In Summary
  • Many people are opposed to the National Housing Development Fund because they do not understand how it will work.

When the Finance Act, 2018, comes into effect, salaried workers will have even less money to take home, since 1.5 per cent of their gross pay will go towards the National Housing Development Fund (NHDF), a kitty meant to finance the construction of low-cost houses.

It is one of the government’s strategies for raising Sh57 billion a year for the construction of half a million affordable houses in five years.

Under the NHDF plan, an employer and employee are separately required to contribute 1.5 per cent of the employee’s monthly basic salary, so long as the combined sum does not exceed Sh5,000.

But this has not gone down well with workers in the formal sector, most of whom started poking holes in the scheme and even before it came into effect.

In July, a month after the National Treasury expressed its intention to introduce the housing levy, the Executive Director of the Institute of Economic Affairs, Mr Kwame Owino, termed it a back-door strategy by the government to raise revenue from formal workers who are already heavily taxed.

On September 28, 2018, in his regular commentary, Mr Mutuma Mathiu, the Nation’s Executive Editor, Daily Editions, wrote: “I oppose the housing levy. Like the Government Advertising Agency and the two-price posho before it, it is a hare-brained idea that will cost us a lot of money but end in tears. The philosophy of it is dead wrong and the practical application of it is like the lipstick on the road ­— a sick joke.”

The Executive Director of the Federation of Kenyan Employers, Mrs Jacqueline Mugo, told DN2 that employers object to the new tax.

“It is not clear how that money will be used. It is not clear what role the employers and workers will play in the fund’s management, and how this relates to the housing fund provided for in the Housing Act,” she said.

Besides, she noted, “The effective date for this proposal is October 1, 2018. Employers had not factored this in their budgets, therefore, it is ill advised to ask them pay the levy in the middle of the year.”

Dr Mwimali believes that, just because most Kenyans are complaining about the levy does not mean that they do not want to have a roof over their heads; it is because, for ages the government has not built houses they can afford, so most of them have already taken step towards owning a house.

The scheme does not take these personal efforts into consideration, a civil servant who did not wish to be named for fear of reprisal, said.

“You see, if I have bought a plot and want to build myself a house, or I have even taken some material to the site, the scheme does not recognise this. So I will be paying the legislated amount while at the same time trying to raise money to assure myself of accommodation. So I am doubly burdened,” he said.


Similar sentiments were expressed by Mrs Mugo: “Employers already provide housing or pay housing allowance for employees of at least 15 per cent of their basic pay. The proposed amendment does not say whether this contribution will be in addition to the housing allowance, or whether it will be deducted from that benefit.”

For his part, Dr Raphael Kieti, a lecturer in the Department of Real Estate and Property Management at the Technical University of Kenya, says what needs to come out clearly is the period within which employees will get their money after the 15-year-period expires, noting that many workers have died before getting their pension.

“I am not formally employed but I am sceptical about that project. The country loses considerable resources to corruption; this is just another cash cow. Also, do we, as a country, really need affordable housing? What parameter is used to measure affordability? In housing, there is nothing like one-size-fits-all,” says Ms Wambui Muragu, a Nairobi-based interior designer.

She says what the government should do is create an enabling environment: access to opportunities, quality infrastructure, zero corruption and quality training.

“We will build our houses as a result,” she says.

In his commentary, Mr Mathiu also said, “What I don’t understand is, would that money be mine, or am I pouring it into the government’s black hole? Why am I building a house for other people? Can I opt out? Can I say I want none of it and leave it to those who are interested in government money?”

Indeed, the question as to whether one can opt out has been one of the most frequently asked. But Dr Mwimali says, “That is not provided for. And that is the problem I have with the scheme. There are certain justifications for someone to opt out. For example, if you already have a house, or are paying a mortgage for one.”

To be reasonable, he says, an option should have been given for people to opt out.

Another worrying issue is the allocation of the houses. Treasury Secretary Henry Rotich has said it will be done through a lottery, as happens in Ethiopia, but this has not gone down well with many people.


“So I am forced to contribute, but when it comes to allocation that is left to chance! Besides, it is not clear whether the entire amount will be used to build houses. And if it will, then there are certain peculiarities people want. For instance, I don’t want to live in a flat. Given the opportunity, I would prefer to build my house with certain facilities,” said a man in Nairobi who identified himself only as John.

In his commentary Mr Mathiu, wondered, “Why can’t the government take Sh50 billion from its bulging budget and give it to banks to lend cheaply and create a revolving fund?”

Although the model the government intends to use to spend the money raised is not clear, Dr Kieti says, one could be an arrangement where local banks take money from the kitty to lend to developers. If this is the case, and bearing in mind that banks are in the business of making money, then the question of how much interest a contributor will earn from his or her money arises.

So, can aggrieved Kenyans challenge this scheme in court?

“It is touch and go. The government has the right to levy taxes. It has an obligation to ensure that the people’s economic, social, and cultural rights, including the right to housing, are provided,” observes Dr Mwimali.

So you cannot challenge the scheme, but rather, its conceptualisation and implementation on the basis of whether it is equitable, fair, democratic, open and accountable as provided in Article 10 of the Constitution.

But he cautions that, should you decide to go to court, you will face an uphill task yourself for challenging what the government is legally mandated to do.

Still, you can challenge the scheme based on constitutional standards. But whether you succeed, Dr Mwimali notes, will depend on how well you package the questions or the challenges that arise from the way the scheme is implemented.

Listening to Kenyans speak, one gets the idea that details of the housing scheme, and indeed, the levy, are scanty and there is a need for the Housing ministry to clarify a number of issues.

DN2 has been trying to get answers from Housing Principal Secretary Charles Hinga for more than a month now. His personal phone number does not go through and when we called his office on September 26, we were told that he was out of the country.

His secretary suggested that we send him an e-mail with all the issues we would want addressed. We did, but he had not responded by the time we went to press.

When we tried to reach him on October 4, we were told he would be holding a breakfast meeting with the Editors Guild to discuss the “Big Four” at the Intercontinental Hotel the following day. Efforts to speak to him on the sidelines of the meeting were unsuccessful, with his personal assistant saying: “We have invited over 35 reporters and I am sure your media house is well represented but I will get back in an hour to see if I can secure your entry.”

He did not get back to us.


The government is acting within its mandate, says lawyer

Dr Jack Mwimali, a property lawyer and the dean of the Jomo Kenyatta University of Agriculture and Technology’s School of Law, gave his professional view on the National Housing Development Fund.

What Kenyans need to understand, he said, is that the government, through the Legislature, is empowered to levy any charge it deems fit, as long as it meets the constitutional threshold. So charges that are arbitrary and punitive would be considered unconstitutional.

But the country is likely to find itself in a Catch-22 situation. The Constitution does provide for certain rights, including the right to social and cultural well-being, which includes housing.

So, while it is clear that the President is looking to fund his “Big Four” agenda, seen as the hallmark of his legacy, when you look at the housing idea from a constitutional rights perspective, then one would say there are constitutional justifications, Dr Mwimali said.

“The challenge might arise if one considers whether everybody is in some way entitled to a social contribution on housing. In as much as this is a social welfare thing and, therefore, even the haves ought to contribute to ensure there is parity and equality to meet the constitutional requirements, there are those struggling to build their own houses. So levying another fee on them is an additional burden,” he explains.

Dr Mwimali says you could look at the fund as another burdensome pension scheme.

Every employee is required, by law, to contribute to a pension scheme, with the employer contributing twice as much as the employee.

About three years ago, when the government revisited the National Social Security Fund (NSSF), all employees — irrespective of whether or not they were contributing to a pension scheme — were required to contribute to the NSSF.

Now, the way the housing levy is structured, after 15 years, or after you retire, all that money is transferred to your pension. So ideally, according to Dr Mwimali, Kenyan workers in the formal sector just signed up for a third pension scheme.

“So I am contributing through my employer, who is required to pay double what I pay. I am also forced to a contribute to the NSSF and whether or not I am interested in that housing scheme, I am being asked to pay for it, which is a third pension scheme, in my opinion,” Dr Mwimali said.

“All of them are social security schemes that aim to make social economic right. And therefore the challenge would be, isn’t it excessive in the sense that I am being forced to safeguard my future beyond my means? And, therefore, isn’t it arbitrary in that sense?”

Dr Mwimali also wondered whether the scheme was well thought through.

“From experience, and especially looking at the situation with the National Housing Corporation and the Kenya Slum Upgrading Programme, the most deserving people hardly benefit,” he says

He says the scheme needed to be well thought through, adding that there are problematic areas that will make it arbitrary, which would should have been ironed out.

“I wouldn’t say that I am the lowest paid person, but if you want me to buy a house in Nairobi with my salary, it would be almost impossible. The cheapest three-bedroom house costs about Sh15 million. So even if I were to set aside half of my salary to pay for it every month, even after 15 years, I will not have acquired the house.

The scheme is not bad in itself. It would be very beneficial to me, but it is a bit of a compulsion, especially to those who do not really need it because they have burdened themselves through other structures,” said Dr Mwimali.