Taxes have a direct impact on housing affordability in Africa by making various cost components more expensive and others less so. Taxation also impacts housing affordability indirectly by stimulating or discouraging investment in housing. Taxes related to housing fall into three broad categories: direct taxation of housing-related income (taxation of both corporate profits and personal income); indirect taxation of housing-related goods and services consumed by both firms and households; and taxation of wealth held in the form of real estate, including property taxes, transfer fees and capital gains tax. This paper proposes a taxonomy of housing-related tax instruments which demonstrates where and how each type of tax potentially impacts the housing value chain, from housing construction, to sale, rental, and resale. The objective is to identify how the current taxation systems in different African countries impact directly or indirectly on housing investment and affordability for both rental and owner-occupied dwellings.
This paper argues that efforts to reform the tax system in order to enhance housing affordability should focus on rectifying the main shortfalls evident in the current instruments: potential unintended negative consequences; inefficiency; and poor design. In addition, the paper identifies the type of data which ought to be collected on an ongoing basis to support the information needs of housing investors and policy-makers.
This document forms part of CAHF’s Working Paper Series and provides a taxonomy of taxes and their impact on the housing sector. Author Jame Mutero provides insights into the various taxes that affect the affordability of housing in Africa.