Land reform highlights the lack of affordable housing and financing options
As well as a dearth of affordable housing stock, poor credit profiles hamper buyers, which is why banks and the government need to work together
In 2018, land redistribution rose to prominence as a point of debate in SA. Apart from highlighting the obvious need for urgent attention to be given to equitable land ownership, the focus on land redistribution has also served to throw a much-needed spotlight on many other challenges still plague SA’s formal housing markets.
The stellar increase in the rate of urbanisation across the country continues to create massive demand for decent housing opportunities. While the government has made some inroads into addressing this requirement, the supply of well-located, zoned and serviced land, with suitable top structures and acceptable amenities, continues to significantly lag behind the fast-growing demand. In fact, it is estimated that SA currently faces a housing delivery backlog of more than 3-million units.
The government’s response has been significant, with approximately 4-million units provided over the past 24 years, however, this has not been sufficient to address the backlog, which keeps growing annually as demand continues to outstrip supply.
Adding to the problem is the fact that where affordable housing opportunities exist, or have been created, the combination of a lingering lack of access to a fully functional mortgage market for low income earners, massive backlogs in most deeds transfer offices, and very prohibitive home-loan credit rating criteria is still preventing the majority of low-income households from achieving the formal home ownership that is needed to fully unlock the value of their properties and serve as a stepping stone to poverty alleviation.
A key problem is the fact that free housing provided through the Reconstruction Development Programme (RDP) and Breaking New Ground (BNG) approaches — which has formed the cornerstone of the government’s housing programme to date — is governed by a pre-emptive clause that prohibits beneficiaries from selling these units in the formal housing market for eight years after they take ownership.
According to the Centre for Affordable Housing, the number of home sales financed by means of a mortgage has steadily declined over the years, and less than 10% of homes sold in SA in 2016 were mortgaged
This has meant that many of these beneficiaries have been forced to sell their houses informally, often at prices significantly lower than true market value. So, while the free housing programmes allow families to benefit from having a roof over their heads, they are effectively prevented from unlocking long-term value and personal financial growth through the sale of their properties.
According to the Centre for Affordable Housing, the number of home sales financed by means of a mortgage has steadily declined over the years, and less than 10% of homes sold in SA in 2016 were mortgaged. Within the affordable housing market, this decline in bond-based home sales has the biggest negative impact because it means property owners are not maximising the value they are getting from the sales of their homes. A number of factors contribute to this declining trend, not least of which are affordability constraints, a lack of affordable housing stock, impaired credit profiles of prospective buyers and an inability to access the mortgage market, and increases in land and building costs.
Against this backdrop, it is imperative that all stakeholders in the affordable-housing sector come together to develop and deliver workable solutions that not only address the housing backlog, but also help owners of affordable homes leverage the value of their properties to raise their financial and social wellbeing over time.
Achieving this objective requires that affordable-housing solutions adopt a much broader focus than just the end-user or occupier of low-cost homes. It also demands that role-players collaborate and innovate around property developer finance structures and ensure greater access to realistic home finance solutions for low income earners.
Targeted responses to these challenges by banks have the real potential to deliver sustainable, positive solutions
At a consumer level, public-private partnerships are key, as demonstrated by the success of programmes such as the Finance Linked Individual Subsidy Programme, which provides once-off grants for housing purposes, but I also believe that these partnerships can be made far more impactful if more parties are actively involved in the delivery of accessible housing solutions. Employers, for example, have a key role to play in making home ownership a reality for their employees. While some success has been achieved in this regard, it is vital that much larger numbers of employers commit to participating in employer-backed housing schemes as these are a proven way of ensuring that prospective home owners can meet mortgage affordability criteria and gain access to home funding solutions.
Of course, improving access to finance alone will not address all the challenges in the affordable-housing sector. Despite the fact that roughly 72% of the SA population falls within this market segment (household earnings of less than R22,000) the availability of suitable housing stock has steadily dwindled over the last decade, driven mainly by supply-side challenges such as accelerating building costs, a limited number of developers operating in this space, and development project delays.
Targeted responses to these challenges by banks have the real potential to deliver sustainable, positive solutions. Support of emerging developers is a particular area of importance, not only through improved access to capital, but also in terms of connecting developers to pre-qualified buyers, thereby creating a viable and sustainable market that can support small-, medium- and micro-sized company (SMME) growth and job creation in the affordable housing development sector.
Property ownership is the vital foundation on which socio-economic transformation can take place. However, this can only happen if the challenges of affordability, availability and the realisation of long-term value are adequately addressed — and this will only happen through partnership, collaboration, and the shared vision of all affordable housing industry stakeholders.
• Dr Nieuwoudt CEO of FNB Consumer.