Kenya’s Housing Levy: Will It Solve The Housing Crisis Or Fall Short?

The housing crisis in Kenya has been one of the most ancient and emotional issues, which have reached almost all spheres of social and economic existence of the country. The high rate of urbanization, population explosion, increasing cost of construction, and the growing gap between the rich and the poor have all led to a scenario where a decent and affordable home is beyond the reach of millions of Kenyans.

Informal settlements keep growing in cities such as Nairobi, Mombasa, Kisumu and Nakuru as rural-urban migration rises faster than the provision of formal housing whereas the demand is significantly greater.

Kenya has been estimated to require more than 200,000 additional housing units every year which is why it is happening that only a fraction of this is being provided every year, and even then, the number of units that is provided is not to the low-income earners, but to middle and higher income earners.

It is against this context that the government came up with Housing Levy, which is part of its larger affordable housing agenda. The tax, which employees pay and the employers contribute to, was aimed at creating a constant flow of funds that will be used to building the affordable housing units throughout the country.

Its proponents say that it is an impressive and innovative remedy to a structural issue, which has existed decades. Critics however consider it as an extra tax to already overstretched workers where the benefits are not clear and the implementation strategies are questionable.

This blog takes a critical look at Housing Levy in Kenya and poses an overriding question; will it effectively address the housing crisis or will it not meet its high expectations? Through an examination of the historical case of the housing issue, the goals and the design of the levy, the economics and social consequences it may produce, the issue of governance and accountability, and insights into the lessons of previous initiatives, this discussion will attempt to offer a balanced and detailed viewpoint on one of the most controversial policy interventions in Kenya in the recent past.

The Roots of Kenya’s Housing Crisis

The housing crisis in Kenya did not just come out of thin air; it is a result of decades of structural, economic and policy-related issues. Rapid urbanization is also one of the most influential drivers.

The urban population of Kenya has been increasing exponentially since independence because of rural to urban migration with the aim of finding jobs, education and higher living standards.

This influx was never properly structured or prepared in terms of the necessary resources in the cities; hence overpopulation, overstrained infrastructure, and the development of informal settlements.

A big percentage of the urban population today lives in slums that are poor in sanitation, insecure tenancy and in poor housing conditions.

The issue is also enhanced by income inequalities. Although Kenya has had the growth of the economy, it has not been spread equally. The percentage of the population that has low or intermittent incomes makes it impossible to buy mortgages or even the rental houses available in the market at market rates.

The fact that low-income earners are regarded as high-risk borrowers by financial institutions, which work in profit-making models, is an effective way of locking them out of formal housing finance.

This makes home ownership an impossible dream to many and their rental markets are characterized by informal agreements that can hardly offer protection to tenants.

Land issues are also in the center stage. The urban and peri-urban land is costly, not well-registered, and at times disputed. The price is further increased by speculation and hoarding by individual developers and those with political contacts, which causes the cost of construction to be high and affordable housing developments to be pushed to the periphery or far out in the outskirts with no easy access to jobs and amenities.

Inadequate land administration and corruption has been past challenges in the efforts of allotting land to public housing on a transparent and efficient basis.

These difficulties have been enhanced with policy inconsistency. Lots of housing programs have been initiated but stalled or even failed over the years because Kenya has tried quite a number of programs such as site and service programs, and even public-private partnerships due to poor financing, coordination or shift in political priorities.

The lack of a long-term, properly-funded, and broad-based housing policy established the circumstances under which the Housing Levy has seemed both needed and urgent. The reason is that these roots have to be considered in relation to determining whether the levy would be effective to counter the actual causes of the crisis or it is just treating the symptoms.

Understanding the Housing Levy and Its Objectives

The Housing Levy was proposed as a compulsory contribution towards funding the development of affordable housing units all over the country. The contribution made by the employees under the policy is a set percentage of their gross salary and the employer matches this percentage, thus a pooled fund that is administered by the government.

The specified goal is to spur mass, predictable capital to finance the mass housing developments, decrease the dependency on debt, and, eventually, bring down the housing prices of the low and middle-income Kenyans.

In its essence, the tax is pegged on the notion of shared responsibility. Housing is not only viewed as a personal goal but also as a social good and has a wide range of economic and social advantages.

Advocates note that proper housing enhances health, education and productivity and also boosts economic operations by building and construction industries. The levy will provide a sustainable source of funds which is not reliant on annual budget allocations or donations and is achieved by spreading the cost across the formal workforce.

The government has set the levy within the context of a larger affordable housing initiative which also incorporates the idea of public-principal partnerships, developer incentives, and infrastructure assistance.

The money raised is to be used to fund land acquisition, construction and supporting infrastructure and completed units are given to the eligible applicants via transparent criteria.

Theoretically, those contributors that are not provided with houses would be liable to refunds or other benefits such that participation is not wholly extractive.

Yet, there are some significant questions in the design of the levy. The formal employment sector of Kenya is only a fraction of the overall workforce and therefore the responsibility of funding affordable housing is left imbalance between salaried and non-salaried employees, in that most working population in the informal sector plays a marginal or no role.

This raises the issues of fairness and equity. Furthermore, the fact that common funds are going to be converted effectively into low-cost units rests much on proper governance, cost management, and market facts.

These are the key objectives and assumptions that need to be understood to determine how well the levy is a calibrated solution or how optimistic a policy experiment the levy is.

Economic Implications for Workers, Employers, and the State

One of the most controversial issues regarding the policy is its economic effect on the housing levy. To employees, especially the low and middle-income earners, the tax is a decrease in their wage bills.

With the price of living increasing with inflation, increase in fuel price and taxation, a slight percentage reduction can have a great impact on the household budgets. According to critics, this financial pressure is negating the very purpose of raising living standards when those who are contributing what is known as a housing benefit are not getting the benefits realized in the short term.

The cost of labor is also high to employers as they have to match with employee contributions. In the case of large firms, this can be handled but in the case of small and medium-sized companies which are the greatest part of the Kenyan economy, this extra cost may deter employment, lower wages or further demote business operations to the informal sector.

In a competitive economic setup, increased employment cost would decrease the aggregate productivity and investment, which may decelerate the growth of the economy.

On the part of the state, the levy will provide a stable source of internal revenue that will be allocated to the housing development. It makes it less reliant on external borrowing and enables long-term planning.

Small-scale housing construction has the potential of the economy due to job generation, expenditure on local material and multiplier effects in the other sectors like transport, manufacturing, and services. These advantages might cover the short-term expenses incurred by employees and employers in theory.

The main problem is time and allocation. The economic advantages of housing building are most commonly long-run and diffuse in nature and the expenses of the levy are immediate and concentrated.

When housing delivery is slow or not considered to be accessible, there is the risk of eroding the public support. Whether the levy succeeds then relies on how the government can prove visible and on-time economic payoffs and how the load is not imposed on those that it aims to serve disproportionately.

Social Equity, Inclusion, and Public Perception

The policy of housing is also closely connected with the issues of social equity and inclusion, and the Housing Levy is not an exception. Those who endorse the levy argue that the pooling of resources helps in massive interventions which the individual household could not have done on its own. When adopted properly, it would increase the coverage of decent housing for low-income families, decrease slums, as well as encourage more inclusive urbanization.

Nonetheless, the levy has received varied responses in terms of perception by the population, most of them being related to the sanctitude of fairness and transparency. A large number of the workers are doubting whether they will ever have the opportunity of getting the houses under construction, since there are qualifications, and allocation procedures besides the location of the projects.

In case affordable units are clustered in remote locations where individuals have limited access to jobs, education, and medical care, they might be inapplicable and out of reach to the would-be beneficiaries. When this happens, the party will likely perceive the levy as an imposed savings plan that does not have much individual value.

Another problem is that of exclusion. Informal sector employing most Kenyans is not much in the framework of the levy contribution but most members of this sector are the most affected by poor housing conditions.

Although they could be benefiting indirectly due to an increased housing supply, not being involved directly, creates a question of inclusiveness and shared responsibility. Deliberate targeting should be applied to women, youth, and individuals with disabilities, as they are frequently more disadvantaged in the housing markets, so that the program would not sustain the current disparities.

Governance, Accountability and Implementation Issues

The well-planned policy could not work without good governance and accountability procedures and the Housing Levy is especially susceptible to such threats because of the sums of money involved.

The history of misconduct and mismanagement of public funds and corruption by Kenyan officials has influenced public mistrust and transparency has become one of the main issues.

The issues concerning the handling of the money, the process of selecting the projects, and cost control raise the most important questions about the credibility of the levy.

Its successful execution needs to be coordinated at various government and non-government levels, private developers, financial institutions and community stakeholders. Problems with land acquisition, provision of infrastructure or regulatory approval may be a big step in the cost and speed of delivery.

When the inefficiencies are transferred to the contributors, through increased levies or reduced housing units, then, the value proposition of the program becomes weak.

Mechanisms that would be used to enhance accountability include independent audits, periodic reporting to the public and parliamentary oversight that would ensure that money is spent as planned.

The political interference and favoritism can be avoided through clear procedures of selecting the beneficiaries and transparent allocation procedures.

Digital registries and payment tracking systems are some of the areas of technological opportunities to increase transparency, but it should be put in place efficiently and inclusively.

Policy consistency should also be an element in the long-term sustainability of the levy. Any political shift in leadership or priorities may also interfere with the flow of funds or the purpose of the programs, and keeps the contributors wondering what they will get back.

It is hence important to build sustainable institutions and legal frameworks that surround the levy. Without good governance the Housing Levy can be another ambitious venture that will end up being a failure on account of implementation.

Lessons from Other Countries and Future Prospects

Kenya is not the pioneer in trying out levy-based or compulsory contribution programs to fund a housing program. The foreign experiences have a lot to learn. Mandatory savings schemes (ratified on housing) have been successful in such countries as Singapore because of well-established institutions, high trust, and urban planning.

Conversely, similar programs in other developing economies have failed because of poor governance and low cost as well as mismatch with the labor market.

In the case of Kenya, to implement these teachings, there must be a realistic evaluation of the local conditions. The key to success of Housing Levy will be matching the supply with the real income rates, making the units really affordable, and combining the housing projects with transport, employment, and social services.

There should also be flexibility; to add perceived value, one can provide contributors with choice, e.g. housing rental, incremental ownership or refund.

In the future, the tax may contribute to changing the housing situation in Kenya in case it is integrated into a larger consistent plan. This will cover land management reforms, promotion of alternative building technologies, expansion of housing finance to the poor earners, and better control of rental markets.

The levy in itself is not the answer to the housing crisis but it may trigger the changes in case it is instituted in a transparent and inclusive manner.

Conclusion

Housing Levy in Kenya is an ambitious proposal that seeks to address a long rooted and complicated housing crisis. It is promising to provide mobilization of large-scale and predictable funding, positioning housing as a shared social task.

However its hazards are also very considerable especially economically, socially and with governance issues.

The only way to find out whether the levy will resolve the housing crisis or not is through implementation. Should the money be used in a transparent manner, the projects will be implemented smoothly, and the housing units will be available to those who require them the most, the levvy may become a turning point in the development of the cities in Kenya.

Should there be however a failure in implementation and loss of faith in the government, then it will be just another example of a policy that was well planned but could not convert vision into reality.

The housing crisis requires long-term investment, creative thinking, and all-encompassing solutions. The Housing Levy is a small part and a huge puzzle, and its success or failure will provide valuable lessons in policy decisions in Kenya in the future.

Also read: Urban Regeneration in Kenya: Why We Need More Projects Like the Alexandra Renewal Project