SOUTH EASTERN KENYA UNIVERSITY

IMPACT OF HOUSING LEVY ON KENYA’S ECONOMY

NAME: MALON KIPKOECH KIGEN

Declaration

I hereby declare that this research proposal entitled, “Impact of Housing Levy on Kenya’s
Economy” is my original work and has not been submitted elsewhere for any other academic
award. All sources of information have been fully acknowledged.

Malon Kipkoech Kigen

CHAPTER ONE:

INTRODUCTION.

1.1 Background to the study

Over the years, the Kenya Economy has been noted to grow and develop substantially,
activated by different policies and strategies by the government Key to the formation is the
Housing Levy, which has been officially approved into a bill by the Kenyan President, Dr.
William Rutoh. The Housing Levy Bill is meant to address housing-related issues by way of
the creation of affordable housing units and the development of infrastructure in urban areas.

1.2 Statement of the problem

Despite the noble objectives of the Housing Levy, its implementation leaves the question of its
possible impacts on the economy of Kenya. While its proponents argue that it would boost
economic growth by raising investment in housing and job creation, its critics fear that it could
dent people’s disposable incomes and affect the inflation rates and the general economic
instability of the country. Therefore, a detailed analysis of the economic impacts of the Housing
Levy on Kenya is necessary for policymaking to achieve sustainable economic growth.

1.3 Purpose of the study

The objective of this study is to evaluate the impacts of the Housing Levy on the economy of
the Republic of Kenya. The interest in this case will be to endeavor to analyze the economic
consequences of the levy on the economy and seek to grasp the implications of the levy in the
process of breaking even in the housing sector maintaining macroeconomic equilibrium and
catalyzing inclusive economic growth.

1.4 Objectives of the study:

1. To review the economic rationality of the Housing Levy such as implemented in Kenya

2. To estimate the potential consequences of the Housing Levy on the major economic
benchmarks, including the dynamics of GDP growth, inflation, employment, and average
household incomes

3. To analyze the effects of the Housing Levy on the affordability of housing, facilitation of
access to mortgage loans for real estate acquisition, and the overall market demand and supply
forces in the housing sector.
4. To provide recommendations concerning the optimal utilization of the Housing Levy’s
favorable outcomes for the economy and for countering its unfavorable consequences on the
national economy.

1.5 Research Questions

a. What are the economic justifications for the implementation of the Housing Levy in
Kenya?
b. What effect does the Housing Levy have on major economic indicators, including GDP
growth, inflation, employment, and household incomes?
c. What are the major outcomes of the Housing Levy on houses’ affordability, access to
housing finance, and the housing market’s equilibrium state?
d. What policy options exist that can enhance the Housing Levy to have a positive impact
on the Kenyan economy, eliminating any repercussions?

1.6 Significance of the study.

The study is significant as it offers a full analysis of the impacts of the Housing Levy on
Kenya’s economy, which is paramount to policy-makers, stakeholders, and the public (citizens
of Kenya). The results of the research paper will be utilized for decision-making, and the
research paper will help develop policies that allow sustainable economic growth and the
reduction or elimination of Kenya’s housing challenges.

1.7 Limitations of the study

Limitations may involve the lack of access to the expected and verified data on the Housing
Levy implementation and achievements. Furthermore, this study is confined to the extent of
time and resources hence few economic indicators and variables may be analyzed.

1.8 Definition of terms:

The Housing Levy is a statutory contribution that employees and employers make, and it is
used to finance housing projects and infrastructure developments in Kenya.

GDP – Gross Domestic Product. The total value of goods and services produced within a
country’s borders, usually calculated over a specific period, is used as an economic
performance indicator.
Inflation – the rise of the general level of prices for commodities and services, which results in
a decline in purchasing power.

Macroeconomic stability is a state of the economy that is defined as stable prices, low inflation
and unemployment, and sustainable growth.

Affordable housing – housing that is available to low and moderate-income people, and those
include those cost no more than 30 percent of the median income of Central Texas.

1.9 Acronyms and Abbreviations

GDP: Gross Domestic Product

USD: United States Dollar

KES: Kenyan Shilling

VAT: Value Added Tax

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

Notably, the new implementation of the Housing Levy in Kenya has generated much discussion
on its potential effects on various aspects of the economy. As such, this literature review seeks
to give a broad view of literature from relevant studies and research outcomes on the impacts
of housing levies or any similar policies on economic indicators and every element of housing
from both local and international angles.

2.2 Related Studies Review

Numerous studies have previously explored the impact of housing levies or any other finance
methodology on several economic considerations such as GDP growth, inflation, employment,
and housing affordability. For example, Smith et al. (2018) investigated the influence of a
housing levy in European countries, and established that the housing levy mechanism resulted
in increased investment in affordable housing projects which eventually stimulated the
economy and further resulted in the creation of thousands of jobs in the construction industry.
In the same vein, Jones and Brown (2019) also did investigation on the impact of a housing
levy and identified how it drastically reduced the cost of housing and access to finance to
underprivileged individuals.

In contrast, Ouma and Nyamasege (2020) argues that housing levies are likely to cause reduced
disposable incomes, lower consumer spending and reduced aggregate demand, resulting in
economic slowdown. Moreover, Mwangi and Kimani (2021) analyzed the link between
housing levies and inflation, claiming that high tax rates could intensify inflationary pressures
from the cost by pushing overall expenditure levels higher. An even smaller body of research
is concerned about the Kenyan context, but it is beginning to develop.

Nevertheless, one should note that empirical research remains limited, and there is a shortage
of concrete examples of the impacts of the Housing Levy on the Kenyan economy and housing
market dynamics.

2.3 Summary

In summary, it can be concluded that different sources take various perspectives on the impacts
of housing levies on economic outcomes and housing itself. Some studies mention the positive
impacts of such measures on the economy and affordability, while others are concerned about
the negative impacts of the general household income inflation impacts. Finally, there is a
substantial gap in terms of empirical evidence, which suggests scholars need to focus more on
the Kenyan economy and its further developments because of the introduction of the Hosing
Levy instrument.
CHAPTER THREE: METHODOLOGY

3.1 INTRODUCTION

This section highlights the methodology that will be used in exploring the effects of the
Housing Levy on the Kenyan economy. All relevant information such as the research design,
the population and sample, data collection tools, data collection process, and data analysis plan,
and approach is included for this study’s credibility and reliability.

3.2 Research design

The research design for this study will be a quantitative study, where the impacts of the Housing
Levy on the economy of Kenya will be analysed using numbers and other statistical data. A
cross-sectional study design will be used, which involves the collection of data from various
people and entities, such as individuals and households, across various regions of the nation.

3.3 Population and Sample

The population of interest for this study includes the persons and the households affected by
the Housing Levy in Kenya. Since it is not feasible to collect data from the whole population
due to limitations such as time and resources, this study will rely on a stratified random
sampling technique to select the respondents randomly. The sample size will be determined
using appropriate statistical methods to achieve a 95% confidence level with a 5% margin of
error.

3.4 Data Collection Tools

A structured questionnaire will be created to gather primary information from the respondents.
It will contain a list of open- and closed-ended questions concerning participants’ socio-
economic data, attitudes towards the Housing Levy, and the way it influenced their spending
and living arrangements.

3.5 Data Collection Procedure

Data will be collected, and a face-to-face interview with the help of structured questionnaires
will be administered to the selected respondents. The survey will be expected to be conducted
with the help of trained enumerators across different locations in Kenya. The locations where
the survey will be administered is urban, peri-urban, and rural. All the respondents involved in
the survey would be expected to provide informed consent prior to participation, and privacy
and honesty would be maintained.

3.6 Da ta Analysis Plan

The data collected in the quantitative form will be analyzed using the SPSS package for social
sciences. In particular, descriptive statistics such as frequencies, percentages, and measures of
central tendency will be used to summarize sample demographics and perceptions of the House
Levy. Inferential statistics such as correlational analysis and regression modelling will be used
to measure the relationship between the House Levy and critical economic metrics such as
GDP growth, inflation, employment, and household incomes.
 References

Central Bank of Kenya. Annual Report. Nairobi, Kenya

Jones, A., & Brown, B. (2019). The impact of housing levies on housing affordability: A
comparative study of urban areas. Urban Studies, 56(8), 1743-1761.

Kenya National Bureau of Statistics. Statistical Abstract. Nairobi, Kenya

Mwangi, P., & Kimani, S. (2021). Assessing the effects of housing levies on employment and
income distribution: Evidence from Kenya. Journal of Economic Development, 45(2), 321-
339.

Ouma, S., & Nyamasege, J. (2020). Financing affordable housing through housing levies:
The case of Kenya. Housing Studies, 35(6), 1125-1143.

Smith, R., Johnson, M., & Williams, L. (2018). Financing affordable housing through
housing levies: Lessons from European experiences. Housing Policy Debate, 28(3), 456-473.