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. Direct taxation instruments for individuals which impact on housing include tax (and exemptions) on personal rental income; deductions of interest paid on mortgages; and tax reliefs on mortgage-backed securities and on earnings from infrastructure bonds. For corporates, there are tax relief schemes targeted to developers of affordable housing and Real Estate Investment Trusts. Such instruments can reduce costs at an individual household level and can increase the supply of affordable housing by incentivizing investors. The main indirect taxation instruments which impact the housing value chain are the value-added tax (VAT), sales tax and import duty which will increase costs of building materials, plant and equipment, building contracts, professional services and financial transactions. Such taxes have the potential to raise the cost of housing delivery and directly reduce the affordability of the final product for the end-user unless effective tax relief measures are put in place to mediate this impact.

The primary instrument for wealth taxation is the property tax which may be levied upon the value of the land alone or the full value of land and improvements. Non-recurrent taxes that are levied upon property sale, gifting or inheritance (including stamp duty, capital gains tax, gift taxes, and death and inheritance taxes) can negatively impact on affordable housing by discouraging land and housing transactions and thus hampering the churn and mobility of housing markets. Property tax relief instruments include extensive tax holidays for newly developed or renovated residential properties and exclusions up to a certain threshold of property value. 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.