State in Sh4bn windfall from housing levy T-bills interest

The report, however, does not provide details on the value of invested funds that yielded the Sh4.2 billion interest nor the period of investment.

“The committee observed that the appropriations-in-aid (AiA) allocation from the housing levy is expected to rise by Sh30.3 billion in the 2025-26 financial year due to unutilised carryovers from the previous financial year,” the budget committee said in its report.

“Additionally, the State Department for Housing and Development reported earnings of Sh4.2 billion in interest income from funds invested in Treasury bills. However, this amount has not been factored in the financial year 2025/26 budget estimates.”

T-bills were a preferred option for many investors eyeing a wind fall throughout 2024, with interest rates on the securities hitting record highs of 16.98 percent last year before cooling off around March-April this year as the Central Bank of Kenya cut rates in the wake of a stable shilling and low inflation.

The government in May 2025 revealed that it had invested Sh20 billion collected from the affordable housing levy in Treasury bills and bonds –an indication that the State was collecting the levy at a faster pace than it could deploy in the construction of houses.

Housing Principal Secretary Charles Hinga at the time told the National Assembly Committee on Housing, Urban Planning and Public Works that the Affordable Housing Board had transferred funds into Treasury bills.

The transfer was necessitated by a then-legal hitch after the courts initially declared the deductions on workers in formal employment only as discriminatory.

"The first Sh20 billion is headed for investments in Treasury bonds and bills. The board needs to open an account at the CBK to receive the money," PS Hinga said at the time.

"The board can only invest the money in Treasury bills because it is not an implementing agency. The Act does not provide an avenue for the board to spend the money," he added.

MPs were forced to enact the Affordable Housing Act, 2024 to comply with a ruling of the courts enabling the taxman to resume the deductions.

The new law now also requires informal sector workers to pay the housing levy at the rate of 1.5 percent of gross salaries.

The National Treasury projects collections of Sh95.84 billion from the housing development levy in the new financial year starting July 1, signalling a boost for President William Ruto's pet project plans to build 200,000 subsidised homes annually for middle and lower-income households.

Read:  Why Treasury diverted Sh20bn from housing levy to buy bonds

The collections are expected to grow by 46.2 percent from Sh65.53 billion estimated in the year to June 30.

The higher forecast comes amid a push to review the levy with employers' umbrella organisation, the Federation of Kenya Employers (FKE) recommending a reduction in the rate payable to 0.5 percent. The World Bank has recommended that low-income earners be exempted from paying the tax.

"We have proposed broader reforms to improve worker welfare and support business sustainability. These include pegging statutory deductions to basic pay, revising tax relief bands from Sh24,000 to Sh36,000, reducing the housing levy to 0.5 percent, and zero-rating VAT on basic food items," the FKE Executive Director Jacqueline Mugo wrote in a speech prepared for the International Labour Day celebrations of May 1 but was stopped from reading it.

The World Bank recommended that Kenya exempt workers earning less than Sh32,333 a month from the housing tax and Social Health Insurance Fund (Shif) to boost their disposable incomes.

The multilateral lender termed the levies as unpopular despite the State backing the deductions to deliver affordable housing and universal health coverage.

If accepted, the recommendation would affect at least 312,018 workers in the formal sector who earn below Sh30,000 a month, accounting for 10 percent of the 3.1 million persons employed in government and private companies.

"Revisit the housing levy, especially for employees with wages of up to Sh388,000 (Sh32,333.30 a month)," the World Bank said in a recent report.

"Consider removing SHIF contributions for low-wage formal workers.

This potential reform could encourage formalisation and reduce labour market distortions, as well as cover Shif services for poor and informal workers and low-wage formal workers, funding the gap through the budget."

Employers warned that thousands of workers are taking home less than one-third of their pay when pre-existing loan repayment obligations are accounted for, presenting a compliance headache for managers as companies risk legal suits.

The strain has emerged even as workers’ real wages continue falling, dropping for a fifth straight year in 2024, signalling a deteriorating quality of life for workers.

President William Ruto's affordable housing programme is set for an audit on its economic impact amid missed targets and other teething problems.

The Affordable Housing Board has lined up an audit of the scheme in which independent consultants are expected to review its impact on employment, manufacturing, and the informal sector.

The programme has met teething problems including budget cuts and late delivery by contractors hurting the realization of President Ruto's much-touted jobs and improved living conditions for millions of poor Kenyans.

Delays for instance saw the government push the launch of 4,888 houses to May, missing an initial deadline of March.
The delay was blamed on a lag in installing elevators.

The programme has also encountered financial challenges after budget cuts with the State Department for Housing budget for slum upgrading initiatives getting chopped to Sh71.6 billion from Sh85.2 billion in the current financial year on account of less donor funding received.

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