Affordable housing: gap in the GAP housing market

Oupa Masilela, executive head of Affordable Housing, Standard Bank

1. The need to fast track the delivery of housing and improving living conditions of citizens.
2. Integrate settlements and development in well-located areas.

The above has been adopted as a catalyst to deliver 1.5-million housing opportunities in collaboration with all stakeholders in the housing value chain (developers, banks, etc.).

GAP market

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 subsidy 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.

The strategic approach adopted by the government in addressing challenges in this segment of citizens who earn between R3,500 to R15,000 per month (regarded as a GAP market) was the introduction of a FLISP subsidy (income-based subsidy) aimed at bridging affordability challenges to those who qualify for a mortgage from the banks. It also made cheap stock available to this segment, whereby, in certain instances depending on the municipalities and government arrangements, some of the land in government’s hand would have been made available for free for development of affordable housing.

Dynamics have changed

The dynamics in this segment have changed; affordability challenges are hitting in this space where the entry-level stock/house averages at R400,000 meaning that for 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.

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. Therefore, this is one of the main reasons why affordable housing is becoming unaffordable.

Strategic, collaborative approach required

The current approach is moving away from the initial agenda of offering and providing affordable housing to this segment of the population. A strategic and collaborative approach is now required across all the participants in the value chain of housing delivery. This includes (but is not limited to) the government, financiers, developers, town planning and communities (beneficiaries).

The question then becomes, what can be done to deal with some of these 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 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.).

Therefore, if the land is made available for free for housing development in this segment, the developers should be costing this market nothing else but the top structure. 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.

Creating a secondary market

Furthermore, the biggest challenge in the affordable market segment is the ability to create a secondary market. There is a huge dependency on the primary market i.e. new developments in this market. 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 title deeds and dealing with pre-emptive clauses that limit property-trading in government-subsidised properties need to be addressed.

Over and above this, subsidies cannot be looked at as the primary focus or drive to deal with housing backlog challenges. Therefore, 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.