‘Through the Looking Glass’ is a famous children’s novel by Lewis Carroll, published in 1871, which portrays an absurd, back to front, upside down, world that modern Kenyans might find oddly familiar.
One character, the White Queen, who lives her life backwards, explains to Alice, ‘The rule is, jam tomorrow and jam yesterday – but never jam today’.
Kenyans might well feel that jam has been missing yesterday as well as today. But the government has promised jam tomorrow: something to be anticipated and enjoyed in the future for which present forbearance – even suffering - is justified.
It is hardly surprising if Kenyans in employment think that the housing fund to which they will be required to contribute under the Finance Bill 2023 is an example of no jam today, and fear that tomorrow’s jam will never come.
What does the Bill say?
The proposal is that employers will deduct from salaries three per cent and send that, plus a further three per cent contributed by the employers, to the already existing National Housing Development Fund, (administered by the National Housing Corporation) (clause 76 of the Bill).
Whilst there is manifestly a need to address Kenya’s dire shortage of affordable homes, an interesting aspect of the proposed new provision in the law is that there is no promise that everyone who has to contribute will get a house.
For "employees who qualify for affordable housing", the contributions are to be used to finance a home under the scheme. And for those not qualified? Their contributions may be transferred to someone who is entitled under the scheme, or to a child or spouse, or to a retirement scheme, or returned to the employee – and taxed. None of this can happen for seven years – unless the employee reaches retirement age earlier.
Households under strain
In other words, this is a sort of compulsory saving scheme. To put it another way, it has a long time horizon that extends any possible benefit into the future. It is in effect asking Kenyans to agree to deferred wages.
At a time when households are under strain, food costs have soared, and there has been a fall in the standard of living, when wages and healthcare are increasingly precarious, seven years may as well be seventy.
Risks and reactions
Kenyans have seen funds such as the proposed National Housing Development Fund used as a kitty. The 2005 Ndung’u report on Illegal and Irregular Allocation of Public Land detailed how state corporations were in effect forced into buying grabbed land, as "captive buyers of land from politically connected allottees".
As the report makes clear, there is a further injustice in the fact that state corporations would sometimes "lose their land to grabbers for free, and then be pressured to buy other lands for millions of shillings". The primary state corporation targeted to purchase land was the Kenyan workers’ pension scheme, the National Social Security Fund. It spent Sh30 billion between 1990 and 1995 on the purchase of illegally acquired property.
Kenyans will also recall that some employers have simply failed to pass on statutory deductions for purposes like the NSSF or National Health Insurance Fund. As recently as March this year the Nation newspaper carried the headline 'Shame of 150 State agencies sitting on Sh35b deductions’.
Another saying rather describes the scheme – it is like ‘buying a pig in a poke’. This refers to a dubious practice centuries ago of selling piglets in a sack at a fair or market. You could tell that you were getting a squirming animal, but did it have all its parts, was it diseased, was it even a pig?
Under the new housing scheme, it is not clear how and where the proposed building of new houses will take place. Will planning laws ensure that they are built with adequate infrastructure to make them liveable, including transport links, schools, clinics, and green spaces within easy reach?
What options will people have about size, layout and so on? And how will a national levy scheme work in geographical terms? If workers across Kenya pay in, will the houses be built where they wish to reside or is this a scheme for Nairobi’s further expansion? Indeed, will a contributor even get a home?
Given these uncertainties, it is not surprising that Kenyans have expressed a healthy scepticism about the proposed housing levy. This historical context is important: proposals such as this are not announced in a vacuum and the government needs to recognise that because the historical antecedents are not promising, it must do more to persuade citizens that the levy is the best way to fulfil its policy objectives.
Simply insisting it is mandatory patriotism to accept the levy and discouraging citizens and critical friends from asking probing questions of the proposal is not helpful.
We need to be alert to the risk that the housing fund will lead to the further dominance of financial markets. For example, the government could use it as leverage for further borrowing. Similarly, if the promised housing materialises, how can we be sure that it will not be developers and landlords who benefit rather than the intended beneficiaries?
What guarantees will there be that the housing will not be financialised in such a way as to put the notion of housing – as shelter and personal security – at grave risk? Commercial banks will no doubt be eyeing up the prospects too: we can surely expect mortgage products to be developed that will further impoverish those wishing to have a home.
We are at risk of promoting a real estate bubble and creating perfect conditions for profit extracting practices. The real risk is that Kenyan workers – having already accepted lower wages because of the housing levy deduction - will still have to pay high rents to access housing.
Fairer tax
While we recognise that providing housing is a laudable policy goal, the government needs to explain why a housing levy has been prioritised over measures from which Kenyans would more immediately benefit, such as improving the workings of the NHIF healthcare levy.
Given Kenya’s appalling gini coefficient – the measure of income distribution – which demonstrates how skewed the country’s wealth is, has the government considered other, much fairer, ways of raising greatly needed revenue for housing?
Might the time have come to have a well-informed national conversation about Land Value Taxation? This is a progressive tax which ensures that the tax burden is borne by land owners who can well afford it. Because land ownership generally correlates with wealth and income, it is much fairer to require those already advantaged by holding property to fund the needs of those who do not yet have homes.
Land Value Capture should also be considered. This taxation can be engaged for example if a road is built or other infrastructure such as a park is improved, causing a rise in the value of neighbouring properties. The principle is that these property owners should share some of their unearned gain with the public.
Elsewhere in the world, funds raised in this way have been used to build lower-cost housing so we have existing examples of how this might be done. And the money raised could also be used to fund ongoing operational costs such as maintenance of local roads, schools, and parks. Wouldn’t that be a fair and – given the infrastructure boom of recent years which has bestowed windfall gains on many property owners – very effective way to tackle the shortfall in affordable housing?
Making the case
Speaking on NTV, Dr Mercy Nabwire, Kenya Medical Practitioners Pharmacists Dentists Union national treasurer, recently described the proposed housing levy as "a raid on workers’ wages."
The economy is in bad shape and public services are threadbare, but the case for asking workers to bear the cost of righting this – especially when their incomes are squeezed and their standard of living plummeting – has not been made out. Still less the case for compelling them to surrender their wages for some nebulous future promise.
Manji is Professor of Land Law and Development at Cardiff School of Law and Politics
Ghai is a member of the Board of Katiba Institute
