Kenya to Borrow KSh 129 Billion to Accelerate Affordable Housing Projects

The Kenyan government has announced plans to borrow KSh 129 billion to help finance its Affordable Housing Program (AHP), a flagship initiative aimed at addressing the country’s housing deficit.

This move comes amid growing concerns that the current housing levy—collected through a mandatory 1.5% payroll deduction matched by employers—is not generating enough revenue to meet the program’s ambitious targets.

Since the Affordable Housing Levy was introduced in July 2024, the government has raised approximately KSh 120 billion. While this is a substantial amount, it falls short of what is required to construct the intended 200,000 housing units annually.

Given that the average cost per unit is estimated at around KSh 2 million, the government would need over KSh 400 billion each year to meet its goals. As a result, officials are turning to innovative financing tools, including Sukuk bonds, Real Estate Investment Trusts (REITs), and public-private partnerships, to fill the funding gap.

According to Housing Principal Secretary Charles Hinga, the plan is to use the funds raised from these instruments as supplementary capital, while the levy will serve as a guaranteed off-take mechanism for investors. “We are not abandoning the housing levy,” Hinga noted. “Instead, we’re enhancing the financing structure to attract private capital while keeping the houses affordable for Kenyans.”

To date, the program has achieved significant progress, with over 200,000 units under development in 44 counties. However, the Economic Survey 2025 revealed that only 1,655 housing units were completed in 2024.

This underwhelming outcome, coupled with reports that only 52.8% of the KSh 88.7 billion collected from the levy during the first year was used directly for housing projects, has prompted the government to seek new funding avenues to maintain momentum and public trust.

Part of the newly proposed funding will also go towards strengthening infrastructure such as access roads, water, and electricity within housing project sites. Critics have pointed out that some funds from the housing kitty were being diverted to build non-core structures like markets and schools, raising questions about transparency and project prioritization.

To encourage investor participation, the government is offering a raft of incentives. Developers who build a minimum of 100 affordable housing units annually are eligible for tax exemptions, including reduced corporate tax rates (down to 15%), VAT waivers on construction materials, and duty-free importation of building equipment. These incentives are expected to attract both local and foreign investors, particularly through the Nairobi Securities Exchange’s REITs platform.

Additionally, the program is linked to enhanced mortgage access through the Kenya Mortgage Refinance Company (KMRC), which has already disbursed over KSh 13.9 billion to support 3,800 mortgages. With interest rates ranging between 7% and 9.9%, KMRC is helping Kenyans access home loans at nearly half the prevailing commercial bank rates. President William Ruto has also proposed reforms that would allow contributors to the housing fund to borrow up to KSh 5 million at subsidized rates to finance home purchases.

The government is also targeting the informal sector by proposing the use of credit guarantees to back mortgage loans of up to KSh 6 million for self-employed Kenyans, further expanding the scope of homeownership.

However, the borrowing plan comes at a time when Kenya is already grappling with a rising debt burden and persistent budget deficits. With the fiscal deficit projected at 5.7% of GDP in the current financial year, questions are being raised about the sustainability of further borrowing. Economists have warned that unless managed prudently, this strategy could strain public finances and undermine the country’s debt sustainability efforts.

Nonetheless, for the government, the housing program remains a priority. Officials argue that investing in affordable housing not only improves living standards but also creates jobs, stimulates local manufacturing, and supports the broader “Bottom-Up Economic Transformation Agenda.”

In the coming months, the government is expected to roll out its first Sukuk bond and introduce more structured REITs to attract institutional investors. The outcome of these financing efforts will determine the pace and scale of Kenya’s affordable housing ambitions—and whether the dream of homeownership for ordinary Kenyans becomes a reality.