With the recent reports from the current administration on their quest to solve the "housing problem", a few questions can now be answered. How they determined that there was a housing problem in the first place was never actually said. The state's own data collectors said 60 percent of Kenyans owned the homes they lived in at the time, while in Nairobi most people(90 percent) chose to rent. This, it appeared, did not really matter. The reason given for intervening in the market for houses by the government was simple: the market had failed to deliver houses in the quantity and quality the state assessed was "decent". The moral question of whether taking money from a teacher in rural Busia to build a house for a doctor in urban Nairobi was dismissed as the sentiments of rich people. We are now learning that the funds are not even being used to build homes but are now also being used to build markets or "invested" in government debt. The following is a critique of the policy by Gemini 3 following my prompts. These are also my arguments. I now see that simply pointing out the immoral nature of the programme would have been sufficient.

The Nairobi Housing Failure: A Review of State Hubris and Capital Consumption

Three years ago, in an analysis that set the stage for one of Kenya’s most controversial economic experiments, economist David Ndii invoked the Law of One Price (LOOP) to argue that Nairobi’s housing market had fundamentally failed. His evidence was a striking yield disparity: while the "leafy suburbs" of Runda offered rental yields of barely 5% on land worth KSh 200 million per acre, the informal settlements of Mukuru returned a staggering 30% to "slumlords" on structures that cost a mere KSh 5 million per acre to build [1].

To Ndii, this was a market failure of catastrophic proportions. He argued that because private capital refused to "arbitrage" this gap—failing to flood the slums with investment to drive down returns and improve quality—the state must step in. His solution was a compulsory housing levy to bridge the "unaffordability gap" and build 250,000 units annually.

However, as any student of the Austrian School knows, the market is not a static state of equilibrium to be managed by a philosopher-king; it is a dynamic process of discovery. If capital isn't moving, the fault lies not with the market, but with the state-induced frictions that have turned the housing sector into a graveyard of malinvestment.

The Myth of the "Money Glitch": Risk as a Market Signal

Ndii’s mistake is a classic neoclassical error: he treats a rental unit in a titled, policed suburb and a shack in a slum as "identical goods." In the real world, they are worlds apart.

As Murray Rothbard tirelessly pointed out, the interest rate—and the yield on any asset—is composed of the pure time-preference rate plus a risk premium. The 30% yield in Mukuru is not "extra profit"; it is a loud, clear signal reflecting the total absence of property rights and the "Law of the Jungle."

Investors in these informal settlements face what Hernando de Soto termed "Dead Capital"—assets that cannot be mortgaged, sold in formal markets, or protected from arbitrary state demolition. Capital is not "failing" to move to Mukuru; it is accurately pricing the chaos. To demand that capital ignore a 25% risk gap is to demand that investors act as philanthropists for a state that refuses to protect their property.

The Pretense of Knowledge: Why Planners Can’t Build What People Want

The Kenyan government’s solution—the Affordable Housing Act 2024—is a monument to what F.A. Hayek called the "Pretense of Knowledge." Ndii argued that because the market won't build a KSh 800,000 unit, the government must force citizens to "save" via a levy to fund state construction.

This ignores the fundamental Knowledge Problem. A central planning board in Nairobi cannot possibly know the diverse, subjective preferences of millions of individuals. The state’s hubris has already been exposed: while government propaganda claimed over 1 million Kenyans had registered for the program, official audits as of June 2025 revealed only 292,326 actual registrations [2]. By bypassing the price system, the state has lost its only reliable compass. It is building houses based on political quotas rather than human needs, leading to a surplus of units in places where nobody wants to live.

Economic Calculation and the KSh 81.4 Billion Disaster

The most damning evidence of this failure lies in the economic calculation problem described by Ludwig von Mises. Without the profit-and-loss test, a state bureaucracy has no way of knowing if it is creating value or destroying it.

The data from the end of 2025 provides the "smoking gun": the state has spent KSh 81.4 billion but delivered a meager 2,075 units [3]. In a free market, a developer who spent that much capital to produce so little would be wiped out by the forces of competition. In a state-led system, the failure is simply used as a justification for a bigger budget. This is not "investment"; it is capital consumption. KSh 81.4 billion taken from the pockets of Kenyan workers has been vaporized in a bureaucratic black hole, leaving the nation poorer than when the project began.

The Parasitic State: Diversion as a Feature, Not a Bug

Rothbard often warned that compulsory taxes, regardless of their "noble" branding, eventually become tools for political survival. This has been confirmed by the Auditor-General: only 52.8% of the housing levy collected was actually used for construction; the remainder was diverted to government securities and non-housing projects [4].

While the state mismanages this "slush  fund," it simultaneously strangles the private sector—the very engine that Ndii claimed was "incapable" of solving the problem. The Finance Bill 2025 and the National Building Code 2024 have combined to create an environment where:

• VAT on materials remains a crippling 16%, driving the "break-even" cost higher [5].
• A 0.3% annual property tax has been imposed on urban homes [5].
• Rigid building standards make low-cost, innovative materials illegal, effectively pricing the poor out of the legal market [6].

This is the "Crowding Out Effect" in its purest form. The state is taxing the activity it claims to be promoting, ensuring that the "unaffordability" Ndii lamented becomes a permanent, state-mandated reality.

Conclusion: The Case for Housing Liberation

The Law of One Price is not broken in Nairobi; it is being strangled by a state that refuses to let the market work. The KSh 81.4 billion "investment" that produced just 2,000 houses is not a success story—it is a tragedy of central planning.

To solve the housing crisis, Kenya does not need a housing levy; it needs housing liberation. The government must stop acting as a construction firm and start acting as a protector of property rights. If the state were to title the slums and scrap the regressive building codes that make innovation a crime, the "yield gap" would collapse as private capital flooded the sector. Only when we replace the "compulsory saving" of the state with the voluntary choices of the individual will we turn "Dead Capital" into the thriving, affordable homes that Kenyans actually deserve.

Notes and References

1. Ndii, David. "In the law of one price, the market cannot solve housing problem." The Standard, 2023. Analysis of yield disparities between informal settlements (Mukuru) and upmarket residential areas (Runda/Muthaiga).
2. Auditor-General of Kenya. Special Audit Report on the National Housing Development Fund (NHDF) and Boma Yangu Portal, June 2025. Verification of actual vs. reported participant registrations.
3. Business Daily Africa. "State misses affordable housing buyer target in June; KSh 81.4 billion spent for 2,075 units." Markets & Real Estate, 2025. Analysis of delivery efficiency and expenditure.
4. National Treasury of Kenya. Quarterly Economic and Budgetary Review, 2025. Documentation of Housing Levy fund allocation and diversion to non-core projects.
5. Government of Kenya. Finance Bill 2025. Statutory changes to Value Added Tax (VAT) on construction inputs and new urban property taxes
6. National Construction Authority (NCA). The National Building Code, 2024. Legal Notice No. 47. Paragraphs on material standards and exemptions for traditional/cultural dwellings.