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Here’s why affordable housing is unaffordable

The five-year Strategic Plan adopted by the Department of Human Settlements in 2014 underpinned by the mandate outlined in the Government’s National Development Plan (NDP) highlights the following key aspects with regards to the delivery of housing in South Africa:

  • The need to fast track the delivery of housing and improving living conditions of citizens
  • Integrate settlements and development in well-located areas

The above has been adopted as a catalyst to deliver 1,5m housing opportunities in collaboration with all stakeholders in the housing value chain (developers, banks, etc.).

Why the GAP market is wideningMind the gaps

The special focus on the affordable housing segment was correctly aimed at addressing housing challenges for those who are considered “too rich” to receive free government-subsidised houses, yet “too poor” to fall within the normal mortgage lending stream within financial institutions/banks. The “GAP market” opportunities/backlog is estimated to be at 60,000 to 70,000 units per annum, while the delivery rate is currently at about 6,000 per annum.

The strategic approach adopted by the government in addressing challenges in this segment of citizens who earn between R3,500 to R15,000 per month (regarded as a GAP market) was the introduction of a FLISP subsidy (income-based subsidy) aimed at bridging affordability challenges to those who qualify for a mortgage from the banks. It also made cheap stock available to this segment, whereby, in certain instances depending on the municipalities and government arrangements, some of the land in government’s hand would have been made available for free for development of affordable housing.

First-time buyers, these are your FLISP options


Oupa Masilela, executive head of Affordable Housing at Standard Bank

“…addressing housing challenges to those who are considered ‘too rich’ to receive free government-subsidised houses yet ‘too poor’ to fall within the normal mortgage lending stream”

The dynamics in this segment have changed; affordability challenges are hitting in this space where the entry-level stock/house averages R400,000, meaning that for any individual to qualify for a mortgage loan from the bank they must be earning at least R14,000 per month. This means that there is a bigger gap that is being created in the GAP market for those earning between R3,500 to R13,000. The availability of stock, that is, properties priced between R180,000 and R370,000, for this sub-segment of the GAP market still remains a challenge.

One of the concerns raised from the developers’ point of view in terms of why affordable housing is becoming unaffordable is the cost of capital and the cost of breaking ground. Some of the delays experienced in enabling sites with bulk services and basic infrastructure result in developers incurring their own cost in putting up basic services required on site: Sewer pipes, water pipes, electricity infrastructure and roads. Unfortunately, the cost of all these basic requirements gets recouped from the end user. Therefore, this is one of the main reasons why affordable housing is becoming unaffordable.

“….properties between R180,000 and R370,000 for this sub-segment of the GAP market still remain a challenge…”

The current approach is moving away from the initial agenda of offering and providing affordable housing to this segment of the population. A strategic and collaborative approach is now required across all participants in the housing delivery value chain. This includes (but is not limited to) the government, financiers, developers, town planning and communities (beneficiaries).

The question then is, what can be done to deal with some of these challenges? In South Africa we need to understand how to best use our space. In Gauteng, according to the last land audit report conducted by Department of Rural Development, about 17% of the land is in the hands of the government and roughly 18% of the land is “unaccounted” for. An approach to the usage of land, especially well-located land in the hands of the government, can be looked at to facilitate allocation of this land for affordable housing developments and/or the mixture of affordable housing and BNGs (traditionally known as RDPs). These are land spaces that are well-located, or well-positioned in terms of proximities to economic drivers (transport, schools and malls).

This is what it costs to build a house across SA’s provinces

Therefore, if the land is made available for free for housing development in this segment, the developers should be costing this market on nothing else but the top structure. This should slash the cost of housing, improve affordability, increase low-entry-cost stock for people earning less than R14,000 per month, address the gap in the GAP market and deliver to the 2019 strategic agenda of the Department of Human Settlements. It is certainly in the interest of government to subsidies the land and address the 1,5m housing opportunities backlog.

Formalising ownership and wealth creationtitle

Furthermore, the biggest challenge in the affordable market segment is the ability to create a secondary market. There is a huge dependency on the primary market (new developments). Trading in the secondary market, especially in what we traditionally know as RDP houses, is unregulated and not formalised. What perpetuates this situation are the challenges around title deeds and ownership. The drive is required where title deeds are given to owners as part of wealth and legacy creation: As people move up in the income and LSM brackets, they should be able to trade and sell properties at a better price, thus using property as a wealth creation and poverty alleviation mechanism. Therefore, the issuing of title deeds and dealing with preemptive clauses that limit property trading in government-subsidised properties needs to be addressed.

Over and above this, subsidies cannot be looked at as the primary focus or drive to deal with housing backlog challenges. Therefore, given the processing and governing challenges around subsidies, an easier solution needs to be introduced to augment the existing interventions. A VAT-free subsidy for every first-time homeowner needs to be explored. Unlike FLISP, which targets people who have dependents, the VAT-free subsidy will also be able to capture recent graduates with no dependents but who do have great future income prospects.

Oupa Masilela is the executive head of Affordable Housing at Standard Bank

Have your say: What do you believe needs to be done to keep affordable housing affordable in South Africa?


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