Affordable Housing in Kenya: A Closer Look at Government Incentives

Housing remains a pressing issue in Kenya, with many citizens struggling to afford decent homes. While urbanization is expanding rapidly, housing supply has failed to keep up with demand, leading to overcrowding and the proliferation of informal settlements. Recognizing this, the Kenyan government has intensified efforts to make housing more accessible, particularly through its Affordable Housing Programme (AHP).

With the enactment of the Affordable Housing Act, 2024, the government has introduced policies and incentives aimed at boosting homeownership and increasing the supply of affordable housing units. But how effective are these incentives, and what do they mean for homebuyers, developers, and investors? Let’s take a closer look.

The Affordable Housing Act, 2024

In March 2024, President William Ruto signed the Affordable Housing Act into law, a landmark policy that seeks to regulate the design, financing, and allocation of affordable housing across the country. This Act builds on previous housing initiatives but introduces new measures designed to accelerate development and increase homeownership opportunities.

1. The Affordable Housing Levy

One of the most talked-about aspects of the new law is the Affordable Housing Levy. Under this provision:

• All formally employed Kenyans are required to contribute 1.5% of their gross monthly salary toward the Affordable Housing Fund.
• Employers must match the employee’s contribution with an equivalent 1.5% deduction.
• Contributions must be remitted to the Kenya Revenue Authority (KRA) by the 9th day of the following month.
• Failure to comply attracts a penalty of 3% of the unpaid amount per month.

This levy is intended to provide sustainable funding for affordable housing projects. However, it has sparked debate, with critics arguing that it places an extra burden on salaried workers while exempting informal sector earners, who make up the majority of Kenya’s workforce.

2. Tax Incentives for Homebuyers and Developers

To encourage both homebuyers and real estate investors, the government has introduced tax reliefs and exemptions, including:

• 15% Affordable Housing Relief: Employees contributing to the Affordable Housing Levy are eligible for a tax relief of up to Ksh 9,000 per month or Ksh 108,000 per year.
• Tax Breaks for Developers: Real estate developers who build affordable housing units are exempt from certain taxes, making construction more attractive and financially viable.

These incentives are expected to increase homeownership while reducing construction costs for developers.

3. Public-Private Partnerships (PPPs) in Housing Development

To accelerate the supply of affordable homes, the government is working with private investors through Public-Private Partnerships (PPPs). Under this model:

• Private developers receive incentives, such as tax cuts and access to government land, to build affordable housing.
• The government ensures infrastructure development (such as roads, water, and electricity) to support new housing projects.
• Priority for housing allocation is given to contributors to the Affordable Housing Fund.

4. Mortgage and Tenant Purchase Schemes

Recognizing that high mortgage interest rates have kept many Kenyans from homeownership, the government has introduced:

• Tenant Purchase Schemes (TPS): Under this model, low-income earners can pay for homes in affordable installments, eventually owning the property.
• Subsidized Mortgage Rates: Affordable housing buyers can access mortgages at lower interest rates compared to the market average, making home financing more manageable.

Challenges and Criticism

Despite the ambitious goals of the Affordable Housing Programme, there are notable concerns:

• Target Misses and Delays: A recent survey revealed that the project has failed to meet its targets, casting doubt on its effectiveness. Critics argue that the focus has been on quantity rather than quality, leading to substandard housing units. (Standard Media)
• Affordability Still a Concern: While the initiative aims to provide affordable housing, many Kenyans, especially in rural areas, still find the costs out of reach. (KNBS Housing Survey)
• Unemployment and Economic Hardships: With more than 600,000 Kenyans struggling to pay rent, according to a recent report, the reality is that many households are simply unable to afford homeownership, even with government incentives. (Citizen Digital)

Opportunities in Laikipia and Nanyuki

For residents and investors in Laikipia and Nanyuki, the Affordable Housing Programme presents exciting opportunities:

• Government-backed housing projects: The government is keen on expanding affordable housing beyond Nairobi, with Nanyuki and Laikipia emerging as priority regions due to their rapid growth.
• Tourism-driven rentals: With Nanyuki’s status as a top tourist destination, investors can leverage affordable housing units for short-term rentals, tapping into the thriving tourism sector.
• Land and infrastructure development: Improved roads and government-backed developments will likely increase the value of land and housing in Laikipia, making it a smart investment choice.

Conclusion

The Affordable Housing Act, 2024 marks a bold attempt to solve Kenya’s housing crisis. While the incentives—such as tax relief, subsidized mortgages, and employer contributions—are commendable, challenges remain, particularly in ensuring affordability and quality housing delivery.

For those in Laikipia and Nanyuki, this initiative presents both opportunities and risks. As the program unfolds, investors, homebuyers, and developers must stay informed to make the most of these government incentives.

For expert guidance on real estate investment in Laikipia and Nanyuki, contact Upper House Properties—+254 741 770 767 your trusted partner in real estate.

Paul Mwangi – Registered Estate Agent, CPM (Mediator)

Director – Upper House Properties Ltd.