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Affordable Housing

Houses in the affordable housing programme being constructed at Bondeni Estate in Nakuru Town East. They were commissioned by President William Ruto and his deputy Rigathi Gachagua on February 13, 2023.

| John Njoroge | Nation Media Group

Housing levy: Payslip deductions explained

Employers will now have nine working days after the close of the month to remit housing levy deductions to Kenya Revenue Authority after the Court of Appeal lifted High Court orders blocking execution of Finance Act 2023.

The new law amended the Employment Act of 2007 and imposes the new levy on both the employers and salaried employees in private and public sectors.

The State Department of Housing recently issued a notice authorising the start of collections, with July 1, 2023 as the effective date. This implies that President William Ruto’s administration has backdated the deductions to include the period when the new law was suspended.

Backdating of the deductions means that salaried Kenyans’ iTax portals now reflect an underpayment for July 2023 and the same should be recovered by the taxman before the close of the current financial year on June 30, 2024.

Here is what you need to know about your new financial obligations to the government:


Who is targeted by the levy, and how much will be deducted every month?

All salaried Kenyans who are within KRA's radar will part with 1.5 percent of their gross pay towards the Housing Development Fund, matched by another 1.5 percent from their employer.

There is no minimum and maximum amount, and all workers earning a monthly salary are required to contribute, with those earning higher amounts shouldering the biggest burden.

What is the penalty for non-compliance?

Failure to remit these funds as provided for by the law will see employers slapped with a penalty of 2 percent of the unpaid funds for every month of non-compliance.

The collections will be channelled towards the Housing Development Fund for the financing of the Kenya Kwanza administration’s affordable housing plan.

“The purpose of the Affordable Housing Levy shall be to provide funds for the development of affordable housing and associated social and physical infrastructure as well as the provision of affordable home financing to Kenyans,” the Finance Act of 2023 states.

Who is eligible for affordable housing?

Only Kenyans with monthly incomes of Sh150,000 and below are eligible for affordable housing, according to the State Department for Housing.

Eligibility for the houses is done either based on individual or household income depending on the manner in which the application is made.

“If it is made individually, the income will be assessed at an individual level. If it is made jointly, the assessment will be made at a household level,” Housing Principal Secretary Charles Hinga told the Nation in an interview on March 31, 2023.

Where a county government has donated land on which the affordable housing units have been built, 30 percent of the houses developed will be ring-fenced for the residents of that county, and they will be granted the right of refusal before others can be considered.

Is there deposit required?

Yes. Successful applicants will be required to either make full payment for the housing unit upfront or a deposit of at least 12.5 percent of the value of the house.

What is offered under affordable housing?

Affordable housing is designed in three categories with social housing targeting the lowest cadre of Kenyans who earn Sh19,999 and below per month.

The second category is low-cost housing, which targets Kenyans earning between Sh20,000 and Sh49,999 monthly; while the third category is defined as mortgage financed housing, which targets those with incomes between Sh50,000 and Sh149,999.

The social housing plan offers one-bedroom units priced at Sh600,000; two-bedroom units fetching Sh1 million; and three-bedroom units going for Sh1.4 million apiece.

The low-cost housing and mortgage-financed plans offer one-bedroom units of 20 square metres at Sh1 million as well as one-bedroom units of 30 square metres at Sh1.5 million. They also have 40-square-metre two-bedroom units at Sh2 million and 60-square-metre three-bedroom units at Sh3.5 million.

How many houses can one buy?

The State Department of Housing prescribes that one can only buy one unit under the affordable housing plan.

This, again, is pegged on how the application is made. An application made by an individual means the individual is only eligible for one housing unit; an application made by a household means that the household will be only eligible for one unit.

Can one sell their house?

An owner is not allowed to sell their affordable housing unit in the open market before seven years of owning the unit lapse. However, they will be allowed to sell it back to the Housing Development Fund before the seven years lapse.

Can one opt out of the arrangement?

No. One cannot opt out of the fund. The Finance Bill 2023 provided for four routes through which one could opt out of the Housing Fund. The four were:

  • Transferring their contribution to a scheme registered under the Retirement Benefits Authority.
  • Transferring their contributions to any person registered and eligible for affordable housing as per the Housing Development Fund.
  • Transferring their contribution to their spouses or dependents
  • Cashing out upon which the amount cashed out will subject to tax

However, the Finance Act 2023 expunged the option of exiting the fund entirely.