Ministry to consult players on controversial housing scheme

Plans for stakeholder consultations are underway in order to ensure “seamless” implementation of the controversial National Housing Development Fund, Transport, Infrastructure, Housing and Urban Development Cabinet Secretary James Macharia has said, amid protests from employers and employees’ lobbies.

Salaried workers are set to contribute 1.5 percent of their gross monthly pay, matched by employers upon enforcement of the fund initially scheduled from January 1.

Maximum deduction is pegged at Sh5,000, meaning those with monthly income of more than Sh166,000 will contribute Sh2,500, with the employer matching the same.

The establishment of the fund, which became law when President Uhuru Kenyatta assented to the Finance Bill on September 21, is aimed at partly reducing Kenya’s housing deficit, estimated at about two million houses.

SLUMS

Developers have over the years concentrated on building units for the upper-income groups where returns are perceived to be higher and regular, creating a severe shortage of affordable homes for the lower-income majority.

In major urban centres alone, the annual deficit has conservatively been estimated at 200,000 homes against a supply of 50,0000 units, resulting in mushrooming of slums.

“Currently, we have a deficit of at least two million houses. Even if you do the initial 500,000 houses, we shall still have a very big gap,” Mr Macharia said in an interview on Friday.

“Because it’s now law, we shall have more and more consultations on any clarity which is required in terms of how it will be implemented; it’s no longer a matter of if but when.”

Under Mr Kenyatta’s plan, the Housing ministry will offer incentives to private developers to build at least 500,000 affordable houses by 2022 in partnership with the counties — the authorities which own public land in trust.

CRITICS

The government will service public land by funding water, sewerage and electricity connection to about 7,000 acres, earmarked for the ambitious project, to attract private developers to build affordable houses.

Critics of the ambitious public housing scheme said the government has no business “forcing” companies and workers to contribute towards it.

Federation of Kenya Employers (FKE) said it does not understand the rationale for charging the housing levy, insisting a considerable number of companies already contribute towards employees housing needs through plans such as mortgages, owner-occupier schemes and allowances.

“From the spirit with which the whole Finance Bill passed, it showed there was a bit of a rush. There’s already an element of housing being paid by the employers.

"The minimum is 15 percent of your basic pay unless your salary is consolidated,” FKE executive director Jacqueline Mugo said in an interview on Friday.

“To us, it’s a tax because there’s no structure into which this money will go: there’s no institution, infrastructure, governance.”

REVENUE

Treasury Cabinet Secretary Henry Rotich is targeting about Sh57 billion from the levy every year.

Mr Rotich had earlier proposed deductions at the rate of 0.5 per cent of the basic monthly pay, a steep climb down from the five per cent initially suggested by the Transport and Housing ministry.

But President Kenyatta raised this to 1.5 per cent in a memorandum to the National Assembly after he rejected the Finance Bill.

“If certain companies or employees had specific arrangements which are not universal across the country, that’s for them to decide. But this one is a statutory deduction and so it will be done across the board in a standardised manner,” Mr Macharia explained.

“For example, employers cannot say that we cannot deduct NHIF just because they have provided private medical insurance to their staff.”

The legislators had initially rejected the levy, arguing it will pile up operation costs for companies and eat into employees net pay with no assurance that they will own a house from the contributions.

ALLOCATION

The ministry, however, struck a deal with the MPs, pledging to create a mechanism to enable workers who will not have benefited to reclaim their contributions after 15 years or upon retirement, whichever comes first.

The beneficiaries will be chosen through a computerised lottery every year where those who will have registered for a housing scheme will have an equal chance of winning a deed to the houses to be put up by the private developers.

They will then start paying for the units through an off-plan arrangement.

“For those who will be contributing, but are not in the lottery and so are not allocated a house, you don’t lose out,” the CS said.

“We are just ensuring we create enough momentum in terms of financial base. It will benefit everybody one way or another, whether you get a house or not.”

The lottery system borrows heavily from neighbouring Ethiopia where beneficiaries in the low-cost public housing scheme initially paid 10 to 40 percent of the cost of the house as down payment, with the remainder cleared within 20 years.

SOCIAL HOUSES

Ethiopia’s scheme, where the State also provides land and determines the cost of the apartment, has since 2013 become unaffordable to low-income earners after prices went up on higher cost of funds and construction.

Kenya’s proposed affordable housing scheme will have low-cost and social houses.

Home buyers will qualify for the social houses bracket if they earn less than Sh15,000 a month, low-cost (Sh15,000 to Sh49,000) or mortgage (Sh50,000 to Sh99,000) bracket under the initial affordable housing plan.

The home buyers will be accorded a 15 per cent tax relief on their gross monthly earnings while paying for the house.

Those who earn Sh100,000 or more monthly will not qualify to buy a house because they are classified in the high-income range.

“Asking a few people in the formal sector to finance an idea which is good is not sustainable. We have always held that if it’s contributory then it is the contributors who should benefit. You pay into a club, for example, you get the benefits of that club,” Ms Mugo said.

CAPITAL

The Treasury is in the process of incorporating the Kenya Mortgage Refinance Company (KMRC) which will issue long-term bonds to raise cash for onward lending to banks to offer affordable mortgages.

About Sh1.5 billion has been allocated as seed capital to KMRC in this year’s budget, with further capital expected to come from commercial banks, credit unions and development finance institutions.

Some of the firms which have pledged to inject cash into the proposed entity include the World Bank Group (Sh16.1 billion), Co-operative Bank (Sh200 million), Barclays Bank, Stanbic and Housing Finance.