Why Is There Not Enough Affordable Rental or Social Housing for the Poor In South Africa's Cities?

By Louise Scholtz · 7 May 2014

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Picture: The Jackal Blog
Picture: The Jackal Blog

Why is there not enough affordable rental or social housing for the poor in our cities? As the Constitutional Court’s Grootboom decision highlighted, cities should be read as shorthand for well-located spaces that provide access to economic and social opportunities for the poor.

This lack of affordable and well-situated rental or social housing accommodation is not unique to South Africa. There are many urban centres in the world where land has run out and state support is insufficient to keep up with demand, let alone plan for the future. There is also an obsession with ownership that has borne witness to the large scale selling off of rental stock. South Africa has also seen large-scale sales of social housing by municipalities, perhaps more in response to the operational challenges presented by the cost of on-going maintenance and challenges linked to non-payment.

While housing policy has, in the past, tended to favour ownership, increasingly the importance of the rental sector is being acknowledged. Rental housing can provide access to affordable, well-located accommodation for those who choose not to or may not be able to purchase property. In general, it provides for greater flexibility and mobility. These are important considerations for those employed in more elementary occupations where job security is low. It can also be more affordable than ownership, particularly where there is fractional occupation and sharing of units.

Critically, as noted in the Social Housing Policy, the creation of rental stock by both the social housing and private sectors can play a role in the economic, social and spatial restructuring of South Africa’s cities.

Rental stock can be publicly owned housing managed by municipalities and provincial housing departments. It can also be privately owned or made available through social housing. Presently there are only dependable figures for social housing stock with approximately 63,000 units. These figures are taken from a 2007 Annual Report of the Social Housing Foundation and a National Association of Social Housing Organisations (NASHO) report.

Data indicates that the overall rental sector is significant, accounting for roughly 20% of households in South Africa. The majority of households that pay rent are poor or low-income. Roughly 55% have an income of less than R3,500 per month while a further 22% earn between R3,500 - R7,500 per month. Data on dwelling conditions points to significant need for affordable, better quality accommodation. Over 40% of renter households live in what could be characterised as slum conditions.

In addition, anecdotal evidence suggests significant unmet demand for affordable accommodation in key urban centres. Both private landlords and social housing institutions (SHIs) report exceptionally low vacancy rates. New social housing projects released onto the market in centres such as Johannesburg, Durban, Port Elizabeth and East London are typically over-subscribed often by a factor of ten or more.

Affordability remains a major stumbling block. Writing in the Mail & Guardian in April 2014, Lauren Royston and Michael Clark of the Socio-Economic Rights Institute report that current estimates of households living in the inner city of Johannesburg who earn less than R3,200 per month are in the region of 34,000 households. “Thirty-one percent of these earn less than R1,600 per month and can spend R450 per month on rent, while 18% of these households earn between R1,600 - R3,200 a month, and can afford to spend between R450 and R1,050 a month – a range that private rental does not reach and social housing barely touches…”

This brings us to the question of whether social housing can provide an adequate response to the pressing need for rental accommodation. Social housing is a creature of statute - the Social Housing, Act No.16, 2008 - and is a government programme to redress the old apartheid-era spatial inequities by providing low and moderate-income households, earning between R1,500 - R7,500 per month, with quality and affordable rental housing opportunities in well-located parts of South African cities.

Social housing is implemented by SHIs that are accredited or provisionally accredited under the act to engage in the business of providing rental or co-operative housing and managing this housing stock over the long term. Initially these implementing agents were all not-for-profit, however, from 2012 private sector institutions were also eligible to apply for subsidy funding through the Social Housing Regulatory Authority (SHRA) that disburses the subsidy to support the provision of social housing.

The primary mechanism of the programme is through the application of the Restructuring Capital Grant (RCG) subsidy in respect of projects that are assessed as well located in terms of the Restructuring Zones (RZs). According to the Social Housing Act (2008), RZs are defined as, “Geographic areas identified for targeted investment based on the need for social, spatial and economic restructuring of the areas.”

Within these areas, SHIs can apply for the RCG, which in 2012 was about R130,000 per unit (roughly 40% of total financing) and with the linked institutional subsidy (from the provincial government under which the project falls) contributing to approximately 64% of the financing of the project. This government investment draws in an additional 33% financing in the form of private loan finance and a further 3% in the form of private equity. Until today, no other government financed housing programme has achieved this level of leverage. Due to the high percentage of grant finance, this funding combination enables SHIs to provide rental units that are affordable.

If subsidies are sought, 30% of the subsidised units provided must be targeted at the bottom end of the social housing target market, that is, households that earn from R1,500 - R3,500 per month known as the “primary target market”. In 2012 the entry-level rental for this market was set at R750 per month and the SHRA expects that with its level of capital funding, this rental can be achieved on a sustainable basis.

The remaining 70% of the subsidised units can be for the higher ranges of the social housing policy target market, i.e. households earning R3,500 to R7,500 per month or “secondary target market”, and these units can be offered at an entry-level rental of not more than R2,250 per month.

In the NASHO study, it is estimated that the overall investment in social housing from the period 2008 to 2013 has been approximately R3bn with R1.8bn invested by government (RCG + institutional subsidy) plus the leveraged R1bn private sector financing (loan + equity). Consequently 10,250 new units were built by SHIs and a further by 543 by the private for profit sector. Gleaning from the National Treasury’s 2014 Estimates of National Expenditure, government has further committed itself to fund 18,000 new units of social housing over next three years. Although this is not insubstantial, it is clear that in itself, it is wholly inadequate to address the demand. It must also be seen in context of the total housing budget (that does not include social housing), which was R16bn in 2012 alone. If one does a very basic calculation to determine how many units were released on the market for the primary target market, and taking the 30/70% mix, it seems as if at most, approximately 3,266 units became available.

We should be concerned that such a significant investment in social housing has yielded so few homes for the poorest working South Africans.

Complicating matters further and preventing the SHIs from fulfilling their brief to provide access to the cities is the reluctance of local authorities to release well-located land to SHIs. Only 15% of the RCG has been spent in CBDs because timelines for the release of municipal and state land are not conducive to social housing development, which represents a long-term return on investment. Rather than advance such developmental arrangements, many municipalities in search of quick profits prefer to dispose of state land through tenders to the highest bidder.

The effect of this is to dispose of a crucial public asset into the private market and in so doing reduce future access to low and moderate-income households. Guaranteeing the right to the city for South Africa’s poor represents an important step towards redressing the historical injustices of separate development, which continue to plague us as a nation. South Africans should question whether such an important mission should be left to market forces.

Scholtz is a manager at the World Wildlife Fund South Africa and leader on a joint project with the National Association of Social Housing Organisations.

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