South Africa has a housing crisis. There is an estimated housing backlog of 2.1 million units, which is almost double the housing backlog in 1994 when it was about 1.2 million units.

By Pierre Venter, Banking Association South Africa

This article is a continuation of part 1, published in the previous edition. View here.

In 1994 government’s RDP programme was targeted at indigent households earning up to R3 500. The graph below indicates annual consumer price inflation (CPI) since 1994. In 1994, R3 500 equates to R14 834 in 2018 in terms of purchasing power (purchase price parity). However, government’s subsidy programme for free housing has not been adjusted by CPI given fiscal affordability constraints and the growth of the housing backlog within the indigent segment.

Therefore, it can be argued that if government had continued to follow its incremental housing approach and had adjusted its target market by CPI annually, there would not be a ‘missing middle’ (previously illustrated in graph 3 where there is a FLISP subsidy shortfall). Importantly, this further suggests that government has created a paradox within its housing programme. By not aligning its RDP programme (now termed Breaking New Ground policy) it has created a significant segment of marginalised households.

Given the housing backlog and a shortage of suitable stock, an overview of the residential property market highlights that the excess demand for affordable housing is causing the price of affordable property to increase well ahead of inflation and building cost increases. Based on the Lightstone Property affordable housing index, ‘The annual price increase for homes under R250 000 is 26.8%, while it is only 0.4% for homes over R1.5 million’.

In addition, the Lightstone index report finds that, ‘Both the low value and mid value wealth segments continue to buck the trend by growing at more than 6% annually while the high and luxury wealth segments are inflating at rates below 4% (which is indicative of a growing middle class and an over demand for affordable housing).’

The lack of affordable housing stock is a major cost driver of affordable housing itself. The disjuncture in the property market is so apparent that it is visible in the urban environment. Affluent areas of South African cities are dominated by housing estates while the urban poor are relegated to live in the periphery of the city or less desirable areas of the city. Informal settlements and inadequate housing are more likely to be found on well-located land than formal affordable developments.

The Human Sciences research Council (HSRC) 2018 highlights that ‘More and more households fall into this income bracket, but fewer houses are being built within their price range.’ This disjuncture is rooted in apartheid spatial planning and is further fuelled by the failure of policy to address the housing crisis in recent years. Developers are not incentivised to build more affordable homes as they are less profitable than higher end developments.

It is not only the supply of housing that impacts affordability and limits access to housing, a large portion of the population do not qualify for housing finance due to indebtedness. A household may qualify for a FLISP subsidy but it does not guarantee that they will receive a loan, as a financial institution evaluates the creditworthiness and affordability of a household to ensure that they are able to repay the loan. Given high consumer debt levels (71.3% in 2018) coupled with high default levels (an average of 8.15% in 2018), 44.8% (10.4 million) households with impaired credit track records and with an average of 77% of household salaries having to be paid to creditors, it is little wonder that only about a third of home loan applicants can obtain a home loan.

There is complex relationship between housing prices and affordability. If we are to overcome the housing crisis it will require dedication, compromise, innovation and partnerships. Firstly, government must show strong commitment and dedication to direct more resources towards human settlements and to implement long-term policies that will address not only the housing backlog but ensure the sustainability of human settlements. All stakeholders and beneficiaries also need to compromise on their expectations. Over the past 25 years policy has shifted from an incremental approach where the state strove to address the housing backlog to the provision of a completed product, which regrettably is not sustainable from both a fiscal or critical mass delivery perspective.

Current practices are ineffective in addressing the housing crisis and a holistic policy review, coupled with product and delivery innovation, can play a crucial role in reducing the housing backlog over time. This requires public and key private sector players to collectively focus on addressing the ever-increasing housing backlog, failing which we will continue to see the growth of informal settlements and backyard shacks.

In 1994 informal settlements totalled 300 and by 2018 this had grown to 2 700. Unless remedial action is taken urgently, the formalised residential housing market can expect to experience increasing levels of land invasion and property hijackings as desperate indigent families seek to fulfil their basic human rights for adequate shelter.