Are the housing incentives to support the government’s big four agenda tenable?

​published on october 8, 2018 / reading time approx.: 5 minutes

In the recent months, there have been several propositions by the government to incentivize the housing sector in Kenya to support affordable housing by Kenyans. This is in line with the Governments current big four agenda of food security, affordable housing, manufacturing and universal health coverage.
 

To ensure the goal of affordable housing for all Kenyans is achieved, the government has come up with various measures and proposals which are aimed at lowering the cost of either acquiring or constructing a house in the 2018 budget proposals. With this in mind, are the proposed incentives with respect to the agenda of affordable housing tenable?
 

In the 2018 budget, the treasury cabinet secretary announced a provision of Ksh.3 billion for construction of affordable/social housing units by the government and Ksh.1.5 billion for construction of housing units for police and prison officers, who are often said to be poorly housed.
 

 The Government plans to partner with the private sector in achieving this by providing infrastructure and utilities to urban land owned by both the national and county governments after which the private sector will be brought on board to facilitate and partner in construction of the housing units. To actualize this, reforms in property registrations, access to affordable housing financing and adoption of new low-cost building technologies will be initiated and implemented.
 

The government has also established the Kenya Mortgage Refinance Company (KMRC), which will jointly work with private sector participants in the industry and development partners to finance various housing projects.
 

Companies that develop at least one hundred low cost residential units annually with prior approval by the cabinet secretary will pay corporate taxes at the rate of 15% as per the proposed income tax bill. This is a reduction of the corporate taxes by half and seeks to attract more investments in residential housing to cater for the urban population. If the bill is passed with this provision as it is, then the affordable housing agenda will be boosted by this proposition as lower taxes will reduce the cost of investments in residential housing units.
 

Through the National Housing Corporation (NHC), the government seeks to establish affordable housing schemes. Under the schemes, resident individuals who make make applications under schemes approved by the cabinet secretary will be entitled to a personal relief known as affordable housing relief at 15% of their pay.
 

This has since been made law under the 2018 Tax Amendments Act. The provision seeks to encourage individuals to save towards the scheme and increase the number of home ownerships. For first time home owners, purchase of houses under the schemes are now exempt from paying stamp duty. This is also seeks to promote home ownership by making it less costly.
 

In the 2018 Finance Act, an employer shall be required to pay to the National Housing Development Fund in respect of each employee 1.5% of the employee's basic salary with the employee contributing a similar amount with a capping of five thousand shillings. With this enactment, the Government has introduced a compulsory deduction from the employed work force envisaged to ensure fruition of the universal housing agenda.
 

Employers have already raised concerns over this law and deem it an additional burden that can even lead to job losses and inhibit fresh recruitments. Employees have also given their thoughts on the provision and mostly find it inappropriate and an attempt by the Government to interfere with their flow of income.
 

Several issues have arisen with respect to this law. Key among them is instances where contributors do not end up getting houses. The law has given an option of refund of the contributions in this regard upon expiry of fifteen years since the date of the start of making the contributions either in cash or a transfer to a registered pension scheme, a person registered and is eligible for affordable housing under the housing scheme or a transfer to their spouses and dependent children. Even with this option, people are still skeptical about getting a refund of the funds and examples have been drawn to the retirement benefit scheme contributions (NSSF)where access to funds by beneficiaries has proven bureaucratic and difficult with time.
 

Public policy and governance experts have argued that the Government's involvement in initiatives such as affordable housing schemes which have in the past been undertaken by the private sector particularly in the real estate industry might not be a sustainable venture in the long run. Government projects are usually implemented after lengthy and bureaucratic planning procedures and at times face shortage of resources and funds. The initiative has also been critiqued as too ambitious and not aligned to the current housing problems facing the urban population.

Ideally, these are good initiatives to ensure affordable housing is achieved in the long run.Howevor; they largely target people with substantial amounts of income. Currently, our urban centers are overpopulated with the capital city Nairobi hosting over four million people.
 

As a result of this, the slum menace cannot be avoided. The government policies and tax incentives have not addressed this problem. The incentives under affordable housing schemes cannot be said to be sufficient and attractive to people in the lower pay bracket and mostly the slum dwellers.Previously,the government had come up with a slum upgrading program which failed to yield desired results since the houses that were set up to replace the slums were still unaffordable to the people.
 

South Africa came up with a housing strategy, the white paper in housing with a special focus on the poor and those in the lower end market. The thought behind this was to ensure decent housing and living conditions for the citizens in the post-independence era. At the time, the largest slum was Soweto in Johannesburg. Even with the housing strategy in place, implementation became difficult due  to resistance from those lower cadre and income brackets and South Africa today has slums in all its major cities of Capetown,DurbanJohannesburg and Rustenberg.Being one of the most developed and big economies in Africa, the slum menace faces the governance of South Africa with no solution in sight. AS it is always the case in most slums, crime and HIV prevalence are some of the social ills that have infiltrated South Africa particularly in Johannesburg, a case that is similar to Nairobi in areas close to slum dwellings.
 

In order for the government to deal with the slum problem, there is need to consider setting up a housing plan with specific incentives targeting slum dwellers.
 

A consideration to subsidize their rent rates and have other amenities such as water and electricity freely available to those who move from slums can be a starting point to encourage people to leave the slums.
 

The government should also declare construction of shanties and other indecent houses an illegal and highly punitive act to inhibit expansion of slums. If this is achieved, then the universal housing agenda will be targeting a more wider urban population and will be achievable in the long run if oversight and adherence to the set policies is done well.