By Seeta Shah
(With gracious thanks to Unity Homes directors for sharing their economics).
Unity Homes is delivering two bedroom, 50 sqm apartments in Tatu City (at the periphery of Nairobi) at an average price of Ksh 4.5 million  (about US$ 45,000  ) each. The development, Unity West, is generating significant excitement due to its low density, efficient design, natural lighting, and modern finishes.
Unity West comprises 384 units of two-bedroom apartments, delivered on 6.7 acres. The development is located in Tatu City, a mixed use, master planned city on 5,000 acres, in Ruiru, 30 km from the Nairobi central business district. Unity West is expected to generate rentals of KSh 30,000 (US$ 300) per month excluding service charge (estimated at KSh 3,750 [US$ 37.50] per month), the units should achieve a net rental yield of approximately 7% assuming full occupancy. The service charge will include security, maintenance of green spaces, membership to a fitted out gym and other sports facilities and membership to a library. Unity West is being delivered using aluminium formwork, supplied by KumKang Kind. The formwork does not reduce cost, but improves quality and reduces delivery time from approximately 12 months to 5 months per block. Due to the low density design of 12 units per block, the developer is able to build in line with its sales and hence manage capital efficiently, which is a key requirement for financial feasibility of developments.
Now, each apartment at Unity West comes with one parking space. Buyers often request a second parking space, stating they would “be willing to pay extra for it.” Unity Homes therefore calculated the price of an extra parking space and the figures are surprising – increasing the parking spaces per housing unit from 1 to 2 spaces, increases the housing price by approximately KShs 900,000/-, (Refer to “V” in Table 1 below), an additional 20% of the original parking space! WHY?
|Working out the cost of an extra parking space||Assumption||unit||Number||KShs||USD||Cell Ref||Formula|
|Total units in development||units||384||A|
|Current density||units per acre||58||B|
|Land footprint per housing unit using current density||sqm per unit||70||B1|
|If provide 2 parking spaces per unit instead of 1, would reduce density by 40%. New density||units||230||C||A* 60%|
|New density||units per acre||35||D||B * 60%|
|Land footprint per housing unit using new density||sqm per unit||117||D1|
|2 Bedroom apartment retail price||KES 4,500,000||USD 45,000||E|
|Land cost per acre||Market value||Per acre||KES 35,000,000||USD 350,000||F|
|Land cost per unit with current density||Prorate||Per unit||KES 607,943||USD 6,079||G||F/B|
|Land Cost per unit with new density||KES 1,013,238||USD 10,132||H||F/D|
|Therefore additional land cost per unit due to extra parking space||KES 405,295||USD 4,053||J||H-G|
|Actual area of parking space required, including circulation space.||25||sqm||K|
|Plus cost of finishing parking space (preparing land for drainage, cabro cost plus laying, VATetc)||KES 2,500||per sqm||KES 62,500||USD 625||L||K*2,500|
|Land cost plus finishing cost of parking space||KES 467,795||USD 4,678||M||J+L|
|Plus cost of financing||15%||%||KES 70,169||USD 702||N|
|Land, finishing plus financing cost||KES 537,964||USD 5,380||P|
|PLUS additional cost of higher infrastructure per housing unit (as now fewer units to share fixed infrastructure costs like earth works, perimeter security, electrical, plumbing, sewage and storm water etc)internal roads and drainage, perimeter security etc)|
|Infrastructure cost with current density PER UNIT: using actual costs provided by developer :KES 60,000,000 for whole estate, divided by original 384 units||Per actual infrastructure cost||KES 156,250||USD 1,563||Q|
|Infrastructure cost with new density PER UNIT||KES 260,417||USD 2,604||R|
|Additional infrastructure cost due to lower density PER UNIT||KES 104,167||USD 1,042||S||R-Q|
|Total additional land, infrastructure and construction cost for 2nd parking unit||KES 642,131||KES 6,421||T||P+T|
|Developer Overhead + Profit||35%||%||KES 224,746||USD 2,247||U|
|Total cost of 2nd parking space||KES 866,877||USD 8,669||V||T+U|
Table 1: Working out the cost of an additional parking space
As illustrated in the table above, the increased pricing is driven by the extra pricing space’s implication on density – and how density impacts affordability. In the existing layout, the developer can deliver 58 units per acre, but to fit in an additional parking space, the density would reduce 35 units an acre (as more land space is required for parking, and the housing blocks are therefore further spaced out. The ‘land footprint’ (that is the total land area consumed by each housing unit) reduces from 70 sqm with current density (Refer ‘B1’), to 117 sqm (Refer ‘D1), a 66% increase in land consumption by unit. Further, since fewer housing units are on each acre, the cost of servicing the land with infrastructure has to be shared by fewer units (Refer ‘S’).
When the full implication of the extra parking space is calculated, it results in an increase of almost 20% of the original sale price (Refer ‘V.’). This is multiple times what buyers are willing to pay for the extra parking space (buyers’ responses on how much more they will pay for a second parking space range between Ksh 50,000 [US$ 500] to KSh 150,000 [US$ 1,500]).
The above illustration clearly shows that the cost of delivering the space is much more than the market values it or is willing to pay for it. But while public transport options are limited, families with two adults continue to have two cars, one for each adult’s commute.
The key policy takeaway is that the impact of density on affordability – and how providing good public transport, and therefore reducing the use of land to parking – can promote affordability. While this case looks at the impact of providing a second parking space, we can take it a step further and see how beneficial it would be for households to not even need one parking space. In many advanced countries, even a single parking space near your housing unit is a luxury very few can afford – and parking is typically rented in specific ‘parking garages’ within the neighbourhood. The high cost renting a space within the parking garage, and the available alternative public transport options, discourages the use of valuable land in housing developments towards parking, and segments the market for ‘parking’ and the market for ‘housing.’
It is clear that investment in public transport options that will appeal to the middle income who are currently reliant on cars, is a key step towards affordability.
 The price is dependent on payment terms: the greater the cash payment during construction, the greater the price discount. This is common practice in Kenya, due to the high cost of bank financing for construction.
 The blog has used a conversion rate of Kshs 100: US$ 1 for easier reading.