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  • Housing the Nation: The Need for Improved Levels of Subsidised Housing in South Africa

Housing the Nation: The Need for Improved Levels of Subsidised Housing in South Africa

07 November 2019

Bernadine Galliver, Associate Director, Strategy & Development Advisory, BDO Durban

BDO's specialist property advisory team estimates that there will be demand for as many as 400 000 additional housing units in Durban’s inner city by 2023 and 15% of this demand will need to be met through the provision of social and affordable housing options, i.e. subsidised housing.

Although government has legislation and policies in place to provide subsidised housing, current challenges to implementation include subsidies that have not kept up with inflation, above inflation construction costs, difficulties in the release of government-owned property for subsidised housing and a serious mismatch between demand and supply in the housing market.

A particular challenge in the subsidised housing market is that more households now fall into the household income brackets that qualify for this type of housing than ever before. The rate of growth in demand is also expected to increase at higher rates if the South African economy continues its current poor growth path. This puts ever increasing pressure on government to provide a housing safety net for lower income groups in particular.

Social housing, defined as a state subsidised rental housing option that is targeted at low to medium income earners, aims to contribute to the economic, social and spatial integration of cities by providing centrally located rental housing options at an affordable price. It is only available to households with an annual income of R42 000-R90 000. Social housing in South Africa is provided by accredited Social Housing Institutions (“SHIs”) and one of the major challenges noted by them is that it is becoming increasingly difficult to achieve financial viability. This relates to the fact that the income bands and subsidies have not been revised in a number of years. This means that the model has become outdated and has not kept pace with the changing nature of demand or above-inflation growth rates in development and operating costs.

Affordable housing is generally accepted to apply to households with an annual income of R90 000-R307 000. The Finance Linked Individual Subsidy Programme (“FLISP”), targeted at the affordable housing market, is an initiative driven by the Department of Human Settlements to assist qualifying households who have secured a mortgage bond to acquire a residential property for the first time. FLISP aims to reduce the mortgage loan amount, thus making monthly loan repayment instalments more affordable. There are currently gaps in the supply of affordable housing in South Africa and many SHIs point out that social housing tenants are often unable to move out of social housing once their income exceeds the upper level of target income band due to a lack of supply of affordable housing.

The City of Durban (and indeed other municipalities) is actively trying to address the need for housing and has, since 2005, delivered 88 477 houses, including 2 781 social housing units and 21 232 units which have been transferred from rental stock to ownership. The City has identified 12 Restructuring Zones (“RZ”) where social housing can be developed, including the inner city, Cornubia, Pinetown, and south Durban areas. The Municipality has plans to provide around 18 000 social housing units through its various greenfield and brownfield projects (mostly in the inner city). However, the development of subsidised housing does not happen overnight and requires detailed planning, feasibility studies, involvement of SHIs and other housing developers, and the release of properties for development (generally government-owned land or buildings).

Based on our experience in working on subsidised housing projects, it is recommended that attention should be given to the following issues to address the burgeoning housing needs:

  • Revise and update government policies on household income bands that qualify for social housing and FLISP, including providing for automatic inflationary-linked adjustments to the bands over time;
  • Increase the subsidies provided to SHIs, particularly to keep pace with high construction costs;
  • Develop policies or guidelines to assist in fast tracking the release of sites for development by municipalities;
  • Develop policies or guidelines with a decision-tree to assist municipalities in reviewing and selecting the best (and most expedient) options to release sites for development, e.g. selling government land, leasing etc.;
  • Ensure that sites selected are close to employment opportunities, public transport nodes and other amenities such as schools, open space areas, retail etc.; and
  • Roll out integrated housing projects with a mix of subsidised (and non-subsidised) housing options to allow for cross-subsidisation.

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