There is a lot of debate about the proposed housing levy that Treasury secretary Henry Rotich proposed during his Budget presentation. The government plans to establish a National Housing Development Fund to manage the fund. The fund levy will be a deduction of 1.5 per cent of an employee’s earnings with the employer expected to match the amount.
Contributors to the fund can then access financing to buy low-cost homes, either through tenant purchase agreements or other schemes.
Most employers and employees do not support the proposal. For employers, it means higher staff costs while employees have complained that the levy puts a strain on an already highly taxed income.
The proposal is in line with the Big Four agenda where the provision of low-cost housing is one of President Uhuru Kenyatta’s legacy projects.
My independent view is that the levy is timely and in fact, is the practice in other countries.
The proposal subjects the reductions to a maximum of Sh5,000. This may not be a big amount for those in the high-income bracket. Furthermore, the employer also contributes a similar amount to the fund.
A lot of people have home ownership as one of their dreams. Currently, home ownership is out of the reach for many. The average Kenyan cannot afford to build their own home. Furthermore, the cost of borrowing is very high and not many people are able to afford a mortgage.
The government proposal very promising as it enables individuals to access a cheaper home ownership alternative.
Perhaps the most important thing would be for good governance of the housing fund to ensure that contributions are safeguarded.
The passing of the Finance Bill in Parliament and its prompt signing into law last week by Mr Kenyatta means there will be changes to employment laws in Kenya.
From the proposal, it is clear that the employer is an agent of the fund by ensuring the deduction and remittance is made. The new law is also expected to affect the employment contracts.
Some employers provide house allowance to their staff while others provide mortgage schemes. Section 31 of the Employment Act provides for house allowance. A lot of employees especially those in senior management levels do have house allowance and some have access to staff mortgage schemes. It is therefore not clear how the new proposal for the housing fund levy would benefit such class of employees.
The proposal is not clear on how those who are in self-employment would be able to participate in the scheme. Perhaps there should be provisions for voluntary participation for those who are self-employed or unemployed to be able to participate and benefit from this proposal.
There is currently in place the Housing Act, a 1953 Act whose main purpose was to provide loans to enable purchase or construction of houses.
Perhaps the new Act would seek to overhaul the old law and establish a new one or amend parts of it.
However, the question is what would be the role of the already existing National Housing Corporation vis a vis the National Housing Fund? Section 6 of the current Housing Act provides for the establishment of a housing fund.
Hopefully, there will be no duplication of roles.
Given the practice in other countries, I believe it is time that Kenya too moved in the same direction.