In Kenya’s Finance Bill 2023 that was released in May 2023, a 3% monthly basic salary contribution towards the National Housing Development Fund (NHDF) was proposed as a way to fund Kenya’s affordable housing initiative. As per the bill, 3.0% of the contribution will be made by the employer while another 3.0% will be incurred by the employee. 

 

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According to the Habitat For Humanity, Kenya’s current housing demand lies at 250,000 units p.a, whereas less than 50,000 units are delivered annually. To curb the deficit, the government resorted to officially launching an Affordable Housing Program in December 2017, with an aim of delivering 500,000 units by December 2022, at prices ranging between Kshs 1 million and Kshs 3 million, for one to three bedroom units, respectively. Since then, significant milestones have been achieved.

 

However, since its inception, it is worth noting that the housing initiative has struggled to reach its full potential. This is mainly attributed to financial constraints emanating from inadequate budgeting leading to various projects stalling, coupled with an over ambitious target. For instance, in the FY ‘2022/23 Budget, the Affordable Housing Program was allocated Kshs 27.7 bn ($202.5 mn), whereas a minimum of Kshs 416 bn ($3bn) is required to meet the government’s target of 250k homes p.a built, assuming a minimum unit size of 40 sqm, construction cost of Kshs 41,600 ($304) per sqm and a minimum house price amounting to Kshs 1.7 mn ($12,427). As such, budgetary provisions only cover 7% of the goal;

 

The government is thus looking for various avenues of generating funds, one way being through the NHDF tax proposal. Is this a good initiative to help curb the existing housing deficit? Will it succeed, and at what cost? Here are some of the key factors that we put into consideration:

 

• Existing Homeowners: Despite Kenya’s low ownership rate, approximately 21.3% of the population in urban areas as well as 86.6% in rural areas own homes already, while there are others paying for their mortgages. This therefore leaves the question and concern of whether these individuals should or will contribute to the initiative yet they already own homes. 

 

• Inadequate Income To Supplement The Fund: Majority of Kenyans earn an average monthly gross income of Kshs 50,000 ($366). With a marginal PAYEE tax of 10%, coupled with other deductions such as the National Health Insurance Fund (NHIF) and National Social Security Fund (NSSF) that were recently increased, such an individual ends up with approximately Kshs 40,000 ($292) in their accounts. Notably, there are individuals having more deductions emanating from student loans or bank loans. Additionally, the majority of Kenyans are renters and as such need to pay house rents and utilities whose prices have been on the rise. This is not all as there are other expenditures such as food and transport among others. At the end of everything, an individual is left with very little even for savings, and as such adding the housing fund tax will only cause financial constraints.

 

• Inflation: Kenya’s inflation rate has been on the rise with living costs being costly hence imposing a new tax will further make living conditions harder particularly for the low and middle income class individuals;

 

• Mistrust: Lack of transparency from the government has always created a mistrust from the public and such little faith in the initiative. Speaking with sample individuals, the majority believe that even if they are to contribute to the housing fund, they are not certain that their contributions will be put into its intended use.

 

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• Preference: Different people have different preferences for location, type, and design for the homes they want for themselves and the funding initiative has not put that into consideration. Additionally, the type of units to be built under the initiative besides apartments, isn’t clear.

 

• Inequality: The housing fund is only targeting salaried individuals which pegs the question of equality, as it is biased. Given that housing is a basic need for every individual, then it is also fair to deduct everyone’s income under employment regardless of if it is a formal or informal job. As a result, this will also boost the revenue required to implement the initiative.

 

• Inadequate Clarity and Knowledge on Details of The Fund: Example, in Nigeria’s National Housing Fund scheme, its clearly dictated that a salaried individual aged 21 years and above is entitled to contribute to the fund however this is at one’s will, and not mandatory. Moreover, the scheme clearly dictates that one is to contribute 2.5% of their salary to the fund through the Federal Mortgage Bank, with the capital repayable over a maximum period of 30 years and interest capped at 6.0% p.a. This is not the case in Kenya’s Housing Fund Scheme which the government intends to make mandatory, with the interest expected to be rewarded based on the initiative’s performance. There is no clear channel to refer to details of the scheme. Moreover, the 3% is a limited amount to contribute to the initiative taking into consideration the high construction costs and property prices in Kenya, hence the contribution will take a long time. A change in government regime and agendas could also impact the initiative’s progress.

 

Implementing the funding initiative might be a challenge to both the government and citizens given the above. The Government should perhaps focus on other avenues of funding and implementing the housing program such as but not limited to; collaborating and utilizing private sector developers, as well as creating a favourable environment for the operation and developments of Real Estate Investments Trusts in the country. In any case, the housing fund initiative should remain optional.

 

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