Study on the influence of government expenditure on housing supply

Abstract

The debate over whether government spending on housing aids or impedes residential investment and housing supply remains a significant topic of discussion. This study examines the effects of government housing expenditure on housing supply in Kenya from 1980 to 2024. Utilizing a time series data regression method, the analysis employs a fully modified ordinary least squares (FMOLS) approach, along with robustness tests, to explore the relationship between the relevant variables. The findings indicate that government housing expenditure has a negative and significant impact on housing supply in Kenya. Specifically, a 1% increase in public housing expenditure is associated with a potential reduction of 0.8 housing units supplied. These results suggest that public spending may adversely affect investment in the housing sector, hinder employment, and slow the rate of housing supply.  The VECM and OLS robustness tests indicate that public spending harms housing provision, suggesting that government expenditure on housing is not being allocated effectively and should be reassessed. The study recommends that the government should harness private sector expertise and funding to facilitate the construction and maintenance of housing. This approach could potentially lower costs and enhance the efficiency of government expenditure. A balanced strategy that integrates government support with market-driven solutions is essential for addressing the housing crisis in the Kenyan construction sector.