The policy and regulatory framework for Kenya includes a multiplicity of policies, laws and institutions/agencies, charged with different functions, in each link of the housing value chain. Many of these lengthen and complicate the housing delivery process unnecessarily and increase costs and risks, thereby deterring investment in housing. Broadly, there is a need for better coordination and simplification amongst the various national and county government departments to enable faster and more cost-effective approvals for housing related activities.

The change in the scope of 2 key ministries in October 2022, is likely to help the coordination for all functions to deliver housing. Previously, the State Department of Housing and State Department for Public Works were housed under the Ministry of Transport, Infrastructure, Housing, Urban Development and Public Works. These national government functions have now been moved to the Ministry of Lands, which should help the coordination along the value chain to deliver housing more effectively.

There is also a critical need to provide support to and implement current policies and laws that remain unimplemented. These include: the National Housing Policy 2016; the National Land Use Policy 2017; the Urban Areas and Cities Act 2011; the Public Private Partnerships Act 2021, the National Slum Upgrading and Prevention Policy 2016, among others.

Within the context of the housing reform that the government has been seeking, there are a few Bills currently in Parliament (National Rating Bill 2022, National Disaster Risk Management Bill 2023, National Land Commission (Amendment) Bill 2023) which require finalization and promulgation. The Housing Bill 2021, Landlord and Tenant Bill, 2021 and the Valuer’s Bill 2022 will need to be reintroduced since they are considered to have expired following the end of the term of the 13th Parliament. To deal with this regulatory backlog, it is critical that the Bills are reviewed with adequate stakeholder contribution and passed in the current (13th) Parliament.

Further, gaps identified in the regulatory and institutional framework suggest the following:

• There is a need to integrate public transport and other climate-resilient measures with the objectives of the affordable housing agenda. At the time of the preparation of this document, the State Department for Public Works has already proposed Climate Change (Green & Resilient Buildings) Regulations 2023 which provide for the designing and construction of buildings which reduce the carbon footprint and are sustainable and resilient to the impacts of climate change. There is a need to fast-track the adoption and implementation of these proposed regulations. As for the former need for integrating public transport with Affordable Housing, the existing lacuna needs consideration.

• While public and private land is available for housing, capital to invest in infrastructure and construction has been limited (as seen by the limited refinancing of units to the Kenya Mortgage Refinance Corporation). A key hurdle is the high interest rates payable on government paper which sets a high benchmark for returns required for investment in housing, which inherently has more risk. This suggests that housing objectives must be accommodated also in Kenya’s wider economic policy.

• There is a critical need to streamline and operationalise the supply and demand side incentives which are provided in law, but which have proven difficult to implement. This is needed to enable the delivery of housing at prices that are affordable to the target market; a need to generally increase the alignment of the national tax policy with the potential of housing to drive economic growth.

• There is a need to streamline the mortgage and foreclosure laws to facilitate the realization of underlying collateral in the event of a default.

• More direct and enforceable consumer protection measures are required to protect household investment in housing and particularly in off-plan housing. Further, incentives to promote savings for housing are currently missing from the regulatory framework.

• The regulatory and institutional framework already creates multiple opportunities for data, through the regulatory function that public institutions perform. This data could and should be leveraged beyond the regulatory function to support greater market transparency, which would reduce risk in support of increased investment. A commitment to sharing data as a key enabler to drive patient capital to invest in housing is necessary and should be promoted.

For comments, input or feedback on this document please email:

• beatrice@housingfinanceafrica.org

Please include a detailed reference of the section on which you are providing comment. Include the full webpage address and the name of the legal document. A screenshot would also assist.

Retirement benefits (mortgage loans) (amendment) regulations, 2020

· In November 2022, the Regulations were quashed and an order was issued against their implementation by the High Court in Republic v National Assembly & 2 Others; Okoiti (Exparte); Retirement Benefits Authority (RBA) & 2 others (Interested Parties) (Judicial Review) (23 November 2022) (Judgement).

· The Court found that Section 38(1A) of the Retirement Benefits Act and the Regulations were introduced through a flawed parliamentary process and lack of public participation.

Finance Bill, 2024

· After month-long demonstrations and protests against the Finance Bill, 2024, the president backed down and failed to assent to the bill therefore with it all the potential changes that may have affected the housing value chain sunk.

Finance Act, 2023

· The Court of Appeal declared the whole of the Finance Act unconstitutional due to lack of public participation in. However, the Supreme Court on the 20th of August, 2024 issued conservatory orders suspending and staying the declaration by the Court of Appeal. (See Cabinet Secretary for the National Treasury and Planning & 4 others v Okoiti & 52 others (Petition E031, E032 & E033 of 2024 (Consolidated)) [2024] KESC 47 (KLR) (20 August 2024) (Ruling))

· The Supreme Court in the Cabinet Secretary for the National Treasury and Planning & 4 Others v Okiya Omtata Okoiti & 52 Others Petition No. E031 of 2024 and consolidated with petitions No E032 and EO33 of 2024[i] held that the Finance Act is constitutional. Given that the Supreme Court is the highest court in Kenya it is unlikely its decision will be challenged.

· The Supreme Court’s decision together with the withdrawal of the Finance Bill 2024 renders the Finance Act 2023 to be relevant and applicable.

National Retirement Benefits Policy

· The Cabinet approved the draft National Retirement Benefits Policy on 3rd November 2023.

National Building Code, 2024

· The code had existed as the draft National Building Code, 2022 for a while.

· It was published as the National Building Code 2024 on 1st March 2024 vide Legal Notice No. 47 of 2024.

· The Code repeals the Local Government (Adoptive By-Laws) Building Order of 1968. The Code will be operational one year after its publication.

National Construction Authority (Defects Liability) Regulations, 2020

· The High Court on the 28th April, 2022 in Republic v National Construction Authority & 2 others; Joint Building and Construction Council (Exparte) (Judicial Review Application E1120 of 2020) [2022] KEHC 333 (KLR) quashed these regulations for lack of consultation with the NCA Board and consideration of all submitted views and the fact that the regulations were not tabled in parliament for approval as required by the National Construction Authority Act.

Affordable Housing Act, 2024

· The Act came into force on the 21st March, 2024 and provides a framework for the development and access to affordable housing and institutional housing including the imposition of the Affordable Housing Levy.

Affordable Housing Levy

· The Affordable Housing Levy (“Levy”) is imposed by the Affordable Housing Act 2024 payable at a rate of 1.5% on the gross salary of an employee with a matching contribution from the employer. The Levy was initially introduced through Section 84 of the Finance Act 2023 as an amendment to the Employment Act. This was however challenged before the High Court in a number of cases.

· The Court decided that the introduction of the Levy through an amendment of the Employment Act by the Finance Act was unconstitutional as it lacked a comprehensive legal framework providing for its administration. The Court also issued orders barring the collection of the Levy.

· In compliance with the High Court’s ruling, the National Assembly passed the Affordable Housing Act, 2024 upon which the Levy is currently anchored.

Housing Scheme Fund Regulations, 2018 (Legal Notice No. 238 of 2018)

· These regulations were revoked by the Affordable Housing Act 2024 and are not applicable.

Emerging jurisprudence affecting housing in Kenya

a) The Cabinet Secretary for the National Treasury and Planning & 4 Others v Okiya Omtata Okoiti & 52 Others Petition No. E031 of 2024 and consolidated with petitions No E032 and EO33 of 2024.

· The above Petitions before the Supreme Court are a culmination of a legal battle challenging various changes proposed by the Finance Act 2023 and the constitutionality of the Act in its entirety. Below is a summary of the different rulings by the courts leading to the petitions before Supreme Court:

Supreme Court

SC Petitions No. 31, 32 and 33 of 2024

Court of Appeal

National Assembly & Another v Okiya Omtatah Okoiti & 55 Others

Judgement – The Finance Act 2023 held to be unconstitutional in its entirety

High Court

Okoiti & 6 Others v Cabinet Secretary for The National Treasury and Planning & 3 Others, Commissioner-General, Kenya Revenue Authority & 3 Others (Interested Parties)

Judgement– Some provisions of the Act were held to be unconstitutional. (For instance, the amendment of the Employment Act to provide for the Affordable Housing Levy.

· On 31st July 2024, the Court of Appeal declared the entire Finance Act 2023 to be unconstitutional for the following reasons:

• The National Assembly failed to give reasons for the rejection or adoption of proposals emanating from the public participation process; and

• Failure to include revenue estimates in the Appropriation Bill 2023 and subsequently the Appropriation Act 2023. These estimates were also not provided in the process leading to the enactment of the Appropriation Act, 2023 and the Finance Act 2023 in violation of the Constitution of Kenya 2010, which requires submission of the revenue and expenditure estimates to the National Assembly two months prior to the end of each financial year.

· The constitutionality of the introduction of the Affordable Housing Levy through the Finance Act 2023 was also an issue for determination in the suit before the Court of Appeal. This was however determined to be moot given the enactment of the Affordable Housing Act 2024 on which the levy is currently hinged.

· The impact of the nullification of the Finance Act 2023 was a reversion to the prior regime i.e. Finance Act 2022 particularly in light of the rejection of the Finance Bill 2024 by the President and its subsequent withdrawal by the National Assembly.

· The Court of Appeal’s decision was appealed before the Supreme Court together with applications seeking orders to stay the judgement. On 20th August 2024, the Supreme Court granted the conservatory orders staying the implementation of the Court of Appeal’s judgement pending the determination of the appeal. This rendered the Finance Act 2023 applicable as the suit was being heard.

· On 29th October 2024, the Supreme Court pronounced itself on the matter and it set aside the Court of Appeal’s finding declaring the Finance Act 2023 to be unconstitutional.

b) Gikenyi & 41 Others v Cabinet Secretary Lands & 13 Others

· Six petitions were filed before the High Court challenging the constitutionality of the Affordable Housing Act 2024 on the following grounds:

i. Lack of adequate public participation prior to its enactment;

ii. The affordable housing levy imposed by the Affordable Housing Act, 2024 is discriminatory and imposes an extra burden on the taxpayer.

· The matter was determined, with the High Court ruling that the right legislative process was followed in the enactment of the Affordable Housing Act 2024, including adequate public participation was conducted. The Court also held that the petitioners had failed to prove that the affordable housing levy was discriminatory or that it imposed extra burden on the taxpayer.

The book includes summaries and evaluations of over 140 statutes, policies and regulations, and provides further access to and interpretation of 48 cases. We welcome readers to engage with the content, providing commentary, additional relevant cases, updates etc., so that this becomes a live resource for the benefit of all working in Kenya’s affordable housing sector.

For more information, and to submit your comments, please contact Beatrice Mwangi at beatrice@housingfinanceafrica.org

Last updated: September 2024

Date first released: 1 Nov 2022 Version: 1.0

Authors: Muriuki Muriungi (Partner, KMK Africa Advocates LLP), Seeta Shah (Affordable Housing Specialist, FSD Kenya) with contributions from CAHF.

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Affordable housing is a key pillar of Kenya’s overall growth strategy, an explicit focus of the Ministry of Housing and Urban Development, and a key point of attention for developers, financiers and investors. While the Affordable Housing Programme has been underway for six years, its progress has been shaped by the policy, legislative and institutional framework that governs Kenya’s land, planning, construction and finance sectors.

Article 43 of the Constitution of Kenya under the Bill of Rights provides that every person has the right to accessible and adequate housing. Kenya's policy and regulatory framework seeks to give effect to these rights.

Accordingly, the State is obligated to take steps towards achieving this socio-economic right to its citizens, either directly or by encouraging delivery by the private sector to the wider market. In particular, the 2017–2022 government administration promoted the role of affordable housing within its Big Four Agenda (consisting of Affordable Housing, Manufacturing, Food Security and Affordable Health care).

While there has been some progress in delivering housing units by the Government both directly and by the private sector within this context of reforms, there have been challenges largely arising from some failures in policy, legal and institutional design. A key challenge is the length, breadth and complexity of the housing value chain.

This policy, legal and institutional review serves two central aims:

• First, is to provide a lay of the land on the policy, legal and institutional frameworks governing housing in Kenya; and

• second, is to assess the effectiveness of the policy, legal and institutional framework in achieving the constitutional imperative of access to decent housing, with a view to identifying gaps and opportunities for improvement.

The structure of this report is as follows: The overall housing value chain and institutional framework are described in Sections 2 and 3. Section 4 then sets out the overall policy framework, structured in terms of the housing value chain. The sections which follow provide brief summaries of the laws in respect of each value chain link and identify gaps and propose recommendations. Thereafter, annexes for each value chain link detail some of the substantive provisions of each of the laws reviewed. Recommendations in this review are highlighted in green.

This document has been developed to bring stakeholders together to engage on the most critical areas for regulatory reform in the housing value chain. The report is not prescriptive but rather a best attempt at assessing the vast library of laws, policies and regulations that apply to the housing value chain in Kenya. It is hoped that the report will serve as a baseline for further dialogue in the industry, particularly in prioritizing what regulatory reforms are most required and coming together to support these reforms.

LIST OF ABBREVIATIONS

As shown in Section [2], the comprises several components. These have been simplified in this review into four separate components of housing delivery:

• Land assembly, land acquisition, title and registration of land tenure

• Physical planning

• Construction and maintenance

• Financing (investment, rental, taxation)

While there are a multitude of interventions identified in this review that require action; the most pressing recommendations identified are:

1. Review the Housing Act 1953 and reintroduction of the before Parliament and fast-track its enactment into law;

2. Support the implementation of the National Building Code 2024 upon its operationalization in March 2025 and continuously improve the Code towards greener and more sustainable housing;

3. Simplify the process and costs of approvals to deliver affordable housing;

4. Align tax policies with the Affordable Housing Agenda to drive long term investment into housing (this includes transfer of pension assets into housing, encouraging long term savings, operationalising the various tax incentives to support both the demand and supply side etc);

5. Support the collection and dissemination of data along the housing value chain to allow players make coordinated investment decisions and progressively take more risk.

Each recommendation requires the support of various players, both public and private, and the next step required is to prioritise which recommendations should be focused on in a logical and phased manner and identify which player(s) will take responsibility to pursue the prioritised recommendations to be implemented. This will require a series of stakeholder engagement meetings with representation from the multitude of public and private stakeholders along the value chain.

The public stakeholders will include parliament, the various national government departments and parastatals and County government departments (as laid out in Figure [3] in Section 3). The private sector stakeholders include the housing demand itself (the people who will rent or own the housing), housing suppliers (developers, contractors and professionals), financiers (banks, equity investors, DFIs), NGOs working to promote the sector, technology and service providers, and research and think tank bodies. The desired output from these consultations would be a comprehensive strategy on how to evolve the regulatory sector to support the housing sector in Kenya with tangible deliverables for the short term, medium term and long term. As an underlying principle, collection and dissemination of data will play a critical role on the evolution of the sector.

All the recommendations in this document have been structured along the value chain, and are summarised below in terms of action required from (i) enactment of draft legislation (ii) of existing legislation (iii) develop regulations for existing legislation (iv) support implementation of existing policies / regulation and (v) develop Policy.

Review of Existing Legislation / Processes

• - Provide clarity on the exemptions on what is meant by ‘mixed use development’ in terms of minimum acreage and diversity and ‘substantial transactions’.

• - Extend the current statutory timeline of 2 years for title conversion.

• - Simplify foreclosure procedures to promote mortgage lending

• on National Land Policy- The Policy is outdated and due for review, especially to align it with the 2010 Constitution.

• Update other laws and policies that are outdated and in need of revision/updating e.g., , Survey Manual, and the National Land Policy 2009;

Develop Regulations for Existing Legislation

• - Provide guidelines or procedures for applying for exemptions from converting long term leases to sectional titles.

• - Provide for the required guidelines/procedures to support geo-referencing and title migration.

Support implementation of Existing Legislation

• - Review the design and capacity of ArdhiSasa platform, to enable its functionality with speed and ease; support surveying of land parcels and digitization of land registries in all counties.

• - Expedite land title conversion processes

• Support development of land value indexes as pro; Kenya National Spatial Data Infrastructure Policy; and the National Land Surveying and Mapping Policy all exist but need to be finalized and operationalized.

• Finalisation of the draft .

• Consider the development of a land banking policy, a law on minimum and maximum acreages of private land and guidelines/regulations on penalties for compliance.

Other non-legislative recommendations

1. The Department of Surveys should prepare and publish guidelines/procedures to inform the issuance of a unique prefix number to support geo-referencing of sectional units given that geospatial data remains uncoordinated;

3. Deal with design and operational challenges of the online national land information system (ArdhiSasa platform) and improve transparency on what areas/titles have been uploaded onto the portal;

4. Prepare, publish and adopt policy instruments/frameworks on gender in land, spatial data, and land surveying and mapping; and

5. Fast track the rolling out of land value indexes in many areas to deal with rising land prices arising from land speculation;

Schedule on the status of Bills as of September 9th 2024

The Housing Value chain is long and requires coordination and the investment of capital at each link. The components of the value chain comprise land assembly and acquisition; the land requires effective title and registration, infrastructure for services is required, thereafter construction occurs, and the housing units are transferred to offtake (either for sale or rental). The completed housing stock requires ongoing maintenance and the whole value chain needs to function in a coherent social and economic infrastructure fabric and delivered in line with approved spatial plans for that location. Altogether, this is called the built environment.

Each link in the chain incurs costs. This creates a financial moment when capital is required. Capital can be injected from various public sources (funded from the tax base or sovereign loans/grants from development finance institutions) and private sources (bank financing, capital, pension funds, equity funds, and impact funds). Different forms of capital have different return expectations, and not all of them are financial. Commercial capital requires a return commensurate with its risk – a risk that is created or resolved by the policy and regulatory framework. While the state seeks to support affordable housing, it can do this through the direct provision of capital, in the form of subsidies, insurance or guarantee products, or indirectly through the creation of an enabling environment for both investment and housing delivery. For this reason, the policy, legal and institutional framework for affordable housing and how it functions has a profound impact on the resources available to finance affordable housing delivery.

This is visually illustrated in Figure 2 below.

Multiple links together comprise the housing delivery value chain. These can be summarized together as four components of housing delivery:

· Land assembly, land acquisition, title and registration of land tenure

· Physical planning

· Construction and maintenance

· Financing (investment, rental, taxation)

1. Review the that is outdated and additionally consider its reintroduction before the National Assembly: Enact into law, and then operationalise it.

2. Harmonize all the existing and new regulatory frameworks and bodies, to ensure smooth delivery of housing and reduce duplication of costs and time.

3. Promote the creation of data banks to enhance market transparency.

4. Integrate protection for consumers during construction and upon occupation.

Enact New / Draft Legislation

• 4- Implementation of the Code once it is operational in March 2025. Further, regular reviews should be done to continuously move the Code to greener, healthier, and more affordable buildings. Review the parking requirement, and adjust it in response to demographic, geographic and management.

• Draft Construction Industry Policy- Pursue finalization and adoption to guide the construction industry

• Draft appropriate and enabling legislation/regulations that protect consumers from poor construction quality (which will support the flow of finance into housing).

Review of Existing Legislation / Processes

• Review ALL current statutory costs and processes to promote efficiencies of time and cost.

• Develop a One Stop Shop Framework-Consolidate all statutory approvals and host them in a single location to ease the speed and cost of delivery

• - Review and modernize the Act to incorporate intentions for and commitments to energy efficiency, and healthy and green buildings.

• Support the use of licensed professionals by encouraging competition as opposed to mandated scale fees.

• - Promote longer-term sustainable forestry frameworks to support affordable housing and green buildings

Develop Regulations for Existing Legislation

• - Review of appropriate building regulation, drawing on international experience, in support of driving the finalisation and adoption of the existing Regulations. Ensure that the regulations cover all building types.

• - Formulate regulations to provide for various matters including: energy efficiency and conservation building codes; energy efficiency standards for specific technologies and buildings; and energy consumption norms and standards for designated consumers.

Support Implementation of Existing Legislation

Develop / Finalise Policy

• Develop building maintenance manuals, together with a dissemination programme to sensitize stakeholders on national and international maintenance standards and guidelines.

• Prepare standards for alternative building/construction materials

Other non-legislative recommendations

1. Focus on the provision of trunk/bulk infrastructure in various areas (especially urban areas) to promote the development of affordable housing units since currently private developers are forced to incur the cost of providing infrastructure services, which costs are passed on to end consumers (home buyers);

2. Promote the implementation of the National Building Code 2024 which will be operational in March 2025, with more alignment to climate-resilient measures;

4. Harmonize conflicting/non-harmonious institutional/government objectives. For instance, e.g., the ban on logging of trees in forests has increased the cost of timber thereby undermining the affordable housing agenda;

5. Consider appealing or reviewing through legislation some court decisions which place an undue burden on private developers to provide amenities and fulfil constitutional rights that would otherwise be the obligation of the State. This may potentially disincentivize developers and thus restrict housing supply;

6. Deal with significant discretion and opacity in the building code administration system which creates an opportunity for corruption; In particular, deal with the skewed compliance against formal developers as against informal developers which discourages the scaling up of formal developers, yet this is required to access formal finance instruments;

7. Develop a comprehensive framework detailing the needs, standards, and guidelines for green buildings and publish regulations on energy efficiency standards that are key for green buildings as envisaged and required under the law;

10. Finalize and adopt construction industry policy to guide the entire sector;

11. Review the outdated Housing Act (Cap 117) and consider the reintroduction of the Housing Bill 2021 before the Parliament;

12. Develop, or enact strong consumer protection framework standards/guidelines, especially for buyers of off-plan properties who need more robust protection in law;

13. Provide legal recognition to informal builders and incremental construction processes;

14. Develop and publish housing-related data/data bank to inform the market and other stakeholders;

15. Develop and publish standards of alternative construction/building materials and technologies;

16. Develop manual for maintenance of buildings and lack of awareness on national and international maintenance standards; and

17. Adopt consistent nomenclature/classification in different housing regimes.

Land in Kenya is broadly divided into three categories: public land, private land, and community land. Each type of land is regulated by different institutions.

• The is responsible for the management of public including government land, which is leased out to private persons, save for land held, used or occupied by a state organ. Land held, used or occupied by a national State organ is the only category of public land, pursuant to article 62(2) and (3) of , that neither vests in the two levels of government nor is administered by the National Land Commission on behalf of the said two levels of government.

• The deals in private freehold and leasehold land and titling of all land whether public, private or community.

• Community land is governed by the , which has set up the Community Land Assembly and Community Land Management Committee.

The Republic of Kenya comprises the national government (including the legislative, executive and judicial arms of government) and 47 county governments/units, which themselves are governed by semi-autonomous governments. The county governments were formed in the 2010 Kenyan constitution, and have devolved functions from the central government, as set out in the .

Within this overall governance framework, several institutions are involved in the regulation and enablement of housing in Kenya at the national and county levels. These include national government ministries and independent commissions/entities; county governments; the Judiciary (Courts); Regulatory Boards (housed within national ministries); and Professional Associations.

The roles and responsibilities of county governments are set out in the County Governments Act of 2012, having been established under Article 176 of the 2010 Kenya Constitution. Article 176(2) provides that every county government is required to decentralize its functions and provision of its services as far as is efficient and practicable. This means that county governments can establish further agencies and units at a more localized level to ensure that services reach the grassroots. The Constitution delineates the functions of the national government and those of the county government under the Fourth Schedule of the Constitution. The national government is largely concerned with policy-making for land use and housing sectors. The county governments on the other hand are charged with planning, development control and providing necessary facilities within areas of their jurisdiction.

The relationship between national and county governments under Article 189 of the Constitution should be one of collaboration and interdependence and one that respects the functional and institutional integrity as well as the constitutional status and institutions of government at either level. There are potential areas of collaboration in the affordable housing sector: For instance, county governments can provide land for the affordable housing programme; provide infrastructure in areas under their jurisdiction, conduct demand analysis of housing for each county, and expedite planning approvals. The provision of land and requisite infrastructure is a responsibility touching on both levels of government. In the past, there have been discussions between the Ministry of Lands in the national government and County Executive Committee Members responsible for land and planning in the counties, and County Attorneys where they have stressed the need to work together in promoting the delivery of housing. The State Department for Housing and the National Land Commission (an independent constitutional commission) have also engaged in capacity building for counties and provided technical support in mapping, engineering surveys, and development of plans for housing to counties. Additionally, the national government signed Memorandums of Understanding with 24 counties in 2019 for delivery of 2, 000 housing units in each county. About five counties had set aside land for planning and project implementation.

County governments are responsible for creating and enforcing spatial plans for the counties’ development. These spatial plans are used to guide development within the county and inform development approvals.

The County Executive Member responsible for planning in County Governments is mandated to approve development permissions, change and extension of users and other aspects of development control. Counties enforce development control on all land, whether freehold, leasehold or community land.

Counties are mandated to collect property taxes (rates) to support the effective management of the county.

County Governments also hold unregistered community land in their jurisdiction on behalf of the community until it is registered; and levy other charges for services they provide including cess on roads (tax on movement of goods) and other charges in markets. Article 209(4) of the Constitution empowers county governments to impose charges for services rendered. In this regard, county governments levy various charges through the Finance Act passed annually. The Supreme Court in Base Titanium Limited v County Government of Mombasa & another (Petition 22 of 2018) [2021] KESC 33 (KLR) emphasized that such charges can only be levied for services or amenities rendered by the county government. In this case, the Supreme Court held a ‘road service charge’ imposed on each truck passing through Mombasa County’s jurisdiction as unconstitutional since the county government was not providing any service in return for the charge.

County Governments are responsible for providing the necessary infrastructure to support delivery of housing.

County governments are required to decentralize their functions and provision of their services to the lowest level to the extent that is efficient and practicable under Article 176(2) of the Constitution. Further, section 48 of the County Governments Act 2012 provides that the functions and provision of services of each county government shall be decentralized to— (a) the urban areas and cities within the county established in accordance with the Urban Areas and Cities Act (No. 13 of 2011); (b) the sub-counties equivalent to the constituencies within the county established under Article 89 of the Constitution; (c) the Wards within the county established under Article 89 of the Constitution and section 26; (d) such number of village units in each county as may be determined by the county assembly of the respective county; and (e) such other or further units as a county government may determine. Accordingly, county governments should endeavour to further decentralize their services such as planning approvals to the lowest level to enhance access, based on these legal provisions. For instance, the new administration of Nairobi City County has proposed to create boroughs in the city each with an administrator to devolve services.

The National Government land registries are located across the country within the jurisdiction of the various counties. However, the operations of the land registries are a national function under the Ministry of Lands and Physical Planning.

Similarly, the various courts are located across the country within the jurisdiction of various counties even though they are a national function and are under the Judiciary arm of government.

is a critical actor in the housing value chain as it is the entity mandated to resolve legal disputes that arise over land ownership or any contractual disputes in the entire value chain (including construction, financing or sale).

The Kenyan Judicial system is set out as follows:

The various courts and Control Boards relevant to affordable housing are shown below, in order of hierarchy.

• Magistrates Court: These courts are the most accessible and have existed for many decades. They form the first port of call to listen to disputes relating to land and environmental issues. The Magistrates Courts only deal with matters of land valued at less than Kshs. 20 million, however, matters not resolved here can be taken to the Environmental and Land Court.

• Land Acquisition Tribunals were provided in law in 2019 to hear disputes arising from compulsory acquisition of land by the government. The Tribunals have the status of inferior/magistrates courts, with their decisions being appealed at the Environment and Land Court.

• National Environment Tribunals: These listen to appeals against Environmental Impact Assessment (EIA) decisions made by NEMA, and those made by the Kenya Forest Service and the Kenya Wildlife Service.

• Environment and Land Court: These are specialized courts established in 2012, with the status of the High Court, which handles disputes over land and environment. As of August 2024, there were 37 ELC court stations and 53 judges of the Court in various parts of the country. A dispute may be lodged directly at the ELC at first instance or as an appeal from either the Magistrates Court or other tribunals such as (in principle) the Land Acquisition Tribunal. This court typically deals with land disputes whose value exceeds Kshs. 20 million. However, they also enjoy original jurisdiction and hear land and environmental disputes at first instance (irrespective of value).

• High Court: The High Court is conferred with original jurisdiction to deal with all matters (save for, land and environmental disputes). Accordingly, disputes over contractual matters and other commercial matters would ordinarily be resolved at the High Court, with appeals lying to the Court of Appeal.

Note: The Land Control Board, which is mandated to regulate dealings in agricultural land by granting or denying consent to transact in agricultural land is under the Ministry of Lands and Physical Planning and is not part of the Judiciary.

Regulatory bodies of the various land professionals (domiciled within the Ministry of Lands) are also key institutions. These are: the Land Surveyors Board which regulates the practice of licensed surveyors; the Valuers Registration Board which regulates the practice of licensed valuers and the Estate Agents Registration Board which regulates the practice of licensed estate agents. These regulatory boards have statutory authority and set standards for the respective profession and set qualifications for the professionals to prevent harm to the public.

The functions of these statutory boards include registering approved professionals, issuing licenses to practice, taking disciplinary action over its members, and determining scale fees charged by its members.

In addition, there are private bodies that manage the affairs of the professional members and advocate for the interests of the profession. These bodies act as a link between professionals and stakeholders in the construction industry, including policymakers, manufacturers, real estate developers and financial institutions.

Key professional associations in the land assembly and titling value chain are the Law Society of Kenya (representing lawyers); and the Institution of Surveyors of Kenya (ISK) which represents Valuers, Land Surveyors, Geomatic Engineers, Registered Estate Agents, Property Managers, Building Surveyors, Land Administration Managers and Facilities Managers. These professional associations are critical as they promote the professional ethical performance of services of their members and raise issues affecting members of the public that touch on their duties such as the dysfunctionality of systems.

Other secondary institutions comprise private sector organizations and civil society.

In addition, the financial sector players involved in housing are:

Commercial Banks

There are 38 licensed Commercial Banks in Kenya. Commercial banks are regulated under the Banking Act (Cap 488) and the Companies Act 2015 given that they are first incorporated as limited liability companies before taking out a banking licence.

Mortgage Finance Banks/Companies

There is 1 licensed mortgage finance bank/company i.e. Housing Finance Company of Kenya (HFCK). Mortgage finance companies are regulated by the Central Bank of Kenya under the Banking Act (Cap 488).

Savings and Credits Cooperative Organizations (SACCOs)

There are about 5, 000 SACCOs, with around 440 being housing SACCOs. The main one is the National Union for Housing Cooperatives (NACHU) which began operations in 1987 and is one of the leading affordable housing providers in Kenya. SACCOs are regulated/supervised by the Sacco Societies Regulatory Authority and established pursuant to the Sacco Societies Act 2008 and related regulations, and the Cooperative Societies Act 1997.

Microfinance Banks (14 licensed ones).

Microfinance banks are regulated by the Central Bank of Kenya under the Microfinance Act 2006.

Institutional Investors e.g., pension funds, private equity funds

The KMRC is regulated by the Central Bank under the Central Bank (Mortgage Refinance Companies) Regulations, 2019. It is 75% owned by the private sector and 25% owned by the government.

[1] One of the largest industry bodies in the construction sector whose membership is broader than architects and also includes Quantity Surveyors, Town Planners, Engineers, Landscape Architects and Environmental Design Consultants and Construction Project Managers.

Financing is required at every stage of the housing value chain. The government has made significant efforts to stimulate housing with mandatory tax and demand-side and supply-side tax incentives. However, the mandatory tax has since been quashed, and the demand-side and supply-side tax incentives have been difficult to operationalize/scale. The main reason is the difficulty in coordination between different government entities and the conflicting objectives of short-term tax collection required to meet the government budget, vs long-term economic growth, which should result in a larger tax base in the medium to longer term.

For example, changes to the and related regulations to allow for the transfer of pension assets into housing seek to increase the scope of resources available to households to acquire housing. It is unclear, however, whether a pensioner can use their pension savings and simultaneously take a mortgage. Further, the lump sum withdrawal incurs high taxation which disincentivizes the use of the provision. (See Figure [2]).

The launch of has also been an important step in providing long-term finance (at concessional rates in the beginning) for banks to refinance their mortgage books. However, the uptake has been low largely due to a lack of attainment of the criteria set to qualify for such support.

• Working property rights and property registration systems that are reliable, transparent and low-cost;

• Well-functioning land and housing markets;

• Competitive primary mortgage markets with standard long-term mortgage products whose contracts can be enforced;

• Access to longer-term funding sources to price and manage interest risk; and,

• Insurance or reinsurance entities that can manage default risk

Each of these building blocks is supported by targeted policy and a legislative and administrative framework. As illustrated in the other components, Kenya needs to enhance its regulatory framework and smoothen the operationalization of these building blocks for mortgage markets to expand.

Prior to 2012, the legal framework governing land was overly cumbersome and complex, with five different regimes for dealing in land viz: Registered Land Act, Registration of Titles Act, Government Lands Act, Land Titles Act and the Indian Transfer of Property Act. Pursuant to the 2010 Constitution and the enactment of new land laws in 2012, these multiple legal regimes were consolidated into the Land Act of 2012 (substantive law) and the Land Registration Act of 2012 (procedural law) thus simplifying the legal regime. Both 2012 laws cover all transactions on land, excluding community land, which is governed by the Community Land Act 2016 and Community Land Regulations 2017. The recognition of Community Land is an important step forward for Kenya which has large land parcels constituting over 60% of total land mass in the country. However, there is limited registration/titling of land under this Act at present.

Transacting in land continues to face challenges due to the various government departments involved and the room for rent-seeking behaviour. There has been an effort to digitize land transactions with the launch of Ardhi Sasa in April 2021. This is a critical step forward, however, the platform has faced teething problems and is not fully operational. Limited titles in Nairobi have been digitized and the transfer of titles has stalled, as a result.

In addition, while the legislation allows for measures to leverage land values for development via effective land banking, idle land taxation, minimum and maximum acreages to be held, and others, these measures have not been enforced.

This component of the Housing Value Chain assesses Kenya’s laws/policies/regulations in the land assembly/acquisition and titling processes with a view to identifying progress, challenges and potential areas of improvement in the policy, legal and regulatory regime. This is important given the central place of land in the entire housing value chain, as land constitutes the key site on which human settlements are built.

The following laws/policies/regulations in the Land Assembly/Titling Component were reviewed in this study. These are summarized in Annex B with links to their source for further reference.

1. Land Act, No. 6 of 2012 (substantive law on land)

2. Land Registration Act, No. 3 of 2012 (provides for registration processes including all dealings in land such as charges, leases and transfers)

3. Land Registration (General) Regulations, 2017

4. Land Registration (Registration Units) Order, 2017

5. Community Land Act 2016 which provides for the management and registration of community land

6. National Land Commission Act 2012 which provides for the structure and functions of the Commission.

7. National Land Commission (Investigation of Historical Land Injustices) Regulations, 2017

8. National Land Commission (Amendment) Bill, 2023

9. Community Land Regulations 2017

10. Sessional Paper No. 3 of 2009, The National Land Policy

11. Land Control Act (Cap 302) 1967

12. Land Control Bill, 2023

13. Environment and Land Court Act No 19 of 2011

14. Survey Act No. 25 of 1961 (Cap 299)

15. Sectional Properties Act, No. 21 of 2020

16. Sectional Properties Regulations, 2021

17. Survey Manual, 1961

18. Idle Land Taxation Policy 2018 (only reported to have been developed – but not available for viewing)

19. The Draft Land Sector Gender Policy– (not available for viewing);

20. Draft Kenya National Spatial Data Infrastructure Policy (not available for viewing);

21. Draft National Land Surveying and Mapping Policy;

22. Land Amendment Bill 2022

23. Recommended National Land Policy 2023

Overall, the legal and policy framework with respect to land is complex, notwithstanding the consolidating efforts of the Land Act in 2012. This is further complicated by the fact that some legislation has not been operationalized with regulations. A significant constraint is that it fails to engage productively with the notion of land value, and the impact this has on land use choices and affordable housing.

Key gaps in the land assembly and titling value chain that need attention are:

Policies/laws requiring review or amendment

Through Executive Order No. 1 of 2022-The President: Organization of the Government of the Republic of Kenya, the current administration elected into office in August 2022, reorganized the relevant Government Ministries and Departments into the following:

• Ministry of Lands, Public Works, Housing and Urban Development;

• Ministry of Trade, Investments and Industry;

• Ministry of Co-operatives and Micro, Small and Medium Enterprises (MSME) Development;

• Ministry of Water, Sanitation and Irrigation;

• Ministry of Environment and Forestry;

• Ministry of Roads and Transport;

• Ministry of Energy and Petroleum;

• The National Treasury and Economic Planning;

• Ministry of Labour and Social Protection;

• Ministry of Mining, Blue Economy and Maritime Affairs;

• Ministry of Health.

Notably, the re-organization of Government Ministries vide Executive Order No. 1 of 2022 issued in October 2022 which brought the Public Works, Housing and Urban Development dockets, as well as the respective State Departments, into the Ministry of Lands (to now read, Ministry of Lands, Public Works, Housing and Urban Development) is a very welcome move as it will ensure that all key agencies are under a single ministry thereby ensuring synergy and efficiency. The dockets of Public Works, Housing and Urban Developments were formerly in the Ministry of Transport and Infrastructure which was separate from the Ministry of Lands and Physical Planning thus complicating efforts at dealing with all issues in the housing value chain.

The above reorganization of Government changed the Ministries and State Departments as they were during this report's maiden release (as set out under Executive Order No. 1 of 2020 issued on 14 January 2020) which are detailed below:

The (former) Ministry of Lands and Physical Planning

(The text below describes how the Ministry operated prior to changes in October 2022. From October 2022, it is now functions as the Ministry of Lands, Public Works, Housing and Urban Development )

The Ministry of Lands and Physical Planning (MLoPP) in the previous national government was the main institution enforcing the Land and Physical Planning frameworks in Kenya. The Ministry is headquartered in Nairobi (Ardhi House) but has offices and land registries spread out in various counties around the country. Vide Executive Order No. 1 of 2020, the Ministry of Lands & Physical Planning was vested with the following functions:

• National Lands Policy and Management;

• Physical Planning and Land Use;

• National Spatial Infrastructure

• Registration of Land Transactions;

• Land and Property Valuation Services Administration

• Survey and Mapping;

• Land Information Management Systems; and

• Land Adjudication.

The National Land Commission is a distinct and independent Constitutional Commission created under Article 67 of the Constitution and the National Land Commission Act of 2012, to ensure the proper management of public land. The National Land Commission also has offices in every county (County Coordinators) that carry out the function of the Commission in the counties.

Functions of the National Land Commission include:

• Management of Public Land on behalf of national and county governments;

• Recommending a national land policy to the national government;

• Advising the national government on a comprehensive programme for the registration of title in land throughout Kenya;

• Initiating investigations, on its initiative or a complaint, into present or historical land injustices, and recommending appropriate redress;

• Assessing tax on land and premiums on immovable property in any area designated by law;

• Encouraging the application of traditional dispute resolution mechanisms in land conflicts.

In National Land Commission v Attorney General & Others, Advisory Opinion Reference 2 of 2014 (paras 309-315), the Supreme Court delineated the powers of the Ministry of Lands and Physical Planning vis a vis the NLC, following wrangles between the two agencies and upon request for an advisory opinion by the National Land Commission. In rendering its decision, the Supreme Court however, noted the difficulty and near impossibility of allocating discrete functions to either of the agencies as requested by NLC, making the point that “the vital subject of land-asset governance runs in functional chains, that incorporate different State agencies; and each of them is required to work in co-operation with the others, within the framework of a scheme of checks-and-balances—the ultimate goal being to deliver certain essentials to the people of Kenya.” The Court further held that “The NLC has a mandate in respect of various processes leading to the registration of land, but neither the Constitution nor statute law confers upon it the power to register titles in land. The task of registering land title lies with the National Government, and the Ministry has the authority to issue land title on behalf of the said Government.” The Supreme Court went on to add that in its view, the NLC ‘bears a brains-trust mandate in relation to land grievances, with functions that are in nature consultative, advisory, and safeguard-oriented' and that accordingly, ‘co-operation and consultation with other State organs will be important, in identifying, and defining urgent tasks on the NLC’s agenda.’

The NLC has the authority to consent to leases of public land or change of user on government-leased land. Since a significant portion of privately owned land in urban areas is on leasehold tenure from the government, NLC is involved in providing the necessary consent to transfer or deal in such leasehold interests. The total acreage of public land is estimated at about 10% of total Kenya’s land mass.[1]

Article 62(2)(a) and (b) of the Constitution provides that other than land held, used or occupied by a national State organ, public land shall vest in and be held by a county government in trust for the people resident in the county, and shall be administered on their behalf by the National Land Commission. This means that there is a need to work with the National Land Commission and county governments for the latter to provide land for affordable housing projects. However, land held, used or occupied by national state organs does not vest in the national government or county governments, and the National Land Commission has no role in the management of such land as per Article 62(2)b and 3 of the Constitution. Accordingly, it would fall upon such national state organs to make decisions on whether they wish to release such land for use in affordable housing.

(Former) Ministry of Transport, Infrastructure, Housing, Urban Development and Public Works

(the text below describes how the Ministry operated prior to changes in October 2022. Post the changes in October 2022, the Ministry is now Ministry of Roads and Transport).

Within the Ministry of Transport, Infrastructure, Housing, Urban Development and Public Works, seven institutions are relevant to affordable housing:

The State Department of Housing & Urban Development provides policy direction and coordination of all matters related to housing and urban planning and development. Other functions include housing policy management; management of Civil Servants Housing Scheme; and registration of various professionals etc.

The National Housing Corporation(State Corporation overseen by the State Department of Housing and Urban Development) is a statutory corporation charged with implementing the government’s housing policies and programmes. It also houses the National Housing Development Fund which was established in 1967 (initially named as ‘Housing Fund’) and financed by parliamentary appropriations, borrowed loans and repayments of interests on loans. The Fund is established to lend or grant money to local authorities (precursor to county governments); to organizations charged with promoting the development of housing; to companies, societies or individuals to enable them to acquire land and construct approved dwellings, or to acquire land and construct dwellings for rent or sale to citizens (section 8 of the Housing Act). The NHC is involved in the development of housing on public land for sale or renting to civil servants and other government employees.

The National Construction Authority (State Corporation overseen by the State Department of Public Works) is a state corporation which regulates, streamlines and builds capacity in the construction industry. It also undertakes project registration for developments and conducts inspections on buildings as well as accredits construction workers.

The State Department of Public Works is charged with the responsibility of planning, designing, construction and maintenance of government assets in the built environment and infrastructure development. It also lays policy for all the built environment (eg green buildings) to be then followed by both private and public developers.

Within the State Department of Public Works, the National Building Inspectorate (NBI) is mandated to audit buildings for conformity with land registration, planning, zoning, building standards and structural soundness. However, its role and that of the National Construction Authority seem to overlap.

The mandate of the NBI was cited by the Environment and Land Court in Homeboyz

Entertainment Limited v Secretary, National Building Inspectorate & 2 others [2019] eKLR, to profile unsafe and dangerous buildings and structures and to demolish such structures; to demolish and remove unlawful encroachments on road reserves, riparian land, wayleaves set aside for power lines, railways, pipelines and sewer lines.

Within the State Department of Public Works, the Kenya Building Research Centre is charged with spearheading Building Research Services in Kenya with an aim of reducing the cost of construction. It is undertaking programs and projects on cost-effective building materials.

The State Department of Transport and the State Department of Infrastructure coordinates all transport matters nationally. To date, there has been an emphasis on delivering roads to connect parts of Kenya. However, a key area for coordination is emphasizing and aligning improved provision of public transport as a necessary step towards delivering affordable housing.

It is expected that the reorganization of the 2 key ministries under the new government is likely to ease the coordination along the value chain for delivery of affordable housing.

NEMA is a statutory agency responsible for the management of the environment and environmental policy. NEMA is charged with approving and issuing Environmental Impact Assessment Licences, approving qualified persons/companies to undertake EIAs, and enforcing environmental orders.

Ministry of Industrialization, Trade and Enterprise Development (changed to Ministry of Trade, Investments and Industry in October 2022, however, the functions below will still hold)

The Ministry of Industrialization, Trade and Enterprise Development deals in industry and trade. In this broad mandate, the Ministry develops standards and coordinates trade and various enterprises, all of which have an impact on housing in terms of affecting the sourcing and costs of raw materials and construction. The Kenya Bureau of Standards which certifies that all materials including those used in construction meet the required standards, is a state agency under the Ministry.

In addition, the Ministry hosts the Sacco Societies Regulatory Authority (SASRA) and the Commissioner of Cooperatives, which are the regulators of SACCOs and cooperatives that are key in financing housing.

[1] P Kameri-Mbote, Kenya Land Governance Assessment Report June 2016 p.19 https://openknowledge.worldbank.org/bitstream/handle/10986/28502/119619-WP-P095390-PUBLIC-7-9-2017-10-9-20-KenyaFinalReport.pdf?sequence=1&isAllowed=y

Through the the Government of Kenya has identified six key areas of economic tranformation including Housing and Settlement with a focus on affordable housing. Under affordable housing, the Government intends to:

• Facilitate the delivery of 250,000 housing units every year under affordable long-term housing finance schemes.

• Grow the number of mortgages to 1,000,000 by enabling low-cost mortgages of less than KES 10,000.

• Give developers incentives to build more affordable housing.

The AHP includes several supply side, demand side and enabling environment guidelines and incentives to deliver housing. These include:

• Enabling Environment: provide land and bulk infrastructure, provide infrastructure funding, provide tax incentives, standardize designs and processes, and create a one-stop shop for approvals.

• Supply Side: promote master plans and mega city approach, promote mixed-use developments with social infrastructure and amenities, and provide offtake financing to developers

• Demand side: Promote tenant purchase schemes, optimize KMRC for long-term mortgage finance at concessional rates initially, and create a Boma Yangu Portal to match supply and demand

The Government has introduced the which connects people to the Affordable Housing Program by allowing them to save towards home ownership and access to affordable mortgages and the National Tenant Purchase Scheme.

While the framework was conceived to be holistic and enable the delivery of housing, it has faced significant challenges due to lack of financing as the proposed mandatory National Housing Fund that was expected to finance the developers’ offtake was quashed in court, and there continues to be a lack of coordination amongst the various agencies to enable delivery of housing.

The AHP itself sits within the broader context of the Constitution of the Republic of Kenya, and various overarching laws/ policies/regulations that contextualize the Kenyan’s government policy on housing that are contained in:

• - which provides the overall framework and sets out the distribution of functions between the national government and the county government in the Fourth Schedule. Functions relevant to housing that are reposed in the national government under the Fourth Schedule of the Constitution are: housing policy, national public works, general principles of land planning and co-ordination of planning by counties, protection of the environment including energy policy and water protection, energy policy, disaster management, transport and communications, consumer protection, monetary policy and banking, courts, and water resources. Functions relevant to housing that are vested in county governments under the Fourth Schedule are: county planning and development including housing, land survey and mapping, boundaries and fencing and energy regulation/electricity reticulation; county transport including county roads, street lighting, traffic and parking, and public road transport; trade development and regulation including cooperative societies, markets and trading licences (excluding regulation of professions); county public works and services including stormwater management systems in built-up areas and water and sanitation services; and firefighting services and disaster management. The Constitution of Kenya under the Bill of Rights (article 43) also provides that every person has the right to accessible and adequate housing. Accordingly, the State is obligated to take steps towards achieving this socio-economic right for its citizens. The High Court, in seemed to adopt the international definition of adequate housing by the United Nations of ‘adequate housing’ at paragraph 71 as that which has “i) legal security of tenure to guarantee against forced eviction; ii) Availability of services, materials, facilities and infrastructure; iii) affordability such that housing costs are commensurate with income levels and do not imperil other basic needs; iv) accessibility including to disadvantaged groups v) habitability in terms of being free from rain, dampness, wind, cold or other discomforts; vi) in a location which allows access to employment and other amenities; vii) cultural adequacy than enables the inhabitants to express their cultural identity and their diversity of housing.” Relatedly, in a recent judgment delivered in 2022, the Environment and Land Court in quoted the decision of the Supreme Court in Mitu Bell (at para 151) with approval which had stated: “Where the landless occupied public land and established homes thereon, they acquired not title to the land, but a protectable right to housing over the same. The right to housing over public land crystallized by virtue of a long period of occupation by people who had established homes and raised families on the land. That right derived from the principle of equitable access to land under article 60(1)(a) of the Constitution.” This finding was in relation to an equitable claim of landless people (squatters) who had lived on public land held by a public university and established their homes there since 1984. In such instances, the Supreme Court in had held that such landless people occupying public land must be allocated such land or be compensated if any eviction is to occur. The Supreme Court in this case held that it is the duty of the state to provide housing to citizens, but this right could only be achieved progressively (para 146). The apex court in paragraph 153 stated: “The right to housing in its base form (shelter) need not be predicated upon “title to land”. Indeed, it is the inability of many citizens to acquire private title to land, that condemns them to the indignity of “informal settlement”. Where the Government fails to provide accessible and adequate housing to all the people, the very least it must do, is to protect the rights and dignity of those in informal settlements. The courts are there to ensure that such protection is realized, otherwise these citizens, must forever, wander the corners of their country, in the grim reality of “the wretched of the earth””.

• : This is the main policy document that articulates the vision, mission and strategic direction of the government with respect to the housing sector in Kenya. It was drafted before the AHP of 2017, but its provisions hold.

• : provided for establishment of the National Housing Corporation (NHC) and the National Housing Development Fund (NHDF) to be administered by the NHC. The NHC was vested with powers to make loans or grants from the NHDF to private and public sector players to deliver housing, develop a land bank for housing and encourage research and information dissemination on housing. The Affordable Housing Fund, established under the Affordable Housing Act, replaces the NHDF. NHC is further required to surrender all the funds in the NHDF to the Affordable Housing Fund. It is popularly understood that NHC has a land bank valued at approximately $ 2 billion in 2021, however, the total delivery of housing units has been limited (estimated at around 20,000 units since inception). The potential of NHC to utilise its land bank to drive affordable housing is vast and should be explored.

• The goal of this Policy is to guide the country towards upgrading existing and preventing emergence of new slums in a coordinated and systematic manner. This policy's overall objective is to promote, secure and protect dignified livelihoods of the poor living and working in slums by strategically integrating them into the social, political and economic framework in line with the Constitution. There have been efforts in the past geared toward upgrading and improving informal settlements and slums with the support of development partners. Such efforts and programmes include: (KENSUP); supported by the World Bank which seeks to provide social and physical infrastructure, promote security of tenure and build capacity in select urban areas; the ‘Adopt a Light Movement’ which was a collaboration between the private sector and the then Nairobi City Council that sought to install efficient light poles and high masts in select slum areas. These slum upgrading efforts and initiatives have however faced challenges such as: gentrification;[1] insufficient funding to enable scaling; limited capacity and coordination challenges. The policy paper has provided for various recommendations and implementation proposals which would go a long way in dealing with the challenges facing informal settlements and slums. The implementation of these policy proposals however requires significant funding, political goodwill and collaboration among government, private sector and development partners to complement efforts.

• - This Sessional Paper provides an overall framework and proposes key policy measures to be undertaken to address critical population management issues. The Policy identifies rapid population growth and a youthful population structure as key issues that will pose challenges in the realization of Vision 2030 and the long-term development of the country. High fertility coupled with a high unmet need for family planning over a long period of time, has contributed largely to the observed youthful population structure.

  The question of population is essential as it is the one that determines the housing units needed since these people need to be sheltered. The fact that Kenya needs about 250,000 housing units to be built annually is a testament to the high population growth which is making this necessary. Indeed, the policy notes that the continued high rate of urbanization in general has led to problems such as increased urban poverty and inadequate services, especially among the poor. It notes that the continued strain on the existing urban infrastructure, particularly on housing, transportation, educational and health facilities, and employment has created new challenges.

  With respect to housing, the policy provides for: monitoring trends in demand and supply for housing and considering population trends; providing affordable and quality housing to the growing population; and designing medium to long-term plans for the development of intermediate towns to curb rural-urban migration.

• 2024: seeks to give effect to Article 43(1)(b) of the Constitution of Kenya by providing a legal framework for the development and access to affordable housing in the country. The Act establishes the Affordable Housing Fund and imposes the Affordable Housing Levy which is payable at a rate of 1.5% of the gross salary of an employee or a non-salaried person. For employed individuals, the employer should match the employee’s contribution. The inclusion of non-salaried persons was intended to align the law with the decision of the High Court in where the Court declared that the Affordable Housing Levy was unconstitutional as it was only payable by salaried persons.

The key conclusion from an overarching review of Kenya’s housing policy since 1953 points to the need for greater collaboration, transparency and efficiencies to create an enabling environment in which affordable housing can be delivered. While public financing sources are limited, there is significant public land that can be made available for housing. With some projects delivered, the sector will begin to witness economies of scale which will motivate efforts to drive affordability further

[1] Gentrification refers to a process where the character of a poor urban area such as a slum or informal settlement is changed by wealthier people moving in, improving housing, and attracting new businesses, often displacing current inhabitants in the process. As a result of gentrification, intended beneficiaries are unable to benefit from improved habitation.

Ministry of Labour

The Ministry of Labour (changed to Ministry of Labour and Social Protection in October 2022)hosts the Directorate of Occupation Safety and Health Services which ensures compliance with the provisions of the Occupational safety and Health Act 2007 and promote safety and health of workers. The Ministry of Labour also helps to resolve industrial disputes between employers and employees, some of which revolve around housing allowances/provision of housing for workers.

Ministry of Energy

The Ministry of Energy (changed to Ministry of Energy and Petroleum in October 2022) is relevant as it develops and implements energy policy, energy standards and develops/publishes energy regulations which impact on construction cost and are key to achievement of sustainable/green buildings

Ministry of Devolution (this has been eliminated under the new government in October 2022 and the functions moved to the Office of the Deputy President)

The Ministry of Devolution (which succeeded the previous Ministry of Local Government) is important as it serves as the linkage between county governments (crucial in planning and delivery of housing) and the national government. The Ministry also has statutory roles under the Public Health Act 1921 and the County Government Act 2012. This Ministerial docket has now been abolished vide the Presidential Executive Order No. 1 of 2022 of October 2022.

Ministry of Water, Sanitation and Irrigation

The Ministry of Water is charged with development and implementation of water policy. Various relevant statutory agencies such as the Water Resources Authority (which manage all water resources and issue licences for water abstraction) fall under the Ministry.

Various mechanisms exist to channel funding into housing finance. A key intervention established in regulations published in 2013 is the potential for residential Real Estate Investment Trusts or REITs. Further opportunities exist for pension funds to invest in housing. These are explored below.

8.1.1 Affordable Housing Fund

The Affordable Housing Fund (AHF) is established under Section 8 of the Affordable Housing Act 2024. It replaces the National Housing Development Fund (NHDF) which was established under the Housing Act 1953 to facilitate the provision of affordable housing to Kenyans. As stipulated under the Affordable Housing Act 2024, all monies held by the National Housing Corporation under the NHDF shall be deposited into the AHF.

The Affordable Housing Fund is part of the Kenyan Government’s initiative to provide 250,000 houses per year as part of its Bottom-Up Economic Transformation Agenda. It was created to provide funds for the design, development and maintenance of affordable housing, institutional housing and associated social and physical infrastructure. AHF consists of Affordable Housing Levy Contributions, voluntary savings by individuals towards the purchase of an affordable housing unit, grants, donations, loans approved by the Cabinet Secretary in charge of the National Treasury and income from investments made by the Fund.

The legality of the Affordable Housing Act which establishes the AHF has been challenged before the courts for among other things, lack of public participation. At least seven petitions had been filed at the High Court. These include: and Kenya Human Rights Commission & Katiba Institute v National Assembly & 3 Others HCCHRPET/E191/2024.

8.1.2 Kenya Mortgage Refinance Company

The (KMRC) is a mortgage refinance company established pursuant to the Central Bank of Kenya (Mortgage Refinance Companies) Regulations 2019. It is regulated and supervised by the Central Bank of Kenya. The company is a joint venture between the National Treasury and lenders like banks, Saccos, and development finance institutions such as the World Bank and the African Development Bank. The mission of KMRC is to increase the accessibility and affordability of housing loans in Kenya by providing long-term financing to primary mortgage lenders. The mission aligns with the mandate of the KMRC which is to provide long-term funding to primary mortgage lenders (banks, SACCOs, microfinance banks) for onward lending as home loans to Kenyans.

The mortgage refinance firm was formally licensed in September 2020 to de-risk access to home loans for workers earning up to KES 150,000 a month which was later increased to KES 200,000 a month. The KMRC offers two market products: affordable housing loans and market housing loans. Under the affordable housing loans segment, KMRC extends loans to primary mortgage lenders to re-finance mortgage loans capped at KES 10.5 million to individual borrowers whose monthly household income is not more than KES 150,000 with a repayment period of up to 25 years. On the other hand, under the market housing loans segment, KMRC extends loans to Primary Mortgage Lenders to re-finance mortgage loans above the Affordable Housing loans threshold.

In 2021, KMRC enabled the issuance of 574 home loans by primary mortgage lenders priced at an average interest rate of 9.5 percent, at an average mortgage size of Sh2.34 million. As of December 2023, KMRC had disbursed KES 9.6 billion to 12 primary lenders i.e. seven banks and five Saccos for onward lending to the prospective homeowners.

8.1.3 Real Estate Investment Trusts (REITS)

CONTEXT:

· Real Estate Investment Trusts (REITs) refer to collective investment vehicles through which investors (both retail and institutional) pool funds to invest in real estate assets. These trusts are usually professionally managed and are regulated by the Capital Markets Authority. REITs do not hold assets directly. These assets are held by SPVs as they are then able to be traded more cost-effectively.

· The Income Tax Act exempts real estate investment trusts from income tax except for the payment of withholding tax on interest income and dividends as a resident person as specified in the Third Schedule of the Act.

· There are 2 forms of REITs provided for in Kenya, I-REITs (Income REITs) and D-REITs (Development REITs). I-REITs can be issued on a restricted or unrestricted (i.e. publicly listed) basis. D-REITs, which carry significant development risk, must be issued on a restricted basis and have a minimum investment of Kshs 5 million.

· The I-REIT can be offered on an unrestricted basis, with no minimum investment amount.

· There are limitations when REIT issuances are on a restricted basis (i.e. typically when they are unlisted). For restricted offers, REITs are only available to professional investors, who are required to invest a minimum of Kshs 5 million (Regulation 27(1)b).

· Insurance companies are not allowed to invest in REITs under section 50 of the Insurance Act Cap 487.

(As amended through Finance Act 2022)

The Unclaimed Financial Assets Authority (UFAA) is sitting on approximately Kshs. 50 billion of assets and can currently only invest in treasury bonds.

Efforts to use the PPP structure to enable affordable housing have been challenging to date, as the provision of housing for sale is about ‘asset delivery’, whereas the PPP framework is about ‘service delivery.’ For this reason, PPPs are more suitable for projects where income streams are created (including rental housing).

Once all the planning approvals needed are secured, the site is serviced. Engagement with and approvals from various government agencies are required to identify the infrastructure gap and negotiate what may be provided by government vs by the developer.

The developer is also required to register the project with the National Construction Authority (NCA). The Authority ordinarily inspects the project site upon the owner paying a construction levy, and if satisfied, issues a compliance certificate. Workers at a construction site must all be accredited by the Authority and the owner must comply with all safety regulations at the site. The county executive member responsible for planning may issue an enforcement notice if the owner fails to comply with the development permission earlier issued or proceeds with a development without requisite approval. Construction activities are periodically monitored and inspected by relevant officers from different agencies. Upon completion of the construction, the architect must check the development/houses and issue a certificate of Practical Completion which the county government then certifies as fit for human habitation by issuing a Certificate of Occupation. Even then, continuous maintenance of the buildings needs to be done.

While all these regulations should ensure that good quality housing is delivered, NCA’s own audit in 2015 stated that up to 70% of buildings in Nairobi were unsafe for occupation.[1] Further, the regulations are often used to frustrate the delivery of players who seek approvals, with developers citing approvals taking much longer than intended. For instance, a study published in 2017 showed that it takes approximately 430 days to acquire building approvals in Nairobi County, against an estimated period of 169 days provided in the institutions’ charters.[2]

[1] 70 per cent of buildings in Nairobi unsafe - NCA <https://www.the-star.co.ke/news/2015-01-28-70-per-cent-of-buildings-in-nairobi-unsafe-nca/>Accessed August 21, 2024

[2] Irene N Wamuyu, ‘Evaluation of Building Approval Processes on Construction Project Delivery (Time and Cost)-A Study of Nairobi City County’ (University of Nairobi: Master’s Thesis, 2017) http://erepository.uonbi.ac.ke/bitstream/handle/11295/101627/Wamuyu_Evaluation%20Of%20Building%20Approval%20Processes%20On%20Construction%20Project%20Delivery%20%28Time%20And%20Cost%29%20-%20A%20Study%20Of%20Nairobi%20City%20County.pdf?sequence=1&isAllowed=y

·

Quick Link: http://kenyalaw.org/lex/actview.xql?actid=Const2010

Chapter 5 of the Constitution is on land and environment. Article 60 enumerates principles of land policy and provides that land shall be held, used and managed in a manner that is equitable, efficient, productive and sustainable. Article 43 of the Constitution provides for the right to accessible and decent housing for all.

· Article 65 provides for land owned by non-citizens by providing that foreigners can only have a leasehold interest in land of no more than 99 years. The earlier leases of more than 99 years were automatically reduced to 99 years.

· Article 66 is the constitutional basis for land use planning. The relevant article provides that the State may regulate the use of any land, or any interest in or right over any land, in the interest of defence, public safety, public order, public morality, public health, or land use planning.

· Article 67 establishes the National Land Commission whose one of the functions is monitoring and having oversight responsibilities over land use planning throughout the country.

· Article 69(1)f provides that the State shall establish systems of environmental impact assessment, environmental audit and monitoring of the environment.

· Article 209(3) provides that a county may impose property taxes. This is the basis for county governments levying rates on property (property taxes).

· The Fourth Schedule of the Constitution provides for the distribution of functions between the national government and county governments. Functions of the national government include: housing policy (section 20); General principles of land planning and the coordination of planning by the counties (section 21) and disaster management (section 24). Functions of the county government include: county planning and development including land survey and mapping and housing (section 8 of Part 2); county public works including storm water management systems in built-up areas and water and sanitation services (section 11).

Financing is required at every point of the housing value chain and affects both the supply and demand (affordability) of housing units. In the first instance, municipal financing is required to fund bulk infrastructure for housing units. Thereafter, financing on the supply side ensures that developers can supply houses to the market, whether for ownership or rental. Retail financing on the demand side enables prospective house buyers to afford the housing units put on the market, by amortizing the cost over a period of years, with the loan being secured by the value of the property. The regulatory framework overseeing financing along the value chain seeks to enable the breadth of financial arrangements, including purely private investment, purely public investment, and investment through public-private partnerships.

Kenya’s financial sector comprises 38 commercial banks, one licensed mortgage finance bank, one mortgage Refinance Company, and about 440 housing-specific SACCOs which interact with several housing cooperatives, the largest of which is the National Cooperative Housing Union, or NACHU. Fourteen licensed microfinance banks provide other capital that is often used for housing, though not always explicitly tracked. Institutional investors including pension funds and private equity funds, provide the funding for housing, together with the capital markets.

Most recently in 2024, the Affordable Housing Act was enacted to promote affordable housing as part of the Bottom-Up Economic Transformation Agenda. The Act revokes all regulations applicable to affordable housing and voluntary contributions prior to its commencement and imposes a mandatory Affordable Housing Levy payable at a rate of 1.5% of an individual’s monthly gross salary with the employer matching the employee’s contribution. The Act also allows persons to make voluntary savings with the Affordable Housing Fund towards the purchase of an affordable housing unit under the Home Ownership Savings Plan Scheme. This intervention seeks to promote the supply of housing by addressing the demand-side constraint of inadequate financing among prospective home buyers and de-risking the sector with this guarantee of offtake. The constitutionality of the Affordable Housing Act has been challenged before the High Court in several suits. These cases are yet to be determined and the imposition of the levy remains, until quashed by the High Court.

The government has also set up the Kenya Mortgage Refinance Company which provides loans to commercial banks and SACCOs to re-finance mortgage loans that these institutions have extended to home buyers. The uptake of KMRC financing has been low, largely due to the lack of suitable supply in the defined criteria, specifically for loans funded by World Bank financing. These criteria were originally set at a maximum household income of Kshs. 150,000/= per month, and a home value of KShs. 4 million in Nairobi and Kshs. 3 million in the rest of the country. As of September 2022, the price limits for KMRC-financed loans supported by World Bank financing increased to KShs. 6 million in Nairobi and Kshs. 5 million outside Nairobi, reflecting the market realities of available housing stock. In December 2023, KMRC further increased the income threshold for borrowers from Kshs. 150,000 per month to Kshs. 200,000 per month and the mortgage size to Kshs. 10.5million. This review is meant to match the increase in house prices and construction costs and also take into account the high living costs which has reduced the spending power of prospective homeowners. It is worth noting that a Kshs. 6 million (USD 50,000) house is affordable only to an estimated 17% of urban Kenyans. While the ‘cheapest newly built house’, as identified by CAHF in their 2021 Yearbook as costing KShs. 1.1m (USD 10,000), would be affordable to about 79% of the urban population, but very few of these units are built.

The various measures implemented notwithstanding, there is still inadequate financing for affordable housing on both the demand and supply sides. This inadequacy is in terms of both the quantum of finance available and the target of what is available. On the demand side, few products can accommodate informal sector workers, while on the supply side, construction finance favours established companies, with little available for small-scale contractors. While these product developments are, of course, the prerogative of lenders, the policy and regulatory frameworks in which they operate are critical. Some of the key barriers to innovation and scale are highlighted in this review.

A further component of the housing finance framework relates to taxation. The activity of housing is an important source of revenue for the state, and taxation exists at each stage of housing delivery. This supports the national balance sheet and enables the government’s investments. Towards its affordable housing objectives, the government has introduced tax incentives such as stamp duty exemptions on transactions and value-added tax exemptions on construction inputs in a bid to attract investment in the sector and reduce housing costs. These incentives have not borne fruit as intended, however. A KPDA study is currently investigating the constraints.

Across the breadth of legislative guidance summarized in this review, Kenya’s housing finance sector is however constrained by a wider macroeconomic context. For instance, heavy domestic borrowing by the government at attractive interest rates has crowded out credit to individuals and the private sector. As the government contemplates measures to improve the financial sector functioning for housing, it should address this key issue and improve the investment context for affordable housing. This would involve promoting efficiency, transparency and data sharing in the housing value chain to attract impact capital while introducing measures to de-risk such investments.

Regulations and policies that influence the Financing (Investment, Rental and Taxation) framework for housing were reviewed for this study. These are summarized in Annex F with links to their original sources for further reference:

1. Draft) National Tax Policy 2022

2. Public Finance Management Act 2012

3. Public Private Partnerships Act 2021

4. Civil Servants (Housing Scheme Fund) Regulations 2004

5. Housing Scheme Fund Regulations, 2018

6. Retirement Benefits Act, No. 3 of 1997

7. Retirement Benefits (Mortgage Loans) Regulations, 2009

8. Retirement Benefits (Mortgage Loans) Regulations, 2020 (Quashed by the High Court on the 23 November 2022)

9. Capital Markets (Real Estate Investment Trusts (Collective Investment Schemes) Regulations, 2013)

11. Unclaimed Financial Assets Act 2011

12. Sacco Societies Act, No. 14 of 2008

13. Sacco Societies (Deposit-Taking Sacco Business) Regulations 2010

14. Sacco Societies (Non-Deposit Taking Business) Regulations 2020

15. Sacco Societies (Amendment) Bill, 2021

16. Draft Sacco Societies (Specified Non-Deposit Taking Business) (Levy) Order 2022

17. Cooperative Societies Act, No. 12 of 1997

18. National Cooperative Development Policy (draft from 2019)

19. Building Societies Act, 1956 (Cap 489)

20. Guarantee (House Purchase) Act, 1967 (Cap 462)

21. Finance Act No. 23 of 2019

22. Value Added Tax Act No. 35 of 2013

23. Finance Act 2022

24. Finance Act No. 38 of 2016

25. Distress for Rent Act 1938

26. Rent Restriction Act 1959

27. Valuation for Rating Act

28. National Rating Bill 2022

29. Affordable Housing Act 2024

Quick Link: http://kenyalaw.org:8181/exist/kenyalex/actview.xql?actid=CAP.%20117

· Section 3 of the Act provides for the establishment of the National Housing Corporation (NHC) which under section 7 controlled the now-defunct National Housing Development Fund.

· The National Housing Development Fund was established to increase the supply of affordable housing by private developers via the Offtake Agreement and as a bridge to the demand for affordable housing by low and middle-income Kenyans. The Fund was to provide developers with Offtake Agreements to purchase qualifying affordable housing units.

· The Affordable Housing Act 2024 provides for the establishment of the Affordable Housing Fund which replaces the National Housing Development Fund. NHC is required to deposit into the AHF all monies it held under the National Housing Development Fund.

· Section 8 allows the NHC to make loans to any company, society or individual person to enable the acquisition of land and construction of approved dwellings; make loans to organizations established for promoting the development of housing; acquire and maintain any land or building or estate; construct dwellings, carry out approved schemes and provide services for such schemes.

· Section 9 allows for the NHC to guarantee the issuance of loans to a company, society or individual person so long as such person enters into an agreement with the NHC to reimburse any money which it is called upon to pay under the guarantee; and security being provided for the due performance of such agreement.

· Under section 10 of the Act, one of the functions of the NHC includes: operating a housing finance institution with powers to borrow funds from the government, overseas agencies, trust funds, pension funds and any other institution or persons and to collect deposits and savings from the public to be applied towards financing of residential housing development.

· The NHC also has powers to: undertake and encourage research and experiment in housing-related matters and undertake and encourage the collection and dissemination of information concerning housing and related matters.

· Section 14 states that any local authority may, out of the loans or grants made to it from the National Housing Development Fund acquire land, construct approved dwellings and carry out schemes within its area of jurisdiction.

· Section 22 provides that the Minister for Local Government (Cabinet Secretary for Devolution or an equivalent post) may, upon application by NHC, declare any by-law or resolution made by a local authority as inapplicable to the dwellings where it is inconsistent with conditions of approval specified by NHC in respect of any dwelling.

· Section 23 provides that the Minister may by written notice require a local authority to make provision for housing for persons where the Minister is of the view that the needs of these persons ordinarily employed within that area following a local inquiry by a public officer appointed for that purpose are inadequate or unsuitable.

· Given that the NHC has a huge land bank yet it has developed relatively few housing units, more attention should be devoted to increasing its capacity to deliver more houses, or alternatively to release the land to private developers say through public-private partnership arrangements.

Enact New / Draft Legislation

• National Rating Bill 2022- Fast track adoption.

• Landlord and Tenant Bill 2021- Consider the reintroduction of the bill into parliament and to fast-track its enactment. Furthermore, rethink the overall theme of rent control as a regulatory tool.

Review of Existing Legislation / Processes

• Demand and supply-side tax incentives- Simplify access to the various tax incentives provided in law and guidelines

• Draft Affordable Housing Regulations 2024 – Fast track adoption of the same.

• Review the Retirement Benefits (Mortgage Loans) (Amendment) Regulations, 2020 - Noting that these Regulations were quashed by the High Court in Republic v National Assembly & 2 Others; Okoiti (Exparte); Retirement Benefits Authority (RBA) & 2 others (Interested Parties) (Judicial Review) (23 November 2022) (Judgement) due to a flawed legislation process characterised by lack of public participation; the impugned legislations should be re-introduced in parliament and the laid down legislative process followed including sufficient public participation and stakeholder engagement. Simplify processes for amending Trust Deeds and applications for transfer

• Review Housing Act 1953 / Housing Scheme Fund Regulations, 2018 (Legal Notice No. 238 of 2018)- Promote an equitable regulation that encourages savings for housing

• Reintroduce incentives for home ownership savings plans

• Stamp Duty – Reintroduction of the stamp duty exemption for REITs on property purchases.

Develop Regulations for Existing Legislation

• Income Tax Act- Push for publication of regulations that will formally exempt subsidiaries of real estate investment trusts (REITs) from income tax to accord with section 20(1)(c) of the Income Tax Act.

• Develop and apply standards for credit assessments of informal workers who are not salaried and have irregular income.

• Sacco Societies Act- Development of regulations to capture some gaps in the law governing the Guarantee Fund such as: documents needed by a member to lodge a claim; whether the compensation paid from the fund will take into account inflation arising as a result of protracted disputes before settlement/compensation; a gap on how to manage the funds in the Fund; create awareness on the Fund once established.

• Adoption of the Affordable Housing Regulations 2024 to give effect to the Affordable Housing Act.

Support Implementation of Existing Legislation

• Public Private Partnerships Act 2021 - Support the implementation and sharing of earnings

• Sacco Societies Act - Set up the Central Liquidity Fund in the Sacco subsector to promote inter-borrowing among Saccos, deal with potential illiquidity challenges and become part of the national payment system.

• Unclaimed Financial Assets Act 2011 (Amended through Finance Act 2022) - Promote utilisation of penalty waiver to increase surrendering of unclaimed assets to the Authority. Promote reunification of assets with the beneficiaries by creating awareness and reducing the complexities.

• Support greater refinancing of mortgages by KMRC by studying the blockages currently faced, and collecting and disseminating data on demand served and type of supply to understand market dynamics and affordability

• Support implementation of tenant purchase schemes as an alternative to mortgages

• Civil Servants (Housing Scheme Fund) Regulations, 2004- Understand low disbursement (1,321 loans over more than 15 years) and demand segmentation

Other non-legislative recommendations

1. Adopt a holistic approach to the macroeconomic environment in dealing with public policy issues such as public debt/borrowing. For instance, the lack of construction financing from local banks is partly due to poor offtake and the ease of investing in government paper at attractive and lower-risk returns compared to lending to housing;

2. Work to implement the various demand and supply side tax incentives provided for in law including but not limited to stamp duty exemption for 1st time home buyers, VAT exemption on construction inputs and corporate tax reduction for developers

3. Implement the National Tax Policy 2023 to deal with the unpredictable and uncoordinated taxation environment;

4. Create ring-fenced pools of funds from revenue sources like construction approval levies; the Unclaimed Financial Assets Authority funds etc. to invest into the housing value chain;

5. Adopt mechanisms for alternative credit scoring to provide access to credit for the very large informal sector in Kenya;

6. Provide incentives for investing in large portfolios of green and truly affordable rental housing as most of urban Kenya rents and in conjunction rethink or consider the place of laws which seek to impose rent controls as they may have the perverse and unintended effect of serving implicit subsidies randomly rather than to deserving tenants;

7. Promote the use of pension assets as collateral that increases access to mortgages by pension members (adoption of 2009 amendments), reconsider taxation on the transfer of pension assets into housing and provide guidelines for allowing a mortgage to simultaneously withdraw pension funds into housing (to enable 2020 amendments); simplify processes for applying for usage;

8. Support sharing of insights from portfolios of mortgages refinanced to KMRC, to enhance understanding of formal demand and supply;

9. Provide indexation (inflation adjustment) and predictability of rates applied in Capital Gains Tax on real assets, to encourage investment in affordable housing;

10. Provide incentives and legal recognition to small and local property developers who cannot deliver many housing units to enable them to scale or build capacity;

11. Consider doing away with the setting of minimum professional fees (scale) for relevant professionals such as lawyers, architects and engineers, which is arguably anti-competitive and increases house prices;

12. Prepare and publish enforcement regulations to enable subsidiaries of Real Estate Investment Trusts (REITS) to benefit from tax exemption in the Income Tax Act; consider allowing structuring of REITS as companies or partnerships;

13. Operationalize the SACCO’s Deposit Guarantee Fund and deal with the lack of specificity in the Sacco Societies Act (and no regulations) on documents needed to lodge a compensation claim; whether inflation is factored in compensation; and management of money/funds in the Fund as well as non-operationalization of the Central Liquidity Fund for the SACCO sub-sector.

14. Fast-tracking the implementation of the Risk Sharing Facility currently being explored by KMRC. The Risk Sharing Facility is a partial mortgage guarantee providing partial credit default loss protection to primary lenders allowing them to offer home loans to individuals with irregular income.

15. With respect to REITs, the Capital Markets Authority should consider the review of the minimum threshold for assets at Kshs 300 million and Kshs 100million for I-REITs and D-REITs respectively to increase participation of SMEs and start-ups in REITS.

16. Simplification of the approval process for registration of a REIT. This will improve efficiency and incentivise investment in REITs.

Review of Existing Legislation / Processes

• Various County Development Ordinances and Zoning Guidelines and other county zoning laws- Review of county planning frameworks leading to new zoning laws and guidelines to accommodate new planning priorities and intentions

• Physical and Land Use Planning (Building) Regulations, 2021- Cater for other forms of disability and reduce the requirements for wheelchair access which may not be feasible to be provided by every private developer. Reconsider the use of public space (footpaths) for the provision of parking which is a private use benefiting a small section of society. Integrate flexibility on parking requirements within developments to promote affordability

• Physical Planning Handbook 2008- Review and update the Handbook to ensure it aligns with the current legal and institutional framework

Develop Regulations for Existing Legislation

• Physical and Land Use Planning (Classification of Strategic National or Inter-County Projects) Regulations, 2019- Develop a framework to enable developers to obtain approvals from the Cabinet Secretary for large intercounty affordable housing projects.

• Urban Areas and Cities Act 2011- Develop an implementation framework to allow for the delivery of cross-city and cross-municipality services to overcome local infrastructure challenges

Support Implementation of Existing Legislation

• Sessional Paper No. 1 of 2017 on National Land Use Policy- Implement in favour of the affordable housing sector.

• Kenya National Spatial Plan (2015 – 2045) -Promote the implementation of recommendations of the National Spatial Plan.

• National Land Use Policy Implementation Monitoring and Oversight Tool- The NLC requires support in deploying the monitoring and oversight tool, with respect to urban development.

Other non-legislative recommendations

1. Support counties, municipalities and towns to develop spatial plans for areas under their jurisdiction to guide physical development as required by the Urban Areas and Cities Act as very few are compliant at present;

2. Establish an electronic/automated One Stop Shop platform to consolidate all approvals and processes as a matter of priority to deal with the current inefficient and slow planning approval system;

3. Consider establishing cross-city and cross-municipality services through inter-county collaborations to deal with infrastructure challenges;

4. Align the high housing densities being approved with commensurate public amenities and social infrastructure such as water and sewerage;

5. Reform the overlapping, lengthy, bureaucratic and conflicting institutional frameworks concerning planning/permitting/approvals which currently have high and multiple permitting fees that increase the duration, create uncertainty of approval timeframe and increase cost of delivery of projects;

6. Deal with unnecessary minimum parking requirements which increase housing costs due to the limitation of land given that many ordinary people do not need parking;

7. Foster public-private partnerships between county, municipal, and town boards with utility companies (both national and international) to provide social infrastructure have not been actualized given the need for such social infrastructure and the financial outlay required;

8. Update the Physical Planning Handbook 2008, which is based on the Physical Planners Registration Act of 1996 to align with the Constitution 2010 and the Physical and Land Use Planning Act 2019.

Kenya’s taxation system regime covers income tax, value-added tax, customs and excise duty. The income tax is paid by individuals as Pay As You Earn (PAYE) through an automatic checkoff by the employer who remits the PAYE to the Kenya Revenue Authority. Companies pay corporate tax on their profits at the end of the year as income tax. Individuals and partnerships also file their annual returns for all profits made on their income for the financial year. Kenya employs a progressive approach to taxation whereby those who earn more pay more taxes on a graduated scale of taxation. This accords with the philosophy undergirding taxation that those most able to pay should pay more.

In the context of housing, developers must pay income tax on the profits made such as through corporation tax where they have incorporated as companies. Developers also pay value added tax for any supplies that count as construction inputs and may also be required to pay VAT on sales made. Imports made that go into the development of housing may also be liable to customs duties. In line with the philosophy of taxation creating incentives or disincentives and thus dictating investment behaviour and consumption, Kenya has introduced various tax incentives both on the supply and demand sides of housing to encourage uptake.

8.4.1 Tax Policy

National Tax Policy 2022

8.4.2 Tax incentives on the demand side

8.4.2.1 Income tax

The Affordable Housing Act 2024 stipulates that the employer’s contribution is an allowable deduction under Section 15 of the Income Tax Act. The Act further entitles resident individuals who pay the Affordable Housing Levy, to affordable housing relief of 15% of their contribution capped at a maximum of Kshs 9,000 per month and Kshs. 108,000 per annum.

8.4.2.2 Stamp duty

8.4.2.3 Mortgage relief

8.4.2.4 Savings

The law previously provided for tax Relief of up to Kshs. 96,000 annually (or Kshs. 8,000 monthly) for savings towards housing. However, this was scrapped effective January 2021, partly due to the low uptake of the product.

Promoting Savings is a critical route to promoting home ownership and mechanisms to incentivize the same.

A homeownership savings plan has just received approval to be listed on the stock exchange by the CMA and it would be helpful to share learnings of such products for market development.[1]

8.4.2.5 Taxation on the transfer of pension contribution into housing

1. For monies that are in the unregistered pot (i.e. non-tax exempt pot) – Member does not pay tax since it was taxed at payroll

2. For monies that are in the registered pot (i.e. tax-exempt pot) – Member pays tax as per the tables below depending on their age and service to the employer:

If the member is below 50 years old and has been in the service of the employer for less than 15 years, the below tax rules apply:

If the member is above 50 years old or has been in the service of the employer for more than 15 years, the below tax rules apply:

8.4.3 Rates

Valuation for Rating Act

National Rating Bill 2022

8.4.4 Tax Incentives on the supply side (to reduce the cost of housing)

Value Added Tax Act

Finance Act 2022

Finance Act 2016

Income Tax Act

8.4.5 Residential Rental Income Tax

Residential Retal Income tax

(Introduced via Finance Act 2015 / Section 6A of the Income Tax Act and amended in 2020)

8.4.6 Affordable Housing Levy

The Affordable Housing Levy (“Levy”) is imposed by the Affordable Housing Act 2024 payable at a rate of 1.5% on the gross salary of an employee with a matching contribution from the employer. The Levy is payable not later than the ninth working day after the end of the month in which the gross salary was due, received or accrued.

The Levy was initially introduced through Section 84 of the Finance Act 2023 as an amendment to the Employment Act. This was however challenged before the High Court in Okoiti & 6 Others v Cabinet Secretary for the National Treasury and Planning & 3 Others; Commissioner-General, Kenya Revenue Authority & 3 others (interested Parties) (Petition E181, E211, E217, E219, E 221, E227, E228, E232, E234, E237 & E254 of 2023 (Consolidated) [2023] KEHC 25872 (KLR) (Constitutional and Human Rights) (28 November 2023) (Judgement). The Court decided that the introduction of the Levy through an amendment of the Employment Act by the Finance Act was unconstitutional as it lacked a comprehensive legal framework providing for its administration. The Court also issued orders barring the collection of the Levy.

In compliance with the High Court’s ruling, the National Assembly passed the Affordable Housing Act, 2024 upon which the Levy is currently anchored. The Affordable Housing Act, 2024 has also been challenged for lack of sufficient public participation before it was passed and its exclusion of people with informal jobs. The matter is currently before the High Court in Gakenyis & 4 Others v Cabinet Secretary Lands & 4 Others (Constitutional Petition E154, E173, E176, E181, E191 & 11 of 2024 (Consolidated)) and Kenya Human Rights Commission & Katiba Institute v National Assembly & 3 Others HCCHRPET/E191/2024.

[1]

[2] KPDA Research displayed at KPDA conferences

[3] KPDA Research displayed at KPDA conferences.

8.3.1 Landlord and Tenant Relations

Kenyan banks are highly liquid and the key policy issue to consider is the ease with which banks can invest in government bonds and bills at low risk, rather than pursue investment in riskier products like housing. The figure below shows the high rate of investment from the top 8 banks into government bills and bonds. There is need to create an inducive policy environment to encourage the banking sector to lend to the housing sector – which will require collaboration amongst the banks and increased sharing of data, to reduce the risk.

The need for a stable macroeconomic environment is also illustrated by the case of Housing Finance Bank, which was able to launch a 7-year bond when the interest rate environment and exchange rate environment was stable in 2010. However, since 2010, Housing Finance Company of Kenya has struggled to replicate this access to finance due to more volatile conditions.

Construction finance is constantly raised as a gap in the housing value chain. The current metrics to obtain construction finance from banks are usually capped to approximately 60-70% of the hard construction cost, leaving the developer to fund the land cost, professional fees, and balance 30-40% of hard cost either through the developer's equity or pre-sales to buyers. The pre-sales are not protected as explained in [27. Off-plan Housing Developments under Annex F].

If one bank has provided construction finance, it is difficult for other banks to provide mortgage finance to off-takers until the land security is fully cleared. The only exception is where the individual housing units have clean title which can be charged. These fundamental collateral issues are important to enable a functioning mortgage market.

8.2.1 Banks

Banking Act 1989 (Cap 488)

Commercial banks are regulated under the Banking Act 1989, Cap 488. Section 3 of the Act makes it illegal to carry on banking business without a valid licence from the Central Bank of Kenya. Provision of licenses is provided for under section 4 of the Act. Section 7 provides that a bank must maintain minimum capital requirements as set out in the Second Schedule of the Act at all times. Under the Second Schedule, there are stipulations of the core capital that must be maintained to guard against losses by consumers, preventing the collapse of banks arising from undercapitalization, and promoting depositors’/investors’ confidence. The core capital is also critical in determining how much a bank can lend to borrowers given that the Act pegs the lending ability of a bank as a percentage of core capital held. Particularly high capital requirements, however, can also potentially increase the cost of funding as a result of holding higher core capital. These minimum capital requirements may be amended by the Cabinet Secretary for Treasury, subject to the approval of the National Assembly.

In addition, to reduce the potential overexposure of a bank, there is enshrined in the Act the single obligor rule under which a bank is not permitted to lend more than 25 percent of its core capital to any one borrower or any number of related borrowers.

The Act places a limitation on the increase of banking charges without the prior approval of the Minister (Cabinet Secretary for Treasury) under section 44. There is in fact a long-running legal battle between banks and customers over the alleged increase in bank charges without the approval of the Minister.

Section 44A of the Banking Act introduced what has since been called the in-duplum rule in May 2007 by providing that no institution may recover from a debtor an amount of interest exceeding the principal amount when the loan becomes non-performing. The only exception to limitation of interest is with respect to an award made by a court (through a court order). In August 2022, the High Court in Mugure & 2 Others v Higher Education Loans Board (Petition E002 of 2021) [2022] KEHC 11951 (KLR) (Civ) 19 August 2022) (Judgment) at paragraphs 24 and 25 expanded the application of the in duplum rule to other institutions other than banks as to cover all money lenders. This finding was a departure from a 2016 High Court decision in Desires Derive Ltd v Britam Life Assurance Co (K) Ltd (2016) eKLR which held that the in-duplum rule is only applicable to banks. The in duplum rule is captured in other jurisdictions such as South Africa in the National Credit Act No. 34 of 2005 where it applies to all money lending transactions, over and beyond banks. Such a statutory amendment to reflect this position and the recent decision in Mugure, may be appropriate for purposes of consumer protection.[1]Further, the in duplum rule was said to apply retrospectively in Kenya by the Court of Appeal in Kenya Hotels Ltd v Oriental Commercial Bank Ltd (Formerly known as The Delphis Bank Limited) [2019] eKLR.

At present, there is no regulation or cap on the interest rates that may be charged on a loan by banks. This is the case following the repeal of section 33B of the Banking Act (introduced through the Banking (Amendment) Act 2016 passed on 14 September 2016) providing the Central Bank of Kenya with powers to impose interest rate ceilings. The said section had provided that banks and financial institutions shall set the maximum interest rate chargeable for a credit facility at no more than 4 percent above the Central Bank rate and published by the Central Bank of Kenya. This provision had the effect of causing credit rationing as banks and financial institutions shied away from lending to risky borrowers.[2] The law imposing a cap on interest rate chargeable was challenged in the High Court in Boniface Oduor v Attorney General & another; Kenya Banker’s Association & 2 others (Interested Parties) [2019] eKLR where the petitioner argued that the said law was discriminatory against banks and financial institutions as it did not apply to microfinance banks, insurance companies, mortgage finance companies and those dealing in Islamic banking and that the law interfered with the mandate of Central Bank in formulating monetary policy. In its judgment, the High Court quashed the said statutory provision for unconstitutionality for being ‘vague, ambiguous, imprecise and indefinite’ and for being discriminatory against banks and financial institutions. The Court however suspended the implementation of the judgment for a period of 12 months (one year) to allow the National Assembly to consider making amendments to the statutory provision. Accordingly, Parliament repealed the interest cap law in November 2019, reverting to a regime where interest rates are contractually negotiated and agreed between lenders and borrowers.

Another important issue is with respect to the interest on a court award that may be levied against a bank or financial institution in favour of a borrower arising from a wrongful exercise of statutory power of sale. There have been incidences where banks and financial institutions have been slapped with hefty awards by courts for the wrongful exercise of statutory power of sale, especially where matters have been litigated in court for a long time.[3] An interesting decision was however issued by the High Court, though not against a bank or a financial institution, in Justus Ogada Agalo v Managing Director Kenya Railways Corporation [2016] eKLR. This decision relied on section 4(4) of the Limitation of Actions Act to hold that the imposition of interest on a decretal sum is limited to a period of six years. Arguably, doubts may be raised as to whether this is the correct interpretation of the said provision, which seems to only provide a bar on timelines within which one can claim interest arising from a court award. The other relevant issue is the applicable rate of interest that may be awarded by a court as against a party or a financial institution. Courts usually issue an award with interest at either court rates (usually interpreted as ‘simple interest’), commercial rates or compound interest rates. Section 26 of the Civil Procedure Act gives a trial court the discretion to award interest at rates it deems reasonable and just. The Court of Appeal in Barclays Bank (K) Limited v William Mwangi Nguruki [2014] eKLR stated that interest rate at court rates is calculated on a simple interest and not on a compounded basis. On the other hand, the High Court in Feroz Nuralji Hirji v Housing Finance Company of Kenya Ltd & another (2015) eKLR explained the circumstances under which a court could award simple interest and compound interest. In paragraph 11, the court stated: “ I should state again that our law on award of interest, does not provide for the method of calculating the interest awarded by the court… An(d) critical analysis of the law and the judicial decisions on this subject in Kenya, there is no prohibition to interest on the principal sum being calculated as compound interest. However, I would state that courts have always proceeded on a presumption that interest awarded by the court should be simple interest unless otherwise ordered by the court. To me the ‘’unless’’ aspect which is pronounced in the decisions I have encountered portend that a court may order interest to be compounded where circumstances allow. It is, therefore, permitted in law to order a post-judgment equitable relief that interest to be calculated on a compound basis where fairness concerns dictate it. The compounded interest acts as recompense to the Plaintiff.”

8.2.2 Mortgage Banks

Section 15 of the Banking Act, 1989 (Cap 488) provides that mortgage finance companies shall make loans for the purpose of acquisition, construction, improvement, development, alteration, or adaptation of a particular purpose of land in Kenya. The repayment of such loans is secured by first mortgage or charge over land with or without additional security or personal or other guarantees. Under section 15(2), a mortgage finance company may grant other types of credit facilities against securities other than land and may also engage in other prudent investment activities.

8.2.3 Building Societies

Building Societies were created to support the delivery of housing

Building Societies Act, 1956 (Cap 489)

Guarantee (House Purchase) Act, 1967 (Cap 462)

8.2.4 SACCOs Subsector

CONTEXT

Despite SACCOs overtaking commercial banks and mortgage providers in the provision of mortgage and housing construction loans,[5] now accounting for over 100,000 loans of home finance loans in Kenya, they have limited governance and administrative capacity to deal with. According to a survey by the Sacco Societies Regulatory Authority (SASRA), 36% of outstanding credit in 2016 was for land and housing.[6] The limited governance was largely responsible for the collapse of some SACCOs and the associated loss of funds mostly belonging to low-income households.[7]

A typical SACCO loan product for housing is to provide up to 3x a member’s deposits as a loan, which is co-guaranteed by other members. The loans may also be secured by collateral or shares.

The innovation in the KMRC is certain large SACCOs are included as shareholders who will benefit from the concessional financing to on-lend to their members.

The relevant acts and regulations are:

· Sacco Societies Act, no. 14 of 2008

· Sacco Societies (Deposit-Taking Sacco Business) Regulations 2010

· Sacco Societies (Non-Deposit Taking Business) Regulations 2020

· The Sacco Societies (Amendment) Act 2022

· Sacco Societies (Specified Non-Deposit Taking Business) (Levy) Order 2022

· Cooperative Societies Act, No. 12 of 1997

· National Cooperative Development Policy (draft from 2019)

8.2.5 Mortgage lending

Mortgage lending in Kenya is primarily done through commercial banks and SACCOs. SACCOs are now able to provide more mortgages of longer tenures courtesy of the refinancing they obtain from Kenya Mortgage Refinance Company (KMRC). According to the Central Bank of Kenya’s 2021 bank supervision annual report, outstanding mortgages totalled Kshs. 245.1 billion as of December 2021. The number of mortgage accounts stood at 26, 723 still indicating the low uptake of mortgages in Kenya. In 2021, the average interest rate for a mortgage stood at 11.3 percent compared to 10.9 percent in 2020. However, KMRC offers funds to banks and other financial institutions at five percent interest, which allows them to on-lend their customers long-term mortgages at single-digit, stable interest rates (currently at about 9.5%).

8.2.6 Pension-backed lending

(Please also refer to Section 8.4.2.6 for discussion on taxation issues that arise on the transfer of pension assets into housing).

CONTEXT:

The capital under pension schemes in Kenya equaled Kshs. 1.5 trillion as at December 2021. There have been various efforts to enable pension members to utilize their pension contributions towards housing. However, the uptake of this has been slow, demonstrating the difficulties in unlocking the flow of financing into formal housing, despite strong government efforts to pursue the same.

The relevant laws and regulations are:

· Retirement Benefits Act, No. 3 of 1997

· Retirement Benefits (Mortgage Loans) Regulations, 2009

·Retirement Benefits (Mortgage Loans) (Amendment) Regulations, 2020(Quashed by the High Court on the 23 November 2022)

8.2.7 Microfinance

Microfinance institutions are licensed, regulated and supervised by the Central Bank of Kenya under the Microfinance Act 2006. Microfinance loans are mostly issued to support the incremental building and home improvement process of low-income households. For instance, Kenya Women Finance Trust (KWFT) microfinance bank has been lending to low-income women to build and improve their homes in rural areas. The bank disburses loans in tranches or phases as construction of homes continues for a total of Shs 1 million repayable in a maximum period of three years.

Some of the licensed microfinance banks are set out in this list. However, over the last six years, microfinance banks have consistently posted losses (with only four of them recording profits), largely on account of low uptake of loans and high levels of loan defaults.

8.2.8 Special lending to Government Employees

The Employment Act, No. 11 of 2007 (provides the legal basis for the provision of actual housing to employees or payment of housing allowances in lieu of housing. This is currently provided at 15% of gross salary per section 4 of the Regulations of Wages (General) Order, 1982.

Civil Servants (Housing Scheme Fund) Regulations, 2004

Operationalized in 2004, the regulations indicated a shift in government policy from directly providing subsidized housing to civil servants, (which accommodated approximately 12% of civil servants), to encouraging civil servants to purchase housing delivered by the market, via loans provided by the Civil Servants Housing Scheme Fund. Since its inception, the scheme has facilitated more than 3,000 civil servants to access housing. This has been achieved through housing finance loans or the sale of houses constructed through the Scheme.[8]

Housing Scheme Fund Regulations, 2018 (Legal Notice No. 238 of 2018)

The Regulations sought to mandate all employers to register with the Housing Fund and contribute to the Fund; Establishes a Fund to promote an affordable housing scheme. These regulations were however quashed by the court for lack of public participation.

For a more detailed analysis of the regulations see here.

[1] Notably, section 38(8) of the Tax Procedures Act 2015 and section 16(4) of the Rating Act (Cap 267) already embody the in duplum rule with respect to tax liability claims and property rates claims.

[2] Central Bank of Kenya, ‘The Impact of Interest Rate Capping on the Kenyan Economy: Highlights’ March 2018 <https://www.centralbank.go.ke/wp-content/uploads/2018/03/Summary-of-the-study-on-Interest-rate-Caps_February-2018.pdf>

[3] See e.g. Sam Kiplagat, ‘Family awarded Sh1.2bn against HF in botched home auction’

[4] The Court stated “…He is also entitled to interest on that decretal sum (judgment sum and costs) together with interest at 14% per annum up to a period of six (6) years as Section 4(4) of the Limitation of Actions Act makes it clear that no arrears of interest in respect of a judgment debt may be recovered after the expiration of six years from the date on which the interest became due. Accordingly, I direct that an order of mandamus do issue compelling the respondent to pay the decretal sum together with interest at 14% per annum from the date of the judgment up to a period of six years but no more.”

[5] Davina Wood, “The Role of Savings and Credit Cooperative Organisations in Kenya’s Housing Finance Sector” (UrbanetJune 11, 2019)

[6] SASRA, The SACCO Supervision Annual Report The annual statutory report on the operations and performance of Deposit-Taking SACCO Societies (DT-SACCOs) in Kenya

[7] Thursday, March 07 2019, “Gakuyo Faces DCI Probe over Sh1bn Ekeza Sacco Scandal” (Business Daily December 21, 2020)

[8]

[9]

[10]

[11]

Once title is secured, relevant planning approvals need to be secured before construction can begin. According to the Physical and Land Use Planning Act 2019, the property owner must acquire development permission from the relevant County Executive Committee Member in a particular county government where the land is situated. As part of the application, architectural and structural drawings, a copy of the title deed, and other details must be submitted.

Development approvals used to take very long to achieve; however, the Physical and Land Use Planning Act 2019 has put a statutory timeline that development permission should take a period of 60 days to be issued. The county, however, can provide questions to the application on Day 59, at which point the time frame is renewed. Besides the development permission, other planning approvals are required for situations. These include change of user and extension of user; subdivision approval; renewal of lease; Environmental Impact Assessment licence from National Environment Management Authority where the project has significant environmental impacts; consent of the National Land Commission if it is a leasehold of public land; consent of the Land Control Board if it is agricultural land; public health permit; among others. Professionals such as engineers and architects are critical at this stage as they draw the required plans and submit the applications for approval on the owner’s behalf.

The policy and regulatory framework on construction and maintenance is found in multiple and scattered legal regimes with several implementing agencies, thereby creating overlaps and challenges in implementation. The sector is typified by many agencies that make it burdensome and expensive for actors/developers to comply. The process of acquiring construction permits from the respective agencies including occupation certificate is tedious and takes approximately 159 days and costs 2.8% of the property value.[] The multiplicity of approvals required from a wide variety of regulatory bodies in order to proceed with a development are outlined in the table below. These complicate the delivery process, adding time and costs.

While there have been real efforts towards transformation in terms of the institutional configuration and the development of some legislation relevant to construction and maintenance, transformation has been slow. The activities of the various state agencies remain largely fragmented and uncoordinated. Further, the policy and regulatory framework has not kept up with technological and other developments in the construction process. For instance, despite changes in building materials and technologies and the need to adopt sustainable/green buildings, the relevant laws (such as the Building Code and Public Health Act) are yet to be updated. While the National Building Code exists, it is not yet operational and has gaps in terms of what the sector requires.

Regulations and policies with respect to the Construction and Maintenance component were reviewed for this study. These are summarized in Annex D with links to their original source for further reference.

7. Draft Construction Industry Policy, 2018

In addition, the study reviewed some laws, regulations and policies that govern professionals within the housing value chain. These are also summarized in Annex D with links to their sources for further reference.

Key gaps identified in the Construction and Maintenance component that require attention are:

The key recommendations for amending/reviewing and enforcement of existing laws are:

BUILDING CODE AND STANDARDS

APPROVALS, INSPECTIONS, AND FEES

· Draft Construction Industry Policy, 2018 – promoted by the Council of Governors

ENVIRONMENTAL AND HEALTH LAWS/ POLICIES/ REGULATIONS REVIEWED

PROFESSIONALS AND FEES

Quick Link:

The Bill was not reintroduced to the 13th Parliament, and thus ceases to exist.

· It seeks to revise and replace the current Housing Act, Cap 117. It needs to be fast-tracked. For a more detailed review of the bill see .

49. (There are conservatory orders in place on the declaration by the Court of Appeal that the Finance Act, 2023 was unconstitutional)

87. )

103. (National Assembly Bill No 26 of 2023)

104. (Senate Bill No 7 of 23)

LIST OF CASES REVIEWED

The physical and land use planning component is crucial in the entire gamut of the housing value chain as it stipulates the nature and kinds of housing developments permissible in an area, as well as provides for approvals required in line with the local planning/zoning policies. These planning approvals predate the construction phase and consume a significant amount of time and costs, thus affecting the delivery of housing. Accordingly, there is a need to not only expedite the issuance of these approvals but also to reduce the associated bureaucracy and costs, say through automation and institutional reconfiguration. Most planning approvals are vested in individual county governments with the national government charged with formulating the overall national land use policy and a national spatial plan. However, given the interconnectedness of planning and the need for compatibility of the various land uses which may either be complementary or even conflicting, there are linkages and a critical need for collaboration between national and county governments. This is illustrated by the provision of national, intercounty and county physical and land use consultative forums and development plans.

The following laws, regulations and policies with respect to physical planning were reviewed. These are summarized in Annex C with links to their original source for further reference.

18. Nairobi Metropolitan Growth Strategy of 1973

19. Master Plan Study of 1948 (for Nairobi)

20. Nairobi City County Development Control Policy

Gaps in the policy or legislative/institutional framework

Laws/Policies/Regulations requiring review/amendment and enforcement

[1] National Land Commission, ‘Summary of Status of Land Use Planning Report’ February 2024. Counties which have approved spatial plans are Baringo, Bomet, Kericho, Kilifi, Lamu, Makueni, Kilifi, Kwale, Narok, Nakuru, Kajiado, Siaya, Trans Nzoia, Nairobi, Mombasa, Bungoma, Migori, Kirinyaga and Nyandarua.