Housing plan ‘unviable’ – property consultant

NEW DEVELOPMENTS: 20% OF UNITS RESERVED FOR LOW-INCOME FAMILIES

Joburg policy is designed to provide rental housing at an affordable price.

There are only a few days left to comment on a proposed City of Joburg policy that will require at least 20% of units in all residential developments over 10 units to be set aside for what is called inclusionary housing.

These units would be available to residents with a total household income not exceeding R7 000, while the rent plus levies may not exceed R2 100 per month, or 30% of the household income – excluding the cost of utilities like electricity.

According to the city, the draft policy “is designed to provide rental housing at an affordable price”.

However, property consultant Erwin Rode of Rode and Associates, who studied the proposed policy, warns that enforcing the policy could render residential developments unviable and result in a development strike.

He says it could lead to spiralling house prices in certain categories and points out that similar policies in the US led to little additional low-cost housing stock.

The draft policy provides that inclusionary units have to be on the same site as the development. The units have to be at least 15m² big and have their own bathroom consisting of at least a basin, toilet and shower.

The units must have the same outward appearance as others and must “share common spaces, such as entrances, lifts, communal spaces, shared amenities, with market units in the same development or property. Access to these common facilities must be unconstrained for all residents”. The city proposes two models. The first option would be for the units to be managed by a social housing company as defined in the Social Housing Act.

The other option would be for the developers/owners to rent the units out privately. In the case of sectional title developments, the units should be owned, managed and rented out by the body corporate.

In the case of private rentals, the city requires annual reports showing the rental amounts. These reports will be made public, according to the draft policy.

Rode says an inclusionary housing policy is nothing new. He says in the US more than 500 jurisdictions have implemented such policies and these can be found in 27 states.

He says unless compulsory schemes such as the one proposed by the city provide for adequate incentives, “it could inhibit the development of all classes of housing, which would eventually push up the prices of existing housing stock”.

Rode warns against the unintended consequences of enforced schemes such as the one the city proposes, “the most obvious risk being a strike by residential developers”.

He says: “The biggest risk [to developers] is that their sales tempo in new developments would be retarded to the extent that the development becomes unviable. From the developers’ point of view, the obvious solution to this problem is to keep the price gradient between the various price classes within a development small.

“For example, mix low-spec units with houses that do not cost more than, say, R500 000.

“However, the downside to such a reaction by the private sector would be (a) that the profit margins on low-priced houses

The units must share common spaces such as entrances, lifts, and communal spaces with market units in same property.

are wafer-thin; and (b) that no more houses or residential units of more than R1 million would be constructed. This would lead to spiralling house prices in these categories.”

Rode says a municipality should approach such a programme with “the utmost sensitivity and care”.

He proposes that the city apply the policy to selected, degraded centrally located areas where land prices are currently low, but where value could be added through allowing more bulk together with other incentives like rebates. “Urban development zones come to mind.”

That would mitigate the risk to the greater residential market, Rode says.

Alternatively the city could make the programme voluntary he says. “In either instance, the incentives should be substantial enough to offset the costs to the developer.”

The deadline for comment on the draft policy is April 30. – Moneyweb

Draft policy City of Joburg