Impact of Interest Rates on Housing Market in Kenya: A Supply Side
DOI:
https://doi.org/10.59413/ajocs/v6.i5.7Keywords:
Interest Rate, Housing Market, Construction Investment, Affordable HousingAbstract
The study investigated the influence of lending interest rates on housing construction and homeownership in Kenya. It utilised the unit root test, Granger causality test, and the generalized method of moments (GMM) model to analyze economic time series data from 1979 to 2025. The findings from the unit root tests indicated that the variables were I(1), confirming the absence of variables with I(2) properties. The regression coefficients demonstrate a significant negative effect of interest rates on housing supply, illustrating a one-way relationship between the two. Empirical results indicate that higher or rising lending interest rates contribute to a slowdown in the housing market. This phenomenon can be attributed to increased borrowing costs, which deter investment in housing construction both in the short and long term. These findings suggest that policymakers in Kenya should consider implementing measures to regulate bank lending rates and enhance oversight, thereby promoting affordable housing.
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