National Housing Development Fund is mathematically unsound!


The Sunday Nation


28 May 2023


The proposed National Housing Fund has a fatal flaw: After the seven-year lock-in period, there won’t be enough money to pay back those people who miss out on the houses. The government estimates that it will get about Sh9billion every month in contributions from employees and employers.

It is using a Sh3-million house to illustrate project. Therefore, every month it will deliver about 3,000 houses. Of course, the first units will need some construction time of, say 18 months, but, after that, 3,000 will be completed monthly.

Suppose that everything goes according to plan; that is, from the 19th month, 3,000 houses are completed monthly and all of them are bought out on the 30-year, 5 per cent mortgage. Then on this 19th month, all the buyers together will pay the first monthly instalment of Sh48 million; then on the 20th month, another 3,000 units will be sold bringing the total of monthly payments Sh96M.

If this continues smoothly for seven years, the total monthly payment on the 84th month will be Sh3.24 billion. If we now add up all the monthly installments over the seven-year period, we get Sh110 billion in cash.

Now, in seven years, the total contribution per person (employee plus employer) comes to Sh420,000. The cost of a house is Sh3 million; so, 8 people are needed to meet the cost of one house. In other words, only one out of every 8 people will get a house. The remaining seven will get their money back.

Another way of looking at it is that, 7 out of every 8 shillings in the fund will need to be returned. At the rate of Sh9 billion per month, the total in seven years is Sh756 billion. The money to be refunded to contributors is, therefore, Sh662 billion. But the Housing Fund will have just Sh110 billion available in cash. There will be shortfall of Sh552 billion!

The government has hinted that the employer’s portion will be retained. In that case, it will need to refund a half of the Sh662B, that is, Sh331B. In that case, there will still be a shortfall of Sh221 billion.

 In short, the fund will collapse in about seven years due to cash-flow challenges. I urge the government to go back to the drawing board; this National Housing Development Fund is simply mathematically unsound!

  Back to 2023 Articles  
World of Figures Home About Figures Consultancy