The effect of the housing levy on the performance of the affordable housing programme in Kenya

Résumé

This study digs into how different fiscal policy tools affect Kenya’s Affordable Housing Programme. There is a huge gap over two million homes are needed in Kenya for decent accommodation. This study looked at four key tools: the Housing Levy, tax incentives, mortgage interest rates, and government spending. The research draws on Public Finance Theory, Keynesian Theory, and Fiscal Federalism, using descriptive and causal design, and crunching time-series data from 2022–2025 (sources like Kenya Revenue Authority, National Treasury, Central Bank of Kenya). Ordinary Least Squares regression drove the analysis. The findings reveal that Tax incentives (β = 0.0853, p = 0.032) and budget absorption rates (β = 0.0081, p = 0.014) helping affordability. The Housing Levy had a negative effect, but it was not significant (β = -0.0215, p = 0.147). Mortgage interest rates showed a positive impact (β = 0.943, p = 0.020), mostly as a supply-side constraint. The model explained 77.58% of the variation in affordability. From this, it is clear that the success of these policies depends way more on how well they are implemented and on market reforms, not just on raising funds. The study recommended that government of Kenya should make the Housing Levy more transparent and results-based. Tax incentives should be tied to real performance. Additionally, Kenya needs long-term building finance, plus results-based budgeting to boost spending effectiveness. All together, these findings help figure out better fiscal strategies for Kenya’s Bottom-Up Economic Transformation Agenda and encourage more sustainable housing.