Housing Levy Hits Sh27B in First Six Months

February 5, 2024

In the six months ending December, employers and employees disbursed Sh26.8 billion under the mandatory housing development levy, as reported by the Parliamentary Budget Office (PBO).

The PBO, responsible for advising lawmakers on economic and budget matters, reveals that the State Department for Housing and Urban Development had amassed this amount against the Sh63.2 billion target set to be collected by the end of the financial year in June 2024.

In its financial and economic analysis of the Affordable Housing Bill 2023, which aims to establish a legal framework for the levy, the Parliamentary Budget Office (PBO) acknowledges several significant gaps in the bill. The PBO warns that the government may face legal risks due to the numerous contracts it has already entered into.

“If the current status is not addressed and the levy remains nullified, the government will be exposed to fiduciary risks due to the contractual obligations it has already entered with property developers for the ongoing projects since its exchequer funding are constrained,” says PBO.

The office points out that the Bill contains several gaps, including a lack of alignment with the Public Finance Management (PFM) Act, 2012, particularly concerning accruals to the fund. It recommends addressing these issues for better alignment and effectiveness.

“The bill is silent on how accruals to the fund at the end of each financial year are to be handled which contradicts the provision of Section 24 (6) of the PFM Act, 2012 which stipulates that the administrator of a national public fund shall ensure that the accruals to a national public fund are retained in the fund unless the Cabinet Secretary directs otherwise,” PBO notes.

PBO Reccommendations

The PBO recommends that the bill should incorporate proof of the levy contribution as a component of the eligibility criteria for applying for an affordable unit, considering that the funds accessible are sourced from contributions made by Kenyans.

Additionally, the PBO observes gaps and overlaps in the classification of affordable housing units within the bill, specifically related to the plinth area and the monthly income of the targeted individuals.

With collections reaching Sh26.8 billion, the government is achieving an average monthly collection of Sh4.47 billion, compared to the budgeted Sh5.26 billion. This reflects a performance rate of approximately 85 percent for the compulsory levy, which has since been suspended by the courts.

According to data from the State Department for Housing and Urban Development, there were 18 affordable and social housing projects underway as of the end of September last year, totaling 88,584 units.

Estimates from the draft Budget Review and Outlook Paper suggest that contributions will reach Sh70 billion in the 2024/25 fiscal year and Sh78 billion in 2025/26.

The Treasury projects that contributions will further increase to Sh89 billion in the 2026/27 financial year, up from Sh63.2 billion in the current fiscal cycle.

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