Housing incentives: State’s token ‘sweeteners’ have never worked

The government has not been short of incentives meant to cushion the cost-intensive sector from market volatility. In 2008, the government came up with a raft of incentives targeting developers of low-income housing. Like the current proposal, in which developers are meant to get a ten per cent corporate tax rebate, not many developers were optimistic about the incentives.

“The Minister for Finance may remit (exempt) VAT payment in respect of construction of not less than 20,000 housing units for low-income earners on the recommendation of the minister responsible for housing in line with regulations set out under legal notice No. 115 of 2008,” stated the government in 2008.

The main bone of contention was the government’s definition of what constitutes a low-income house. The house ought to be no less than 30 square metres, or one that developers said was too big for the target market of people earning Sh35,000 or less. To date, there is no record of any developer taking up the incentive.

In 2010, the Banking Act was amended to allow mortgage finance companies operate current accounts so as to “attract higher customer deposits that would allow them to increase mortgage lending capacity and expand their operations”.

They were to raise the threshold of core capital to be invested in mortgages from 25 per cent to 40 per cent. In fact, the Central Bank of Kenya could consider an application seeking to raise the threshold to 70 per cent.

Last year, Treasury Cabinet Secretary Henry Rotich increased capitalisation of mortgage financing firms from Sh1 billion to Sh5 billion in order to facilitate the construction of large scale projects.

The country’s mortgage account is a little more than 20,000 in a population of 40 million. As long as developers continue to use large chunks of their resources in paying for the ever-rising land costs and infrastructure developments, any other enticement will prove ineffective.