LETTER: A proven solution to an old problem

For years government has been grappling with the problem of providing or accelerating the delivery of housing to so many. Now it seems the ANC is considering a “potentially radical policy overhaul” to encourage people to build their own homes (“ANC proposes radical change to housing policy in discussion paper”, May 17).  One must assume that any such overhaul would necessarily include the granting of title to each homeowner.

The answer, in my view, lies in the existence of healthy primary and secondary markets for homes, which are dependent on the availability of credit facilities. Such facilities should not be the state’s responsibility, but should come from financial institutions. Private ownership of a home not only creates the nucleus of a personal estate, but also provides the source of primary or collateral security for loan finance.

To find an acceptable solution it might be appropriate to revert to the concept of building societies, as opposed to high street or commercial banks, as a dedicated source of funds for primary housing and resultantly the availability of roll-over credit in the secondary housing market.

Building societies were initially established as an answer to an acute shortage of houses in urban areas. In SA they disappeared when the commercial banks entered the home loan market, and a first-time entrant to the housing market now has to approach a commercial bank for housing finance. I firmly believe that there is a place in our economy for building societies to again provide home loans at reasonable rates. 

And the source of capital, one might ask? Before the Building Societies Act was repealed the savings of wage and salary earners went, to a considerable extent and in the first instance, to the various building societies. Employers transferred wages and salaries directly into building society savings accounts and at month end banking halls were crowded with earners withdrawing money to cover living expenses. But some of it remained and became hard-core capital for the societies.

One could also invest in “shares” — a euphemism for an investment for an unlimited time — or simply make a deposit in the form of a savings account or fixed deposit. These shares carried a rate of return in excess of deposit rates but had no fixed term. A simple notice of withdrawal was sufficient and repayment of the full amount followed instantly.

What would be the incentive of a wage or salary earner, or anyone else, to switch from saving with a bank to a building society?  Tax exemption on investments in building societies would be the obvious answer.  The “tax-free” incentive would encourage investors to allow their investments to grow and that, as before, would result in “hard-core” capital.  The Public Investment Corporation is the obvious source for the provision of a permanent or a semi-permanent capital base.

Building societies have many features that correspond with stokvels, with which so many South Africans are familiar and comfortable. The banks that replaced conventional building societies have not been nearly as efficient in providing service to first-time homeowners in the sub-economic house markets.  The primary mission of a commercial bank is to make money. Conventional building societies are what their names indicate: societies of investors that provide financial assistance of a particular nature. 

Louis van Zyl,Via email

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