Illana Melzer, lead consultant at 71point4, and Kecia Rust discuss the need to focus on specific interventions for South Africa’s affordable housing market to make households more resilient in the face of the covid-19 pandemic. A recent blog from the Centre for Affordable Housing Finance Africa. www.housingfinanceafrica.org
Since 1994, the South African government’s national housing programme has completed an estimated 3,4 million housing units and handed these over to the lowest income families in the nation. An estimated two million of these houses are formally registered on the deed’s registry, and subsidy housing stock now accounts for just under one third of all formally registered residential properties in South Africa. For the households who were fortunate enough to receive a subsidised house, it is probably the most valuable asset they will ever own.
In the context of Covid-19, this asset could provide valuable support to low income households, improving their resilience and broadening their options for responding to the crisis. It could also be the key to unlocking productivity growth and private investmentin a post-Covid-19 economy – something we will very clearly need.
Except, in many cases, this value is inaccessible. Too many housing assets are dead capital, to use the terminology of de Soto, the Peruvian economist. In lower income neighbourhoods across South Africa, ownership as reflected in the deed’s registry is a far cry from reality. In many cases the de facto ‘owner’ of a property does not match the person officially listed as the owner on the title deed. This may be the result of off-register or informal transactions facilitated by community-based organisations such as street committees rather than conveyancers, or housing assets remaining in deceased estates that are never wound up.
In addition, there are houses, estimated at over one million units. These properties have been occupied by beneficiaries but were never transferred to them. A comparison of data on the number of new registrations for subsidy properties and the number of units completed each year indicates this backlog appears to be growing even as significant funding has been set aside to eliminate it.
This has very significant repercussions for property-owning households, for the development trajectories of lower income neighbourhoods and, by extension, the transformation of South African cities.
Households who may have purchased their properties informally are at risk of eviction by registered title holders who might dispute that a sale has taken place. On-going disputes related to property ownership and the absence of procedurally fair mechanisms to resolve them create instability in neighbourhoods and impact directly on the willingness of the private sector to invest in these areas. In addition, cities are unable to govern effectively; if the city cannot determine who owns properties, it cannot bill for services, nor can it sanction applications for building activity submitted by off-register owners.
A very significant and coordinated effort across government departments is required to address multiple problems that together give rise to this situation. But with responses to the Covid-19 crisis focusing almost exclusively on household risk to infection, rather than household resilience in the face of the pandemic, required changes to the property transfer system and the underlying policies, regulation and processes that support it may be overlooked.
That would be a great pity.
More than ever poor households need to be able to leverage housing assets to see them through what is likely to be a prolonged period of financial stress. Some households might need to draw down on equity as a temporary measure, while others might need to sell their properties and relocate. In these times, current policy that prevents beneficiaries of housing subsidies from selling their properties for eight years after transfer is particularly cruel. Rather than protecting poor households from making bad decisions, this policy is likely to force households to transact informally, leaving no opportunity for buyers to access finance, further depressing prices.
Other barriers to formalisation will also be felt more acutely during and post the crisis. For instance, policies and processes that govern how deceased estates are wound up require attention, more so now than ever. Some interventions, such as increasing the small estates threshold to enable more households to wind up estates at no cost, are easily implemented. More difficult to address will be the implications of an increase in mortality rates on required capacity. Prior to the crisis, the Master’s Office was unable to handle the flow of cases, and local offices in some areas were shut even before the President announced the national lockdown because the sheer number of clients congregating there posed a health risk. In addition, the backlog built up during the lockdown will need to be processed before new cases can be accommodated.
Disputes about property ownership may also become more common and more pressing. Where there is no accessible mechanism to resolve these, communities will no doubt create their own.
The process of transferring new subsidy properties to beneficiaries has also been disrupted, adding to the already significant backlog. Many officials who address this backlog have been unable to work and are likely to remain idle as their work is not deemed to be essential. Even if it was, key activities required for transferring backlog properties, including conducting door-to-door occupancy surveys to determine who owns and lives in these properties, will not be possible for as long as a material health risk exists.
All the while, life will continue to happen in very profound ways, impacting directly on property ownership. Reconstructing the series of events to determine who owns what will become that much more difficult.
There may well be an increased appetite in the private sector to take on some of these tasks. Private funding could support the roll out of advice centres that enable households to make informed decisions about property transactions. And just as bank branches have supported the Department of Home Affairs to accept and process applications for official documents, they could also support the Master’s Office to capture documents required for estate administration, leveraging existing paperless systems. Likewise, data on the whereabouts of subsidy beneficiaries that exists within the private sector could enable officials to reach beneficiaries and facilitate transfer. Prior to the lockdown, the City of Cape Town was in discussion with banks to facilitate this.
But there are some interventions that only the state can implement. The legislation governing the transfer of immovable property will need to change before property transfer processes can become affordable and accessible. Likewise, seamless transfer of data between the Department of Home Affairs and the Department of Justice could enable a truly paperless estate administration process and would significantly reduce fraud. In addition, only the Minister of Rural Development and Land Reform can appoint commissioners to adjudicate on unresolved property claims.
No doubt government has its hands full dealing with the Covid-19 crisis. But it is critical that it allocates some capacity to these interventions. They will materially assist households in managing their own personal crises resulting from the pandemic. Beyond the immediate need, they would unblock critical pathways for household- and private sector-led investment in the future, particularly in lower income areas. Given the very significant investment made by government in housing to date, and the role of housing on the balance sheets of income-poor South Africans, such action would support South Africa’s affordable residential property market and enable the development of an inclusive, growing economy post COVID-19.
Sachs, M (2020) Macro-fiscal considerations in response to the COVID-19 crisis. Covid19 Economy Group. 7 April 2020. https://covid19economicideas.org/2020/04/07/macro-fiscal-considerations-in-response-to-the-covid-19-crisis/accessed on 3 May 2020.