National Housing Development Fund is mathematically unsound!
By MUNGAI KIHANYA
The Sunday Nation
Nairobi,
28 May 2023
The proposed National
Housing Fund has a fatal flaw: After the sevenyear lockin 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
Sh3million 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
30year, 5 per cent mortgage. Then on this 19^{th} month, all
the buyers together will pay the first monthly instalment of Sh48
million; then on the 20^{th} 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 sevenyear 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 cashflow
challenges. I urge the government to go back to the drawing board; this
National Housing Development Fund is simply mathematically unsound!
