Ethiopia’s urban housing crisis continues to escalate, with various efforts to address the issue for low- and middle-income citizens falling short of expectations. A recent proposal suggests that imported materials for affordable housing projects should be exempted from VAT to alleviate the situation.
To tackle the housing shortage effectively, home developers advocate for including affordable housing in the VAT exemption list. They argue that using low-cost local technologies and prefabricated homes can significantly address the housing demand and supply gap, particularly in urban areas.
Purpose Black, a company that entered the real estate industry two years ago, criticized the government’s omission of affordable housing from the VAT exemption list. According to Ermias Berhanu (PhD), the company’s CEO, the construction materials for affordable housing are sourced from China, requiring substantial foreign exchange. The current VAT policy exacerbates the challenge of developing affordable housing.
“The inclusion of affordable housing as a basic need in the VAT exemption list is crucial,” Berhanu stated. “The Ministry of Finance’s directive 1006/2024, issued on June 20, 2024, did not include affordable housing, which needs to be addressed to support low-income citizens.”
The Ministry of Finance explained that the directive aimed to exempt basic food supplies from VAT to relieve the cost burden on low-income populations. However, experts in the housing sector emphasize that affordable housing should also be prioritized in the VAT exemption to make a meaningful impact on the housing crisis.
Perpetual Black has faced criticism for its performance and has reportedly received threats from the government. Despite these challenges, the new CEO expressed commitment to improving the company’s operations and contributing to the housing sector.
As the debate continues, stakeholders hope the government will reconsider its stance on VAT exemptions for affordable housing to address Ethiopia’s pressing urban housing needs effectively.
