Flaws in social housing model

CITIZENS of Cape Town have a keen interest in the City’s plan for social housing. To say that there is a dire shortage of housing for poor people is an understatement.

Even working people with modest incomes like teachers, nurses and some public servants are locked out of the property market and are forced into backyards and overcrowded housing.

To address this growing backlog of affordable housing, the City entered into partnership agreements in 2017 with social housing institutions like Communicare, and committed to releasing land for social housing at 10% of market value.

Such discounts are necessary because serviced land is scarce and prices are subject to an unregulated free market that drastically pushes up the price of land.

The high cost of serviced urban land makes the delivery of social housing impossible.

Social housing institutions acquiring the land carry 60% or more of the cost of the development since government grants only cover a portion of the development cost. This amounts to about 40% in a low-density, four-storey development and even less for higher-density development with more floors.

Institutions like Communicare carry all the operating costs after the units are occupied. No operating subsidies or grants are available from the government while most tenants cannot afford to pay a rental that covers the actual operating costs.

In addition, the social housing regulations limit the rent that can be charged, specify the income ranges of the tenants to be accommodated and also restrict rental escalations.

While understandable, these regulations restrict the revenue while operating costs are subject to escalation above inflation due to tariff and price hikes on key inputs like fuel, utilities and building materials.

The social housing model assumes cross subsidisation between tenants in the higher income ranges (up to R15 500) and those in the lower ranges (below R7 500).

However, when these numbers are analysed in live projects, they simply do not make adequate provision for the long-term capital maintenance required as the property ages.

The viability of cross subsidisation in current social housing deteriorates from the day the stock is built because vacant units must be let to tenants in the income ranges set in 2017.

This is because the regulations don’t provide for these figures to adjust with inflation. This makes all social housing financially unsustainable for the institutions that manage them.

This is why it is beneficial to include a much wider mix of incomes to ensure the property can be well maintained in the long term.

This mixed-income model has worked successfully abroad, aiding the development of thousands of social housing units.

This sustainability of social housing institutions must be the concern of the local authority because it needs these partners to increase the delivery of housing stock, contribute to the additional capital needed for the delivery of social housing, and manage the rental stock in the absence of a municipal housing entity to do so.

We are far from an ideal model but the Salt River Market development is an innovative initiative that improves on the current one and will contribute to the growth of social housing in our city.

The mixed-income model has worked abroad, aiding the development of thousands of social housing units

Anthea Houston is chief executive of Communicare