The sun has risen and set over Kenya’s real estate landscape since its independence in 1963, painting a vivid tapestry of growth driven by a confluence of factors such as population growth, urbanization, and economic development. Yet, the canvas of Kenya’s housing supply has been marred by stubborn shadows of deficit, especially in urban areas where the population explosion has left the construction of new housing units gasping for breath.
Enter the infamous villains of this piece – home mortgages. The high cost of these financial instruments, despite well-intentioned efforts from the Kenyan government and various financial institutions, has rendered home ownership a distant dream for the majority of Kenyans. The culprits? Skyrocketing interest rates, stringent loan conditions, and the prohibitively high cost of property.
Kenyan banks, the primary suppliers of home mortgages, have taken the heat for their role in inflating the housing deficit. Accused of setting interest rates high and tightening the noose on loan conditions, they’ve effectively blocked many Kenyans from entering the housing market. This blockade has not only curtailed the number of home buyers, but also dampened the demand for new housing construction, thereby adding fuel to the housing deficit fire.
But wait, there’s a new twist in this tale. Enter stage: the Finance Bill 2023. The Kenyan government has proposed a mandatory 3% housing levy deducted from workers’ salaries to bolster contractors in their quest to build affordable homes. This measure, aimed primarily at the working class, has stirred the pot, causing a nationwide debate.
This levy, as outlined in section 76 of the Finance Bill 2023, is expected to draw in around Kshs 57 billion annually for the National Housing Corporation that oversees the fund. The intent? To support developers and contractors in building 200,000 affordable units and subsidize mortgages for low- and middle-income households at a reduced interest rate of 7% – half the market rate. However, critics argue that this new deduction could slash affected employees’ net monthly salaries by as much 52% for some once all statutory deductions are accounted for.
Trade unions have taken a stand against the levy, pointing out that changes to employment law can’t be enforced without discussions. Meanwhile, uncertainty lingers around the constitutional responsibility of the national government versus the devolved government at the county level for affordable home construction.
The housing crisis isn’t just a matter of money and mortgages. Land shortages and high costs of building materials significantly contribute to the shortage of affordable homes. The housing levy, critics argue, does not address the core issue of skewed land ownership and the need for laws setting minimum and maximum land ceilings.
The levy is designed to incentivize developers to tap into the affordable housing market by offering them lower land and construction costs, tax exemptions, and assured government contracts. However, there are concerns about the fund’s administration, which relies on a complex system that could be prone to errors, delays, and fraud.
Moreover, Kenyans remain wary, given past experiences with funds such as the National Housing Development Fund being used as a revenue kitty. There are fears that some of this money might end up in general government coffers rather than the dedicated fund.
The proposed fund is seen by some as an unwelcome compulsory savings scheme. While some prospective homeowners may be attracted by the promise of lower interest rates and extended repayment plans, many households, already grappling with inflation and stagnant wages, may find a further cut to their take-home pay challenging. The fact that contributions are drawn from post-tax income and taxed again when withdrawn leads to concerns of double taxation.
Workers are being asked to stake their long-term security on the success of a housing fund about which many have unanswered questions. There are real concerns that the housing units may end up in the hands of landlords and not the intended beneficiaries. The levy may lead to lower wages, yet Kenyan workers might still find themselves paying high rents for access to housing. This raises critical questions about whether the housing will not be financialised in such a way as to compromise the notion of housing as shelter and personal security.
The curtain falls on this act of the drama, but the stage remains set for a spirited debate. As the real estate sector in Kenya continues to evolve, the question remains – will the proposed housing levy be the hero or the villain of this story? The journey towards making home ownership more affordable and accessible for all Kenyans continues, with all eyes focused on the unfolding narrative.