Housing Lecture Notes_04_housing Subsidy

Housing IV _HOUS402

Lecture 04: Housing finance and Subsidies

Name: Lawrence Ogunsanya

Email : [email protected]

State Subsidy Delivery The National Housing Subsidy Scheme provides

grants to qualifying individuals according to their household income. The government offers housing subsidies to enable low income individuals access decent affordable housing.

Allocations, made on an annual basis from the national budget, are channeled to the nine Provincial Housing Boards and disbursed to various approved projects.

The amount allocated to grants for the poor in 2010/11 totalled R15 billion, rising to R17,9 billion in 2013/14. (www.info.gov.za)

What is a Housing Subsidy?

A Government Housing Subsidy is a grant by Government to qualifying beneficiaries for housing purposes.

The grant is not paid in cash to beneficiaries. It is paid to a seller of a house; or in new developments, the grant is used to build a house that complies with the minimum technical and environmental norms and standards, which is then transferred to the qualifying beneficiary.

Who qualifies for a Housing Subsidy?

The individual must be a South African citizen

Competent to contract i.e. Must be 18 years of age

Not yet benefited from government funding

First time property owner; Never owned a property before

Must be married or living together with a dependant

Must monthly household income not exceeding R3500.00

Single Military veterans

Persons classified as aged

Persons classified as disabled

You must have been on the municipal housing demand database for a minimum period of 10 years. (Proof of registration required.)

Priority will be given to applicants over the age of 40 years and / or with special needs.

You are a South African citizen or you have a permanent resident's permit.

You are over 18 years of age or if under 18, married or divorced with others who rely on your income.

You and your family will live on the property bought with the subsidy.

Modifications to Qualification Requirements

Forms of Housing Subsidy Individual Subsidy An individual subsidy provides qualifying beneficiaries with access to housing subsidies to acquire ownership of residential properties (house) or to acquire a house building contract which is not part of approved housing subsidy projects. The latter option is only available to beneficiaries who will access housing credit.

Forms of Housing Subsidy Consolidation Subsidy This is for people who have previously received a subsidy, live on a serviced site and want to build a better house such as building a top structure. This money can only be used for building as services have already been provided on the site. In 2006 households with an income under R1 500 per month are eligible for a subsidy of R18 792. Households with an income between R1 501 and R 3500 per month are eligible for a subsidy of R16 313 and must pay a contribution of R2 479.

Integrated residential development

programme subsidy

The integrated residential Development Programme replaced the project linked Subsidy Programme.

The programme provides for planning and development of integrated housing projects.

Projects can be planned and developed in phases and provides for holistic development orientation.

Forms of Housing Subsidy

Finance-linked Individual Subsidy

This is the so-called gap market where people have been struggling to get housing they can afford.

Implemented in April 2012

A household earning between R3501-R15000 per month needs to find a newly built house for sale at a price of R300 000 or less, and then apply to a bank for a mortgage to buy that house.

In the short term, the subsidy will only apply to newly built houses that cost less than R300 000.

This means that the buyer cannot simply find any house on the market – they need to find a new one, in a new project that is underway.



Institutional Subsidy

The Institutional Subsidy is available to qualifying institutions (Non Profit Organisations) to enable them create affordable housing stock for persons who qualify for housing subsidies.

This mechanism provides capital for the construction of social housing units in respect of qualifying beneficiaries who do not earn more than R3 500.

It is called an institutional subsidy because it goes to the institution who can rent out the housing to different families

Forms of Housing Subsidy Rural Subsidies

This subsidy is available to people who don’t have formal tenure rights to the land on which they live. (Such land is owned by the government and tenure granted in terms of traditional laws and customs).

The subsidies are only available on a project basis and beneficiaries are supported by implementing agents. Beneficiaries also have the right to decide on how to use their subsidies either for provision of services, building of houses or a combination thereof.

Enhanced People’s Housing process

These are special subsidies that are available to communities, or organised groups of households to enhance their housing subsidy by building or organising the building of their own homes themselves.

By using their own labour rather than paying someone else, these households can make their housing subsidy and personal contribution go further by building better quality and/or larger houses for less money. In addition, the People’s Housing Process can also include the following support:

access to land that can be serviced,

training opportunities, and

technical assistance.


How much subsidy do I qualify for?

Current subsidy amount R154 000 (national) - R160 573 (western cape)

Government’s Housing Delivery Partners

•The National Housing Finance Corporation (NHFC) was established in 1996 as a development finance institution to mobilize, raise and deploy housing finance from sources outside the public sector. The NHFC has disbursed more than R2,4 billion in funding and delivered more than 264 130 housing opportunities since 1996. • The Social Housing Foundation (SHF), a not-for-profit company, aims to build capacity for social-housing institutions. It is expected that the SHF will be consolidated under the new Social Housing Regulatory Authority, as envisaged by the new Social Housing Bill.


• The Rural Housing Loan Fund was established in 1996 by the national Department of Housing, South Africa as a wholesale lending institution, is to enable low income earners access small loans that they could afford to repay. Borrowers use these loans to incrementally improve their housing conditions. •As a wholesale finance institution, RHLF facilitates housing microloans through intermediary or retail housing finance lenders. These partners borrow funds from RHLF and on-lend to individual borrowers throughout the rural areas of South Africa, including small towns and secondary cities.

•National Urban Reconstruction and Housing Agency (NURCHA) provides construction finance and support for contractors and developers who cannot easily access finance from conventional financial institutions. •People’s Housing Partnership Trust (PHPT) grants and other support. •Housing Institutions Development Fund (HIDF) loans


Challenges of Housing Subsidy •Insufficient and uneven flow of funding - In 1994, the National Housing Goal was set to increase expenditure on housing from 2% of government expenditure at the time, to 5%.

-In spite of this, funding available for housing has been uneven from year to year with Provincial Housing Development Boards (PHDBs) often running out of funds and freezing approval of new projects, sometimes for years at a time.

-Therefore, delivery rate of housing has been highly irregular.

Challenges of Housing Subsidy •Insufficient and uneven flow of funding -Lack of capacity of many provincial housing departments to spend, within allotted time frames, the housing funds allocated to them. For example, there is a widespread lack of capacity to effectively support the initiation and packaging of suitable housing projects. -Many subsidies have been approved for proposed projects that were not ready for implementation or were “unimplementable”.

Challenges of Housing Subsidy •Poorly coordinated and inequitable subsidization - Confusing multiplicity of subsidies for housing from a variety of sources.

- Little coordination between subsidies from different sources, resulting in huge inequities in the amount of funding received by similar beneficiaries in similar projects in different areas. •Value of subsidy not keeping pace with inflation - The value of housing subsidy has been steadily eroded by inflation.

Challenges of Housing Subsidy •Complicated subsidy approval and payout mechanisms - In general, the approval and disbursement processes in provincial housing are cumbersome •Problems with targeting It is uncertain to what extent the subsidy is being accurately targeted. Income is not a good measure of poverty, as the most deprived are not necessarily only those with the lowest incomes. The R1500 p.m. income limit for the maximum project-linked subsidy and the consolidation subsidy has proved particularly problematic.

Challenges of Housing Subsidy •Inability to afford ongoing costs of housing - Many households receiving subsidized housing are unable to pay rates, water charges or electricity charges, and risk being disconnected from services or even losing their properties. •It was found that 56% of households in Cape Town’s subsidized housing were unable to afford the typical minimum monthly rates and service charges of R100 to R150 per month .

Challenges of Housing Subsidy •Inappropriateness of formal finance - There seems to be a lack of mortgage lending in South Africa. Mortgage loans form approximately 30% of the housing market in “township” areas, compared to mortgage loans forming an average of 10-20% of the housing market in developing countries - Mortgage loans available from formal financial institutions are not aptly suited to low-income households. Thus, those who would normally be beneficiaries of housing subsidies (low-income borrowers) cannot avail themselves of formal finance.

Challenges of Housing Subsidy • Integrated development The financing of the development of new housing areas is not linked to the financing of schools, provision of community facilities, greening of public areas, and so on (apart from the Presidential Projects for Urban Renewal). •There is usually little co-ordination between housing funding and funding for other components of an integrated urban environment. The subsidy system usually results in sterile peripheral suburbs with single houses on individual plots, which does little to improve the life of beneficiaries and does not contribute to restructuring apartheid spatial patterns

Recommended Solutions Housing finance policy should have two key objectives: • To ensure that those who cannot afford to buy or rent housing produced by the private sector are adequately housed. •To improve the efficiency of the market by removing obstacles that prevent the private sector from increasing the supply of affordable housing or the public from buying or renting housing units produced by the private sector.

Recommended Solutions •Mechanisms for subsidy approval and disbursement must be more streamlined and flexible • Information: Many households living in inadequate or substandard housing continue to have little or no knowledge of the Housing Subsidy Scheme or other ways of accessing adequate housing. Information must be simplified and made more available. •Facilitating the provision of housing credit to the poor by supporting the creation of community-based financial institutions

Recommended Solutions

•Stimulating rental housing: International experience demonstrates that rental housing tends to offer better location, services and infrastructure than self-help housing and assists in labour mobility, which is an important survival strategy of low-income households.

•Integrated development: A subsidy to assist local authorities to provide multi-purpose community facilities such as parks, playgrounds, sports fields is required. Therefore improving the image of the community and adding value to the properties

Questions

Housing Lecture Notes_04_housing Subsidy

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