Affordable housing: the policy “gap” we need to fill - Helen Zille

Millions too poor for home loans but too “rich” for RDPs, writes WCape Premier

Affordable housing: The policy “gap” we need to fill

On the last Monday of every month, the Mayor of Cape Town and I host a radio call-in show on Heart FM. Its purpose is to allow residents of the City and the Province to speak to us about their service delivery problems. We try, to the best of our ability, to respond on air, or follow up afterwards.

Last Monday, a woman called to say she had been on the housing waiting list for 20 years, and had received notification that she was being considered for a new house in the huge Pelican Park development. However, when her application was analysed, she was turned down because her monthly household income exceeded R3 500.

This is the maximum income threshold for a family to qualify for a free house, still commonly referred to as the RDP house (despite a subsequent name change).

Her question was simple: “If we want to qualify for a house, must we stop trying to improve our own circumstances?”

That sentence hit a nerve that runs through government housing policy, and that has never been properly addressed.

This woman, like millions of others, is part of a family that collectively earns too much to get a free government house, but too little to get a bond from the bank. They fall into the “gap” – and often live in backyards where they pay rental to the homeowner, on whose “generosity” they rely for access to basic services, like a toilet.

“What can you offer people like us?” she wanted to know. “Must we give up our jobs to qualify for a house? We live in a backyard, but the house has been sold and we have to move out. Where can we go?”

I undertook to revert to her, and explain the different housing subsidy options. I also said I would try to give a simplified summary at the start of the next show because so many people have the same question. Housing finance is undoubtedly the most complex policy arena in government.

Part of the complexity is that there are huge public expectations that government should allocate a free house to every poor family. Realistically that is impossible. So we must begin the process of policy formulation by asking: What is the government’s role in housing provision? What is the family’s role? What is the individual’s role? What is the community’s role? And how can we develop a fair system that can be replicated throughout the country? How can we avoid negative unintended consequences that undermine rather than encourage personal and community development?

We have learnt a lot during the past 21 years of democracy, but we still do not have clear answers.

Currently government allocates 13.2% of the national budget to “human settlements”, which is high by comparable international standards. How should government distribute that money to support families needing access to housing? At the dawn of our democracy, government decided to build completed structures and allocate them according to certain criteria. To qualify for a free house, you had to be indigent, have dependents, and own no other property. The unintended consequences of this policy soon became clear: if you can only get a free house for being unemployed with a child, the negative incentives are obvious.

Furthermore, indigent beneficiaries often wanted a monthly income more than a house; so shortly after taking possession of their home, many soon moved out again, back into a shack, and either sold or rented their house to a person (often a foreign national) who did not qualify for a government housing subsidy at all.

When indigent people sell their homes, they typically do so at a fraction of its cost, transferring a significant state subsidy to non-qualifiers. This “down-market raiding” has created a crisis of its own – the mushrooming of new shack settlements; serious problems with title deeds and proof of ownership that take years to unravel; community conflicts in future housing allocations (because previous beneficiaries cannot re-apply); and rising xenophobia.

Government was slow to learn the necessary lessons. For years the benchmark of a free house set the standard, but the size of the unit and the subsidy amount increased substantially. This meant the state was doing more and more for fewer and fewer people.

Gradually, the negative unintended consequences became clear. Within a year of “hand-over”, in housing developments across South Africa, up to 80% of the legitimate beneficiaries had sold or let their house to others. And waiting lists grew exponentially as urbanisation increased.

Selling or letting an RDP house may make financial sense to indigent people trying to earn an income. But is it the best way for government to be allocating subsidies to address the housing crisis? The answer, clearly, is no. As a result, a new, more nuanced national policy has emerged which now has 16 different categories of housing subsidy, tailored for different categories of public demand. The free RDP house is a shrinking component of government intervention in housing delivery.

The national government, with our support, has switched its strategy from “doing a lot for a few people” to “doing less for many more people.” There is an acknowledgement that the “free RDP house” model will take decades to meet the growing demand. In the meantime other subsidies are needed, at least to provide basic water, sanitation, drainage and electricity to millions living in unserviced settlements or backyards. Subsidies must support families getting a foothold in an incremental housing process, rather than deliver a completed house.

Subsidies for informal settlement upgrading are becoming a significant component of government housing finance. This is, in itself, fraught with complexities, because all development seems to generate community conflict. With the invaluable help of NGOs specialising in the upgrading of informal settlements, we are beginning to make significant progress with community-led upgrading of shack settlements, starting with a process called “re-blocking” to make space for the installation of services.

But this still does not address the housing challenges of people living in the “gap” – those families that, like the caller to the radio show, earn between R3 500 and R15 000 per month. What help is there for them?

In theory, there are several categories, which also have unintended consequences, and do not, as yet, work nearly as well as they should.

The first is commonly known as FLISP – an acronym for the Finance Linked Individual Subsidy Programme. This is meant to cater for the “gap” households who earn too much to get a free house, and too little to get a bank loan without assistance. If they qualify for a mortgage loan, households earning between R3 500 and R15 000 can apply for a government subsidy of up to R 87 000 (on a sliding scale) in order to facilitate access to a bank loan.

In the Pelican Park development, for example, the houses that have been set aside for the FLISP qualifiers are on the market for approximately R350 000. The caller to my programme, whose household apparently earns just over R3 500 per month, would probably qualify for the maximum R87 000 subsidy. But would a bank be prepared to issue her a bond of R260 000? In our experience thus far, the FLISP conditions are still far too onerous for people in the “gap” market, particularly given the extent of household indebtedness.

Another option for the “gap” market is called the “integrated residential development programme”. This involves setting aside a number of sites, in every new housing development, so that people on the waiting list whose households fall above the R3 500 monthly income threshold can get a serviced site on which to construct their own home.

This is proving very popular, but supply comes nowhere near the demand for this option. The Province offers about 8 000 sites a year across the Western Cape, and the City about 10 000 such sites across greater Cape Town – but only a fraction of these become available for the site-and-service option.

Then there is the innovative “backyard upgrading programme” initiated by the City of Cape Town. It provides separate services (sanitation, water and electricity) to the backyard dwellers of council-owned rental stock, so that backyarders can live a more dignified life.

Another important category of housing for the “gap market” is rental stock. The City’s Community Residential Units exclude families who earn more than R3 500 per month. Developers have moved into the rental market for households in the “gap” market as demonstrated by the upgrading of dilapidated buildings in central Johannesburg. There is enormous room for expanding this model, countrywide. It is not really viable in Cape Town, however, because there are not enough well-located dilapidated buildings (the cost of which can be written down) to subsidise their redevelopment as affordable, well-located, upgraded rental units.

However, even this model usually does not help those at the lower end of the “gap” who earn between R3 500 and R7 500 per month. Here non-profit companies are emerging to utilize modest subsidies from national, provincial and local government. The red tape involved in securing and aligning funding from different spheres of government is proving a serious obstacle.

Because of the demand, it is essential to streamline and expand this option significantly. However, in order to be viable, this model requires people to be prepared to pay rent. One of the unintended consequences of the “free RDP house” has been the undermining of a culture of rent payment in government-provided accommodation. There are several examples of low-cost rental housing projects that have collapsed due to the refusal of tenants to pay even modest monthly rentals.

Ultimately, sustainable housing developments depend on a growing economy in which more and more people have jobs and can therefore afford to contribute something to their own housing. Economic growth and job creation remain the country’s top priority if we want to address our housing crisis (and every other crisis for that matter).

The tough news, however, for the 470 000 families waiting for assistance on the Western Cape housing database is this: If we get everything right and spend our full budget, we can offer a maximum of 20 000 housing opportunities a year across all subsidy categories. We can only meet a very small part of the need, which just keeps growing.

Increasingly our attention will have to focus on ensuring rapid release and servicing of well-located land, together with an appropriate layout of informal structures in settlements that can be upgraded with minimum delay. We will have to focus on the most rational application of budgets, so that subsidies benefit as many people as possible, not just the fortunate few, in incremental housing developments.

And we must make it easier for existing homeowners to sub-divide their properties, or add-on rental units to increase densities in all well-located suburbs.

These approaches will require major policy revisions, as well as a new legal and regulatory framework to facilitate housing development in our towns and cities. As urbanization escalates, the need to do this is becoming more and more pressing.

Inside Government is a newsletter written by Premier Helen Zille.

Issued by Michael Mpofu, Spokesperson for Premier Helen Zille, 6 October 2015