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How feasible is the affordable housing promise?

by Sharon Chepngetich

Kenya has a housing deficit of 200,000 units annually. It’s against this shortfall that President Uhuru Kenyatta introduced the affordable housing agenda under his Big Four pillars of economic development to address this challenge.

Government targets to construct 500,000 low-cost housing units in five years, to meet the annual deficits. This is in addition to increasing manufacturing, ensuring food security and providing universal health coverage.

The houses are expected to be affordable enough to enable occupants meet other basic needs, be standardized and well-spaced with continuous supply of clean water and electricity. And the location should be in decent places that are readily available to both the lower, middle and upper class of the society.

To implement the Affordable Housing agenda, the Finance Act 2018 amended the Employment Act 2007 to introduce a National Housing Development Fund (NHDF) levy, which upon gazettement, prescribed the requirements for qualification to the scheme.

In November last year, James Macharia, the Cabinet Secretary for Transport, Housing and Urban Development released the draft Housing Fund regulations, 2018, which  required all employers and employees to register with the Fund. The employers and employees would each contribute 1.5 percent of their monthly basic salaries to the Fund, with the combined contribution capped at Ksh5000.

The Finance Act 2018 also provide for voluntary membership for self-employed persons. However, the regulation has elicited serious concerns from industry stakeholders, with some terming it suspect.

“We note that the Regulations do not provide any exemption for foreign nationals working in Kenya for a short period of time. We hope this is something that can be rectified before the regulations are finalized,” notes PricewaterhouseCoopers (PwC), in its latest Tax Alert report.

According to the Fund, voluntary members (self-employed persons) are required to contribute a minimum of Ksh200 per month, with Ksh100 going towards the Fund’s maintenance costs and the other Ksh100 being the member’s actual contribution.

The PwC Tax Alert report raises concerns about the uniform operational costs of the Fund, noting that the fee creates inequity since employees are not expressly required to make similar administrative contributions.

“The monthly fee to cover operational costs of the Fund may discourage voluntary membership by self-employed persons, especially in the informal sector,” the report adds.

Such sentiments are shared by David Ndii, an astute economist, who, in his twitter account early April termed the idea to force employees pay the housing levies ‘unjustified, considering many Kenyans earn lower wages.’

“Who thinks for this government? How do you justify forcing a minimum wage tea picker in Kericho or waiter in Kwale to finance middle class housing in Nairobi?’ the economist’s official twitter account, @DavidNdii, queried.

While government says the contributions will be made directly to a designated account of the Housing Fund that will earn interest at a rate determined by the National Housing Corporation, acting as a savings scheme,   Mr. Charles Hinga, the Permanent Secretary in the State Department for Housing and Urban Development rubbed Kenyans’ shoulders the wrong way when he recently suggested that a lottery system could be applied to determine who is eligible to own the houses.

Pundits like Ken Opalo, an Assistant Professor at Georgetown University, see the housing levy a graft scheme in the making.

In an article published in a leading daily, the lecturer says the Kenyatta administration has never fully explained how the scheme will work: ‘How will we determine deserving households? How exactly will the funds translate into actual affordable houses built?’

“These are important questions that must be answered before the country hands over tens of billions of shillings each year to a government known not for any tangible achievements. The money will most likely be stolen…,” Opalo notes in a commentary published by the Standard.

Owing to the questions clouding the housing levy, the Employment and Labour Relations court temporarily suspended the tax mid April.

“Since there were previous orders stopping implementation of the housing fund levy, I am satisfied the application by Cofek is of utmost urgency and grant order stopping the deduction of employees’ salary until May 20 when the dispute will be heard,” ruled Lady Justice Maureen Onyango.

 Introducing a mortgage financing facility

In a commentary published by this publication last month, Johnstone Oltetia, the interim Chief Executive of Kenya Mortgage Refinance Company, a lending facility created by Kenya’s National Treasury, suggested that there are mainly two ways to achieving affordable housing in Kenya.

First is building decent, low-cost homes and, developing housing finance market that enables low-income earners to buy those homes- ‘for without finance, almost no home price is low enough to be affordable on an average salary,” Oltetia says.

While Kenya’s mortgage finance market has been growing, Oltetia is worried that the local market has been held back by multiple constraints, including bureaucracy. And with these challenges, “most primary mortgage lenders thus set higher mortgage rates and focus on high net worth individuals and high earners who can afford higher rates.”

It’s in a bid to address some of these challenges that the National Treasury created Kenya Mortgage Refinance Company as a lending facility to provide longer term funds for banks and SACCOs for residential mortgages in Kenya.

According to Oltetia, KMRC will provide secure funding to mortgage lenders so that they can offer more mortgages at lower prices. “With such long-term funding, primary mortgage lenders will also be able to lengthen repayment periods to 15 to 25 years, and offer a fixed interest rate, making mortgages both safe and affordable for low income earners,” he says.

The new financing, he says, will mainly be available for lower cost housing, valued at less than Ksh4million in Nairobi metropolitan areas of Nairobi, Machakos, Kiambu and Kajiado, and Ksh3million elsewhere.

Kenyans must be earning less than Ksh150,000 a month to be eligible for the housing loan.

Other than rolling out KMRC, government has introduced various budgetary allocations to cater to the affordable housing programme.

In the budget statement FY2018/2019, ksh.6.5billion was set aside to achieve the Big Four economic pillar, including; Ksh 1 billion for construction of affordable housing; ksh.2 billion for construction of social housing units; ksh1.5 billion for construction of housing or police and Kenya prison and ksh1.5 billion for civil servant housing scheme.

The allocations also include Ksh 2.5billion for Kisumu urban programme; ksh.4.3 billion for Nairobi metropolitan services and ksh. 11.7 billion for Kenya Urban programme.

While construction projects have already began in certain quotas, either through wholly government facilitated projects or Public-private-Partnerships, it remains to be seen how the affordable housing promise will be realized, three years to its deadline.



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