Demographics, housing search, asymetric information and housing decisions amongst apartment

223 Pages·2014·2.74 MB·English

by  Omagwa Job Ombongi

DEMOGRAPHICS, HOUSING SEARCH, ASYMETRIC
INFORMATION AND HOUSING DECISIONS AMONGST
APARTMENT HOUSEHOLDS IN NAIROBI COUNTY, KENYA

OMAGWA JOB OMBONGI

A RESEARCH THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE
REQUIREMENT FOR THE AWARD OF THE DEGREE OF DOCTOR OF
PHILOSOPHY IN BUSINESS ADMINISTRATION, SCHOOL OF BUSINESS-
UNIVERSITY OF NAIROBI

2014
DECLARATION
I declare that this PhD thesis is my original work and has not been submitted to any other
academic institution for academic credit. I have also given appropriate credit to other
sources used where it is due.
Signed---------------------------------------------- Date---------------------
Omagwa Job Ombongi
Reg. No.: D80/80141/2009

In accordance with University of Nairobi policy, this thesis is accepted in partial
fulfillment of the requirement of the award of a PhD. degree (Finance) in Business.
----------------------------------------------------- ------------------------------------
Dr. Josiah Aduda Date
Supervisor
University of Nairobi, Department of Finance & Accounting

------------------------------------------------------ ------------------------------------
Prof. Erasmus Kaijage Date
Supervisor
University of Nairobi, Department of Finance & Accounting

ii
DEDICATION
To my PhD supervisors (Dr. Josiah Aduda & Prof. Erasmus Kaijage),
To the Vice-Chancellor, Kenyatta University (Prof. Olive Mugenda),
To Dr. Ann Muchemi,
To my wife (Janet), my children (John & Martha) and my brother John,
and
To the old, focused and resilient boxer!

-For their kindness, motivation, invaluable support and for being a fountain of
inspiration in my life.

iii
ACKNOWLEDGEMENT
I would wish to thank the following for their enormous contribution towards my
completion of PhD. My supervisors, Dr. Josiah Aduda and Prof. Erasmus Kaijage, helped
me to stay centred. The following eminent panel of discussants (at the UoN School of
Business) gave me useful suggestions and comments at the departmental forum, open
forum and doctoral forum: Prof. Ogutu, Prof. Nzomo, Dr. Sifunjo, Dr. Awino, Dr.
Munyoki, Dr. Machuki and Dr. Lishenga. Dr. Malombe (Kitui County Governor) who
made me research on Real Estate Finance. My brother John and my mother Eunice made
immense financial contributions towards my PhD fees! My PhD colleagues- Joyce
Ndegwa, Winfred Njiraini, Omoro, Okiro, Ann Wangui, James Gataugwa, Rose, Bro.
Kyongo, Celestine, Kimanzi, Nkatha and Onesmus- for their moral support. My brother
Johannes Kyongo was always there for moral and academic support while Dr. Juliana
Namada always told me to pray and trust in God whenever the going got tough. Muli
helped in me in sorting ICT problems.

The following individuals were equally useful and deserve mention. Molson Onchomba
always remained a true brother and gave me good business income that enabled me raise
money for fees and other PhD related expenses; Mrs. Mary Kibwine gave me financial
support in kind. David and Jackie were so instrumental as my research assistants. Regina
of UoN library was so useful in searching for relevant journal articles that enabled me
develop my literature. Pam, Henry and Omwoyo did well in editing the document.

Several other persons motivated me alot. These include: Dr. Ayacko (Dean, Faculty of
Commerce- CUEA), Prof. Mageto (DVC-Academics- KEMU) and Mr. Atheru (KU Dean
School of Business): for emphasizing to me that progress in PhD was always a priority.
My father (Zach) was always concerned about my progress and kept reminding me to
„keep the spirit burning‟ as this would be a great milestone in the family. I also wish to
thank the Doctoral Studies Office (Jane & Nancy) and BPS for all kinds of support that
they gave me. I also thank all those respondents from households who filled my
questionnaire to enable me accomplish this enormous task. I am highly indebted to all of
you for your contribution to this process.
iv
TABLE OF CONTENTS
DECLARATION................................................................................................................... II
DEDICATION..................................................................................................................... III
ACKNOWLEDGEMENT .................................................................................................. IV
LIST OF TABLES ............................................................................................................... X
LIST OF FIGURES ......................................................................................................... XIII
ABSTRACT ...................................................................................................................... XIV
CHAPTER ONE ................................................................................................................... 1
INTRODUCTION ................................................................................................................. 1
1.1 Background to the Study ................................................................................................... 1
1.1.1 Demographics ......................................................................................................... 3
1.1.2 Housing Search ....................................................................................................... 4
1.1.3 Asymmetric Information ........................................................................................ 5
1.1.4 Housing Decisions .................................................................................................. 6
1.1.5 Real Estate Market in Nairobi County, Kenya ....................................................... 7
1.2 Research Problem ............................................................................................................. 8
1.3 Research Objectives ........................................................................................................ 11
1.4 Value of the Study .......................................................................................................... 11
1.5 Organization of the Study ............................................................................................... 12
CHAPTER TWO ................................................................................................................ 14
LITERATURE REVIEW .................................................................................................. 14
2.1 Introduction ..................................................................................................................... 14
2.2 Theoretical Underpinning of the Study ........................................................................... 14
2.2.1 Rational Choice Theory ........................................................................................ 14
2.2.2 Efficient Markets Theory ..................................................................................... 15
2.2.3 Agency Theory ..................................................................................................... 18
2.3 Real Property and Features of Real Property .................................................................. 20
2.4 Kenyan Housing Market and Government Policy on Residential Housing ................... 21
2.5 Household Demographics and Relocation of Households .............................................. 25
2.6 Real Estate Information and Housing Search ................................................................. 27
v
2.7 Asymmetric Information and Decision Biases in Real Estate Markets .......................... 30
2.8 Moral Hazards, Adverse Selection and the Subprime Mortgage Market Crisis ............. 31
2.9 Mortgage Penetration and Asymmetric Information: evidence from other Financial
Markets ..................................................................................................................... 34
2.10 Empirical Literature ...................................................................................................... 36
2.10.1 Empirical Evidence from the Kenyan Housing Market ..................................... 36
2.10.2 Empirical Evidence from Foreign Housing Markets .......................................... 38
2.11 Research Gaps Identified .............................................................................................. 45
2.12 Conceptual framework .................................................................................................. 50
2.13 Research Hypotheses .................................................................................................... 52
2.14 Chapter Summary ......................................................................................................... 53
CHAPTER THREE ............................................................................................................ 54
RESEARCH METHODOLOGY ...................................................................................... 54
3.1 Introduction ..................................................................................................................... 54
3.2 Research Philosophy ....................................................................................................... 54
3.3 Research Design.............................................................................................................. 55
3.4 Population of the Study ................................................................................................... 56
3.5 Sampling and Sampling method ..................................................................................... 56
3.6 Data Collection Methods ................................................................................................ 58
3.7 Data Analysis .................................................................................................................. 59
3.8 Operationalization of Research Variables ...................................................................... 61
3.9 Chapter Summary ........................................................................................................... 63
CHAPTER FOUR ............................................................................................................... 64
DESCRIPTIVE ANALYSIS AND TESTS ....................................................................... 64
4.1 Introduction ..................................................................................................................... 64
4.2 Pretest of Research Instrument ....................................................................................... 64
4.3 Study Response Rate ....................................................................................................... 64
4.4 Editing and Coding ......................................................................................................... 65
4.5 Cross tabulation of selected Demographic Characteristics ............................................. 66
4.6 Discussion of Cross Tabulation Findings ....................................................................... 71
vi
4.7 Reliability Test ................................................................................................................ 74
4.8 Tests for Normality and Linearity................................................................................... 75
4.9 Tests for Multicollinearity .............................................................................................. 80
4.10 Homoscedasticity and Heteroscedasticity ..................................................................... 87
4.11 Factor Analysis ............................................................................................................. 89
4.11.1 Descriptive Statistics from Factor Analysis ....................................................... 89
4.11.2 Multicollinearity Check ...................................................................................... 93
4.11.3 Kaiser-Meyer-Oklin (KMO) measure and Bartlett‟s Test of Sphericity ............ 94
4.11.4 Communality, Eigen Values and Factor Loadings ............................................. 95
4.11.5 Scree Plots, Component Matrices and Rotation ................................................. 99
4.11.6 Summary of findings from factor analysis ....................................................... 104
4.12 Chapter Summary ....................................................................................................... 104
CHAPTER FIVE .............................................................................................................. 105
TESTS OF HYPOTHESES AND DISCUSSION .......................................................... 105
5.1 Introduction ................................................................................................................... 105
5.2 Hypothesis One (H : Demographics and Housing decisions ....................................... 106
1)
5.2.1 Demographics and Choice of neighbourhood (H ) ........................................... 107
1a
5.2.2 Demographics and Choice of location of apartment house (H ) ....................... 109
1b
5.2.3 Demographics and Source of financing (H ) .................................................... 111
1c
5.2.4 Demographics and Size of apartment house (H ) ............................................. 113
1d
5.2.5 Demographics versus Housing Decisions (Composite) ..................................... 115
5.2.6 Demographics (composite) versus Housing Decisions (Composite) ................. 117
5.3 Housing Search on the relationship between Demographics and Housing decisions 119
5.3.1 Housing Search on the relationship between Demographics and Choice
of neighbourhood (H2a) ..................................................................................... 119
5.3.2 Housing Search on the relationship between Demographics and Choice ................
of location of hous e (H2b) ................................................................................. 123
5.3.3 Housing Search on the relationship between Demographics and Source
of financing (H2c) .............................................................................................. 126
5.3.4 Housing Search on the relationship between Demographics and Size
vii
of apartment house (H2d) ................................................................................ 129
5.4 Asymmetric information on the relationship between Demographics
and Housing decisions (H3) ...................................................................................... 134
5.4.1 Asymmetric information on the relationship between
Demographics and Choice of neighbourhood (H3a) .................................................... 134
5.4.2 Asymmetric information on the relationship between Demographics and
Choice of location of house (H ) ....................................................................... 138
3b
5.4.3 Asymmetric information on the relationship between Demographics
and Source of financing (H3c) ........................................................................... 141
5.4.4 Asymmetric information on the relationship between Demographics
and Size of house (H3d) ..................................................................................... 145
5.4.5 Demographics (composite), Housing Search (composite) and
Asymmetric information (composite) ver sus Housing decisions (composite) . 148
5.5 The joint influence of demographics, housing search and asymmetric
information on housing decisions versus the influence of Demographics on
Housing decisions (H4) ...................................................................................... 149
5.5.1 The joint influence of demographics, housing search and asymmetric information
on choice of neighbourhood versus the influence of Demographics on Choice of
neighbourhood (H4a) ............................................................................................... 150
5.5.2 The joint influence of Demographics, Housing search and Asymmetric information
on Choice of location versus Demographics on choice of location (H4b) .............. 153
5.5.3 The joint influence of Demographics, Housing search and Asymmetric information
on Source of financing versus the influence of Demographics on source of
financing (H4c) .......................................................................................................... 156
5.5.4 The joint influence of Demographics, Housing search and Asymmetric information
on Size of house versus the influence of Demographics on Size of house (H4d) .. 159
5.6 Summary of findings ..................................................................................................... 163
5.6.1 Demographic characteristics-Housing Decisions relationship (H1) .......................... 163
5.6.2 Mediator effect of Housing Search on Demographics- Housing Decisions
relationship (H2) .......................................................................................................... 164
viii
5.6.3 Moderator effect of Asymmetric Information on Demographic characteristics-
Housing Decisions relationship (H3) ......................................................................... 165
5.6.4 Demographics, Housing Search and Asymmetric Information versus Housing
Decisions relationship (H4) ......................................................................................... 166
5.7 Discussion of findings................................................................................................... 167
CHAPTER SIX ................................................................................................................. 174
SUMMARY, CONCLUSION AND RECOMMENDATIONS .................................... 174
6.1 Summary ....................................................................................................................... 174
6.2 Conclusion .................................................................................................................... 175
6.3 Implications of the Study .............................................................................................. 176
6.4 Recommendation to Policy and Practice ...................................................................... 178
6.5 Contribution to Knowledge ........................................................................................... 180
6.6 Limitations of the study ................................................................................................ 181
6.7 Areas for further study .................................................................................................. 183
REFERENCES .................................................................................................................. 185
APPENDICES ........................................................................................................................ I
Appendix I: Questionnaire ....................................................................................................... i
Appendix II: Apartments sold in Nairobi County, Kenya over the last 2 years ................... vii
Appendix III: Sampling of apartments across the County in terms of the 3 clusters ........... xi
Appendix IV: Constituencies in Nairobi County .................................................................. xii
Appendix V: Tests of Hypotheses ....................................................................................... xiii
Appendix VI: A Guide of Nairobi City Development Ordinances and Zones .................... xiv

ix
LIST OF TABLES

Table 2.1: Empirical Evidence on Efficiency of Housing Market ........................................ 38
Table 2.2: Empirical Evidence and Research Gaps .............................................................. 46
Table 3.1: Operationalization of Research Variables ........................................................... 62
Table 4.1: Summary of Responses........................................................................................ 65
Table 4.2: Study Response Rate ........................................................................................... 65
Table 4.3: Gender Versus Age of Home Owner ................................................................. 66
Table 4.4: Marital Status Versus Age of Owner of the House ............................................. 67
Table 4.5: Marital Status Versus Gender of Home Owner ................................................... 67
Table 4.6: Size of Family and Income of Household ......................................................... 68
Table 4.7: Level of Household Expenditure Versus Income of Household ......................... 69
Table 4.8: Education Level of Home Owner Versus Income of Household ....................... 70
Table 4.9: Size of the House Versus Source of Financing ................................................... 70
Table 4.10: Reliability Statistics ........................................................................................... 74
Table 4.11: Tests of Normality ............................................................................................. 76
Table 4.12: Correlations Matrix for Demographic Characteristics ...................................... 82
Table 4.13: Correlation Matrix for Housing Search ............................................................. 84
Table 4.14: Correlation Matrix for Asymmetric Information ............................................... 85
Table 4.15: Correlation Matrix for Real Estate Investment Decisions ................................. 86
Table 4.16: Composite Correlations ..................................................................................... 87
Table 4.17: Test of Homogeneity of Variances .................................................................... 88
Table 4.18: Demographic Characteristics ............................................................................. 90
Table 4.19: Housing Search .................................................................................................. 91
Table 4.20: Asymmetric Information ................................................................................... 92
Table 4.21: Housing Decisions ............................................................................................. 92
Table 4.22: Coefficientsa ........................................................................................................................................................ 94
Table 4.23: Kmo Measure and Bartlett‟s Test ...................................................................... 95
Table 4.24: Table of Communality ....................................................................................... 96
Table 4.25: Eigen Values and Total Variance Explained ..................................................... 97
x