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DRAFT KWAZULU-NATAL HUMAN SETTLEMENTS PERSPECTIVE 2010
1. INTRODUCTION
This Perspective broadly reviews the current public housing needs in South Africa andKZN Province on the one hand and Government housing programmes to address some
of these needs on the other hand. The purpose of the review is to clarify what role the
INSTITUTION can play in adding value and in supporting selected programmes.
Specific programmes which can make a difference will be selected for support.
A very focused approached should be followed by the INSTITUTION that will ensure a
significant impact sooner rather than later. Most of the information is available from
published resources such as the FinMark Trust using 2006 or earlier data. As a result,
all data should be treated as indicative.
2. BACKGROUND
A total of 2.8 million housing units have been provided since 1994 under the different
housing programmes in South Africa. The demand for housing during 1994 was
estimated at 3 million. Currently the housing demand is estimated at 2.2 million,
(implying that the demand has since 1994 grown to 5 million). The annual production
rate of housing units is about 200,000, not reaching the national target of 250,000 units.
The KZN Province has delivered a total number of 600,000 housing units since 1994.
In terms of the quantity, this would have been an even greater achievement, were it not
for all the complaints about the quality.
Typical RDP Sites & Services Scheme An Informal Settlement
However, it is clear that the housing subsidy system does not respond very well to thechallenges of scale, affordability and sustainability. The broader housing policy
environment in which DFIs operate (see Annexures) is such that opportunities for
delivery other than through the national housing subsidy scheme cannot be easily
seized. Some believe that the current subsidy and housing financing arrangements are
constraining market functioning rather than enabling it to happen. The worldwide
recession also added to the woes through pushing interest rates upwards, reduce
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available credit and support from groups such as DIGH (Dutch International Stigting for
Housing Guarantees).
A significant gap in the housing financing framework relates to infrastructure finance.
eThekwini Municipality opted for a top-up contribution to add on to the housing subsidy.
There are many human settlements in which this is arguably a major challenge, and yet
the housing finance framework has no capacity to deal with this. Certainly the demands
of infrastructure constitute a significant pressure on the sustainability of human
settlements at the local level. The human settlements financing framework must
therefore also consider the capacity and role of funders such as DFIs.
South Africas current housing sector suffers problems of scale (not enough housing is
being delivered - whether in the subsidy or non-subsidy markets and backlogs persist
and grow), affordability (too expensive for many households and municipalities), and
sustainability (national budgetary resources do not match the demand as currently
expressed and within the time-frames hoped for). Another outcome of the housing
programme is the displacing of low income households to outlying areas due to the
nature of RDP housing schemes. Established squatter settlements in good localities
offer many benefits to low income households and will therefore remain popular and a
permanent feature of the South African public housing scene.
The financing framework will have to be reviewed to explicitly address the challenges of
scale, affordability and sustainability. Policy interventions should respond more
precisely to this diversity in financial capacity. Policy must also promote effective mixing
of public, private and individual resources, using public resources to gear private
investment; and private investment to gear individual investment. Finally, policy must
not be limited to the financing of housing, but also address the issue of balanced human
settlements including components such as infrastructure, as well as social and
economic services.
After fifteen years of delivery during which time more than two and a half million
subsidized houses were delivered, South Africa still have about the same backlog if
compared to that of 1994. The housing sector faces at least four main challenges:
y Scale: Whilst the housing budget has been utilized and even exceeded, the
delivery rate struggles to reach the targeted 250,000 units. Even at this
projected rate, it will not be possible to eradicate the backlog by 2014 as hadbeen hoped. While the backlog may be addressed by 2020, as per the
Millennium Development Goals commitment, this does not take into account
population growth, which suggests that informal settlements will persist for much
longer. Currently, a) 1.1 million households live in informal settlements b) 1.7
million households in the subsidy range and c) just under 1 million households
outside the subsidy range live in inadequate or overcrowded conditions.
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y Affordability gap: For households not eligible for subsidies (those who earn more
than R3,500 or do not satisfy the other criteria), the cheapest newly built house
costs about R230,000, affordable at current rates to a household earning about
R9,000 per month. Twenty percent of South Africas population (about 2.3 million
households) earn between R3,500 and R9,000: key public sector workers and
labourers. They are too rich to be legible for a subsidy but too poor to buy newhousing. Just under half of these live in inadequate housing conditions. As a
result of the increased demand, prices have been rising so that even the resale
market is becoming less affordable. Also for many households within the subsidy
brackets, the national housing solution (small detached RDP house), imply
unaffordable recurrent cost to the household. Therefore backyard renting of
informal structures in RDP projects is a solution to both the owner in the form of
additional income from rental and to the tenant via lower rental.
y Sustainability: In overcoming the rate of delivery, the budget would be insufficient
to meet the backlog plus new growth. It is estimated that average government
subsidised house costs anywhere between R90,000 and R160,000 to build
(including land, bulk and connector infrastructure and housing). Assuming the
projected delivery rate of 250,000 houses per year, the annual budgetary
implication is somewhere between R22.5 billion - R40 billion. Even if government
were to combine the housing and infrastructure subsidies together, and provide
land for free, a budgetary shortfall would still exist. One way to sustain the
current arrangement is to build fewer houses - and this may be untenable given
the constitutional commitment. Thus the only way out is to adopt a smarter
solution and to use budgets more efficiently through improved designs.
y Need to refine policies and to reprioritize budgets. Backlogs need to be
redefined in order to ensure that it can be achieved. Aiming at unachievable
targets which are moving consistently out of the radar screen, are not in our best
interest. Higher densities need to be targeted and policies will have to be
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streamlined and it needs to become more flexible. The latter will improve the
overall sustainability to the national fiscus. It can improve the urban footprint and
affordability, which will increase urban efficiencies and improve living conditions
for the lower income communities. Planning legislation including township
establishment / environmental approvals as well as the release of government
land also need urgent reviews. The newly established Housing Development Agency (HDA) aims at improving the release of land, including state land, for
major projects.
A more fundamental question that needs to be answered is whether the provision
of housing to unemployed people is sustainable over the longer term?
Employment creation and income generating opportunities and not housing
alone, will therefore have to become a central part of the solution.
Existing municipal and provincial rental stock dating from before 1994 is estimated at
200,000 units with an additional 1,000,000 hostel beds, the latter which are mainly in a
state of bad repair.
The delivery of new rental housing has been insignificant due to mainly the lack of
supportive policy over the past decade. Total delivery since 1994 is estimated at
30,000 units. This should have happened through mainly 15 Social Housing Institutions
(SHIs) whilst the demand is growing significantly at 5.5% p.a. The focus of rental
delivery and future demand is in the metropolitan areas.
Annexure II lists the factors which work against higher densities in South Africa. It is not
a surprise to see why higher density solutions are insignificantly disappearing in the
broader picture. An issue of concern is the broad generalizations about higher densitiescoming from professionals and sometimes fueled by pseudo-scientific reports. See
Annexure IV on the reasons why higher densities should be promoted.
Issues that constrained delivery in the rental housing sector are:
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y Past national policy void and insufficient subsidy support
y Availability and access to land
y Project start-up time and costs
y Lack of capacity in the social housing institutions, many started from a zero basis
y Uncertain role for municipalities
y Affordability constraints and marginal nature of projects
y Long lead time to reach required stock level (600 units) for financial breakeven ofSHIs
y Lack of funding and volatile interest rates
y Macro economic conditions (recession, inflation, etc.) leading to ever-increasingbuilding costs and tightening of credit supply
y Perceptions about social problems in higher density housing.
Government accepted a new policy (Breaking New Ground) during 2006 to provide
substantial subsidy support to social (rental) housing mainly for the income group of
between R 2,500 - R 7,500 pm and tested it with pilot programmes. The generalfeedback is positive, but building costs pushed the affordability beyond the reach of a
major portion of low income households. A new programme, the Community
Residential Units programme was initiated by government to reach down into the lower
income groups with municipal driven rental projects. Although the idea is
commendable, the jury is still out on how it is applied. The design and O&M (landlord
capacity) at municipalities are points of grave concern. It is widely believed that these
new policy instruments will be able to support the delivery of rental housing at a more
significant scale. The national target for rental units is 20,000 units per annum (2009-
2014).
However, it is envisaged that the new Social Housing Act and policies will be
implemented to add momentum to this new drive.
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3. HOUSING NEEDS
Below is a FinMark Trust (2009) summary of the housing environment:
About 65% of households fall within the housing subsidy bracket, earning below
R 3,500 pm and about 41% below R 1,500 pm. A major portion of the total housing
demand is coming from the lowest income groups which will remain a challenge. KZN
Housing Needs per district as per the Provincial Housing Strategy:
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According to the above table, traditional houses are not being regarded as part of formal
housing supply. But in reviewing policy it could be regarded as part of supply. In further
analyzing the above table it can be concluded that the current critical shortfall is made
up by the last two columns which represents the total for informal housing units. The
latter critical shortfall at this stage is therefore 225,796 units which is 26% of the total
estimate backlog for the Province as a whole. Government should become smarter andredefine housing backlogs to focus on critical shortfalls, as opposed to aim at
unachievable targets.
The low income rental demand should be derived from the last 3 columns (totaling
291,689) as these represent the total theoretical rental market. Should the rental
demand be set at 20% of the latter, then it can be calculated at about 58,338 units for
the Province.
The following table provides a breakdown of the critical housing shortfalls and rental
demand estimates for each district:
KZN District Critical Housing Shortfall(R0-3500 pm)
Total Rental Demand(R0-3500 pm)
eThekwini Metro 150,391 35,766Ugu District 6,287 2,210
Umgundgundlovu District 21,544 5,935
Uthukela District 4,037 1,337
Umzinyati District 2,014 870
Amajuba District 7,634 2,3Zululand District 3,876 1,433
Umkhanyakude District 3,851 1,423
Uthungulu District 8,397 2,397
Ilembe District 13,860 3,501Sisonke District 3,905 1,134
KWAZULU-NATAL TOTAL 225,796 58,338
The above table provides an indication of the critical housing shortfall and potential
rental market. The housing shortfall is for the household income group of R 3,500 pm
and below where affordability is always problematic.
If the minimum practical rent for CRU type subsidized units is R 450 pm, then the
required income is at the least R 1,500 pm (if 25% is used as norm). A significant
portion of this demand earns below R 1,500 pm (or 55.8%) which will therefore fall
outside the scope of any rental programme, due to the national housing delivery
systems inability to serve this lower end of the market. This effectively means that the
KZN demand decreases to 25,785 for the income category R 1,500 to R 3,500 pm.
Similarly, the rental demand for the income group from R 3,500 pm and upward is
estimated at more than 100,000 for the Province (KZN represents 20% of SAs
population and national rental demand is estimated at 650 000).
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Data from various sources indicates that the rental sector is significant, accounting for
roughly 20% of all households in South Africa. The majority households that pay rent
are poor or low-income. Roughly 55% of all renters have an income of less than R3,500
per month while a further 22% earn between R3,500 and R7,500 (2008). A further
27% earns below R 1500 per month. Data on dwelling conditions, which indicates that
over 40% of tenant households live in what could be characterized as slum conditions,which points to significant need for affordable, better quality accommodation. In
addition, there is significant unmet demand for affordable accommodation in key urban
centres. Both private landlords and social housing institutions report exceptionally low
vacancy rates. New social housing projects released onto the market in centres such as
Johannesburg, Durban, Port Elizabeth and East London are typically over-subscribed
often by a factor of ten. Private landlords offering more affordable accommodation in
inner city Johannesburg do not have to look for tenants. Demand in that market is
characterized by property owners as insatiable, a bottomless pit and rentals have
increased significantly over the past few years.
Whilst buoyant demand conditions are very helpful, they are on their own not sufficient
to encourage required levels of investment in the sector, particularly from private
investors. Market participants, including landlords, financiers and property managers,
have noted several constraints that act to reduce the attractiveness of the sector as an
investment destination, particularly to smaller investors who typically play an important
role in rental markets globally. These constraints include a poorly aligned combination
of regulations and legal institutions that together create a lengthy and expensive
process relating to evictions, inefficient and expensive municipal service delivery and
delays in unlocking access to properties in inner cities that could potentially augment
the stock of rental units.
On the positive side, the private sector is helped significantly by the favourable tax
treatment associated with Urban Restructuring Zones while the social housing sector is
poised to grow strongly given the realignment of social housing policy. In that regard,
policymakers have explicitly identified encouraging greater private sector involvement
as a policy objective. Various other developments in social housing policy are
noteworthy. The upper income band used to identify the subsidy target market has
been increased from R3,500 to R7,500 per month, the subsidy amount has been
dramatically increased and efforts have been made to streamline the administration of
the subsidy system.
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Annexure
FACTORS UNDERMINING HIGHER DENSITY HOUSING IN SA
1. Cultural mindset of South Africans with a relative short urban history and memory
which rather promotes the idea of extensive land needs and a traditional anti-urban
viewpoint. Available space at the back of the yard is used for sub-letting.2. The pro sub-urban mindset in following aspirations of higher income groups.
3. The attitude of planners and authorities as part of the regulatory system. Although
there is a marked improvement lately, it will take some time and successful projects
to eradicate negative perceptions.
4. Attitude of design specialists which is non-integrative in terms of finding solutions:-
y Engineers opt for conventional conservative approaches to design.
y Planners are against higher-rise living due to reported social problems.
5. Abuse of DFA and other legislation by planners to motivate any type of
development. Any development is seen as positive by government.
6. Silo mentality of national departments, lack of cross communication and leadership.
7. Specialist nature of separate national support programmes which reduces
coherency and overall efficiency.
8. Politically, a precedent has been created that sets the individual house as the
standard. Any deviation can be seen as lower quality and will be met with
resistance.
9. Availability of land on the periphery of the City serves as an attraction for low
income housing projects.
10. The latter must be coupled with the fact that public sector subsidized projects are
dependent on cheap land and therefore less input cost to improve its viability.11. The structuring of housing subsidies is such that it requires large projects to achieve
economy of scale to ensure the projects profitability.
12. Housing policy requires minimum standards (site sizes and housing unit sizes)
which promotes lower densities.
13. Other Government policies promote urban sprawl such as the building of highways
and extensive transport networks.
14. Land tax also promotes less intense development.
15. Planners and engineers only recently started to realise that higher densities might
not be more costly than lower density developments. Usually the full project life-
cycle picture, in terms of costs and benefits, is not available. It is argued that the
high cost of prime land is inhibiting higher densities.
16. Weak land use management at municipalities does not support higher densities and
curbing of sprawl. This is not conducive to corridor and nodal strategies in spatial
planning. Zoning bye-laws in general do not promote creative solutions.
17. A lack of well designed higher density projects that can serve as an example of
what is possible and to demonstrate its acceptability to communities.
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Annexure
DENSITY GUIDELINES
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Annexure
WHY SHOULD WE PROMOTE BETTER PLANNED HIGHER DENSITIES IN GOOD
LOCALITIES?
1. Improved legibility and identity of development.
2. Human scale development, pedestrian orientated.
3. Safety made easier through improved design enabling better surveillance,
territoriality and control over outdoor spaces.
4. Empowerment of and comfort to residents, reduced need to travel.
5. Aesthetics and quality development made easier.
6. Quality environment - less pollution.
7. Urban system efficiencies including municipal affordability.
8. Better densities for the benefit of social and economic services. The way in
which location and density manifest in urban environments profoundly impacts
the form and functioning of cities.
9. Public transport becomes more viable at higher densities coupled with corridor
and nodal developments.
10. Infrastructure provision and maintenance (as a result of shorter service length per
unit) are more cost effectively both in terms of initial capital cost as well as long
term maintenance and operational cost.
11. The impacts of current settlement design norms militates against demand-side
management, resource efficiency and sustainability.
12. There are more opportunities to promote green building in higher densities.
13. Consumption of less land and reduced threat to consumption of agriculture land.
14. Affordability to residents - especially with regard to individual transport cost.
15. Improved sustainability to national government - better solution.
16. Employment generation - intense developments promote
specialization/diversification.
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Annexure
HOUSING DEVELOPMENT FINANCE AND SUPPORT INSTITUTIONS
1) The National Housing Finance Corporation (NHFC) was set up by the
Department of Housing with a mandate to ensure that every South African with a
regular source of income is able to gain access to finance, to acquire andimprove a home of his or her own. The Corporation acts as a wholesale funder &
facilitating access to housing finance for low and moderate income communities.
2) Rural Housing Loan Fund (RHLF) - Provide loans to retailers that advance
loans to individual rural dwellers for improvements to housing. It had a wide
impact (at least 300 000 micro loans) since inception in 2000.
3) National Urban Reconstruction and Housing Association (NURCHA) is a
construction finance company that supports the national programme to house all
South Africans in sustainable human settlements. Nurcha provides bridging
finance to contractors and developers involved in the construction of subsidy and
affordable housing, community facilities and infrastructure. Nurcha is a section
21 company (not for gain) and is funded by the South African Government in
partnership with the Soros Foundation, various overseas donors, etc.
4) The Trust for Urban Housing Finance (TUHF) is a finance company aimed at
providing short and medium-term loans to Property Entrepreneurs looking to
purchase or improve residential rental buildings within South Africa's inner cities.
5) Dutch International Guarantees for Housing (DIGH) - provides guarantees for
lenders that develop rental stock and other housing as well as start-up loans.
6) The Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden
(FMO) mission is to provide capital, share knowledge and create partnerships.Their clients are ambitious entrepreneurs and financial institutions - often in low-
income countries. With banks and other institutions they create access to a full
range of financial products. FMO is a public-private development bank. Both the
Dutch State and large Dutch banks are major shareholders.
7) The Social Housing Foundation (SHF) is a section 21 Company which was
established in 1997 by the National Housing. The organization was established
to develop and build capacity for social housing institutions and to develop a
policy framework for the social housing sector. Now transformed into the Social
Housing Regulatory Authority (SHRA).
8) National Association of Social Housing Organisations (NASHO) is a
membership-based federation of 16 social housing institutions with one affiliated
member, collectively owning and/or managing 23,044 units and operating
throughout the country.
9) Housing Development Agency (HDA) came into being in 2009 in response to
the need for a state organisation to fast-track the acquisition and release of land
for human settlement developments.
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