Here is how to effectively fund housing sector

Access to shelter is a fundamental human right and basic need. Globally, housing is, on average, the single-largest expenditure item across income groups. Article 42 of the Constitution gives Kenyans the right to accessible and adequate housing and sanitation standards.

The recent discourse on the new 1.5 per cent housing levy for employees and their employers for the National Development Housing Fund to support affordable housing has been intense. This is not the first time that has been mooted.

The Finance Act, 2018 and the Housing Fund Regulations (2018) required employers to deduct 1.5 per cent from the workers’ basic salary and match the contribution, subject to a maximum total of Sh5,000, and then remit the contributions to the fund.

Kenya has implemented similar measures before to deal with internal economic challenges and shocks. A case in point is the tax reforms in 1993/94 and 1994/95, when a levy was introduced to deal with drought. The weather conditions had discouraged planting, reducing agricultural production.

The 1994/95 Finance Act introduced a temporary drought levy by imposing an additional 2.5 per cent tax on taxable corporate profits and the income of individuals in the highest tax bracket. This approach was redistributive in taxing the wealthy and well-off individuals to support livelihoods through interventions in drought.

Similar approach

The government could have adopted a similar approach in the housing levy. It is agreeable that housing is a significant challenge in Kenya, especially in urban areas.

A World Bank report shows severe housing affordability challenges by over 70 per cent of urban households, manifested in high levels of homelessness, poor human settlement conditions, high housing costs in relation to incomes, and mortgage delinquencies, defaults and foreclosures.

About 12 million of the over 47 million population are urban dwellers. However, a child born in 2017 in a metropolitan area will see the country’s urban population double to 24 million by 2035 and more than triple to 40 million by 2050.

But considerable progress has been made in supporting this sector. The “Economic Survey 2023” report shows 3,480 housing units under construction by the State Department for Housing as of December 2021 at an estimated Sh6.9 billion.

The role of the private sector should be considered when crafting the housing agenda. Necessary preconditions such as financing instruments, access to land, providing basic infrastructure and improving the efficiency of accelerating mortgage registration and title transfers should be established.

Besides, review the taxation model and benchmark with the Finance Act, 1994 provisions. And instead of the 1.5 per cent contribution by both the employee and their employer, we can experiment with a 1.5 per cent levy on taxable corporate profits and the income of individuals in the highest tax bracket as a temporary measure.

Mr Mokua, FCPA, is the chairman of the Institute of Certified Public Accountants of Kenya (ICPAK). [email protected].