Affordable Housing Levy Bill boosts Ruto's key project

President William Ruto inspects the ongoing construction of 220 affordable housing units in Bomet County. [PCS]

The Affordable Housing Levy Bill that President William Ruto is expected to sign into law could help the government collect as much as Sh90 billion annually by its fourth year of implementation. 

According to disclosures by the National Treasury in budget documents, collections through the Affordable Housing Levy are expected to reach Sh89 billion in the 2026/27 financial year up from the estimated Sh63.2 billion over the current financial year. 

Revenues through the levy are expected to grow gradually to Sh70 billion in the 2024/25 financial year and Sh78 billion in the 2025/26 financial year. 

The levy has however been off to a faltering start, having been subject to numerous court cases and is unlikely to meet this year’s target.

The government collected Sh26.8 billion over the six months to December, according to the Parliamentary Budget Office (PBO), falling short of about Sh35 billion. 

Still, collecting Sh26.8 billion over the half year - and possibly doubling this by the end of the financial year to Sh54 billion — is no mean feat. 

It is money capable of building mega infrastructure projects. For instance, the Nairobi Expressway, which is one of the most recent and visible projects in the country, was constructed at a cost of about Sh74 billion, over a three-year period, which would mean through such a levy, Kenyans would not struggle to raise the capital required for the project. 

In real estate speak, the Central Bank Pension Tower, the 27-story building on Harambee Avenue was put up at a cost of Sh2.49 billion. 

Employed Kenyans pay 1.5 per cent of their gross pay for the levy that is then matched by their employer.

The Bill has sought to cure the challenges that the affordable housing levy has faced since it was introduced by the Finance Act 2023. Petitioners went to court after it came into effect last July arguing it violated the Constitution as it lacked a legal framework that would guide how the funds would be used has also been a key concern.

The petitioners also argued that the levy would also make life unbearable for Kenyans who were already overtaxed and hit by tough economic times. KRA was at some point stopped from collecting the levy by the High Court. 

The levy will emerge as one of the major revenue earners for the government. It is in comparison to the Railway Development Levy (RDL) imposed on all imports at 1.5 per cent which netted the government Sh40 billion in the financial year to June 2023.

“The (Affordable Housing) bill contains provisions on the imposition of the Affordable Housing Levy, in particular, clause 4 imposes a levy at the rate of 1.5 per cent of the gross salary of an employee while creating obligations of an employer in respect of the levy,” said a joint report by Parliament’s Committee on Finance and Planning and the Committee on Housing and Urban Development

“The Bill provides for the establishment and management of the Affordable Housing Fund, source of funds and payment out of the Fund. Specifically, the Bill provides for the allocation of the Fund to various agencies including the National Housing Corporation for the development, maintenance, rehabilitation and off-take of affordable housing programmes projects under the Public Finance Management (Kenya Slum Upgrading, Low Cost Housing and Infrastructure Trust Fund) Regulations 2006.”

It also provides for the allocation of money to the State Department of Housing for the development of institutional housing programmes and projects approved by the Cabinet. 

The Bill was drafted following the High Court judgment on November 28, last year, that it was unconstitutional.

Busia Senator Okiya Omtatah and other petitioners had lodged a suit challenging the implementation of the Affordable Housing Levy, which was effected in July last year as the state implemented the Finance Act 2023. They noted that the levy was unconstitutional as it lacked a comprehensive legal framework to govern it. 

The court said the levy was unconstitutional and vague and that there was no law allowing the Kenya Revenue Authority (KRA) to collect it.

The court also found that the levy was discriminatory since it targeted only employed Kenyans and the government did not demonstrate why it excluded other categories of income earners.

What followed was a hasty drafting of the Bill, which was sponsored by the Leader of the Majority Party, published on December 4 and tabled in Parliament on December 7. It was then committed to both the Departmental Committee on Finance and National Planning and the Departmental Committee on Housing. The Committees undertook public hearings during which Kenyans gave their views on the bill. 

The National Assembly passed the bill on February 21, which later sailed through the Senate on March 13 (last week). 

“The majority of the stakeholders supported the Affordable Housing Bill, 2023 noting that the promotion of investments in affordable housing has a multiplier effect on the economy through the creation of employment and enhanced general economy,” said a report by the two committees.

“In addition, the stakeholders suggested an amendment to the clause to incorporate representatives or professionals from the housing industry into the Affordable Housing Board.”

During the public participation phase, stakeholders also expressed concerns about some of the clauses including the failure to have a cap in place or make the levy voluntary. They also felt that the requirement for an individual to raise a 10 per cent deposit was limiting the low income from benefiting from home ownership under the affordable housing scheme.

The Federation of Kenya Employers had proposed that the Bill be amended to make contributions to the Fund voluntary. The employers lobby also wanted the contribution per employee to be capped at Sh5,000 in total for both employers and employees, considering the financial constraints faced by employees.

FKE also suggested that institutions be allowed to nominate candidates to board positions and not leave this to be the exclusive decision of the Cabinet Secretary. It also proposed the principle of “one ID one affordable housing unit” and also that only individuals paying the affordable housing levy should be eligible for a housing unit.

The committees in their report to Parliament said they noted the concerns on potential abuse and amended the Bill to put in safeguards such as having one KRA PIN allocated only one house. Accountants, through the Institute of Certified Public Accountants of Kenya (ICPAK), had also proposed making the contribution voluntary and capping it. The accountant’s body also wanted the law to be structured such that PAYE would be calculated minus the levy to avoid a situation of double taxation.

PBO – the parliamentary think tank – has also warned that the people who are targeted by the project might not benefit. It noted that high-income earners, as opposed to Dr Ruto’s ‘hustlers’, are more likely to benefit from the affordable housing projects. The PBO noted that the rich might be allocated more units than they require while the low-income earners would be left to fight out for the units available to them, as they might be fewer than the number of Kenyans in this bracket. 

Kenya has a deficit of 200,000 housing units annually, which the government notes has led to high costs for poor-quality housing, including slums.  It is against this, Treasury says in budget documents, that the government is aggressively getting into housing and has started implementation of several projects across the country. 

“The construction of 46,792 units in various parts of the country is already underway, while another 40,000 units are ready to commence construction. A total of 746,795 housing units are in the pipeline, undergoing various stages of delivery,” said Treasury in the Budget Policy Statement. 

“The Government is also implementing policy and administrative reforms to lower the cost of construction and improve access to affordable housing finance while creating jobs and entrepreneurial opportunities to all Kenyans.”

“ In this regard, the Government is structuring affordable long-term housing finance schemes, including a National Housing Fund and Cooperative Social Housing Schemes, that will guarantee off take of houses from developers.”

It adds that the housing levy would provide the off-take fund that will de-risk investors.

“(The housing levy will also) offer affordable finance to home-owners, bringing home ownership within the reach of the majority of urban population,” said Treasury, adding that the programme would create jobs for many Kenyans, including individuals and small firms in the building and construction sector.

“The Affordable Housing Programme is also envisaged as a job-creating economic stimulus that will offset the cutback in public infrastructure spending. The Programme is  expected to create quality jobs for youths, employing graduates from TVETS, directly in the construction sector and indirectly throughout every value chain in the housing development ecosystem.”

“Already, 50,000 Kenyans, who were previously unemployed, are now engaged directly and indirectly in this enterprise, and the numbers will significantly increase as the projects move into the next phases.”