De­vel­oper in­cen­tives must be ‘ad­e­quate’ to mit­i­gate risk

Weekend Argus (Saturday Edition) - - PROPERTY -

INCLUSIONARY hous­ing poli­cies are usu­ally ei­ther oblig­a­tory or vol­un­tary, and with each type, ad­e­quate in­cen­tives are needed to off­set the cost to the de­vel­oper, says Rode & As­so­ciate’s Er­win Rode.

The lack of such in­cen­tives, es­pe­cially if the pro­gramme is com­pul­sory, as pro­posed by the City of Jo­han­nes­burg, could in­hibit the de­vel­op­ment of all classes of hous­ing, which would even­tu­ally push up prices of ex­ist­ing hous­ing stock.

Rode says some ex­am­ples of in­cen­tives are:

Den­sity bonuses (con­di­tional re­zon­ing to al­low more height and more bulk).

Re­duced park­ing ments.

Re­bate on con­tri­bu­tion to the cost of en­gi­neer­ing ser­vices.

Re­bate on as­sess­ment rates payable to the mu­nic­i­pal­ity.

Fee waivers.

Ex­pe­dited plan­ning ap­provals.


“These are in­cen­tives a mu­nic­i­pal­ity can of­fer with­out in­cur­ring se­ri­ous costs to it­self.”

Rode says fee waivers and ex­pe­dited plan­ning ap­provals are “nice ges­tures”, but would not im­prove the vi­a­bil­ity of a de­vel­op­ment by much, if at all. A pro­gramme that en­forces inclusionary hous­ing, as the City of Jo­han­nes­burg’s pro­posal aims to do, is risky as no one knows what the un­in­tended con­se­quences will be the most ob­vi­ous be­ing a strike by res­i­den­tial de­vel­op­ers.

Deon van Zyl, of the Western Cape Prop­erty De­vel­op­ment Forum, says Rode’s con­cern about scar­ing the de­vel­op­ment in­dus­try away presents a log­i­cal ar­gu­ment. If the busi­ness model does not make sense for a de­vel­oper, why would they en­gage in it?

In sce­nar­ios where lo­cal mu­nic­i­pal­i­ties trade what they have with de­vel­op­ers for what they want, he says a lo­cal author­ity’s stock in trade is that it can grant de­vel­op­ment rights and pro­vide in­fra­struc­ture ca­pac­ity. Ba­si­cally, it can pro­vide a bet­ter or worse man­age­ment ser­vice which, from a de­vel­oper’s per­spec­tive, re­lates to the cer­tainty of out­come, turn­around time in de­ci­sion mak­ing, and pro-ac­tive in­fra­struc­ture in­vest­ment by lo­cal au­thor­i­ties.

“A lo­cal author­ity may also own sur­plus land which may or may not be at­trac­tive to the open mar­ket.”

A de­vel­oper brings a dif­fer­ent of­fer­ing, Van Zyl says: “The de­vel­oper as­pires to un­der­stand mar­ket con­di­tions, brings cap­i­tal or ac­cess to cap­i­tal, and is re­quired to im­ple­ment with speed. The most im­por­tant stock in trade is the will­ing­ness to take risk in lieu of profit. All de­ci­sions on whether to en­gage are un­der­pinned by clar­ity and cer­tainty of risk. If pol­icy and com­mer­cial re­al­ity do not speak to each other, there will be no de­liv­ery.”

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