiting to finance the remaining part of the project.
While he worked on securing his initial financing, Irfan knew that the greater challenge would be to keep the houses affordable for his target group while delivering a return to investors. He saw that the key to doing this was to keep construction costs extremely low. Irfan recruited and built relationships with a team of contractors, engineers, architects, and suppliers. Irfan’s recruitment criteria were centered on the shared desire to create social impact. The critical partners that he pulled together within his extended team were therefore all willing to take lower than market rates for their services and products. He has used efficiencies of scale to further drive down the cost of logistics for line items such as transport and storage. Irfan has created special agreements with contractors in which workers are paid for work done per day as opposed to contractual fees being paid in lump sum at the end of the project in order to eliminate workforce redundancy and thereby minimize hour on hour labor costs. In the same agreements, he has introduced a clause to recognize and reward creativity that leads to further cost saving during construction. Through such creative strategies, Irfan anticipates he will cut construction costs by 20 percent or more.
As Irfan was overcoming challenging financial hurdles and identifying his partners, he was just as focused on ensuring that eventually, the lives of the beneficiaries would truly be transformed. An important step for him in this regard was to be able to reach the right group. To wade off high-income buyers waiting to snatch up low cost deals, Irfan established partnerships with savings and credit cooperatives, housing cooperatives as well as HR managers in companies that employ low-income workers to correctly target salaried workers at income levels considered too low by banks. He then worked with the banks to structure mortgage payment schedules that will allow workers earning as little as $200 a month to purchase a $14,000 home by paying as little as $60 a month—paid from source—over 20 years. In doing so, Irfan has opened the mortgage market to another 70 percent of the salaried employee market. As part of the mortgage agreement, buyers are asked to commit to not sell their house for at least three years. As with any mortgage product linked to one’s employment, Irfan was keenly aware of the associated risk of default associated with job loss, sickness, and death among other unforeseen circumstances. To safeguard against this, he has partnered with the National Cooperative Housing Union, an umbrella body for over 300 housing cooperatives to provide training about mortgages to aspiring homeowners. While the banks have integrated a job loss insurance scheme covered by partnering insurance companies as part of the mortgage structure. More to this, Irfan has worked with his engineers, architects and home designers to imbed in every home a space for a home-based enterprise, i.e. a salon, a shop, a kiosk, a daycare center, or a barber shop. With the added revenue, the homeowner will be able to supplement or completely cover their monthly mortgage payments. And as the homeowner’s income increases, the house design has been developed to allow further expansion by a room or two which could be semi-detached and rented—generating even more income for the homeowner.
Irfan has worked tirelessly over the last three years to bring all the critical pieces of Karibu Homes together and broke ground in 2013. He expects to have the first 300 units completed in 18 months, after which the second tranche of investment from committed investors and banks will kick in to complete the project of 1,000 units. While the pilot is underway, Irfan will be doing the groundwork for an ambitious scale out strategy that will see 10,000 new homes built through the same model every year after the pilot is complete. But even with 10,000 new homes a year, Irfan realizes that his contribution is like a drop in the ocean compared to the huge deficit of affordable housing. He is therefore in contact with the government and is sharing his model. Irfan wants to open source his work to other private sector players in the hope that it will be replicated.
Irfan is a second generation Kenyan from an entrepreneurial family that moved to Kenya from South Africa in the 1950s. His family, like many Asian and mixed race families, experienced discrimination and were forced to migrate from South Africa. Their experience filled Irfan’s father and family with a deep sense of awareness about what inequality and social injustice could lead to. So even as they founded another family business—White Rose, East Africa’s largest chain of laundry service providers—they did so with a sense of social consciousness and introduced unprecedented employee welfare schemes. White Rose was the first company in Kenya to give shares to employees, give employees meals at work and offer a health insurance scheme. Thus, while Irfan was groomed for the family business with deeply rooted social values, he was also going to school in the UK and Canada, and as a Kenyan of Indian origin he faced different forms of discrimination. Caught between two worlds, he developed an acute awareness of human inequity early on. After his education, Irfan took over the family business and carried on its traditions of fairness, inclusion, and promoting the rights of its employees.
In 2000, Irfan and his father got involved with Ashoka Fellow Farouk Jiwa in starting Honey Care Africa—the single most successful social enterprise in Kenya. Irfan has been on the board of Honey Care Africa for over ten years and saw it pioneer the concept of social enterprise in the country and then go on to move over 12,000 farmers completely out of poverty through beekeeping. He refers to his ten-year spell as a founding member of Honey Care as a PhD in Social Entrepreneurship. Honey Care has spread its work across Africa with support from the World Bank, Oxfam, DANIDA, USAID and other notable development institutions.
Irfan also helped to establish the Hawkers Market Girls Centre in 2002, to help girls from slums around Nairobi acquire the vocation and life skills they need to get themselves and their families out of poverty. Irfan also started Kenya’s first holistic yoga and meditation health retreat before coming across the world of TED Talks. After watching his first episode, he was compelled to host Kenya’s first TEDx event in a cinema (2008). He saw the TED Talks as a tool to nudge at peoples' consciousness and inspire them to lead change in their lives and communities. TEDx events quickly caught on in Nairobi and the idea has spread to other parts of the country.
Karibu Homes was inspired by two events that changed Irfan’s life. One is the story of a taxi driver who narrated a heart-breaking experience about being thrown out of his house with his wife and daughter for getting into rent arrears by one month—due to a medical bill he had diverted from rent money. As a result, he had to move his family back to his village and take his daughter out of school. The fragility of the taxi driver’s life—like that of many slum residents—tugged at Irfan’s heart. Soon after this experience, Irfan’s daughter was born. Excited, he bought a huge 8ft x 8ft bed to lounge on Sunday mornings with his family. But this decision would set him on a different path. While talking with his home security guard, Irfan realized he lived with his wife and four children in a house the same size as his bed. This was the final nudge he needed to spring into action. Irfan then knew that finding a solution to keep people from living in conditions similar to the taxi driver or the security guard is what he wanted to devote the rest of his life. Irfan planned his exit from White Rose, while he laid the groundwork for the launch of Karibu Homes.