Housing Levy Deductions Resume Today as Ruto Signs Law

President William Ruto on Tuesday, March 19, signed into law the Affordable Housing Act, 2024, paving the way for the resumption of the 1.5% levy deduction from both the employer and employee.

The law now provides a legal framework to govern the Housing Fund that funds the President’s pet project which has faced resistance from several quarters. The Kenya Kwanza administration hopes to build 200,000 units and create 600,000 to a million jobs.

In order to finance the project, the government introduced the housing levy in Section 84 of the Finance Act, 2023. This levy required all employees to contribute 1.5% of their gross salary and their employers were to match the amount. Immediately, this was met by resistance from the public and the opposition. This has resulted in months of legal battles. 

Read More: Legal Battles, Ultimatums: Kenya’s Housing Levy Saga - Money Weekly

Through the President’s signature, the Affordable Housing Act of 2024 becomes the legal framework required to implement the housing levy. 

Nonetheless, the government had started collecting the housing levy as early as July, 2023. In the six months ending December, the government collected Ksh26.8 billion. The state targets to net Ksh63.2 billion by June 2024.

Read More: Money and Me: Why Cheap Housing Outside Nairobi Could Be Expensive

Significant Dates in the Becoming of the Affordable Housing Act

After the government started collecting the housing levy in July, 2023, the levy was challenged in court, and since then, this is what has transpired to bring us to the ascension of the bill into law.

• November 28, 2023 - High Court ruled that the housing levy did not have a legal framework. Allowed the government to keep collecting levy until January 10, 2024.
• January 26, 2024 - Court of Appeal upheld the High Court ruling
• February 12, 2024 - Kenya Revenue Authority (KRA) wrote to the office of the Attorney General (AG) to seek guidance on the government's position concerning the housing levy. The AG, Justin Muturi, advised KRA not to collect the housing levy as it had been ruled unconstitutional.
• February 19, 2024 - National Assembly passes Affordable Housing Bill 2023 despite significant pushback from Azimio affiliated Members of Parliament.
• March 12, 2024 - Senate approves the Affordable Housing Bill 2023 despite protests from Azimio affiliated Senators.
• March 14, 2024 - National Assembly endorses Senate amendments.
• March 19, 2024 - President Ruto signs the Affordable Housing Act, 2024.

The housing levy deductions are expected to start at the end of this month. Despite the government collecting the levy unconstitutionally since July last year, there will be no backdating of deductions.

Read More: Should I Buy A House? 5 Signs That You Are Ready

Major Objections to the Levy

The objection to Section 84 of the Finance Act, which introduces the affordable housing bill, was unequal and inequitable by distinguishing between employees in the formal and informal sectors. This was the foundation for the court's ruling that the levy was unconstitutional.

In addition, the Azimio la Umoja Kenya One Coalition camp had a number of amendments they pushed for, though unsuccessful. These included:

• Capping deductions at Ksh2,500
• Have the 1.5% implemented on net salary/income instead of gross
• Exemption of a person residing in a rural area with a title registered in their name.
• Exemption of person making Ksh288,000 and below from farming and other business activities.
• Exemptions of individuals over 50 years engaged in informal businesses activities
• Exemption of persons with less than five years to retirement

The government has addressed the court’s objection by expanding the 1.5% to all income earners and not only salaried employees but it has overlooked other suggestions by the opposition.

Read More: The 9 Routes to Owning a Home In Kenya

How the New Housing Levy Will Work

Despite resistance and protest to the housing levy, it has sailed through to become law. Here is how it will work. 

• The 1.5% housing levy will be applied to all Kenyans’ gross incomes.
• Employers will be required to match the amount
• The levies collected will be managed by the Affordable Housing Board.
• Allocations will be one unit per person
• Voluntary savers can withdraw their savings and accrued interest by issuing a 90-day written notice to the board.
• Voluntary savers can also apply for an affordable mortgage to develop a rural home. They should approve their savings and land where they will build the unit to be collateral for the mortgage.
• A beneficiary of the unit shall not sell it unless with permission from the board.
• Governors to form liaison committees to oversee the implementation since housing is a devolved function.
• Failure to pay levy will attract a 3% penalty on the unpaid amount, which will be applied for each month not paid to be collected as civil debt.

Affordable Housing Typology

The Affordable Housing Project is expected to have three categories of houses, social, affordable, and market driven units.

The social housing will have one, two, and three bedroom houses targeted at slum dwellers. Hence, they will sell the project at the cheapest price of Ksh42,000 per square metre. These houses will make up 20% of the entire housing project.

Affordable housing will be the bulk of the project - 50%. It will have studio apartments, two and three bedroom houses. These houses will go for Ksh48,000 per square metre.

Lastly, the other 30% will be market driven houses, which will consist of only two and three bedroom houses costing Ksh72,000 per square metre.

Read More: Money, Dilemma and Me: To Buy or To Build