Housing crisis needs multi-faceted solution

Creative ideas are needed to help South Africans to save money and buy houses, which will boost the economy

PROVIDING dignified housing is one of South Africa’s greatest challenges, and it’s being made more difficult by a slow economy.

The problem is also aggravated by unemployment levels and inflation hikes, which threaten the disposable income levels of consumers.

The abovementioned conditions make it difficult to fund the 1.5 million new housing opportunities targeted by the Department of Human Settlements for delivery by 2019. According to the latest information from Statistics SA, the percentage of households living in informal dwellings only marginally decreased from 13.6 percent to 13.1 percent between 2002 and 2014.

This delivery target follows the National Human Settlements Indaba held in October 2014 where a Social Contract for the Development of Sustainable Human Settlements was signed with Human Settlements stakeholders, which included banks, major employers, private affordable housing developers and government agencies.

The contribution of all stakeholders was estimated to be over R250 billion by 2019, but other numbers paint a bleaker picture. Africa Check reports that a financial and fiscal commission investigation into the housing situation estimated it would cost the government about R800bn to eradicate the housing backlog by 2020.

Increasing urbanisation has put a strain on the demand for and rate of housing delivery, with an estimated annual housing backlog of 140 000. This figure increased to 178 000 units a year following 1994, however delivery levels have fluctuated with some as high as 235 000 in 1998 and 99, according to Africa Check’s research. What else can be done?

Minister of Human Settlements, Lindiwe Sisulu, has suggested several solutions to

Half of the

houses for employees. As good as these are, the biggest challenge facing financiers and government entities is the capital required to create capacity for demand. The government is taking immense strain to keep its budget afloat as the slow economic conditions continue to bite.

Looking at past trends, it is evident that mortgage financing cannot be relied on as the only solution to the problem of raising the capital needed by consumers to buy houses or deal with the housing backlogs, and alternative housing solutions should be explored.

The “gap market” describes the shortfall between residential units supplied by the state and houses delivered by the private sector. It comprises people who earn between R3 500 and R15 000 a month, which is not enough to participate in the private market, yet too much to qualify for state subsidised houses. This problem needs to be addressed, and it requires collaboration between all stakeholders.

In the affordable market sector, most consumers don’t qualify for mortgage financing due to reasons such as affordability and impaired credit records, so there is a need for improved access to rental space or broader social housing initiatives. According to the General Household Survey Data, renting in informal dwellings increased from 18.5 percent in 2012 to 32.6 percent in 2014.

Essentially, a joint solution is needed to achieve more dignified housing for those who still remain without a place to call home, however this would not always entail home ownership. A joint private- public partnership solution can be explored, which could include a product model supported by the banks and tax benefits.

This will promote a multi- properties ownership, improving the capacity required to meet housing demands, but it would need to be supported by stakeholders and underpinned by the national housing policy. The product could include education, regulation and a savings arm – for instance, tax rebates if savings are achieved.

Following consultation with banks and other financial institutions the Finance Linked Individual Subsidy Programme ( FLISP) was introduced in 2012 to assist households earning between R3 501 and R15 000 a month. Positive traction has been achieved, however there is still an opportunity to reach the broader consumers in the affordable housing market.

In support of the government’s commitment to provide sustainable, dignified human settlements to the disadvantaged, Standard Bank offers affordable housing mortgage finance and has so far facilitated the disbursement of more than R80 million worth of government FLISP subsidies nationwide.

Given the execution challenges banks experience when taking into account the FLISP amount as a deposit to reduce the capital required and improve affordability, a different subsidy model should be considered to augment the existing one. One of those is the introduction of a VAT- free incentive subsidy to all new homeowners and applicants meeting gap market criteria.

One of the key challenges that hinder progress in the delivery of mortgage financing is the fact that half of the 5 million people in the country who can borrow money to buy a home have impaired credit records. Furthermore, up to 60 percent of the other half don’t meet affordability criteria. As a result, approval rate for loans only ranges between 30 to 35 percent.

It is in the banks’ interest to create an environment for people who can afford homes to be able to take the step. More so, banks will drive the development of alternative mortgage lending solutions in partnership with other stakeholders. Various mediums will be explored – through consumer education or support of incentivised products.

The success of alternatives depends on all stakeholders working together. The solution will be a multi-faceted one that would, for example, consider how debt could be consolidated, how the indebted person would be rehabilitated and how savings will be encouraged.

The challenge at hand is huge, the tasks are vast, yet partnering is the best solution.

● Oupa Masilela is the executive head of affordable housing at Standard Bank.