KENYAN ECONOMY UNMASKED: EXPLORING THE INTERCONNECTED REALMS OF INFLATION AND REAL ESTATE GROWTH

Abstract

The real estate industry, renowned for its flexibility and profitability, has experienced exponential growth in Kenya. It has significantly contributed to the country's GDP, increasing from 10.5% in 2000 to 13.8% in 2016. This remarkable expansion is attributed to stable GDP growth, rapid urbanization at 4.4% annually (compared to the world's 2.5%), and a population growth rate of 2.6% per annum. The surging middle-class population has intensified demand for housing, resulting in a national housing deficit of 200,000 units annually and a cumulative shortage of over 2 million units.

Affordable housing, in particular, is in high demand, with 61% of urban dwellers residing in slums and a 40% deficit in student accommodation. Recognizing this need, the Kenyan Government's "Big Four Agenda" included affordable housing as a strategic priority in its Medium Term Plan Three (MTP III) for 2018-2022.

To achieve affordable housing objectives, understanding the determinants of real estate growth is crucial. Prior studies have explored the relationship between real estate and economic factors, with findings indicating that interest rates negatively impact real estate performance. Additionally, the study suggests the importance of regulating inflation rates to ensure stability in the real estate industry.

This research aims to provide empirical evidence on how short-term inflationary changes adjust toward long-term equilibrium, offering insights into the dynamic relationship between inflation and real estate industry performance.