Housing policy: A fundamental rethink required - IRR

Anthea Jeffrey says govt should shift to a new system of housing vouchers, to be provided directly to beneficiaries

A Fundamental Rethink Required

Housing policy needs a fundamental rethink to empower individuals, provide better value for money, and break the current delivery logjam. The Government should thus shift to a new system of housing vouchers, to be provided directly to beneficiaries. These vouchers would be redeemable solely for housing-related purchases – and would go to some 10m South Africans between the ages of 25 and 35, who earn below a specified ceiling. 

Individuals would be empowered to make their own housing choices, while the vouchers would help provide “more bang for every buck”. Accelerated housing delivery via the voucher system would also stimulate investment, generate jobs, and give the weak economy a vital boost.

As this issue of @Liberty highlights, current housing policy is both costly and ineffective.

In the past 21 years, the State has provided more than 2.5 million houses and a further 1.2 million serviced sites. Despite this, the housing backlog has nevertheless grown from 1.5 million units in 1994 to 2.1 million units today, while the number of informal settlements has expanded from 300 to 2 225.  At the same time, the housing subsidy has shot up from R12 500 per household to a staggering R160 500 per household, at which amount it has now been pegged.

Yet many of the RDP (Reconstruction and Development Programme) houses built via this subsidy are so small, badly built, and poorly located that the ruling African National Congress (ANC) itself describes them as “incubators of poverty” that do more to entrench disadvantage than to overcome it.

State spending on housing has also grown faster than any other budget item since 1999. Housing and community amenities – defined as including the administration of housing developments and services, along with the supply of water – currently consume 11.4% of total government spending, which is almost as much as health. Spending here has risen from R5bn in 1994 to the R153 billion budgeted this year, an increase of close on 3 000%.  By contrast, spending on social grants and other forms of social protection has risen from around R14bn in 1994 to roughly R206bn now, an increase of some 1 400%.

Despite this rapid increase in the housing budget, the delivery of “free” houses has slowed, and currently averages some 118 000 houses a year. At this rate, it will take almost 20 years to build enough houses for the 2.1m households now on the waiting list. In addition, the FLISP subsidy (see explanatory article) has gone to fewer than 800 beneficiaries, though some 750 people have also had their FLISP applications approved. At the same time, actual expenditure on housing seems to lag the budgeted amount.

Against this background, Mary Tomlinson has suggested some important ways to improve housing policy and state delivery. She urges a renewed focus on “breadth” rather than “depth”, in terms of which the State would deliver less to more people: in particular, by focusing on upgrading informal settlements rather than on building formal houses.

She suggests that local authorities be given the skills, resources, and accreditation needed to take over housing development from provincial administrations and so end the blurring of responsibilities between these two tiers of government. She also calls on many more civil society organisations to restructure themselves as legal entities, so that they can contract with the State and help promote community participation in the complex process of upgrading informal settlements.

These proposals might help to expand state delivery, while making it more efficient and more sensitive to community views.  However, as the figures on housing costs and shortfalls make clear, these ideas are also not enough.  Rather, a major paradigm shift is needed if the housing conundrum is to be resolved.

Put differently, the problem is not simply that housing policy is being poorly implemented, but also that housing policy is deeply flawed.

The solution lies largely in what people have been saying for years: that the State should transfer the housing subsidy directly to them, as they could use it more efficiently and make every rand stretch very much further.

Poor people have for decades been building their own houses on farms, in the former homelands, and in shacks in cities. Shack settlements might not look good, but they represent affordable housing for poor people.

At the same time, the successful in situ upgrading of informal settlements is extraordinarily difficult and is unlikely to succeed unless more is simultaneously done to increase the housing stock available to the poor. In addition, if urban sprawl is to be contained, the country needs a new focus on three- or four-storey terrace or row houses (where each house directly adjoins the next), and also on medium-rise apartment blocks with five- to six-storeys in general.

The Government’s main emphasis should thus shift to housing of this kind, which the private sector – and not the State – should be responsible for building. The private sector would also have a clear interest in building such housing (or in revamping existing structures for housing purposes) if millions of South Africans were to be given housing vouchers to spend exclusively on meeting their housing needs.

Under this new approach, the Government’s role in delivery would largely revolve around the speedy identification and release of state and municipal land suitable for these new housing developments.

Second, the Government should stream-line and fast-track land re-zoning and town-planning processes. To increase efficiency, it should outsource these tasks to the private sector through a transparent, non-racial and cost-effective tendering system.  Housing development must no longer be held up for three years or more, as is commonly the case, by continued incapacity within the public service.

Third, the Government should shift from its current housing subsidies to a new system of housing vouchers provided directly to beneficiaries. These vouchers would be redeemable solely for housing-related purchases. The vouchers would go directly to all South Africans between the ages of 25 and 35 who fall below a specified earnings ceiling. There are currently some 10m South Africans within this age cohort. (The total number of recipients would remain much the same each year, as the number of people turning 25 and entering the programme would be roughly counterbalanced by the number turning 36 and thus exiting it.

The voucher would be worth R800 a month, or R9 600 a year, and each recipient would continue to receive this voucher for ten years. Each beneficiary would thus receive close on R100 000 over this period.  A couple would be able to pool their money and would thus receive nearly R200 000 over a decade. This amount could be topped up by their own earnings, which means a couple earning R5 000 a month could devote R1 000 of that to housing. Over ten years, this additional amount would boost their housing budget to close on R320 000.  Such sums would help substantially in empowering people to build or improve their own homes, or obtain and pay down mortgage bonds.

The cost to the fiscus for 10m beneficiaries would be R96bn a year. The R30bn that is currently included in the housing and communities amenities budget for water provision would remain the same – but would be much better used via a transparent, non-racial and cost-effective system of outsourcing to the private sector. Current employee and administrative costs should be limited to R5bn a year, as the new system would be simple and easy to administer. Some R20bn would go to community development, and would also be outsourced for improved efficiency. This would put the total housing and community amenities budget (including water supply) at R151bn a year, which is slightly less than the current R153.4bn.

The proposed voucher option is thus less costly than the present system. It is also likely to be much more efficient – and much more effective in stimulating housing supply – as each individual who receives a voucher will have a personal interest in ensuring its optimal use. Moreover, whereas current policy adds to housing demand by encouraging existing households to split up – so that each new household can qualify for a “free” house – the new vouchers will avoid this perverse incentive.

The voucher system – and the market it would create – would encourage the private sector to build many more terrace houses and/or apartment blocks, or to revamp many more existing structures for housing purposes. Beneficiaries would also find it easier to gain mortgage finance, which would further stimulate new housing developments. Beneficiaries who already own their own homes would be able to use their housing vouchers to extend or otherwise improve them. Some might choose to use their vouchers to build backyard flats, which they could then rent out to tenants also armed with housing vouchers and so able to afford a reasonable rental. This too would help increase the rental stock available.

People currently living in informal settlements would increasingly have other housing options available to them. Some would move into the new housing complexes and others into new backyard or other flats. Informal settlements would become less crowded, making upgrading easier. Those who choose to remain in them would be able to use their housing vouchers to buy building supplies, hire electricians, plumbers, and other artisans, contribute their own labour or “sweat equity” to reduce costs, and gradually upgrade their homes.

All South Africans would also benefit from the advice centres that private developers, non-government organisations, and social housing institutions would be encouraged to establish. These centres would provide people with a variety of low-cost housing plans as well as advice on a diverse range of building materials and housing choices. In addition, the centres would provide information on the housing voucher scheme, the various funding options available to people, the FLISP system already provided by the National Housing Finance Corporation, and how best to ensure good building quality and manage mortgage or other debt.

The housing voucher system would do away with the present artificial division between the “free” houses provided by the State to those who earn R3500 a month or less, and the much smaller “gap” subsidies provided, through the FLISP system, to people who earn R3501 a month or more (up to a ceiling of R15 000). It would also remove the incentive for people to keep their earnings below R3 500 a month, as well as the resentment that many people feel at having to pay for their own houses if they earn marginally more than R3 500 a month.

The new system would also give people control over their own housing vouchers and a choice as to how they would like to use them. At the same time, those who felt insecure about managing these monies could voluntarily transfer them to the National Housing Finance Corporation to disburse on their behalf via its FLISP or other programmes.

Other policy changes would, of course, be needed for sustainability and optimum results. The new system would work best in an environment of expanding employment and rising prosperity. The State’s main emphasis should thus shift from ever more redistribution to promoting economic growth. The State should also put its emphasis on:

- excellent education, to be achieved largely through the introduction of state-funded education vouchers and other reforms;

-  much improved health care, to be attained, among other things, via  state-funded health vouchers;

- very much more employment, to be gained through faster economic growth, sound education, and necessary reforms to labour law; and

- the fostering of genuine entrepreneurship in a supportive business environment.

This will also require a shift from damaging race-based black economic empowerment (BEE policies) to race-neutral initiatives that focus on opening up opportunities for the truly disadvantaged through a new system of “economic empowerment for the disadvantaged’ or “EED”. 

With these reforms in place and annual economic growth rates accelerating to the same levels (5% of GDP or more) evident in many other emerging markets, South Africans would increasingly be able to earn their own incomes and buy or build their own homes. In time, the State’s role in housing provision would thus diminish. In the interim, accelerated housing delivery would help to stimulate investment, generate jobs, and give the weak economy a vital boost.

Anthea Jeffery is the Head of Policy Research at the IRR and the author, among other things, of BEE: Helping or hurting?

This article first appeared in @Liberty, an occasional publication of the Institute of Race Relations.