Micro developers open doors and windows for solving SA’s housing problem
10 December 2020
SA’s urban population is expanding, creating a growing need for housing. In addition, people are moving away from rural areas, where poverty and unemployment are extremely high, towards metros and cities, where there are more economic opportunities. When they get “to town”, they usually settle on the outskirts, in informal settlements or cheap rental accommodation in peripheral townships. If they qualify for government-provided RDP (Reconstruction and Development Programme) housing, they end up remaining on the outskirts of the city. The real opportunities to earn an income, however, lie elsewhere, closer to the concentrated centres of the city.
The majority of RDP beneficiaries are so far from economic centres that they find it too costly to even look for, never mind secure access to, employment opportunities. It would therefore be extremely beneficial, for the poor and for the country, if the poor could access accommodation closer to centres of employment and entrepreneurship. This would allow these well-located households to access all the networks and benefits of urban agglomeration and affordably search for work, obtain education or even start their own businesses. This would be a better way to encourage local economic development, and to have a housing policy that supports, rather than hinders, the goal of inclusive development.
One way to achieve this is to embrace and strengthen what is already happening. Across the country homeowners or small to medium-sized private developers are building rental accommodation. Converting one-family houses and using backyards of existing residential suburbs and “in-city” townships, they are densifying our cities. In contrast to the RDP policy’s tendency to produce sprawling housing developments for the poor far from jobs, this approach helps to move SA cities away from segregation and will encourage inclusive local economic development in critically important parts of the country.
The potential for growth in this currently unco-ordinated approach to housing delivery is huge. There are more than 3.5-million free-standing privately owned houses in existing residential areas across SA’s eight metro cities with tremendous potential for densification. If this became an increasingly prominent mode for producing new, low-cost housing options for the poor, we could reduce the demand for new land in the metros over the next 25 years by about 70%. At the same time, we would be creating more productive, financially viable cities and providing more opportunities to the poor in well-located areas.
To accelerate these trends and to raise the quality of the housing being provided, municipalities and lenders must enable the micro developers building this accommodation by fixing the regulations, recognising and supporting these developments and providing appropriate, accessible loans. Crucially, infrastructure needs to be upgraded and maintained for these densification processes to work.
Already, this bottom-up, market-driven approach is gaining traction across SA’s metros. It is clear that South Africans want to live in well-located parts of the cities, where jobs and economic opportunities are concentrated. They are prepared to substitute long and costly commutes and pay affordable rents for relatively small spaces, if that means the housing is well situated.
To accommodate this demand, small-scale entrepreneurs are developing relatively cheap rental options in Hillbrow, Yeoville, Orange Grove and Malvern in Johannesburg and Khayelitsha, Delft, Salt River and Dunoon in Cape Town, all reasonably close to transport corridors, economic nodes and city centres with job opportunities.
Sizakele is an example of an entrepreneur who saw the opportunity in Hillbrow. She followed in her mother’s footsteps as a property developer, and managed to acquire and rejuvenate a building in seemingly unpromising circumstances. She found a small apartment building called Minfield in the heart of Hillbrow in 2013.
The challenge she had to overcome was the uninhabitable state of the building. Rubbish filled the passages and exposed live electrical cables threatened the safety of anyone trying to live there. Sizakele could get the building for R1.8m, but needed a further R650,000 to renovate it and make it a profitable prospect, a place where people would want to live and pay reasonable rents. Luckily, she was able to secure a loan from an innovative property finance company, TUHF (Trust for Urban Housing Finance).
The TUHF Group is the leading exponent and pioneer of providing finance to facilitate the activities of small property entrepreneurs such as Sizakele. The group has been operating for 17 years and is now present in all eight metros. During this time, it has provided housing entrepreneurs with R4.7bn in total funding. This has allowed 350 predominantly black entrepreneurs to become active in the housing market. Through this, TUHF claims to have created almost 3,000 jobs between 2015 and 2018 and to have generated 40,000 new, well-located housing opportunities at an affordable cost.
By July 2014, Sizakele had succeeded, with the assistance of TUHF, in turning the rundown building she acquired in Hillbrow into 29 smart new units, with tenants moving in and paying R1,300 and R2,500 a month for the 12m² and 18m² studio flats respectively. The building also provided employment for three full-time staff — a security person, a cleaner and a caretaker. Three small spaza shops operated out of the building and were leased by traders for R3,500 a month. As Sizakele told journalist Julia Hinton: “This is one of the hardest places in the city in which to do business, but you can make money if you manage and control the place properly, and make sure that your tenants feel they are living in a good, secure place and that they are being well looked after.”
In nearby Yeoville, a suburb that borders on Hillbrow, Sibusiso, a public servant born in Soweto, bought a property that belonged to human settlements minister Lindiwe Sisulu. The old Yeoville house is situated on St George’s Street. Sibusiso was also able to secure a loan from TUHF and then proceeded to turn the dwelling into 15 rentable units in a well-located area.
He developed the original main house into seven units, and then built a new two-storey section at the back with eight bachelor units. Each bachelor flat has its own bathroom and contains an ingenious separation of the bedroom and kitchen. Rental for these units is R2,500 a month, while the main house’s self-contained units offer each tenant their own bathroom and kitchen, at a rental of R1,900 a month. Since Sibusiso’s success in Yeoville, he has reinvested his profits in other buildings in Soweto and in other parts of Yeoville.
In Cape Town, Delft is a well-located township, situated near areas of economic activity and within reach of easily accessible transport into the city. In 2018, Zama, a pharmacist’s assistant, saw an opportunity to develop rental units in Delft as a way to help her 65-year-old mother. Because of a technicality, Zama’s mother has been unable to claim a state pension. Zama approached a specialist local finance company called Bitprop for assistance to develop rental units. Together they built four rental units, which has provided Zama’s mother with an income significantly higher than what she would have received from a state-provided pension.
Many private, small developers finance their own construction using a second mortgage and unsecured personal loans, or they turn to local informal lenders or draw on their savings. In recent years, a small number of innovative lenders have emerged who are making these developments possible. The most recently established companies are iBuild, Indlu and Bitprop.
iBuild follows a community banking model with branches across the country. The platform provides lending solutions to low-income workers who would typically be rejected by banks. To receive a loan from iBuild, an applicant must earn a minimum joint income of R5,500 a month. The smallest loan is R60,000. Half of the mortgage amount is directly put towards building material supplies and the remaining amount is disbursed to the borrower for labour and other incidentals. According to iBuild, its unique backroom product is tailor-made to assist “homeowners turn their house into an asset that will earn an income well into their retirement”.
Indlu is a rental-housing mobile app that connects homeowners to townships with potential tenants for their backyard rooms. Owners of properties registered on the app can qualify for funding for certain upgrades and the development of new formal backyard rooms. Upgrades can include improvements to existing rental rooms or houses or developing new formal rooms, often in the form of a small multistorey apartment building. The owner pays for these upgrades by entering into a rental share agreement with Indlu. The app was launched in December 2017 and has expanded in Gauteng substantially since then.
Martina is a good example of a client who approached Indlu to help her add rental units onto her house in Mamelodi. The money she is receiving from the rent of the units has enabled her to pay for the bond on her house and loan on her car, and she now considers herself a businesswoman. Martina was able to establish a credit record by successfully completing this development and used that record to access a R680,000 loan, which allowed her to expand her real estate business.
Bitprop is a new, Cape Town-based company that partners with homeowners to secure title deeds, and then designs and constructs bachelor-style units for rent. Bitprop takes on the risk of the capital outlay needed to build, managing the quality and construction process, and in return it receives a portion of the tenant income for 10 years, until the cost of construction is recouped. Thereafter the homeowner receives the full rental amount. Bitprop does not offer its partner homeowners “loans” as such, but rather works with existing homeowners to develop rental accommodation.
Nomawisa was a domestic worker nearing retirement age when Bitprop partnered with her and developed eight rental units on her property, in a well-developed part of Khayelitsha. Every month, the tenants paid Bitprop directly, and the company then kept aside a portion for maintenance, insurance and administration, and the remaining amount was split 25%-75% between the homeowner and Bitprop. Nomawisa’s son played the role of the property manager. As a result of the rental income she receives, Nomawisa’s retirement is now more secure.
The benefits of actively encouraging small housing developers in existing areas of our cities both for lower and middle-income households is clear. These projects are responding to recognised demand and, by reducing the extent of urban sprawl in the coming years, they will significantly enhance the sustainability of municipalities.
To accelerate these developments, metros need to identify and focus on areas of residential densification. They need to introduce appropriate, streamlined compliance requirements, upgrade infrastructure and strengthen their ability to manage these private providers. The national government should introduce a conditional grant for SA metros to fund free service connections, waive bulk infrastructure contributions and finance bulk infrastructure.
Banks and other private sector lenders could also help by developing appropriately structured project and asset finance for these small housing projects. They could also provide more financing to support existing intermediaries such as Bitprop, Indlu and others.
If we could tackle and overcome the challenges holding back a new and inclusive way to deliver affordable housing to the poor, our cities could become places of hope and opportunity. Then we could finally start making some serious inroads into the challenges of entrenched poverty and inequality in our cities, challenges that have become bigger, more daunting and more urgent to overcome as a result of Covid-19.
Ann Bernstein is head of the CDE and Matthew Nell is a founding member of Shisaka.
This article was first published in Business Day