The State Department for Housing and Urban Development has started allocating cash from housing levy to accelerate the construction of affordable homes in the first full year of implementation.
The National Housing Corporation (NHC), the lead implementer of public housing programmes, is set to be among the first recipients of the funds generated from the gross monthly earnings of workers at the rate of 1.5 percent, matched by employers.
The Housing and Urban Development department has instructed NHC to start laying the ground to develop affordable units for an initial budget of Sh10 billion.
“For initial collections, we have received a letter…which has committed an initial Sh10 billion to the corporation [NHC] for purposes of facilitating the implementation of affordable housing programme,” NHC managing director David Mathu told the Business Daily in an interview.
“Those funds are supposed to assist us in launching affordable housing projects across the counties.”
All employees, whether on permanent and pensionable terms or contract-based engagements, were from July, required to contribute towards the Affordable Housing Fund, widening the reach of collections.
President William Ruto rallied Parliament to enact the housing fund through the Finance Act 2023 despite protestations from employers and civil society groups.
The fund is gross-on-gross taxation on workers’ income where the Kenya Revenue Authority uses the same gross to also calculate the pay-as-you-earn, a form of double taxation.
The taxman has barred employees from benefiting from the affordable housing relief, which was previously provided under Section 30A of the Income Tax Act.
The Treasury projects deductions from the levy to amount to Sh63.2 billion this current financial year ending June 2024, rising to Sh70 billion in the 2024/25 fiscal year and Sh78 billion in the financial year 2025/26.
The Ruto-led administration targets to develop up to 250,000 low-cost housing units and associated social and physical infrastructure annually under the Affordable Housing Programme[AHP], which is at the heart of the government’s jobs creation agenda.
“It is important to appreciate that firstly National Housing Corporation has land in almost every part of the country,” Mr Mathu said.
“So we could quickly be in a position to utilise this fund because we have ready titles for our property, and, therefore, implementing these projects becomes much easy by way of using the Corporation because land is already available as part of our assets.”
NHC says it plans to start construction of between 20,000 and 30,000 houses based on the allocated budget this financial year.
The units will comprise of 50 percent affordable houses, 30 percent market-driven homes and remainder 20 percent social housing in line with the government policy.
NHC initially plans to build low-cost units on 700 acres across the country. The housing parastatal will make available 650 acres, while another 50 acres will be acquired through partnership with counties.
“In my procurement plans, all the 47 counties have been factored [for affordable housing projects], but we will initially target major cities and urban areas,” the NHC boss said. “Where we have a lot of informal settlements, we believe that’s where we are initially going to put most of these funds. We also target fast-urbanising counties for purpose of taming further growth of slums.”
Cost of construction has been a major impediment in putting up affordable housing units, hurting the State’s plan to erect 500,000 units in five years through 2022 under the previous regime of retired President Uhuru Kenyatta.
The average cost of building a house was estimated at Sh34,650 – Sh77,500 per square metre early last year from Sh33,450 – Sh72,400 per square metre in late 2020, according to a research by Nairobi-based Integrum Construction Project Managers.
