Ruto's Housing Levy: PS Answers Your 10 Pressing Questions

Affordable Housing Kenya
An illustration of the Affordable Housing Programme by Boma Yangu Initiative under the National Housing Corporation and President William Ruto (insert) on Tuesday, March 4, 2020.
Photo
Boma Yangu Kenya

Housing Principal Secretary Charles Hinga on Wednesday, May 24, spent one hour and twelve sweaty minutes as he explained the proposed Housing Levy the Affordable Housing Fund (AHF) to the media at State House, Nairobi.

Hinga sought to break down the proposed housing levy in the Finance Bill 2023, as he took on critics after the proposal sparked widespread uproar among Kenyans. 

The PS lumped together three major terms, Housing Fund, Affordable Housing Project and Housing Levy, which this piece seeks to simplify for the reader.

The proposed Finance Bill 2023 identifies the Housing Fund, Affordable Housing Project, and Housing Levy as initiatives by the government to address the country's housing deficit.

Principal Secretary, State Department for Housing and Urban Development, Charles Hinga, during the press briefing on the housing agenda at State House on May 24, 2023.
Principal Secretary, State Department for Housing and Urban Development, Charles Hinga, during the press briefing on the housing agenda at State House on May 24, 2023.
Kenyans.co.ke

1. Defining Major Terminologies

President William Ruto's Affordable Housing Programme is largely different from his predecessor's project which was launched in 2018 and is managed by the National Housing Corporation (NHC).

In Uhuru's plan, Affordable Housing Programme was meant to provide financing to developers who were building affordable housing units. The fund was used to provide loans to individuals who are buying affordable housing units.

Ruto's plan is different, in that, under the programme - the Kenya Kwanza administration converted the entire initiative into a Fund, to which the levy will be contributed by both employees and employers, and it will be mandatory.

“Some of you are asking why can’t we make this voluntary? But when it is driven by law, if I’m going to get a billion a month, it means I can go out there and call investors and tell them that as long as the law is there, I will be collecting money after three years,” he said.

Under Ruto's plan, the Affordable Housing Programme has a target of providing housing to 2 million Kenyans by 2030, which is around two-thirds of the total number of employed Kenyans.

State House spokesperson Hussein Mohamed and Principal Secretary, State Department for Housing and Urban Development, Charles Hinga, address the media during the press briefing on the housing agenda at State House, Nairobi, on May 24, 2023.
State House spokesperson Hussein Mohamed (right) and Principal Secretary, State Department for Housing and Urban Development, Charles Hinga, address the media during the press briefing on the housing agenda at State House, Nairobi, on May 24, 2023.
Kenyans.co.ke

2. What is Housing Levy

Hinga claimed that Housing Levy is not a tax, but by all accounts, it is and it will be should Members of Parliament pass the Finance Bill 2023.

The housing levy, when collected by the government will form what is known as the Housing Fund which will be managed by a State agency of the department.

The money collected from both employees and employers will create cushion finance, in other words, a guarantee which will be used by the government to woo investors who will build the houses.

However, the levy was also remodeled into a savings scheme that allows Kenyans to save for a home, which they may decide to own after two to seven years or take back the money contributed to the kitty.

"We will give you back your money plus your return if you don't want an affordable housing unit," PS Housing Charles Hinga stated at a Press Conference in State House.

Previously under Retired President Uhuru Kenyatta, the fund offered a variety of savings and loan products, including mortgages, rent-to-own plans, and tenant purchase schemes.

Uhuru aimed to construct 500,000 affordable housing units by 2022, but he failed, almost terribly in this endeavor. Uhuru's units were supposed to be available to Kenyans earning below Kshs 100,000 per month, but that never happened.

President Ruto is determined to see the project succeed, even as Kenyans protest against the proposal, perhaps, due to inadequate information amid a struggling economy. 

President William Ruto at the groundbreaking of the Lapfund Bellevue Park Residence Project in Nairobi on Thursday, May 11, 2023.
President William Ruto at the groundbreaking of the Lapfund Bellevue Park Residence Project in Nairobi on Thursday, May 11, 2023.
PCS

2. Calculating Housing Levy

The proposed Finance Bill 2023 set housing levy contribution at 3 per cent of the gross income, which will be matched by the employer, making it 6 per cent contribution per month.

For example, if your monthly income is Ksh100,000, you will be required to pay Ksh2,500, and not Ksh3,000 in Housing Levy since the total contribution had been capped at Ksh5,000.

Similarly, your employer will contribute a similar amount, Ksh2,500, making it Ksh5,000 per month, which will be remitted by your company to your account.

3. Terms of the Fund

It is clear that all employees and employers will be required to contribute to the Housing Fund. To be eligible to contribute to the Housing Fund, one must be a Kenyan citizen and must be employed.

Every employee will have a Housing Fund account which will receive 6 per cent of the monthly income. The money will not be used to build houses, according to PS Hinga, but it will be a guarantee that will cushion investors' development expenditure.

Simply put, an employee will give government money that will act as a guarantee for the houses that investors will build.  

"You cannot buy more than one house," Housing PS Charles Hinga warned those planning to take advantage of the Affordable Housing Programme.

4. Duration for Contribution

The contribution duration will be seven years from the starting date. Employees will be able to track their contributions and ask for either a home or request to be given back the money.

5. Investors Engagement

The Kenya Kwanza government seeks to woo investors from abroad and locally to build the houses which will mainly be constructed in urban centres.

The investors will use their own money to put up the houses which will then be handed over to the government as the sole distributor.

“We went to the markets and told them to give us a lot of money today we build roads and in the next 15 years we will be paying that levy and we will be able to pay you out. If we didn’t have that, they would tell us we can’t afford that." 

“The highest-earning Kenyans will only pay Ksh2,500, the majority will pay Ksh1,000 and below. So when we put this all together as a country, we will be able to go out to the market and tell investors that the government is providing land at no cost for Kenyans to own homes, build houses in mass, give me the keys and go. If I don’t have the housing fund, they will refuse to build," Hinga noted. 

At the same time, the investors will get back their seed capital and profit over an agreed period of time, possibly after 10 years, according to PS Hinga.

PS Hinga explained that the Kenya Kwanza government will provide public land on which the houses will be built.

"It will be difficult for me to pursue construction of houses at Mukuru slums because the land is private, and was invaded by individual quarters. However, it will be easy for us to build the houses in Kibra which is a public land," PS Hinga stated.

6. Urban Housing Factor

Kenya is facing an urban housing crisis. The country has a population of over 50 million people, and the majority of them live in urban areas.

However, there is a shortage of affordable housing in these areas. As a result, many people are forced to live in slums or informal settlements.

"Do we all agree that we have a housing problem in Kenyan urban centres?" PS Hinga asked the journalists who attended his press conference at the State House.

There are a number of factors that have contributed to the urban housing crisis in Kenya. These include:

Rapid urbanization: The population of Kenya is growing rapidly, and the majority of this growth is taking place in urban areas. This has put a strain on the housing supply.

High cost of construction: The cost of construction in Kenya is high, which makes it difficult to build affordable housing.

Low income: The average income in Kenya is low, which means that many people cannot afford to buy or rent a home.

Lack of land: There is a shortage of land in urban areas, which makes it difficult to build new housing.

The urban housing crisis in Kenya has a number of negative consequences. These include:

Poverty: The lack of affordable housing contributes to poverty. People who are forced to live in slums or informal settlements often have low incomes and lack access to basic services such as water, sanitation, and healthcare.

Crime: The high concentration of poverty in slums and informal settlements makes them breeding grounds for crime.

Health problems: The poor living conditions in slums and informal settlements contribute to a number of health problems, such as respiratory infections, malaria, and diarrhea.

Social unrest: The urban housing crisis can lead to social unrest. People who are frustrated with their living conditions may 
become involved in protests or riots.

A photo collage of President William Ruto speaking in South Africa on May 17, 2023 (left) affordable houses launched for construction in Lang'ata on May 11, 2023 (right).
A photo collage of President William Ruto speaking in South Africa on May 17, 2023 (left) affordable houses launched for construction in Lang'ata on May 11, 2023 (right).
PCS

7. Distribution of Houses

The houses will be distributed to employees on a need and priority basis. Housing PS Hinga explained that the houses will be in different capacities, including studios, one to three bedrooms.

8. Those Already Owning Homes

The government will not force anyone to own the affordable units, but contributors will also have a chance to withdraw their contributions or buy the house for someone else.

9. Employment

State House Spokesperson Hussein Mohamed on Wednesday, May 24, unveiled the government's plan to create 1.3 million jobs through the highly contested Affordable Housing Programme.

While addressing the media at the State House in Nairobi, Mohamed noted that the plan to create jobs through Affordable Housing Programmed was part of President William Ruto's original idea.

"The Affordable Housing Programme will directly create one million jobs, but another three hundred thousand jobs will be created through supplies in which young people will be contracted," Hussein stated.

Outside the NHC Stoni Athi - Economy (II) housing units for sale
Outside the NHC Stoni Athi - Economy (II) housing units for sale
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NHC

10. Economic Contribution

The housing industry in Kenya is a growing sector, with a number of factors contributing to its growth, including, rapid urbanization.

The housing sector is also a major contributor to the Kenyan economy, and this has led to an increase in disposable incomes. This has made it possible for more people to afford to buy or rent a home.

"Once again, it is essential to emphasise that this initiative did not emerge without planning. It was articulated and outlined in the manifesto, the foundational document on which the President was elected by the Kenyan people," Mohamed explained.