Kenya’s $14bn housing push faces financing strain

Kenyan President William Ruto’s plan to build 200 000 housing units a year is facing a funding squeeze that’s resulted in stalled projects, cost overruns and delays, according to a lawmakers’ report.

The 1.76 trillion shillings ($13.6 billion) affordable housing project pipeline has spent 198 billion shillings since it began in 2023, according to the Parliamentary Budget Office.

By the end of June, 176 of the projects – or 15% of ongoing construction – were no longer making progress as funding lagged contractor payments, according to the report. The housing projects should be completed by 2032.

“This funding shortfall is likely to expose the affordable housing program to more fiscal and operational challenges since it will be unable to support an uninterrupted implementation path across the entire portfolio,” according to the agency that advises lawmakers on budget matters.

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Hurdles include “stalling of projects due to lack of funding, project cost overruns due to penalties for delayed payments to contractors and escalation in construction input prices due to delayed construction periods.”

The funding shortfall risks puncturing Ruto’s build-out of apartments, hostels, slum upgrades and markets, whose completion may go a long way in shoring up his support ahead of elections next year in which he’ll be seeking a second term.

A funding hole of 118.3 billion shillings is slightly above half of what the government requires in the current fiscal year. That’s despite an unpopular 3% housing levy on payslips that’s collected 205.7 billion shillings since rollout in 2023, according to the report.

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Authorities should ring-fence money from that housing levy for the projects and prioritise developments near completion so it can unlock additional revenue from sales, the budget office said.

The agency also warned against shifting 45.9 billion shillings worth of energy and petroleum-sector projects from direct budget financing to its newly created National Infrastructure Fund. That move risks delaying those projects as they may require approvals from external funders, fresh commercial viability reviews and restructuring of existing contractual agreements.

Given the fund is still at the formative stages, “these projects may stall as they wait for the review leading to project cost overruns due to penalties for delayed payments to contractors and commitment fees from approved, but undisbursed development financing from lending agencies,” it said.

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