Why Kenya’s Housing Levy will remain controversial

When Lands, Public Works, Housing and Urban Development Cabinet Secretary Alice Wahome appeared on TV a week ago to explain the progress of the Affordable Housing Programme, Kenyans focused on one comment – that paying the Housing Levy is not a guarantee that you will get a house. The CS said that those paying the Housing Levy are not guaranteed to own a house regardless of how much they contribute, as the money is not a saving but a tax.

“Contributing to the housing levy does not guarantee owning a house under Boma Yangu. What you’re contributing is not your savings; you’re contributing a tax. The money you are contributing is not supposed to give you a house; it is helping us build the house. After that, it is you who pays for that house,” the CS said.

The debate over this comment has raged since, but it is not surprising, as the Housing Levy in Kenya has been a contentious issue since its inception. The government initially claimed that contributors would have the option to purchase houses under the Affordable Housing Programme or withdraw their contributions after seven years if they do not acquire a house.

Additionally, while the government presents it as a key solution to the country’s housing deficit, critics argue that it places an undue financial burden on workers and employers. The legal battles surrounding the levy have further fueled the controversy.

How does the Housing Levy work?

The Housing Levy was introduced under the 2023 Finance Act as part of the Affordable Housing Programme (AHP). It operates as follows:

1. Deductions from Salaries
   • Employees contribute 1.5% of their gross salary toward the National Housing Development Fund (NHDF).
   • Employers match this contribution by also paying 1.5% of their employees’ gross salary to the fund.
2. Collection
   • The Affordable Housing Act 2024, designates the Kenya Revenue Authority (KRA) as the collector of the Affordable Housing Levy.
3. Who Pays?
   • All formal sector employees in both public and private sectors are subject to the deductions.
   • Self-employed individuals are not mandated to contribute but may voluntarily join.
4. Fund Management & Use
   • The collected funds are managed by the government and used to finance the construction of affordable housing units across the country.

The legal challenges

1. Introduction & Legal Disputes (2023-2024)
   • The Housing Levy was first introduced in 2023 but faced legal challenges, with critics arguing it was unconstitutional and unfairly burdensome to workers.
   • In November 2023, the High Court ruled the levy illegal, citing a lack of a clear legal framework.
   • In response, the government passed the Affordable Housing Bill in March 2024, providing a legal basis for the levy.
2. Court Battles & Supreme Court Ruling (2024-2025)
   • The Court of Appeal declared the 2023 Finance Act unconstitutional in July 2024, temporarily halting the levy.
   • However, in October 2024, the Supreme Court reversed this decision, reinstating the law and allowing the government to continue collecting the levy.

Why the Controversy Continues

1. Financial Burden on Workers & Employers
   • Many workers argue that 1.5% deduction reduces their take-home pay at a time when the cost of living is already high.
   • Employers claim the matching contribution increases the cost of doing business and could lead to job losses.
2. Lack of Clear Benefits & Transparency Issues
   • There are concerns about how the funds are being managed and whether contributors will actually benefit.
   • Some fear the programme could become another government-mismanaged fund, with little accountability.
3. Unfairness in Contributions vs. Beneficiaries
   • Critics argue that not everyone who contributes will get a house, raising questions about who truly benefits from the levy.
4. The Government Struggling to Absorb Funds
   • The government has struggled to absorb KSh46 billion collected from the Housing Levy and has instead invested it in Treasury Bills, realising KSh2 billion in interest, according to State Department for Housing and Urban Development Principal Secretary Charles Hinga. This is the equivalent, critics say, of the Government basically lending itself money and claiming to have made a profit. 

The upshot of all this is that while there are debates over the fairness of the imposition of the Levy, its economic impact, and transparency in its use, Kenyans are likely to be stuck with it for the foreseeable future.