September 16, 2019
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Research into the provision of affordable housing indicates that home ownership not only provides important welfare and social benefits, but is also an important opportunity for people to accumulate wealth. People who own their own homes move beyond viewing their houses as simply providing shelter, instead regarding them as assets that can be leveraged to provide their families with various opportunities, including access to higher education.
In October 1994, the South African government signed a National Housing Accord in conjunction with the Reconstruction and Development Programme (RDP), promising to build five million homes. Between 1996 and 2018, the government built an impressive 3.3 million RDP houses (this excludes the provision of serviced sites) and while this remains below the promise of five million houses, it is still a remarkable achievement.
A key area that remains extremely underdeveloped is the affordable housing sector or “gap market”. This market consists of individuals/households who earn too much to qualify for a fully subsidised government house, but too little to qualify easily for a bank home loan. These are households with an income of more than R3 500 but less than R22 000 per month. This sector has limited access to the mortgage market, given that the banks have onerous home loan credit criteria.
Creating housing stock to meet demand in the gap market has proved to be challenging for a variety of reasons, including limited access to finance. However development of the housing sector would add significant value to the South African economy, especially since a high proportion of intermediate inputs into housing construction are procured in the local manufacturing and services sector, supporting local upstream economic growth.
How can SA unlock access to private sector housing for low income earners?
In an effort to unlock this sector, it would be useful if all the key stakeholders – government, local municipalities, banks and building contractors – got together to develop and deliver a workable solution for the ‘gap’ market. The solution will require collaboration and innovation around property finance, both developer finance as well as making mortgages available for the home owner, who is possibly upgrading from an RDP house. Government could do this on a cost recovery basis, thereby ensuring greater access to affordable home finance for lower income individuals.
Encouragingly, there are some active participants in this area of the housing market, but more finance and co-ordination is required. For example, CAHF and 71point4 have been piloting the Transaction Support Centre in Khayelitsha, with support from National Treasury’s Cities Support Programme, with the objective of facilitating formal residential property market transactions in the affordable housing market. The project co-ordinates and offers a range of critical services that enable households to transact formally in the residential resale market. In particular, the centre focuses on improving the efficiency of regulatory and administrative issues in the sector. This type of initiative could be implemented nationally.
Government also administers the Finance-Linked Individual Subsidy Programme (FLISP), which was revised in 2012 and then updated extensively in 2018. This programme provides once-off grants for first-time homeowners. The administration of and funding for this scheme have been shifted from provinces to the National Housing Finance Corporation (NHFC). The FLISP programme works on a sliding scale, meaning that households with a lower monthly income qualify for a larger subsidy. According to the recent 2019/20 Budget Vote for Human Settlements, government provided 2 253 FLISPs in 2015/16, 2 660 in 2016/17 and 2 295 in 2017/18, indicating that the number of FLISPs delivered each year has not changed significantly, and actually decreased by nearly 14% in 2018/19. Sadly, the existence of this subsidy programme is not well communicated, which clearly illustrates that housing/property market education is also critical. Marketing in the gap market should be seen as a priority – via social media, radio, newspaper media campaigns and local community events.
Employers could play a key role in making home ownership a reality for their employees. Some success has already been achieved. For instance, the Government Employees Housing Scheme (GEHS), which is an employee benefit scheme, offers housing access and support services to government employees. According to the 2017/2018 Annual Report of the National Department of Human Settlements, more than 260 000 government employees gained access to bonds, refinancing, switching, non-mortgage loans and, in some instances, FLISP, through the Government Employee Housing Scheme (GEHS). It would be helpful if a larger number of employers committed to participating in employer-backed housing schemes.
It is extremely encouraging that in the February 2019 National Budget the Minister of Finance announced that government will provide R950 million over three years as part of its “Help to Buy” subsidy to encourage first-time buyers to purchase a home.
Property ownership is a vital component of SA’s socio-economic transformation. However, this can only happen if the challenges of affordability and housing development are adequately addressed. Ultimately, this requires collaboration and a common vision among all stakeholders.