The Finance Bill 2023/24 has caused quite a stir in the country, with various stakeholders expressing their opinions on the hotly debated topic on the introduction of a 3% Housing Levy for Kenyan workers in the formal sector. Mr Edwin Dande, the CEO of Cytonn Investments, and Mr Kennedy Waweru, a Real Estate Research Analyst at Cytonn Investments, demystify the affordable housing fund topic and propose an alternative housing fund structure.
What are the issues raised on the housing levy proposed by the government?
Kennedy: Opposition leaders, lobby groups and other proponents expressed their dissatisfaction, terming the proposed housing levy a punitive measure intended to further burden citizens with more taxes in the challenging economic situation. One of the key issues raised was the lack of a robust legal framework, with opponents pointing out issues in the existing framework, which might leave loopholes for misappropriating funds.
Edwin: While questions have been raised on the little to no public awareness of the matter, I am of the opinion that the housing levy matter has been discussed in depth, and the only concern is whether the government is mandated to incorporate public feedback into the proposal. Looking back, the government has a negative track record on its previous initiatives, such as Uwezo Fund and Hustler Fund, recording high loss ratios and expense ratios, casting doubt on the government’s capacity to effectively manage the contributors’ funds.
What improvements can be made to the proposed housing levy to make it better?
Edwin: Following the criticism from stakeholders, we have seen the PAC propose a reduction of the housing levy from 3% to 1.5%. In addition to that, we have seen Kenyans come out and ask that the levy be optional, with those interested in the projects participating. Stakeholders have also expressed the need to have the process of getting affordable housing made clear and airtight policies formulated to safeguard the undertaking from fraud and misappropriation.
Now that we have held discussions analyzing the government’s proposed housing levy, what is your proposed alternative?
Edwin: Our alternative is a privately managed but government-regulated structure where the housing levy contributions will be managed by private funds and the proceeds used to buy houses under pre-approved government-approved projects.
Mandatory Contributions
Edwin: Mandatory contributions at the rates proposed by the government in line with its agenda on the provision of affordable housing
Private Fund Structure
Edwin: The government sets up a private fund structure where private funds enforce collections from contributors, thereby allowing for a more efficient decentralized system. Having contributions go to private funds improves transparency and accountability on the transactions, thus avoiding wastefulness and fund mismanagement associated with government funds.
Competition between Private Funds
Edwin: Allowing private funds to manage contributions will stimulate healthy completion resulting in better returns for contributors and cost efficiency, and better participation by contributors in general. The completion is a sharp contrast to the current proposal of a government-managed fund, which lacks the incentive to provide better returns and cut costs.
Kennedy: The privately managed housing fund arrangement is expected to yield a return of 16%. These high returns will be earned through investment in short-term securities. Key to note, the amount of contributions directly affects the duration it takes to achieve high returns, where reducing the amount of contributions to 1.5% will result in a longer tenure.
Contributors’ Choice of Private Funds
Edwin: The alternative places the choice of fund manager in the hands of the contributor, which restores an element of control to the main beneficiary, thus boosting their confidence in the housing fund. Consequently, good public perception will significantly improve the contributors’ willingness to participate in the undertaking, thus boosting its success rate.
Restriction to Government-Mandated Projects
Edwin: Restricting investment by the private funds to government-approved projects places a check on the usage of the funds, allowing the government to dictate suitable areas for development in line with its affordable housing agenda. This will also allow the government to protect the interest of the contributors while acting as a deterrence for the private funds from mismanaging the funds.
Why is Kenya fixated on solving a housing problem instead of spurring industrialization?
Edwin: The government has identified housing as one of the key areas that needs to be addressed and has therefore introduced a plan to deduct contributions from employees. Given that Kenya is a democratic nation and the proposed policy directly concerns the citizens, then everyone is at liberty to share their opinions and voice their concerns over the matter.
Kennedy: The result of the ongoing discussion and debate on the housing fund is improvements to the proposed policy, such as reducing the contribution amount. Furthermore, the policy addresses housing challenge in the country while at the same time spurring growth in the construction industry.
How do you give out the houses if people are contributing to different funds?
Edwin: The private funds are saving vehicles where the contributions are received. On the other hand, will be government-pre-approved developers who will develop houses in line with the government’s vision. The funds will not be directly utilized in developing the houses but rather go into the saving vehicles, then upon maturity of the funds, the contributors can channel the money to purchase houses from the government-approved affordable housing projects tax-free or alternatively withdraw the funds for any other use but at a tax. The main idea is to delink the investments from the houses, given that people have varying needs.
Under the proposed alternative structure, how will the common mwananchi tell the best option in terms of returns from the numerous private funds?
Edwin: The proposed alternative builds up on the government structure, therefore, one can still go ahead and invest in the government fund. However, should they want to compare returns of the available private fund options, they can still approach any of the fund managers for more information.
How will the proposed alternative structure integrate sustainable and eco-friendly practices in the development of the houses?
Kennedy: The alternative structure will be under a legal framework anchored by the law. As such, the developers will be required to meet and maintain certain quality standards that are regulated by the government.
How will the alternative structure address the challenges caused by the regional disparities in housing, especially in urban vs rural settings?
Edwin: The proposed alternative focuses on giving contributors a choice on where they save their housing fund. Afterwards, the individuals seeking to buy houses would have the option to choose units from government-approved projects. As such, the government should take into account the regional disparities when approving projects under the affordable housing scheme.
Parting shots
Edwin: We encourage Kenyans to continue with the engagements on national matters that concern them. Citizenship engagement is key. Have a considered view on government proposals, don’t accept things as they are served, but also don’t reject matters without due consideration. Provide feedback on emerging issues and lobby for the change you want.
Dealing with the Housing Supply Deficit in the country
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