Formal sector workers will soon start contributing five per cent of their monthly income towards a proposed housing fund as part of a government plan to increase home ownership among the urban population.
The State Department for Housing and Urban Development said it was finalising a set of regulations to put into operation the Housing Fund, which will also require employers to match their employees’ contribution to the scheme.
The arrangement, which is provided for in the Housing Act, has been abeyance for years, reflecting the scanty attention that successive governments have given housing since independence. The statutory fund is a replica of the contributory pension scheme, and aims to encourage a savings culture, especially among low-income earners living in towns.
“As an employee, you’ll put money into the fund, and whatever you put into it, your employer is going to be required to match the same amount. It’s like a pension, but for housing,” Housing principal secretary Charles Mwaura said in an interview.
Mr Mwaura said the plan has been shared with the Treasury and that regulations governing it are expected to be published in the Kenya Gazette for rollout in June. Affordable and decent housing is one of the four pillars of President Uhuru Kenyatta’s second-term agenda that are meant to improve living conditions across the country.
Official data shows that about 70 per cent of urban residents live in rented housing units, the majority of them in slums, since most cannot afford to buy homes and expensive mortgages continue to lock them out of the home loans market.
The proposed home ownership scheme, however, means employers will carry additional burden of paying part of their workers’ home-buying plans.
Private sector workers and their employers currently contribute Sh200 every month for a total of Sh400 to the National Social Security Fund (NSSF) — a provident retirement fund.
If established, the Housing Fund will be the third statutory fund, after the NSSF and the National Hospital Insurance Fund (NHIF) in Kenya.
The scheme is, however, expected to face stiff opposition from employers, including the Federation of Kenya Employers (FKE), who warned that workers might be hard pressed to raise the cash, deemed too high as a percentage of their income.
“It’s a commendable idea as long as it is well received by employees and employers are not expected to chip in because the number and level of statutory contributions made by employers is already high,” FKE executive director Jacqueline Mugo said.
“Also the category of employees who stand to gain from such an arrangement (low-income earners) may find this difficult to accommodate if they are still to retain the threshold of take-home (at least one third) pay they are expected to keep.”
Mrs Mugo said that several employers already have in place their own schemes to address the issue of housing and that any new arrangement should take that into account.
“The creation of yet another fund when we have not yet fully sorted out existing ones like NSSF and NHIF will complicate matters,” she said.
But Mr Mwaura, the Housing PS, reckons that the effort is in line with the law that requires employers to ensure their workers have decent housing — a provision he says most companies have overlooked.
Section 31 of the Employment Act says “an employer shall at all times, at his own expense, provide reasonable housing accommodation for each of his employees either at or near to the place of employment, or shall pay to the employee such sufficient sum, as rent, in addition to the wages or salary of the employee, as will enable the employee to obtain reasonable accommodation.”
Mr Mwaura said the government is also exploring other avenues of home ownership, including joining hands with saccos to provide low-income earners with interest-free mortgages under Tenant Purchase Scheme (TPS).
The State-backed TPS will target workers with an income of less than Sh50,000 a month, a category where the majority of Kenyan workers fall.
Aspiring home owners with income in excess of Sh50,000 a month will be taken care of through a to-be formed Kenya Mortgage Refinance Company (KMRC).
The entity, with financial backing from the World Bank, will finance banks and saccos, enabling them to disburse affordable bigger home loans to the workers.
The government has set a target of setting up 500,000 “decent” homes for low-income earners in the next five years.
The decision to peg contributions to five per cent of workers’ monthly pay is derived from the Income Tax Act which provides that contributions can be deducted from gross income up to a maximum of Sh4,000 per month under the Home Ownership Savings Plan.
“We have made a proposal in terms of a Bill that we amend that to five per cent of your income to save for your home. Sh4,000 doesn’t matter how much you earn; it makes my househelp and I to contribute the same, “said Mr Mwaura.
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