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A gap in the affordable housing market

By Danielle van Wyk

One of the biggest challenges for the South African government remains the provision of affordable housing. While the implementation of the five-year Strategic Plan by the Department of Human Settlement in 2014, signals steps being taken in achieving this goal, there is still a long way to go.

The government’s National Development Plan (NDP) highlights the following aspects as being the key focal points of the initiative, in the hope of producing 1.5 million housing opportunities: The need to fast track the delivery of housing and improving living conditions of citizens and to integrate settlements and development in well-located areas.

Some may argue that initiatives of this nature and on such a large scale take years to implement and that there are housing subsidies to fill the gap. Others claim that the very challenge lies within such thinking, as there are many that these housing subsidies don’t cater to.

“The special focus on the Affordable Housing Segment was correctly aimed at addressing housing challenges to those that are considered “too rich” to receive free-government subsidised houses, yet “too poor” to fall within the normal mortgage lending stream within financial institutions/banks. The “GAP Market” opportunities/ backlog is estimated to be at 60 to 70 thousand units per annum, while the delivery rate is currently at about 6 000 per annum,” stated Standard Bank’s affordable housing unit.

Government’s answer to addressing the gap market i.e. those who earn between R3,500 and R15,000 monthly, was the introduction of the FLISP (Finance Linked Individual Subsidy Programme) subsidy.

“[It is] aimed at bridging affordability challenges to those who qualify for a mortgage from the banks. FLISP also made cheap stock available to this segment, whereby, in certain instances depending on the municipality and government arrangements, some of the land in government’s hand would have been made available for free, for the development of affordable housing,” added Standard Bank.

The GAP market

The challenge, however, within this segment is affordability.

But there are still affordability challenges because entry level stock/house averages at R400 000 meaning that any individual to qualify for a mortgage loan from the bank, must be earning at least R14 000 per month. “This means that there is a bigger gap that is being created in the GAP market for those earning between R3 500 to R13 000. In hindsight, there is a gap in the GAP market. The availability of stock, that is, properties between R180 000 to R370 000, for this sub-segment of the GAP market still remains a challenge,” Standard Bank explained.

Costs of affordable housing

People within the lower earning income bracket are thus finding affordable housing increasingly unaffordable.

“One of the concerns raised from the developers’ point of view in terms of why affordable housing is becoming unaffordable is the cost of capital and the cost of breaking ground. Some of the delays experienced in enabling sites with bulk services and basic infrastructure result in developers incurring their own cost in putting up basic services required on site: the sewer pipes, water pipes, electricity, roads etc. The unfortunate part is that the cost of all these basic needs gets recouped from the end user,” Standard Bank added.

As a result, the current approach is moving away from the primary plan of offering affordable housing to creating a collaborative new approach so it includes all the participants in the process of housing delivery.

Dealing with challenges

“In South Africa, we need to understand how to best use our space. In Gauteng, according to the last land audit report conducted by the Department of Rural Development, about 17% of the land is in the hands of the government and roughly 18% of the land is “unaccounted” for.  An approach to the usage of land, especially well located land in the hands of the government, can be looked at to facilitate allocation of this land for affordable housing developments and/or the mixture of affordable housing and BNGs (traditionally known as RDPs). These are land spaces that are well-located; or well-positioned in terms of proximities to the economy drivers, closer to the infrastructures (transport, schools and malls etc.),” Standard Bank explained.

Therefore, if the land is freely available for these developers they should do a costing analysis which should not only look at providing the bare minimum.  

“This should slash the cost of housing, improve affordability, increase low-entry cost stock for people earning less than R14 000 per month, address the gap in the GAP market and deliver to the 2019 strategic agenda of the Department of Human Settlement. It is certainly in the interest of the government to subsidise the land and address the 1.5 million backlog,” added the bank.

Another one of the bigger challenges remain the ability to create a secondary market.

“There is a huge dependency on the primary market i.e. new developments. Trading in the secondary market, especially in what we traditionally know as RDP houses, is unregulated and not formalised. What perpetuates this situation is the challenges around title deeds and ownership. The drive is required where title deeds are given to the owners as part of wealth and legacy creation. As people move up in the income and LSM brackets, they should be able to trade and sell properties at a better price, thus using property as a wealth creation and poverty alleviation mechanism. Therefore, the issuing of tittle deeds and dealing with pre-emptive clauses that limit property-trading in government-subsidised properties need to be addressed,” added Standard Bank.

Above this the added pressure of subsidies being seen as the answer to housing backlog challenges is increasingly idealistic.

“Given the processing and governing challenges around subsidies, an easier solution needs to be introduced to augment the existing interventions. A VAT-free subsidy for every first-time home owner needs to be explored. Unlike FLISP, which targets people who have dependencies, the VAT-free subsidy will also be able to capture recent graduates with no dependencies but who do have great future income prospects,” Standard Bank suggested.

 Handy tip: If you are in need of a home loan, why not apply through Justmoney and receive the assistance required. 

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