Why Kenyans have more to gain from housing levy than homes


Principal Secretary State Department for Housing and Urban Development Charles Hinga. FILE PHOTO | FRANCIS NDERITU | NMG

The Finance Bill, particularly the proposal to introduce a housing levy, has elicited much debate centred on taxation, finance, slum upgrading, governance and the cost of living, but has left out the most important aspect of the levy — it is a trade stimulus programme.

Although building houses are the central activity of a housing programme, it seeks to achieve more than just shelter.

Such programmes can deliver health and safety outcomes, better access to schools, hospitals and markets, vibrant social networks, crime management and efficient use of existing public infrastructure.

But housing programmes—particularly in Kenya where we have talented, hardworking but under-employed young people—can become a stimulus by upscaling a wide spectrum of trading activities.

Job creation: By moving construction of homes from 30,000 units to over 200,000 units a year, the housing programme creates additional demand for unskilled, semi-skilled and skilled labour given that construction is labour-intensive.

According to the State Department for Housing, every housing unit constructed creates new jobs, both direct and indirect.

This could over time create millions of additional jobs. Key to benefit will be architects, engineers, masons and builders, carpenters, landscapers, electricians, transporters, landscapers, welders, stone cutters and moulders, among others.

Working with a conservative figure of 20 employees/workforce per unit (eight professional and 12 semi-skilled and/or casuals) multiply by the 200,000 units per year creates four million jobs.

The State projection of offering employment to a million people per year in the building and construction sector is, therefore, realisable and achievable, if not conservative.

Advanced, efficient manufacturing: The housing programme can propel manufacturing as well through stimulating markets for cement, paint, chemicals, mortar and other inputs.

It is expected that other industries within the built environment sector will equally experience an uplift.

These include sustainable sand harvesting, building stones and hardcore processing, timber preparation and others.

Aside from increasing opportunities, higher economies of scale in an industry usually transform it and make the industry more efficient since the deployment of technology and modern methods of manufacturing become more viable.

For example, just last week Isuzu East Africa launched a car paint plant that uses a technology that allows high-quality economical coating for vehicles.

A key reason for this investment is the growing demand for vehicles in Kenya, which created a stable outlook for upgrading the assembly processes.

The manufacturing sector should equally see efficiency gains and advancement of technology if construction goes up by a factor of close to 10 times the current throughput.

Modern building technologies and standardisation: Closely related to the point above is that larger economies of scale in house construction create opportunities for the standardisation of inputs and adoption of building standards and technologies that are appropriate for modern building density and trends.

This may be important to improve the type of inputs we use for housing, with the view to adopting lighter, eco-friendly and economical materials.

Transformation into new technologies usually requires high demand to absorb the initial investments, which shouldn’t be limited to only the real estate sector, even service sectors like financial, mortgage, insurance and others should be able to create stronger linkages and introduce new products.

Transforming informal artisans to organised industrialists: Again, significantly higher demand for building materials and fixtures such as doors, windows, nails, irons sheets, hinges, glass, paints, curtains and furniture will not only enhance opportunities for informal artisans—it will transform them into organised industrialists.

Housing PS Charles Hinga has repeatedly shared the story of the Ngokamka artisans, who were making a few doors by the side of Ngong’ Road for the Park Road housing project in Nairobi.

These artisans saw an opportunity to upscale, organised themselves into a collective and convinced the developers to give them a supply contract for the entire 1,370 units instead.

The opportunity included 8,500 doors and was worth Sh120 million. They performed this task to the satisfaction of the developers and some of them even own homes today.

If this were to be replicated at a national scale, we could create more than 150 Ngokamkas with earnings of over Sh17 billion per year.

Exports to Democratic Republic of Congo, South Sudan: There is a lot of construction happening in Kinshasa and Juba, among other emerging capitals in East Africa.

With the ramp-up of domestic demand for housing, export opportunities will naturally emerge. Kenya should, on the back of the housing programme, position itself as the leading source of high-quality building materials to fuel the sector in East and Southern Africa.

Overall, this housing plan is about houses, but in my view, the houses are a by-product of the true impact of the programme.

The programme is a trade stimulus that will spur manufacturing, create jobs for both skilled and unskilled cadres, transform the construction manufacturing sector into a technology-driven sector, open exports and stimulate the wider economy back to growth.

As MPs debate the Finance Bill, they should realise that the proposed levy, isn’t about just about houses, it’s a trade stimulus that will play a key role in jumpstarting the economy.

Alfred Ombudo K’Ombudo is Principal Secretary, Trade.

Twitter: @AlfredKOmbudo

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.