Social Housing Bill 29 of 2007Preliminary response

Odette CroftonActing Chief Director

Social / Rental housing & PHP12 September 2007

Outline

• Context

• Social housing policy

• Social housing Bill Chapters– Chapter 1– Chapter 2– Chapter 3– Chapter 4– Chapter 5

Context• Socio-economic

demographics• Migration Patterns• Rapid rate of

urbanisation• ⅓ of low-income renters

in metro’s are in backyard shacks & informal settlements

• The poor struggle to access limited rental opportunities provided by formal market (especially in good locations)

Province R0 – R800 R801 – R3, 200

R3, 201 – R6, 400

Eastern Cape 52.8% 33.72% 13.41%

Free State 56.06% 33.19% 10.75%

Gauteng 41.62% 43.88% 14.49%

KwaZulu Natal

53.03% 34.68% 12.29%

Limpopo 49.26% 33.25% 17.49%

Mpumalanga 48.61% 38.77% 12.62%

Northern Cape

42.22% 40.86% 16.92%

North West 44.40% 42.48% 13.12%

Western Cape

30.87% 47.31% 21.82%

Total 45.12% 40.27% 14.61%

-

200,000

400,000

600,000

800,000

1,000,000

NR

OF H

OU

SE

HO

LD

S

R0 - R800 R801 - R3,200 R3,201 - R6,400

INCOME GROUP

FORMAL INFORMAL

Context - Demand• Demand for rental

rising (7% p.a. for groups earning R1600-R3200/month) = affordable market need

• Additional pressure due to:– National Credit Act– 21 – 18 as age for

contracting– Property boom – no

ceiling on rentals that can be charged

2001- 2006 2006 -2011 TYPE OF HOUSING

5 YEARS / ANNUM 5 YEARS / ANNUM

House or brick structure on a separate stand or yard

224,510 44,902 281,739 56,348

Traditional dwelling / hut / structure made of traditional materials

21,849 4,370 26,797 5,359

Flat in block of flats 81,012 16,202 103,021 20,604

Town / cluster / semi-detached house (simplex; duplex; triplex)

14,630 2,926 18,410 3,682

House / flat / room in back yard 53,613 10,723 69,425 13,885

Informal dwelling / shack in back yard

64,457 12,891 83,248 16,650

Informal dwelling / shack NOT in back yard

49,493 9,899 62,212 12,442

Room / flatlet not in back yard but on shared property

16,889 3,378 21,536 4,307

Caravan or tent 1,692 338 2,093 419

Private ship / boat 206 41 250 50

Total 528,351 105,670 668,731 133,746

Context

• Basic Rental Formula

Tenant pays Rent to occupy a

Unit

CommonDenominator

Definition: An agreement between a landlord and a tenant that gives the tenant the right to use and occupy rental property for a period of time

Intervention required

Public rental

housing market

Private rental

housing market

Access for lower & indigent income groups

Gearing to scale

Context – Rental Strategy

Public rental

housing market

Private rental

housing market

Access for lower & indigent income groups

Gearing to scale

CRUSocial

Housing

Complementary initiatives

Proposed Rental strategyCommunity Residential Units

• Correcting historical problems with public housing & hostels

• Coherent framework for public housing & hostels

• Indigent & lower income groups (R3500 – R800)

• Stabilizing market & housing environ

• Addressing slum landlords

• Affordable formal accom for informal tenants

• Object subsidy

Social housing• Private sector for-profit &

non-profit sectors mobilized

• Cross-subsidization• Mobilizing private funders• Restructuring objectives• Lower and middle income

groups (R7500 – R1500)• Object subsidy

Housing Act Social Housing Act

SHRA Regulations

SHI Regulations (accreditation & regulation)

incl. Principles of Regulation

Operational Policies & Procedures

Rules

Guidelines(in respect of funding)

Parliament

Minister of Housing

SHRA Council

ApprovalsExisting LegislationNew Legislation

Social Housing Policy

Social housing policy• SH programme involves a mixture of gov

grants, private sector funding and equity• Focus on involvement of private sector• Allowing for maximum cross subsidisation

from higher/middle income to support lower income

• Targeted & focused programme, not mass delivery

• Restructuring objectives

Definition of social housing

• A rental or co-operative housing option for to low income persons at a level of scale and built form which requires institutionalised management and which is provided by accredited social housing institutions or in accredited social housing projects in designated restructuring zones

Delivery agents for Social housing

• Non-profit company

• Municipal owned entity

• Housing Co-operative

• For-profit company

• Public-private partnership

Social Housing institutions

Social housing policy

• Introduces three groups of instruments:

Legislative & regulatory Instruments

Social housing Bill = framework legislation

Social Housing Regulatory Authority (SHRA)

Defined sector roles & players

Financial instruments

Restructuring capital grants for social housing

Capacity building grants

Tax incentives

Risk mitigation measures

Capacity building instrumentsFocus on capacity to run viable projects

1. Capacity to develop and implement projects 2. Effective internal functioning of SHIs3. Support to gear up staff

Resource pools like TRGs

Social Housing Bill, 29 of 1997

Social Housing Bill 29 of 1997Chapter 1

Terminology & principles

Chapter 2

Roles & Responsibilities

Chapter 3

SHRA establishment

Chapter 4

SHI functioning & Accreditation

Chapter 5

Programme & Regulations

Chapter 1

Terminology & definitions ambiguity:• Approved projects vs accredited projects• Low & medium income groups• Lease agreements• Maladministration• Social housing – not include rent-to-buy• Principles – specific to SH, rather than all

from housing act and SH policy

Chapter 2

• Roles & responsibilities not duplicate roles & responsibilities in Housing Act

• Co-ordination & alignment as part of the process

• MFMA, PFMA alignment

INSTITUTIONAL/ SECTOR ROLES

Leadership Delivery Funding Regulation Facilitation

DE

LIV

ER

Y P

RO

CE

SS

Local authorities (identifying restructuring zones) Provinces (put forward restructuring zones to SHRA for approval)

Local authority provide land, infrastructure & public environs SHIs PPP / private sector are housing delivery and management agents Compile project proposals for approved restructuring zones and submit to SHRA

Provinces administer disbursement of SHC approved grants NHFC and private sector loan funding

Province monitors local authority and SHI/private sector delivery Federations set code of good practice for members

SHRA / SHF disburses capacity building grants according to capacity building programme Service providers compete to provide capacity building services Risk mitigation / guarantees to SHIs

RE

GU

LA

TO

RY

PR

OC

ES

S

NDOH provides policy framework, sector co-ordination and programme funding SHRA manages the programme call for and approves restructuring zones

SHRA accredits SHIs and approves projects SHC accredits private sector/PPP projects

SHRA approves grants

SHRA annual performance monitoring and compliance of SHIs and sector players

SHRA annual performance monitoring of sector players SHRA sector informs capacity building programme

Chapter 3

• Council member appointment vs independence of the council

• “fit” & proper members on the council

• All delivery agents are monitored, but in different ways – SHIs (non-profits) vs For-profits

• Inspections & intervention

Chapter 3

Table 1: SHRA Institutional Options

Option 1: Department Directorate

Option 2: Regulatory Public

Entity

Option 3 Department Agency

PFMA Classification Not applicable Schedule 3A: National Public Entity

Proposed (PSA 3A) – not currently available

Legal basis / Mandate Housing Act & Code Enabling Legislation - Social Housing Act

Delegation of powers & duties in terms of an Act (legislation)

Proposed functions Regulation Investment Capacity Building

Delivery

Regulation Investment

Regulation Investment Capacity Building

Delivery

Governance Departmental structure & Minister

Governing body (Council) accountable to Minister

Minister

Chapter 3

The proposed functions of the SHRA are:– Regulation

• Accredit & Register SHI’s• Recommend Restructuring Zones• Set Principles of Compliance & Accreditation• Regulate for Compliance• Act on Non-Compliance• Report on Compliance (Individual SHI and Sector-wide SHI / project

performance)– Investment

• Assessment & support of prospective capital projects• Authorisation top-up capital funding• Compliance monitoring of project delivery• Specification & funding of Institutional Investment• Procurement of common SHI sector-wide support

Chapter 3

• Phasing in of SHRA & Phasing out of SHF– Preparation

phase – once Act is passed

– Establishment phase

– Operational phase

1.6Draft regulatory procedures &

processes

1.6Draft regulatory procedures &

processes

1.4Develop criteria & advertise

for Council

1.4Develop criteria & advertise

for Council

1.5Develop criteria & advertise

for CEO

1.5Develop criteria & advertise

for CEO

1.1Prepare

regulations

1.1Prepare

regulations

1.2Appoint interim administrator

1.2Appoint interim administrator

1.3Establish

legal entity

1.3Establish

legal entity

1.7Draft Internal operating procedures & policies

1.7Draft Internal operating procedures & policies

1.8 Social housing data collection

& analysis

1.8 Social housing data collection

& analysis

1.Preparation Phase

2.6Establish office

2.6Establish office

2.4Recruit & appoint CEO

2.4Recruit & appoint CEO

2.5Recruit & appoint Senior

Management

2.5Recruit & appoint Senior

Management

2.1Prepare

SHIP & SHoRP

2.1Prepare

SHIP & SHoRP

2.2Identify & assess prelim

Restructuring Zones

2.2Identify & assess prelim

Restructuring Zones

2.3Recruit & appoint SHRA

Council

2.3Recruit & appoint SHRA

Council

2.7Obtain MoH approval for

regulations

2.7Obtain MoH approval for

regulations

2.8 Develop job profiles &

advertise for staff

2.8 Develop job profiles &

advertise for staff

2.Establishment Phase

3.4Council approves internal

operating processes & procedures

3.4Council approves internal

operating processes & procedures

3.5Recruit & appoint staff

3.5Recruit & appoint staff

3.1Council & MoH approve SHIP

& SHoRP

3.1Council & MoH approve SHIP

& SHoRP

3.2Council & MoH approve

prelim Restructuring Zones

3.2Council & MoH approve

prelim Restructuring Zones

3.3Council approves regulatory

processes & procedures

3.3Council approves regulatory

processes & procedures

3.Operationalisation

Phase

Chapter 4

• Dealing with existing institutions – turnaround programme

• Data and information on the SHIs

Chapter 5

• Regulations to the bill– Code of conduct– Investment criteria & qualifying criteria– SHRA & other delivery agents– SHRA & provinces– SHRA & NHFC– Administrative matter

Chapter 5 - Funding SH

Sources of funding:• Share capital• Shareholders loan• Senior bank debt• NHFC debt• Other debt• SH Restructuring grant• Staff gear-up grant• Provincial top-up (inst

subsidy)

Application of funding:• Project Costs

– CAPEX– Overheads– Vat

• Financing costs– Interest during

construction– Commitment fees– Underwriting fees

Financial model for SH

Key project variables measured to ensure a viable project

• Project IRR pre-tax, post-grant (excludes residual value)

• Maximum Weighted Average Cost of Capital

• Initial yield on total capital cost

• Initial yield on capital cost less grant

• Initial yield on equity

• Return on equity (RoE)

• Minimum debt service cover ratio

• Maximum cost to income ratio

• Loan to value

Concluding comments

• Process of dealing with public comments

• Budget for social housing

• Dealing with Housing delivery process blockages (land, land release, EIA, township establishment, etc)

• Urgency of the Bill– Stability, clarity and direction in the sector– Growth in the Industry– Harness bigger and more institutions into the

sector– Entice and provide comfort for funders (local

& international