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How the Affordable Housing Project in Kenya is Revolutionizing the Financial Landscape

The Affordable Housing Project (“the Project”) was developed as a means of safeguarding the right under Article 43(1)(b) of the Constitution of Kenya, 2010 to accessible and adequate housing. The Project is targeted towards low and middle-income households who have long been precluded from homeownership. Since its inception, there have been 20 developments in various cities in Kenya with the government promising to kick-start more projects this year.

Despite the Project being geared towards the realization of social rights, it has had ripple effects on various sectors including the financial sector. The Project, through the Finance Act, 2023 introduced the Affordable Housing Levy (“the Levy”) as a means of diversifying the sources of funding to reduce overreliance on mortgage facilities.

The Housing Levy had seen employers deduct their employees’ salaries and direct them to the Affordable Housing Fund, sparking a public uproar and eventually leading to litigation. The High Court, led by a three-judge bench on 28th November 2023 held that the provisions of the Affordable Housing Levy were unconstitutional and rightly suspended its implementation. This prompted the government to work on the Affordable Housing Act, 2024 culminating in its assent by the President on 19th March, 2024.

Accordingly, taxpayers and employers are required to remit the housing levy from the end of March 2024 at the rate of 1.5% of the employee’s gross salary which ought to be matched by the employer.



How Has the Affordable Housing Project Benefitted the Financial Sector?

In an effort to streamline the financing of the Affordable Housing Project, the Government created the Kenya Mortgage Refinance Company (KMRC), a public-private company mandated to provide long-term funding to financial institutions to provide loans to homeowners.

The Company is supervised by both the Central Bank of Kenya as a money lender and the Capital Markets Authority as a bond issuer. The Company, dabbling as a financial institution, mortgage market and a bond issuer, poses several benefits to the economy.

1. Enhancing Mortgage Affordability and Financial Stability through Long-Term Loans

KMRC offers longer-term loans hence improving the affordability of mortgage loans for borrowers. This is because longer maturities lead to lower monthly payments, making homeownership more accessible. It has also resulted in the creation of a safety net for the financial system against illiquidity. As a result of a reliable source of liquidity, banks and SACCOs are encouraged to issue long-term loans. This contributes to the stability of the financial system, as institutions are less likely to face liquidity crises.


2. Fostering Financial Inclusion

KMRC has also lowered the barrier to entry for small, medium and micro-financial institutions. By making long-term funding easily accessible, these financial entities like SACCOs can enter the mortgage market. This consequently leads to increased competition and better products and services for consumers.


3. Stimulating Growth and Liquidity in the Nairobi Stock Exchange

The issuance of bonds by the Company also jumpstarts the Nairobi Stock Exchange which has been experiencing a drought in terms of new market entrants. By becoming a regular issuer in the private bond market, KMRC can contribute to the development and deepening of the private bond market. This can attract more investors and increase the overall liquidity and efficiency of the financial market.


4. Fostering PPPs: Incentives Driving Affordable Housing Development

In addition, the project has led to an uptake in Public-Private Partnerships. Private developers enter into agreements with the Government to build at least 100 houses on public land granted by the government or on private land purchased by the government. To incentivize more private developers, the government has offered tax incentives such as a reduction of Corporation Tax from 30%-15%, scrapping off stamp duty and VAT for construction materials and reduced customs tariffs on imported inputs for the construction of houses under this project.

The Project has also attracted a lot of foreign investments, particularly in the provision of technical support and provision of energy-efficient structures. This is in part because of the tax reduction measures by the government on the importation of construction materials. The Import Declaration Fee (IDF), for instance, has been reduced from 2% to 1.5%. This will result in a considerable increase in foreign currency reserves which will spur Kenya’s global trade.


5. Increased Financial Intermediation

The project has also resulted in increased financial intermediation. Through financial intermediation, savings are transformed into investments through the banking, capital, insurance, pension and savings and credit cooperative markets. The participation of SACCOs has also resulted in increased financial inclusion. Low and middle-income earners are more prone to financial exclusion processes that prevent them from gaining access to the financial system which is remedied through conversion of their savings towards investment in the affordable housing project or facilitation of loans.


In summary, the impact of the Affordable Housing Project on the financial sector cannot be gainsaid. Although it has been plagued with myriad of challenges such as low perception, litigation, high cost of land and construction implements, it has brought with it numerous benefits for the financial sector players, the low and middle-income earners and Kenya’s financial position in general.



The information provided in this article is intended for informational purposes only and should not be construed as legal advice. Don’t hesitate to get in touch with Mohammed Maulid; Partner and head of the Banking, Real Estate, and Construction (BREC) at for any real estate queries or legal advice.

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