PRELIMINARY BASE LINE REPORT

NATIONAL RENTAL HOUSING STRATEGY AND POLICY PROJECT

PRELIMINARY BASE LINE REPORT

FOR THE SOCIAL HOUSING REGULATORY AUTHORITY AND THE NATIONAL DEPARTMENT OF

HUMAN SETTLEMENTS

Document date – 30 MARCH 2020

INSITE SETTLEMENTS NEWORK 3 Klein Vallei St, Onderpapegaaiberg, Stellenbosch, 7600 PO Box 117, Stellenbosch, 7599 www.insite.co.za Tel: 021 886 7617 | Cell: 082 795 0676 | [email protected]


Document name: INSITE SHRA Prelim Base Line Rep20200330 12h 00.docx

TABLE OF CONTENTS

1. List of acronyms and abbreviations ................................................................................................... 1 2. Executive summary ........................................................................................................................... 3 3. Approach to final base line report ..................................................................................................... 6

3.1 Approach ............................................................................................................................................. 6 3.2 Limitations of the research ................................................................................................................. 7 3.3 Structuring the assessments of the rental housing sector. ................................................................ 7

3.3.1 The s’s in the McKinsey 7S model .............................................................................................. 7 4. Terminology ..................................................................................................................................... 8 5. Demand and supply and product-market combinations ................................................................... 10

5.1 Definition of the rental sector and its sub-sectors. .......................................................................... 10 5.1.1 The Rental sector ..................................................................................................................... 10 5.1.2 Sub-sectors of rental housing sector ....................................................................................... 10

5.2 The demand for and supply of rental housing by different income brackets and geographically. . 18 5.2.1 Need and demand for rental housing ...................................................................................... 18 5.2.2 Demand enumeration – income and geography ..................................................................... 21

5.3 Description of rental housing products being supplied. .................................................................. 23 5.4 Suppliers of product in subsectors ................................................................................................... 26 5.5 Informal/ formal rental proportions ................................................................................................. 26 5.6 Distribution of rental housing sub-sectors’ volume by income profile of the end-users ................ 27

6. Peformance - investment expenditure and annual revenue patterns of rental housing ..................... 28 7. Literature review ............................................................................................................................ 31

7.1 Summary of findings from the human settlements’ evaluations undertaken ................................. 31 7.2 Summary of findings of research into rental products ..................................................................... 31 7.3 Lessons learnt from International research on rental strategies and policies (in Hong Kong, Singapore, Canada, England and US).......................................................................................................... 32

8. Policy, legislative and regulatory review .......................................................................................... 33 8.1 Introduction ...................................................................................................................................... 33 8.2 Policy Review .................................................................................................................................... 33

8.2.1 Introduction ............................................................................................................................. 33 8.2.2 Breaking New Ground and the National Development Plan ................................................... 33 8.2.3 The need for a comprehensive rental housing policy.............................................................. 34 8.2.4 Publicly funded and provided rental housing .......................................................................... 35 8.2.5 Privately funded and provided rental housing ........................................................................ 45 8.2.6 Conclusion ................................................................................................................................ 46

8.3 Legislative and Regulatory Review ................................................................................................... 46 8.3.1 Introduction ............................................................................................................................. 46 8.3.2 The Corner Stone: Constitution of the Republic of South Africa, 108 of 1996 ........................ 47 8.3.3 Public Finance Management Act 1 of 1999 ............................................................................. 48 8.3.4 The Municipal Systems Act 2000 ............................................................................................. 48 8.3.5 Municipal Finance Management Act 56 of 2003 ..................................................................... 48 8.3.6 The Rental Housing Act 50 1999 .............................................................................................. 48 8.3.7 Rental Housing Amendment Acts 43 of 2007 and 35 of 2014 ................................................. 49 8.3.8 Housing Act 107 of 1997 .......................................................................................................... 51 8.3.9 National Housing Code 2009 .................................................................................................... 52 8.3.10 Social Housing Act 16 of 2008 ............................................................................................. 52 8.3.11 Spatial Planning and Land Use Management Act 16 of 2013.............................................. 53 8.3.12 Social Housing Regulations 2012 ......................................................................................... 53 8.3.13 Prevention of Illegal Eviction and Unlawful Occupation of Land (PIE) Act 19 of 1998 ....... 54 8.3.14 Consumer Protection Act, 68 of 2008 ................................................................................. 54



8.3.15 The National Credit Act 34 of 2005 ..................................................................................... 54 8.3.16 Budget Vote 38 Summaries - National Treasury ................................................................. 54 8.3.17 Centre for Gender Equality - Investigative Report – State of State Shelters ...................... 55 8.3.18 Relationship of legislation to housing strategy and policy ................................................. 55 8.3.19 Relationship of housing strategy and policy with current reality ....................................... 56

9. Description of current financing of rental housing............................................................................ 57 9.1 introduction to south african rental financial sector........................................................................ 57 9.2 Investors into the rental housing market ......................................................................................... 58

9.2.1 Institutional investors .............................................................................................................. 58 9.2.2 Financial service providers (FSPs) ............................................................................................ 61 9.2.3 Government investment .......................................................................................................... 62 9.2.4 Social Housing Regulatory Authority (SHRA) ........................................................................... 62

9.3 Contextualizing rental housing finance arrangement in the South African market......................... 64 9.3.1 Historical overview ................................................................................................................... 64 9.3.2 Existing rental market segmentation ....................................................................................... 65

9.4 INSITE rental housing finance segmentation .................................................................................... 66 9.5 Financial profiling and financing instruments for public and private rental housing ...................... 67

9.5.1 Privately funded and provided rental housing ........................................................................ 67 9.5.2 Publicly funded and provided rental housing .......................................................................... 70

9.6 Financial performance of sub-sectors .............................................................................................. 77 9.6.1 Privately funded and provided rental housing ........................................................................ 77 9.6.2 Publicly funded and provided rental housing .......................................................................... 83

9.7 Impact of norms and standards on rental housing financial performance ...................................... 88 9.8 Taxation and rental housing ............................................................................................................. 89 9.9 Conclusion ......................................................................................................................................... 89

10. Review of institutional architecture of rental housing and mandates .......................................... 91 10.1 Introduction .................................................................................................................................. 91 10.2 Government institutions .............................................................................................................. 92 10.3 Human settlements development agencies................................................................................. 95 10.4 Regulatory institutions. ................................................................................................................ 96 10.5 Financial institutions..................................................................................................................... 98 10.6 Delivery agents. .......................................................................................................................... 100 10.7 Developers and construction companies. .................................................................................. 105 10.8 Tenant consultation groupings. .................................................................................................. 105 10.9 Conclusion .................................................................................................................................. 107

11. Assessment of Identified strengths and shortcomings of the rental housing sector .................... 108 11.1 Alignments and misalignments at policy and strategy level ..................................................... 108

11.1.1 Between national, provincial, municipal, SHRA and delivery agent rental housing policies and strategies ...................................................................................................................................... 108 11.1.2 Between all the delivery strategies in the housing delivery value chain ......................... 112 11.1.3 Between tenants’ practices and rental policy perceptions about their aspirations ......... 114

11.2 Alignments and misalignments at delivery, management (capacity) level............................... 115 11.2.1 Between rental housing policies and new and existing delivery agents ........................... 115 11.2.2 Between governmental structures and efficiently functioning delivery agents ............... 117 11.2.3 Between government and delivery agents on how they should relate to tenants .......... 119 11.2.4 Between rental housing policy and legislation and the key activities of delivery agents . 121 11.2.5 Between capacity and operating an effective rental product ........................................... 122

11.3 Alignments and misalignments at legislation and regulation level........................................... 125 11.3.1 Between legislation, regulations and by-laws and expanded demand/supply (including effective rights/obligations) ................................................................................................................ 125 11.3.2 Between legislation and efficient functioning of structures/agents ................................. 128



11.3.3 Between laws and regulations, and delivery agents’ operations ...................................... 129 11.4 Alignments and misalignments at subsidies, funding and financing level (including social housing funding model) ............................................................................................................................ 131

11.4.1 Provision of funding between national government, and provincial and municipal governments and delivery agents....................................................................................................... 131 11.4.2 Between revenue generated and operating costs ............................................................ 132 11.4.3 Between the actual and the targeted rent collection rate ................................................ 133 11.4.4 Between subsidies and rental demand ............................................................................. 135

11.5 Alignments and misalignments at economic growth, sustainability, supply/demand level ..... 136 11.5.1 Between land availability/costs (green/brownfields) and rental housing development . 136 11.5.2 Between rental sector and amenities, services and work opportunities (urban settlements) ........................................................................................................................................ 142 11.5.3 Between the rental housing sector and innovative, green building technologies ............ 147

11.6 Stakeholder proposed reforms to increase delivery of rental housing ..................................... 151 12. Making the case for a comprehensive rental housing sector ..................................................... 174

12.1 Framing a strategy for rental housing ........................................................................................ 174 12.2 Analysis of identified strategic options ...................................................................................... 174

13. Identifying key questions areas for the national consultations questionnaire ............................ 175


Document name: INSITE SHRA Prelim Base Line Rep20200330 12h 00.docx PAGE 1

1. LIST OF ACRONYMS AND ABBREVIATIONS

AG Auditor General

BEPP Built Environment Performance Plan

BNG Breaking New Ground

CCG Consolidated Capital Grant. The Urban Settlements Development Grant (USDG) combined with Restructuring Capital Grant (RCG) or now called the Consolidated Capital Grant (CCG) is used for Social Housing and Urban Upgrading.

Co-operative Housing

Regarded as a specific form of social housing despite some ownership of co-operatives falling outside the social housing category.

CPI Consumer Price Inflation

CRU Community Residential Unit

DFI Development Finance Institution

DORA Division of Revenue Act

DSCR Debt Service Cover Ratio

DTI Department of Trade and Industry

ECR Economic Cost Recovery

EPHP Enhanced People’s Housing Process

GIAMA Government Immovable Asset Management Act

GPF Gauteng Partnership Fund

HDA Housing Development Agency

HSDG Human Settlements Development Grant used for informal settlement upgrade and RDP styled subsidised housing.

IDP Integrated Development Plan

IS Institutional Subsidy – Introduced in 1997, the institutional subsidy mechanism facilitated the development of housing using collective and institutional forms of ownership, such as housing associations and co-operatives.

IUDF Integrated Urban Development Framework

KPI Key Performance Indicator

KZN Kwazulu-Natal

MEC Member of the Executive Committee (Provincial Government)

MINMEC Forum for National Ministers and Members of the Executive Committee from each Province

MSP Master Spatial Plan (NDoHS)

MTSF Medium-Term Strategic Framework

NASHO National Association of Social Housing Organisations

NDoHS National Department of Human Settlements

NDP National Development Plan

NHC National Housing Code

NHFC National Housing Finance Corporation

NHSDB National Housing Subsidy Database

NIMBY Not-in-my-backyard

NPO Non-profit Organisation

NSDF National Spatial Development Framework

NSHTT National Social Housing Task Team

NT National Treasury

NUSP National Upgrading Support Programme

ODA Other Delivery Agent

PAJA Promotion of Just Administration Act

PGDS Provincial Government Development Strategies

PHP People’s Housing Process



PSDP Provincial Spatial Development Plan (PSDP) - guides public and private sector investment initiatives within the context of an efficient and effective land use management and administrative system.

PSL Private Sector Landlords

RCG Restructuring Capital Grant. Now called the Consolidated Capital Grant

RZ Restructuring Zones.

SH Social Housing - Defined as a rental or co-operative housing option, publicly funded, for low or medium income households at a level of scale and built form that requires institutionalised management performed by SHIs or delivery agents in approved projects occurring in RZs.1

SNGH Special Needs Group Housing

SNH Special Needs Housing

SNIH Special Needs Individual Housing

UDZ Urban Development Zone

USDG Urban Settlements Development Grant

1 SHRA. Assessment of the Implementation of Restructuring Zones (RZs) and the Effectiveness thereof as an Urban Restructuring Tool. 2016. p 5.



2. EXECUTIVE SUMMARY

The Department of Human Settlements together with the SHRA undertook to coordinate the

development of a national rental housing strategy and policy.

The aim of this assignment is a comprehensive programme review and development of a

Comprehensive Rental Housing Strategy, Policy.

The rental housing policy environment has evolved over many years and has largely been directed by

the National Rental Housing Act (1999), and more recently the Social Housing Act (2008).

Privately funded and provided rental housing accounts for 93 per cent of rented residential

accommodation in South Africa. Only seven per cent of rented residential accommodation is

funded and provided publicly.

Of the publicly rented residential accommodation the municipal subsector contributes 6,5 per

cent , the community residential units (CRU) 0,65 per cent, and social housing contributes 0,60

per cent of all rental housing in South Africa.

The Social Act (1999) acts as a proxy for policy for the residential rental market in South Africa,

providing for the rights and obligations of tenants and landlords.

The Social Housing Policy (2005) provides a framework for the social housing subsector to

operate.

An overall policy for the entire residential rental market does not exist.

Legislative provisions for the residential rental market exist where tenants and landlords can seek

recourse during disputes.

A more comprehensive legislative and regulatory regime exists for the social housing subsector;

however, there are shortcomings in the legislative and regulatory framework that prevent the

realisation of the full objectives of the social housing policy.

South Africa has an established financial market and system that supports investment into the

established private rental housing market.

No financial instruments or incentives exist for the private market; however, subsidies and

grants are available for the social housing, CRU and municipal rental housing subsectors.

The financial performance of these subsidies to leverage private debt has been limited.

From a policy perspective the current institutional architecture reveals a fragmented picture at the

national level. It is not comprehensive to cover all the players and subsectors of the rental housing

market.

A desktop review of 68 selected documents dealing with the rental housing market, revealed the

following strengths and shortcomings of this sector.



There are misalignments between the impact of policy and strategy on public and private rental

housing institutions – with private institutions functioning largely outside of the framework of

public policy and strategy.

Alignment occurs between certain role-players in the value chain, such as between SHRA and

NDoHS, and also between SHRA and SHIs. Thus, in the SH sector there is alignment. However,

municipalities have little if any social housing strategies that would direct their role in facilitating

implementation through land availability etc. that would contribute to densification of cities.

There is both conflict and convergence between tenants and landlords, and the functioning of

rental collection works optimally in the privately funded and provided rental housing sector.

Notwithstanding the raft of policies in respect of social housing and the municipal rental

subsectors, the financial performance and growth of the privately funded and provided rental

subsector has dominated the market.

With respect to the social housing rental subsector, there is weak alignment between strategy

and systems, i.e. fragmented intergovernmental transfers and lack of municipal prioritisation.

While rental tribunals serve the purpose of providing a channel for conflict resolution between

landlords and tenants, conflict in CRU and municipal housing subsectors has undermined rental

collections considerably, contributing to the financial unsustainability of these subsectors.

Legislation like the Rental Housing Act is insufficient to facilitate the effective functioning of the

public rental housing sector, particularly in respect of CRU and municipal rented housing, in

which cases the lack of capacity, lack of initiative and focus on compliance by municipal officials

hampers the working of these subsectors.

By contrast established private and informal (backyard) rentiers have the capacity, skills and

leadership to effectively operate and manage an effective and efficient rental product – the

limitation of these subsectors however lies in the lack of affordability for the product in the

former and the sub-standard conditions and quality in the latter.

There is significant investment of subsidies in the social housing subsector. However, the

financial performance of many of the SHIs is suboptimal, as opposed to the delivery agents in

private sector that has no similar subsidy incentives.

There is insufficient researched information about the needs of tenants for either rental or

ownership as an aspired form of tenure.

Given its tiny share of the overall rental housing market it is unsurprising that social housing has

not demonstrated impact in integrating disparate parts of the urban environment, as it was

intended to.

More analysis is required to parse out the common trends and dislocations in the various subsector of

the rental housing market. This will be explored through one-on-one interviews and focus group

discussions.



There were a full range of recommendations that were crystallised from the readings; these are

presented at the end of the report under the headings of the following five themes.

Rental housing policy and strategy

Rental housing delivery and management

Legislation and regulations

Subsidies, funding and financing (including social housing funding model)

Economic growth, sustainability and rental supply/demand

These recommendations were largely kept intact for purposes of framing the questionnaires that will be

administered to the interviewees and focus group participants

In the final baseline report the strengths and weaknesses of the sector and its sub-sectors will be

parsed out as well as the relevant recommendations with respect to them.



3. APPROACH TO FINAL BASE LINE REPORT

3.1 APPROACH

The approach for this Project has been agreed with the Social Housing Regulatory Authority (SHRA),

illustrated in the diagram below.

Figure 1 Road Map to developing National Rental Housing Policy

INSITE and SHRA have agreed to a structured table of contents for the Final Base Line Report. The

Preliminary Base Line Report phase commenced with a desktop review of 48 documents provided by the

SHRA and an additional 20 documents were added to the list by INSITE to augment some of the missing

information. INSITE approached the desktop review by using an information gathering matrix that

framed questions and topics for which information was extracted from the reading list. In addition, this

matrix was aligned to the table of contents approved by the SHRA. This alignment was through an

alignment tool to ensure that the data and information collected could be accurately copied into the

agreed table of contents of the Preliminary Base Line Report.

The Preliminary Base Line report is an extraction of the documents provided by the SHRA and those

added by INSITE. At the Preliminary Base Line report stage the intention is to describe the current rental

housing situation or landscape in South Africa. A secondary purpose is to identify assessments of the

performance of the rental housing sector, as well as capture recommendations that emerged through

the reports and publications.

The Preliminary Base Line Report also identifies the gaps in information and relevant questions that

need to be answered by the policy cohort across the rental sector in order to coherently articulate a

new or revised rental policy for South Africa.

Preliminary Baseline Report

Focus Group Consultations

National Consultations

Thematic Group:Subsidies, Funding

and Financing

Thematic Group:Legislation and

Regulation

Thematic Group:Housing Delivery and Management

Thematic Group:Economic Growth,

Sustainability, Supply/Demand

Four Thematic Output Reports with Strategy

Rental Housing

Policy

Road Map to National Rental Housing Policy

Final Baseline Report

Desktop Reading

Inclusion of International case studies



From the Preliminary Base Line Report a questionnaire will be developed through the processes in the

above graphic and through consultation with the Project Steering Committee. This will then be adopted

for implementation. Identified officials in National, Provincial and Local Government including Financing

agencies and delivery agents will be interviewed and data captured, and relevant rental housing policy

positions received. Along the same line’s a questionnaire will be used to gather information from four

focus groups made up of key experts in the publicly financed and provided rental housing sector and the

privately financed and provided rental housing sector. These two sets of inputs will be used to augment

the Preliminary Baseline report.

At this juncture international case studies with relevant information will be brought into the augmented

Preliminary Baseline report to show why and how other countries have dealt with their rental housing

policy and the delivery of rental housing. This will enable the completion of the Final Baseline report.

The content of the Final Baseline Report will be shared in the form of a structured guide with members

of four thematic groups, through facilitated workshops. These will enable a fine-grained discussion of

the content of the Final Baseline Report. During this process consensus will be built and the case for a

strategy will be made and a policy direction will be shaped. Once this direction is clear and the policy

pillars agreed INSITE will draft a policy paper.

3.2 LIMITATIONS OF THE RESEARCH

At the time of the initial research much of the data provided by the SHRA focussed on the Social Housing

and Municipal rental stock including Community Rental Units. Information about the established private

sector rental housing subsector and the informal backyard rental subsector was noticeably lacking. It is

envisaged that information in this regard could be gathered during the consultation process from

relevant players. It was also agreed that SHRA procure any data and information required to complete

the information gaps in the knowledge of the established and informal private rental subsector.

The International Case Study review will be collected through a separate assignment and it would have

been ideal to add this information to the Preliminary Baseline report prior to the questionnaires being

developed. In this case the questionnaire development could have included some key questions related

to international experience, for probing to the various experts in the national consultations and the

focus group consultations.

3.3 STRUCTURING THE ASSESSMENTS OF THE RENTAL HOUSING SECTOR.

During the reading of the 68 documents, which comprised the desktop review, the INSITE team

captured the content of assessments made of the performance of the rental housing sector, into a

structured matrix, based on the Seven Ss systems analysis. This enabled the team to identify across a

spectrum of seven dimensions where the strengths and weaknesses of the rental housing sector, as well

as its subsectors, were concentrated.

3.3.1 The s’s in the McKinsey 7S model

The team used this method to addresses the critical role of co-ordination, rather than structure, in

organisational effectiveness.



The method enabled the team to identify relevant information and data from the readings (including the

evaluations by third parties) in order to diagnose what particular elements in the rental housing value

chain are aligned (or misaligned), and on that basis to understand what these parties have said

organisations should change, and how those changes should be aligned with one another to be most

effective.

The method works through interrogating the information read, by addressing specific and clear

questions to each piece of relevant information, in order to understand the generic organisational

processes and structures into which the data could be meaningfully placed. These questions are as

follows, under each of the seven processes/structures headings.

• Systems: How the work is done in an organisation and across organisations (e.g. national, provincial and local government etc.) - these are all the processes used by organisations so that daily work is done e.g. risk management processes, HR processes, financial processes, IT systems etc.

• Strategy: What are the organisations trying to do to operate more effectively? Organisation is a source of both strength and weakness and strategy identifies how to build on strengths and address weaknesses; strategy is about vision, but it is also about how organisations evolves into the future; how an organisation adapts to new policy or legislation etc.;

• Structure: Who does what, and what are their various roles and responsibilities? Are they clearly organised within the organisation and across organisations (if work progress is dependent on other organisations); and, how do authority relationships work in the organisation and who is in charge?

• Skills: the institutional skills and individual skills; organisations and strategies require specific skills; increased specialisation of work requires organisations to have much broader and deeper sets of skills and to have skill acquisition strategies when skills are missing, which can include outsourced skills if the skills can’t be brought in internally.

• Style: Leadership style (leadership by consultation, or beneficent dictatorship, or autocratic rule etc.) and or organisational culture; “the way we do things e.g. we’re not scared to take risks”; the informal rules of conducting oneself in an organisation.

• Staff: The core or intrinsic talents of the people in the organisation and how they are grown and developed; numbers of staff and qualities; what talents are needed for the organisation to operate and what competency gaps need to be filled? Economies of scope – not being captured by one type of thinking, but a diversity of thinking within a diverse group of staff;

• Shared values: What is the organisation trying to achieve? A Social Mission; a reputation; Profit; critically important community work as a non-profit. Shared values all need to be relevant and need to reinforce what the organisation is trying to achieve.

Examples of a type of 7S alignment question: Is there alignment between systems, strategy and

structure in the organisation – or between different organisations in the rental housing value chain?,

and is there alignment of skills, staff, style, and shared values with systems, with strategy and with

structure? Types of questions that these elements try to clarify i.e. do the organisations comprising the

rental housing value chain have the staff, skills and structure (clear levels of accountability and

responsibility) to implement their specific plans in congruence with a broader sector strategy and policy,

and broader operational systems?

4. TERMINOLOGY

In this policy project the key rental sub-sectors have been separated into two main categories namely

Publicly and Privately funded and developed, managed and owned rental stock.



These subsectors are not a continuum of rental options, but rather specific parts of the rental housing

sector that operate according to different parameters, driven by different actors and motivations, for

the benefit of different target groups.

Figure 2 Terminology for Rental Housing in South Africa

The private rental housing sector is comprised of the following subsectors:

• Established private rental subsector: This market comprises formal accommodation stock, generally task-built primarily in inner- and near-city higher density areas and medium density secondary nodes. The types of rental units included in this sector are free standing houses, flats, townhouses and cluster houses. It is generally developed by private corporate landlords, small private landlords and individual (enterprise) Landlords.

• Emerging private rental subsector, in existing residential areas and includes formally constructed rooms/flatlets including in backyards.

• Informal private (backyard) rental subsector: This includes all informal rental stock created on private households’ land in previously segregated townships.

• Private special needs rental housing provided by the private sector without subsidies. These would normally include accommodation for students, orphaned children, the aged and persons with disability, that are funded by donations and private capital.

The public rental housing sector is comprised of the following subsectors:

• Social housing subsector: This includes all social housing stock managed by accredited SHIs, generally located in Restructuring Zones, and targeted at a specific medium to low-income groups for whom the rent is controlled

Publicly Funded and Provided Rental Housing

Privately Funded and Provided Rental Housing

• Social housing subsector

• Municipal rental subsector

• Community residential units subsector

• Subsidized special needs housing rentalsubsector

• Established private rental subsector

• Emerging private rentalsubsector

• Informal (backyard) rental subsector

• Unsubsidized special needs housing rentalsubsector

National Rental Policy and Legislation

Tenants across different needs



• Municipal rental housing subsector: This includes all ‘council housing’ and un-transferred Discount Benefit Scheme stock under the control of public rental institutions. This stock is mostly located in near-city and previously segregated township areas

• Community Residential Units rental housing subsector: This comprises upgraded and refurbished hostels, single rooms with communal facilities and one-bedroom accommodation

• Public special needs rental housing subsector: Provided by public sector with subsidies, this includes accommodation for the aged and persons with disabilities. These are subsidized through the health or social welfare subsidy system.

5. DEMAND AND SUPPLY AND PRODUCT-MARKET COMBINATIONS

5.1 DEFINITION OF THE RENTAL SECTOR AND ITS SUB-SECTORS.

5.1.1 The Rental sector

The Rental Sector comprises people who are renting – as opposed to owning – the housing in which they

live as well as the rentiers, i.e. those that are supplying the housing on the basis of rental agreements.

These agreements give to the tenants the right to use the housing and properties under certain

conditions but they do not own them.

In the Rental Housing Act the definition of ‘rental housing property’ is given as including one or more

dwellings and the definition of ‘dwelling’ is given as including any house, hostel room, hut, shack, flat,

apartment, room, outbuilding, garage or similar structure which is leased, as well as any storeroom,

outbuilding, garage or demarcated garage space which is leased as part of the lease. It does not give a

definition for a ‘low income earner’ or ‘the poor’ although it is given that these are to be covered in a

National Policy Framework and where the Minister of Human Settlements may define the criteria for the

poor or low income earners and groups2.

5.1.2 Sub-sectors of rental housing sector

The Rental Sector can be categorised into two subsectors. Publicly funded and provided rental

accommodation and privately funded and provided rental accommodation.

Privately funded and provided rental accommodation:

The Rental Housing Act and its amendments do not specifically define ‘Private Sector Rental Housing’

Given this, by logical extrapolation and for the purposes of developing ‘Private Sector Rental Housing’

norms and standards, the National Department of Human Settlements and the Social Housing

Regulatory Authority have defined ‘Private Sector Rental Housing’ as:

• Rental accommodation that does not have any direct or indirect Government funding or Government assistance.

• Tenants, dwellings and landlords are not subject to any specific Government qualification criteria and approval (e.g. tenant income thresholds or landlord to be a Social Housing Institution (SHI).

2 Social Housing Regulatory Authority and National Department of Human Settlements, Norms and Standards for Private Sector Rental, November 2019, pages 2 and 3.



• Private sector rental includes a range of: o Unit/dwelling typologies, from a farmstead to a single residential house to a single unit in a

single-storey or multi-storey sectional title scheme to a multiple unit commercial owned rental complex.

o Landlords, from a commercial entity to private individual. o Tenants, from all persuasions and incomes.

• Private sector rental accommodation is based on the principles of ‘freedom of choice’ and mutual agreement by and between both tenant and landlord.

The Rental Housing Amendment Act has also introduced the notion of ‘habitability’ to the Act and given

a definition of ‘habitability’ as a dwelling that is safe and suitable for living in and includes:

• Adequate space.

• Protection from the elements and other threats to health.

• Physical safety of the tenant, the tenant’s household and visitors.

• A structurally sound building.

Linked to the above, the Rental Housing Amendment Act has further defined maintenance as being the

repair and upkeep as may be required to ensure that a dwelling is in a habitable condition. Further, in its

section on rights and obligations of the landlord, the landlord must provide a tenant with a habitable

dwelling, maintain the existing structure of the dwelling and where possible facilitate the provision of

basic services to the dwelling.3

In summary, and for the purposes of this Report, privately funded and provided rental accommodation

is defined as rental funded and supplied through a private party and not a public authority and/or its

agents, through either a formal lease agreement or an unwritten informal agreement, and either in

formally constructed accommodation or in informal structures, most (but not all) of which is located in

metropolitan municipalities. There has been a private residential rental sector preceding South Africa’s

democratic political revolution of 1990s. This supplied rental accommodation to tenants classified as

“white” under apartheid, much of which was concentrated in dense, high-rise areas of cities like

Johannesburg and Durban. Since the establishment of universal suffrage in a unitary state, apartheid

laws were abolished and a very large component of this sector is now black, concentrated in the inner

cities of Johannesburg Pretoria and Durban. The private rental sector also extends into most other cities

and towns where there is the demand and affordability to meet the going rental prices. The sector

includes privately owned and rented flatlets and rooms on existing properties, as well as informal

structures in backyards of previously segregated townships.

What further distinguishes private rental from public rental is the profit that private rentiers extract

from the renting of their assets. In the case of public rentals (or through non-profit companies) profit

extraction is absent and any surpluses that are generated do not accrue to the private owners of the

asset. This is important to explain the underlying interest of private rentiers to seek markets where they

can maximise their return on investments. This is the reason why private rentiers have migrated from

3 Social Housing Regulatory Authority and National Department of Human Settlements, Norms and Standards for Private Sector Rental, November 2019, pages 2 and 3.



the subsidised rental housing market, i.e. social housing.4 Private rental can also be funded and provided

through public-private-partnerships (PPPs) procurement processes – this does not detract from the

private nature of the provision of this housing.

Within the privately funded and provided residential rental sector, there are a further four subsectors,

namely the established private rental sector, the emerging private rental sector, the informal (backyard)

rental sector and the provision of special needs housing.

• The established private rental sub-sector

This market comprises many apartments in both high and medium-rise buildings in some metropolitan

areas (e.g. eThekwini, Johannesburg and Tshwane) as well as formal structures in other cities and towns,

including formal backyard structures in suburbs and proclaimed residential townships. These

apartments and structures range in size from 45 square meters to more than 100 square metres, with

one, two or three bedrooms. Landlord-tenant relationships are usually governed by a written lease

agreement.

• The emerging private rental sub-sector

This market comprises formal structures built on properties in previously segregated black townships,

where there is a relatively high demand for formal shelter, coupled to limited affordability of

prospective tenants. These structures range in size from 12 square meters to 30 square meters, and are

often little more than a room with an en-suite bathroom.5

• The private informal (backyard) rental sub-sector

The informal backyard rental sector is a sub-sub-sector of the backyard rental sub-sector. The informal

sub-sub-sector is not clearly defined by the Social Housing Regulatory Authority (SHRA). The following is

the SHRA’s definition assumptions of the elements of the backyard rental sub-sector.

o A ‘backyard tenant’ is defined as a person occupying a backyard residential unit under some type of rental agreement with the main homeowner which may or may not include monetary payment for the right to occupy the unit, and may or may not be set out in a formal written agreement.

o The ‘backyard landlord’ is defined as the person who occupies the main house, controls access to the backyard unit and services, and enters into a rental agreement with the backyard tenant (which may or may not include monetary payment for the right to occupy the unit, and may or may not be set out in a formal written agreement).6

4 This is based on anecdotal evidence by one of the authors of this paper from working in the Affordable Housing Company (Afhco) between 1999 and 2004, the period when the company was developing social rental units subsidised by the Institutional Subsidy. 5 For an example of this in Cape Town, see Centre for Affordable Housing Finance, Financing Micro Developments – Cape Town Landlords, 2019, pages 3 to 4. 6 Social Housing Regulatory Authority and Department of Human Settlements, Norms and Standards for Backyard Rental 2019, pages 2 and 3.



For the purposes of this Report the informal backyard sector is defined as above but specifically where

there is an informal agreement and the shelter is informal, or at least not made from bricks-and-mortar

(e.g. it could be a wooden structure like a wendy house).

This market comprises informal structures (including wendy houses) built in the backyards of properties

in previously segregated black townships, where there is a relatively high demand for residential shelter

coupled to often very limited affordability of prospective tenants.

This sector supplies rental accommodation through mainly verbal (informal) agreements to mainly (but

not exclusively) low income households, in mainly (but not solely) informal structures in the backyards

of previously segregated black townships. Already during the late-1970s informal back yard structures

emerged to address the need for housing black workers in segregated townships where the housing

supply always lagged the population growth. After 1994, and despite the delivery of several million

Reconstruction and Development Programme (RDP) housing units, housing supply still failed to keep up

with demand and this has resulted in the proliferation of informal back yard housing structures.

• The special needs housing rental sub-sector

This need in this sub-sector is for shelter for vulnerable people like pensioners, students and abused

women. There is private provision for these needs in the form of retirement homes that provide for

rental – although most private funded and provided pensioner housing is in the form of ownership

rather than rental tenure.

Student accommodation has emerged as a specific area of need within rental accommodation as a

whole. In 2016, there were 26 public Higher Education Institutions and 50 Technical And Vocational

Education And Training (TVET) colleges operating on 264 campuses across the country. Young, black,

low-income, first-time entrants, especially women account for the large increase in enrolment at public

universities and TVET colleges since 1994. Demand for accommodation in the form of quality, affordable

student housing has grown over the years. Student accommodation is provided both by universities and

private rentiers. The government provides a grant to individual students to assist them with paying their

accommodation rentals. But there is neither direct nor indirect involvement by the government in the

provision of student housing.

Publicly funded and provided rental accommodation:

The Rental Housing Act and its amendments do not specifically define ‘Public Sector Rental Housing’.

Given this, by logical extrapolation and for the purposes of developing ‘Public Sector Rental Housing’

norms and standards, the National Department of Human Settlements and the Social Housing

Regulatory Authority have defined ‘Public Sector Rental Housing’ as:

• Residential rental accommodation developed, owned, and managed by National, Provincial and Municipal Government, or any state-owned entity other than municipally owned social housing institutions, for rental to either employees of Government or such entities, or members of the public entitled to be accommodated in such rental by virtue of meeting various forms of eligibility criteria.

• The above would include all government-owned residential stock transferred to Provinces and Municipalities and not yet transferred to sitting tenants or other eligible beneficiaries under the



Discount Benefit Scheme or its successive iterations or the Department of Human Settlements’ Title Deeds Programme.

• The accommodation may be, or may have been subject to direct or indirect Government funding or Government assistance such as municipal indigency or other forms of social and financial support.

• Public sector rental may include a range of Unit/dwelling typologies, including for instance: o A farmstead, or farm-worker housing on state-owned farms. o A single residential house. o A single-family unit in a single-storey or multi-storey multiple unit rental block or estate or

complex. o A room or bed-space in a building (for instance in short stay emergency/transitional housing). o A room in a residence, hostel, old age or other special needs/institutional facility.

o Public sector rental accommodation is based on the principles of eligibility, economic cost

recovery rental, with indigency and other forms of support for very low income and vulnerable households and individuals, and mutual agreement by and between both tenant and landlord.

The Rental Housing Amendment Act has also introduced the notion of ‘habitability’ to the Act and given

a definition of ‘habitability’ as a dwelling that is safe and suitable for living in and includes:

• Adequate space.

• Protection from the elements and other threats to health.

• Physical safety of the tenant, the tenant’s household and visitors.

• A structurally sound building.

Linked to the above, the Rental Housing Amendment Act has further defined maintenance as being the

repair and upkeep as may be required to ensure that a dwelling is in a habitable condition. Further, in its

section of rights and obligations of the landlord, the landlord must provide a tenant with a habitable

dwelling, maintain the existing structure of the dwelling and where possible facilitate the provision of

basic services to the dwelling.

Specifically, this may oblige the public sector landlord, from time to time, to embark on capital

refurbishment of stock to bring it in line with the statutory requirements and other guidelines governing

habitability as defined herein.7

What further distinguishes public rental from private rental is that in the case of public rentals (or

through non-profit companies) profit extraction is absent and any surpluses that are generated do not

accrue to the private owners of the asset. This is important to explain the underlying interest of public

rentiers to persist servicing markets where returns on investments are not optimal, from a capitalist

rent-seeking maximisation perspective.8

Within the publicly funded and provided residential rental sector, there are a further four subsectors,

namely the social housing sector, the Community Residential Units (CRU) sector, the municipal rental

sector and the provision of special needs housing.

7 Social Housing Regulatory Authority and Department of Human Settlements, Norms and Standards for Public Sector Rental, November 2019, pages 2 to 3. 8 For a fuller argument about this see Hendler, P Are NGOs relevant to the Delivery of Social Housing on Scale, 2006, Bagale Strategic Consulting, available on-line.

https://insite.co.za/wp-content/uploads/2020/02/NGOs-relevance-to-housing-delivery-2006.pdf



• The social housing sub-sector:

The Social Housing Act (No 16 of 2008) states that, “social housing’ means a rental or co-operative

housing option for low to medium income households at a level of scale and built form which requires

institutionalised management and which is provided by social housing institutions or other delivery

agents in approved projects in designated restructuring zones with the benefit of public funding”.9

By definition therefore, key differentiators between social housing and commercial/developer driven

multi-unit residential developments is an underlying socio-economic imperative to deliver managed

housing in specific localities. The “social” aspect of social housing is implied through a qualitative agenda

– in accepting public funding the compact is to enable delivery beyond a certain qualitative threshold.

Accordingly, the key differentiators between social housing and other forms of rental accommodation

are:

o Location. o The qualitative aspect of the unit in terms of space norms. o The provision of social amenities. o Management.

The successful design of a good quality sustainable social housing project depends on achieving a

balance between a range of factors. These include issues such as accessibility, safety and security, access

to services and amenities and the provision of adequate space. A sustainable housing project should

also contribute to its environment by becoming part of its neighbourhood context and fostering a social

network between residents and the community. The dwelling unit must meet the needs of the lifecycle

of a family from children to adults, to older people and people with forms of special needs or disability

that don’t require specialised institutional care, therefore designs should be flexible and adaptable to

meet these demands over the life of the building.10

For the purposes of this report this sector supplies subsidised rented accommodation through a formal

lease agreement to medium and low income households, in formally constructed accommodation

located in designated zones in metropolitan municipalities. Although the above definition covers special

needs housing, in this report publicly funded and provided housing for vulnerable people like the elderly

and abused women, is referred to under a separate heading for special needs housing. Nevertheless,

there instances where social housing institutions have provided special needs housing.11

Social Housing emerged as a sector when a special subsidy was made available shortly after the first

unitary state democratic elections in 1994, for institutions to supply housing through alternative tenure

to outright individual ownership. Rental, instalment sale, cooperative ownership and rent-to-buy were

the forms of alternative tenure that could be provided by the social housing institutions (SHIs) that

9 Social Housing Regulatory Authority and Department of Human Settlements, Norms and Standards for Social Housingl, November 2019, page 2. 10 Social Housing Regulatory Authority and Department of Human Settlements, Norms and Standards for Public Sector Rental, November 2019, page 3. 11 Madulomoho Housing and Yeast Housing, two social housing institutions operating within the social housing sub-sector, have provided special needs housing to vulnerable people.



received this “institutional subsidy”. Over time a further grant was made available if the Social Housing

units were developed in designated zones in towns and cities.

• The community residential units (CRU) sub-sector:

Through the community residential units (CRU) sub-sector municipalities and provincial Departments of

Human Settlements provide affordable accommodation for low income people, who cannot afford

rentals in the social housing sector. The type of accommodation ranges from single rooms with

communal bathrooms to family units with bathrooms en-suite. The CRU programme developed from

the Hostels redevelopment Programme, which upgraded single accommodation of what were previously

migrant workers hostels, and also converted many of these to family units.

Clause 1.3 of Part 3 of the National Housing Code states that the Revised CRU Programme continues to

fund greenfield new build projects and greenfield infill schemes only where these projects are directly

linked to the re-development of public sector hostels or state-owned rental stock where de-

densification is required or where the existing buildings are to be demolished and replaced with new

rental housing stock.12

Clause 1.4 of Part 3 of the National Housing Code states that the revised CRU Programme will also in

extraordinary circumstances fund the redevelopment of existing inner city building that are taken over

by municipalities as an option of last resort. These buildings are abandoned and/or relinquished by the

property owners and are in a state of disrepair and pose a threat to health and safety. The funding will

be limited to the redevelopment cost only, as there is no acquisition cost.13

For the purpose of this report this sector supplies rental accommodation to low income households

through formal lease agreements in upgraded and refurbished hostels, and is known as the Community

Residential Units (CRU) Sector. There are several CRU projects in various metropolitan municipalities but

the extent of CRU rental units is limited.

• The municipal rental sub-sector:

A much larger number of public rental stock is contained within the original township “matchbox”

structures that were constructed under apartheid to house black workers with urban residential rights.

From 1950 to 1970, the purpose of the public rental housing programme was to fill the gap between

supply and demand for formal housing, and to house the workers in the industries then emerging in and

around the major metropolitan areas.

Starting with the 1984 “Great Sale” existing tenants were given preference to purchase these houses.

However not all were sold. To stimulate and incentivise tenants to buy the units the Enhanced Extended

Discount Benefit Scheme (EEDBS) was introduced after the end of apartheid in 1994 and the creation of

a unitary democratic state. Many of these units are still rented and they are managed by metropolitan

12 Social Housing Regulatory Authority and Department of Human Settlements, Norms and standards for Community Residential Units (CRU), November 2019, page 2. 13 Social Housing Regulatory Authority and Department of Human Settlements, Norms and standards for Community Residential Units (CRU), November 2019, page 3.



and local and also provincial authorities (the latter’s stock is referred to provincial public rental housing

stock [PPRHS]).

The typical products of these programmes were tenement blocks of minimal-sized flats or individual

single-storey dwellings of a relatively high standard. They formed part of the Department of Public

Works, Housing and Local Government. The units were later separated, with residential properties

registered as “housing board stock” to human settlement/housing departments and business and

related properties registered as “RSA stock” to the public works department.14

• The special needs housing rental sub-sector:

The Social Housing Regulatory Authority15 has defined special needs housing as housing for

o Women who have been abused through male initiated anti-women violence, who are needing secure places to stay, with or without children.

o Children who need secure places to stay.16 o Elderly people who need a range of support services from basic support of managing a project

to frail care.17

There appear to be two definitions of special needs housing under the category ‘publicly funded and

provided rental accommodation’. First, the National Housing Code18 indicates that special needs housing

could be managed by a SHI and for this purpose the Institutional Subsidy was refined to support the

implementation of social housing, to provide a range of creative and affordable special needs and niche

market options to people with very low incomes (earning between R1 500 and R3 500) and to promote

densification (transitional and communal housing). The National Association of Social Housing

Organisations (NASHO) notes that very few special needs projects have been developed through social

housing institutions (with the exception of Yeast City Housing in Pretoria).19 Second, special needs group

housing projects developed and implemented by specialised non-governmental organisations (NGOs).

To date most special needs group housing projects that have been developed have been via NGO’s (in

KwaZuluNatal and the Eastern Cape), many with the support of the Project Preparation Trust (PPT) of

KwaZuluNatal.20

14 GTAC/National Treasury Performance and Expenditure Review, Provincial Government Housing Rental Stock, Human Settlements, May 2018, page 2. 15 Social Housing Regulatory Authority, Draft Concept Note: Summary of National Rental Issues, pages 5 to 7. 16 Although examples of these children are not given child-headed households as a result of HIV-Aids is surely an example. As are street children, although the latter might be included under homeless people who literally live on the streets and sleep either in the open or in shop fronts. 17 This overlaps with the categories of pensioners referred to earlier. 18 National Housing Code (2009), Chapter 3, page 74. 19 National Association of Social Housing Organisations, Social Housing and Special Needs Housing, Final Draft Report. 20 National Association of Social Housing Organisations, Social Housing and Special Needs Housing, Final Draft Report.



5.2 THE DEMAND FOR AND SUPPLY OF RENTAL HOUSING BY DIFFERENT INCOME BRACKETS AND

GEOGRAPHICALLY.

5.2.1 Need and demand for rental housing

There are a number of reasons underlying the choice by households to rent rather than to buy property.

Rental housing allows flexibility and mobility for those who are investing in housing in the rural areas

but are earning income in the cities, contract workers who follow work to different locales, or those who

are occupationally mobile. Rental housing meets the needs of persons utilising social housing options as

a first phase in a process to individual ownership (deferred ownership) and/or better rental

accommodation at a later stage when their ability to afford higher-rentals increases. Rental housing is

appropriate for low income households who cannot afford inner city residential property prices and are

forced to opt for affordable rental options such as those provided by social housing institutions. Rental

housing is also an opportunity for:

• Persons who wish to address their housing needs through a collective approach. • Single individuals who have been excluded from subsidy assistance to date; the government needs

to support housing access for this group, and rental social housing is well-suited to address this need.

• Persons requiring short-term accommodation such as vendors and others who sell produce in urban areas and who cannot afford to return nightly to their permanent residence in far-flung townships.

• Broken households where persons urgently need alternative accommodation due to a variety of circumstances.

• Singles with dependents who tend to opt for affordable social housing rental options. • Persons with special housing needs but who are able to live independently, such as those with

disabilities living with HIV/AIDs, including orphans and children. Co-operation would be required with the Departments of Health and Social Development in order to accommodate this group.

• Single persons wishing to co-habit in rental accommodation. • Persons currently living in informal settlements because it is the only affordable rental option

available to them. • Persons across the range of income bands that can be construed as low-income.

In 2001 it was estimated that one million households were renting in metropolitan areas (and 1,8 million

households nationally were renting). By 2006 this figure was expected to have increased to 1,5 million in

metropolitan areas and in 2011 to 2,2 million households nationally.

The households estimated in 2001 tended to be in the R19,201 to R38,400 annual income band (i.e. the

R1,600 to R3,200 monthly income band). It was also estimated that the total formal renting requirement

between 2006 and 2011 would increase by an average of approximately seven per cent per annum in

metropolitan areas, with higher increases in some areas such as Johannesburg.21

The hypothesis of increasing demand for rental accommodation is illustrated by location-specific

evidence from a recent study into Cape Town landlords who are practising micro-rental development. In

Cape Town in 2011 approximately 30 percent of accommodation was rented and approximately 55 per

cent of accommodation was owned. Approximately 20 percent of rented accommodation was in what is

referred to as “inadequate” conditions. Of households currently renting in Cape Town, 65 per cent earn

21 National Department of Human Settlements, “National Housing Code, 3 Vol 6, Social Housing Policy, 2009”, pages 5 to 31.



less than R7 500,00 p.m. There are estimated to be 36 000 households, earning between R3 500 and

R7 500 who make up more than 20 per cent of those “inadequately housed”. These households

constitute a pool of potential demand for rental accommodation in Cape Town’s low-income areas.22

A Tshwane study also provided location specific evidence the outputs of which also support the

hypothesis of increasing need for rental housing The household income level (and its likelihood to

change in the future) is key to understanding and projecting rental housing demand. In a submission for

the 2015/16 Division of Revenue Act, income levels of different income groups were compared between

2011 (the base year) and 2030 (projected and recording household aspirations). The table below (8)

shows a projected decrease of 1 per cent in the percentage of households earning between R0 and

R3,200 per month, from 48 per cent to 47 per cent, and a similar decrease for those earning between

R6,401 and R12,800, from 12 per cent to 11 per cent.23

Household Income Group Baseline (2011) Projected (2030)

No. % No. %

R0 - R3 200 437 506 48 593 845 47 R3 201 – R6 400 121 121 13 193 006 13

R6 401 – R12 800 107 404 12 165 854 11

R 12 801 + 245 440 27 637 499 28

Total 911 471 100 1 590 195 100

Table 8? Projected number of households per income group24

While there is almost no change in income distribution there is recorded a change in housing needs.

Figure 6(?) shows there will be steady shift from aspiration for ownership to a need for rental as the

preferred form of tenure. This is based on the limited Tshwane study through which data was modelled

to predict the future desired type of accommodation. The need for rental as form of tenure increases by

17 per cent (from 47 per cent to 64 per cent) between 2011 and 2030, while the aspiration for

ownership decreases over the same period. According to the model’ outputs ownership in the Tshwane

metropole and adjacent region will remain the preferred form of tenure in outskirts, isolated towns and

farms, but households in these regions are few in numbers.25

22 Centre for Affordable Housing Finance, “Financing Micro Developments – Cape Town Landlords”, 2019, pages 3 to 4. 23 National Treasury Budget Input, Understanding Housing Demand in South Africa, Chapter 4, 2016. 24 National Treasury Budget Input, Understanding Housing Demand in South Africa, Chapter 4, 2016. 25 National Treasury Budget Input, Understanding Housing Demand in South Africa, Chapter 4, 2016.

020406080

100

Base StatusQuo

Aspirations Aspirations Aspirations Aspirations

2011 2015 2020 2025 2030

53 43 40 38 36

47 57 60 62 64

Per

cen

tage

Own Rent



Figure 3? Change in preferred form of tenure by 2030

The growth in backyard rental housing numbers in specific townships in some of the major metropolitan

municipalities over the past 20 years, also lends weight to the narrative of increasing demand for rental

accommodation. In 2000, there were an estimated 200 000 people living in backyard units in Soweto. This

was about one-fifth of the population and about two-fifths of the number of households. Council houses

in Soweto averaged 2,3 families living in backyard units. And 70 per cent of these belonged to the same

household as the main house. In 2002, it was estimated that between 33 percent (in Walmer Location,

Port Elizabeth) and 80 percent (in Helenvale, in Port Elizabeth) of the backyard renters were related to

the landlord. The figure for Westlake Village in 2009 was 34 percent (of which 35 percent belonged to the

same household as the main house). In 2007, it was estimated that between 30 percent and 50 percent

of all township houses had backyard units. In 2009, it was estimated that 58 percent of the properties in

Westlake Village in Cape Town had backyard dwellings. All were informal structures and some properties

had more than one such structure. In 2009, it was estimated that 34 percent of subsidised units in the

Western Cape had backyard units. The urban rate was 51 percent and the rural rate was 7 percent. Of the

properties that had backyard units, 69 percent had one structure, 22 percent had two structures and 9

percent had three or more structures. 26

A 2014 analysis reported that some 57 000 backyard structures were in metropolitan municipalities. The

majority fell in the income category R 0 to R 3 000 per month.27 Not surprisingly then, landlords letting to

this category of income earners have close to zero vacancy rates. Such is the demand for them that

landlords don’t even have to actively advertise their vacant units.28

To determine the demand for and supply of housing for different income groupings of households

requires fine-grained data not provided by the documents reviewed. Need refers to the basic

requirements for a type of shelter for a family. Demand refers to effective demand, in other words the

ability of that household to afford the cost of the shelter that it needs. None of the documents provides

substantive information on consumer need and effective demand. Nor do the documents analyse the

potential supply of rented housing units in the two categories and their sub-sectors. The potential

supply, if known, could be aligned with the potential demand. This would reveal whether there is

alignment between the two and whether future supply can match future demand.

Instead the analysis that follows in the two tables overleaf shows the product market combinations, i.e.

the numbers of tenants that are renting specific categories of rented housing as well as the sub-sectors

within the two main categories. Where the information is known the income categories of the renting

households/individuals is indicated as well as the geographical concentration of the rented stock in each

sub-sector. Finally, the potential for future demand, over and above the level of the current product-

market combination, is indicated, where this has been identified in the documents reviewed.

26 Department of Human settlements and Department of Presidency Monitoring and Evaluation, Synthesis Evaluation on State Subsidised Housing, p.28, 2015. 27Financial and Fiscal Commission: Exploring Alternative Finance and Policy Options for Effective and Sustainable Delivery of Housing in South Africa, p.14, 2014. 28 Department of Human settlements and Department of Presidency Monitoring and Evaluation, Synthesis Evaluation on State Subsidised Housing, p.20, 201S.



5.2.2 Demand enumeration – income and geography

Accommodation type rented Numbers renting

% of Total rented accommodation

Income bracket

Geographical location Potential

extra demand

Privately funded and provided rental accommodation

The established private rental sub-sector

3 030 42429

66 ≥ R10 000 per month Concentrated in all major metropolitan areas and secondary cities

-

The emerging private rental subsector 500 00030 11 < R15 000 per month In all previously segregated black townships

80 00031

The informal (backyard) rental subsector

595 00032 13 R0 to R15 000 per month

-

29

Sample large rental management companies

The Trafalgar Group

City Props Jozi Housing Afhco Sub-total Adjusted to meet

StatsSA total rental number

TOTAL

Units numbers 70 000 12 000 2 800 7 000 91 800 2 614 624 2 706 424

Afhco’s website refers to “over 8 800 residential and commercial units under management. The figure of 7 000 was a guestimate by one of the authors of this Report who used to work in Afhco. The figures were adjusted considerably upwards to align the total rental with that estimated by Stats SA and the Rebel Group (Social Housing Regulatory Authority and National Department of Human Settlements, South African Rental Housing Sector Framework and Overview, Discussion Document, page 7 (which gives Stats SA 2016 CS estimate of 4,7 million rented houses in South Africa). This figure needs to be verified

Backyard units typology TOTAL Informal Formal

Units numbers 919 000* 595 000** 324 000

* Social Housing Regulatory Authority and Department of Human Settlements, Norms and Standards for Backyard Rental, 2019, pages 2 and 3 ** According to the Institute of Race Relations there were 595 000 informal backyard units being rented in 2017 (SA Promo magazine).

Type of established private rental Units numbers

Large company sample 91 800

Formal backyard structures 324 000

TOTAL 415 800

30 This figure was arrived at as a guestimate in order to identify private sector units delivered that had been missed, and was checked with the author of the Centre for Affordable Housing Finance. 31 Centre for Affordable Housing Finance, Financing Micro Developments – Cape Town Landlords, 2019, pages 16 to 17. 32 According to the Institute of Race Relations there were 595 000 informal backyard units being rented in 2017 (SA Promo magazine).

https://www.trafalgar.co.za/about-us/

https://www.trafalgar.co.za/about-us/

https://www.cityproperty.co.za/we-are-building-upmarket-cosmopolitan-and-sophisticated-properties/

https://jozihousing.co.za/about-us/

https://www.afhco.co.za/about/

https://www.sapromo.com/lifestyle/backyard-shacks-now-sas-new-rental-marketplace/

https://www.sapromo.com/lifestyle/backyard-shacks-now-sas-new-rental-marketplace/





Income bracket


extra demand

The special needs housing subsector (students)

115 04033 3,0 All major metropolitan areas with universities and/or TVET colleges

195 00034 to 343 00035

TOTAL 4 240 464 93,0 275 100 to 423 000


% of Total rented

accommodation

Income bracket


extra demand

Publicly funded and provided rental accommodation

The social housing subsector 26 53236 0,60 R3 500 to R 7 500 per month

Some major metropolitan areas such as Cape Town, Buffalo City, eThekwini, Johannesburg, Ekurhuleni, Tshwane, Mangaung, and local municipalities like Sol Plaatje and Govan Mbeki

90 000 to 170 000

The CRU subsector 30 00037 0,65 R800 to R 3 500 per month

Not known -

33 This is in respect of student accommodation. There was no data regarding accommodation for the elderly, etc. in the identified documents. There are 115 040 student beds in the Public Schooling Education and Training (PSET) system for public universities and Technical and Vocational Education and Training (TVET) colleges 34 Social Housing Regulatory Authority, “Draft Concept Note: Summary of National Rental Issues”, pages 17 and 18 35 The cost (in 2010 prices) of providing the recommended student residence spaces over a period of ten years was estimated at R82,4 billion(based on an estimated R240 000 per bed (Social Housing Regulatory Authority, Draft Concept Note: Summary of National Rental Issues”, page 19). If you divide R82,4 billion by R240 000, you get 343 333 beds. 36

Period 1994 to 2006 2007 2008 to 2014 2015 to 2019 TOTAL

Units completed 11 232* - 2 500** 12 800** 26 532

* Synopsis of the findings of the curative organisational diagnosis of social housing institutions, Support Programme for Social Housing (SPSH), April 2005. ** Human Sciences Research Council, The role of social housing in reducing poverty and inequality in South African cities, pages 26 to 39. 37 According to the government there are 2000 public hostels. Another government website has pictures of 29 upgraded facilities under the CRU programme. 30 000 units (2015) sourced from Alcari Consulting/GTAC, Performance and Expenditure Review, Provincial Government Housing Rental Stock, Human Settlements, May 2018, page 5.

https://www.gov.za/about-government/community-residential-unit-cru-programme

http://www.dhs.gov.za/content/community-residential-units




% of Total rented

accommodation

Income bracket


extra demand

The municipal rental subsector 300 00038 06,50 Not known but assumed to be > R3 500 per month

All major metropolitan areas with a predominance in Cape Town

-

The special needs housing rental subsector

3 30139 0,07 Not known but assumed to be > R3 500 per month

Projects in KwaZuluNatal, Gauteng, Free State, Eastern Cape and Western Cape

-

TOTAL 359 833 7,82 90 000 to 170 000

TOTAL all rental 4 600 297 100,82* 365 100 to 593 000

*Rounded off figures

5.3 DESCRIPTION OF RENTAL HOUSING PRODUCTS BEING SUPPLIED.

Accommodation type Rented

Description of product



The Private Rental market is an established market and is regulated through formal lease agreements. People are housed in formally constructed units of shelter, that comply at the very least with National Building Regulations. For Private Sector Rental, the Norms and Standards are based on the very simple and clear edict of statutory compliance. Building Regulations establish a set of minimum standards that must be achieved in the design and construction of buildings. They are supported by a series of approved documents that provide guidance about how the regulations can be satisfied in common building situations, and these in turn are supported by a wide range of reference documents.40 Most of the products supplied through the private rental market are formally constructed from bricks and mortar. These include free-standing houses, attached houses, rooms in houses, backyard flats, and apartments in multi-storey medium and high rise buildings. Within this range the main products are likely to be apartments.

38 Social Housing Regulatory Authority, Draft Concept Note: Summary of National Rental Issues”, pages 5 to 7. 30 000 units sourced from Performance and Expenditure Review, provincial Government Housing Rental Stock, Human Settlements, May 2018, page 5. 39 Project Preparation Trust (PPT), Overview of the Use of Housing Subsidies for Special Needs Group Housing in South Africa, 2013. These figures refer to number of beneficiaries in separate projects in KwaZuluNatal, Gauteng, Free State, Eastern Cape and Western Cape. There is no data on the PPT website update to 2019 or 2020. 40 Social Housing Regulatory Authority and Department of Human Settlements, Norms and Standards for Private Sector Rental, November 2019, page 6.

http://www.pptrust.org.za/wp-content/uploads/delightful-downloads/04-snh-overview-r15-with-attachments.pdf





The emerging private rental subsector

In the study on which this information is based, the buildings are two-story formal brick-and-mortar structures with six to 12 rooms of between 12 square meters and 18 square meters each. In each instance, the developers provided either one or two parking bays for their tenants which conforms with the City’s planning by-laws41.


Backyard rental comprises the following types of residential units:

• Stand-alone rooms having access to external, generally-shared ablutions.

• Stand alone, self-contained one room units (having private access to basic services such as toilet and basin).

• Stand alone, self – contained one room units (having private access to a kitchenette, toilet, shower and basin).

• Two storey walk-ups comprising either rooms with communal ablutions, rooms with toilet, shower and basis or rooms with kitchenette, toilet, shower and basin).

This definition excludes rental in an informal settlement. The housing and service needs of such tenants should be addressed via the process of upgrading the informal settlement as a whole.42 Backyard units vary greatly in terms of their size, type and quality of construction materials (both formal and informal). A high proportion have access to basic services (water, toilet and electricity), but the nature and quality of this access is highly variable. Access can be internal, on-site (shared) or off-site (communal). Service connections vary from fully reticulated to illegal connections. There is variance in the willingness and ability of landlords to comply with building regulations. Some landlords go through the formal channels of building application and approvals, and build to legislatively required specifications, while others are either ignorant of, cannot afford to or choose to ignore existing planning frameworks, building regulations and by-laws.43 For the purposes of this Report, the Informal Backyard market is an emerging market. As such it functions largely through informal verbal agreements. The shelter is entirely informal and likely fails to meet minimum NBR Norms and Standards. Anecdotal research in backyard dwellings by one of the authors of thi9is document indicates that in this sub-sector the products are largely informal structures constructed from poles and zinc, and often wendy houses.


Student accommodation is split between the 115 040 students in university-based or university-linked residences. However, there are at least a further 195 000 – and possibly as many as 343 000 – living in private rental that is problematic. The Social Housing Regulatory Authority reports that the poor accommodation conditions of a majority of poorer students from working class backgrounds impact negatively on their academic

41 Centre for Affordable Housing Finance, Financing Micro Developments – Cape Town Landlords, 2019, pages 3 to 4; 10 to 11; 12. 42 Social Housing Regulatory Authority/National Department of Human Settlements, Norms and Standards for Backyard Rental, November 2019, Pages 2 and 3. 43 Social Housing Regulatory Authority/National Department of Human Settlements, Norms and Standards for Backyard Rental, November 2019, pages 2 and 3.





performances.44 This suggests that many students are either living in the sub-standard backyard rental sector, or in overcrowded formal housing, or in both.


The social housing subsector

The units in the social housing subsector are constructed from bricks and mortar and meet minimum NBR standards in terms of finishes. They all have en-suite bathrooms and their floor areas can vary from between 30 square meters and 100 square meters. The mix of sizes of units will depend on the affordability of the market in specific locations. Rental is regulated through formal lease agreements.

The CRU subsector

According to the government the CRU housing products are family units comprising of one, two and/or three bedrooms.

The municipal rental subsector

The units in the municipal rental subsector are constructed from bricks and mortar and meet minimum NBR standards in terms of finishes. They should all have en-suite bathrooms but as many were constructed in the 1950s and 1960s this might not be the case, unless resident occupants made alterations themselves. The original floor areas were 40 square meters but many resident occupants might have extended their units, both with brick-and-mortar and/or informal materials (like zinc and timber [wendy houses]). In theory rental should be regulated through formal lease agreements; however, in practice there might be many exceptions to this.


The units in the special needs housing rental subsector are constructed from bricks and mortar and meet minimum NBR standards in terms of finishes.

44 Social Housing Regulatory Authority, Draft Concept Note: Summary of National Rental Issues”, pages 17 to 18.

https://www.gov.za/about-government/community-residential-unit-cru-programme



5.4 SUPPLIERS OF PRODUCT IN SUBSECTORS

Accommodation type Rented Suppliers of product



Established property management companies Private households Real Estate Investment Trusts (REITs)

The emerging private rental subsector

Emerging developer-rentiers


Private households


Established property management companies (e.g. retirement villages, with/without frail care) Statutory institutions (like universities in the case of students)


The social housing subsector Social housing institutions (non-profit companies) The CRU subsector Provincial departments of human settlements

Municipal departments of human settlements

The municipal rental subsector Provincial departments of human settlements Municipal departments of human settlements


Non-governmental organisations (NGOs) specialising in their sectors (e.g. child-care, elderly-care, frail-care, HIV-Aids-care)

5.5 INFORMAL/ FORMAL RENTAL PROPORTIONS



Formal rental accommodation

The established private rental sub-sector 3 030 424 68

The emerging private rental subsector 500 000 11

The special needs housing subsector (students) 115 040 2,6

The social housing subsector 26 532 0,6

The CRU subsector 4 000 0,09 The municipal rental subsector 300 000 6,70

The special needs housing rental subsector 3 301 0,01

TOTAL formal rental accommodation 3 979 297 89,0

Informal rental accommodation

The informal (backyard) rental subsector 595 000 13 TOTAL informal rental accommodation 595 000 13

TOTAL rental accommodation 4 470 297 102



5.6 DISTRIBUTION OF RENTAL HOUSING SUB-SECTORS’ VOLUME BY INCOME PROFILE OF THE END-USERS

The following graphic concludes this section. It shows the very limited impact of public rental in the overall rental market. It aligns specific sub-sectors with

their household customers categorised by income.



6. PEFORMANCE - INVESTMENT EXPENDITURE AND ANNUAL REVENUE PATTERNS OF RENTAL

HOUSING


% of Total privately rented accommodation

Income bracket

Annual investment expenditure

Annual Revenue patterns



3 030 424 73 ≥R15 000 per month -45 -46

The emerging private rental subsector 500 000 12 < R15 000 per month R 712 800 00047 R163 200 72348


595 000 14 R0 to R15 000 per month -49 R7 140 000 00050

45 Average annual capital expenditure by investors in the established private rental subsector is unknown. Further research is required. 46 The majority of properties in the established residential rental market in South Africa are probably concentrated in apartments (flats). One of the largest property management companies, Trafalgar, used to publish an overview of the size and turnover of this market but this is nowhere to be found on-line. Neither does Tenant Profile Network (TPN), an on-line credit bureau specialising in property rentals, have available reports on the size and turnover of the residential rental property market. It is therefore necessary to purchase this information either from TPN (should they have this) or from other services that collect and make this data available. 47 Centre for Affordable Housing Finance (CAHF), Financing Micro Developments – Cape Town Landlords, 2019, pages 16 to 17. An estimate of the current spend on accommodation by people who would be tenants of micro-property development affordable rental units, assumes that these are households with heads between 15 and 35 years old, earning between R 3 500 and R15 000 per month. Households earning less than R15 000 per month spend R2 billion annually on home repairs and improvements (nationally). Drilling down into those in this category who live in inadequate conditions, yields 80 000 opportunities for developers-rentiers. These opportunities could be divided across 1 000 projects (developments, with eight flats per development) per annum for 10 years. Taking the average price of developing a small flatlet (as revealed from the CAHF) equals an investment potential of R712,8 million per annum and R7,123 billion over 10 years. 48 Centre for Affordable Housing Finance (CAHF), Financing Micro Developments – Cape Town Landlords, 2019, pages 3 to 4; 10 to 11; 12. CAHF says that tenants are willing and able to pay up to 40 per cent of their wages towards rent. The monthly rents in the Cape Town study varied from R1 500,00 to R1 700 for a 12 square meter and a 15 square meter room; and, up to R2 200 for an 18 square meter room (rooms include water and an en-suite toilet and shower). The Cost of electricity is for tenant’s own account. 8 000 units per annum multiplied by R1 700 monthly equals R163 200 723 in annual rental turnover. Excluding inflation the annual gross rental turnover would equal capital expenditure after 4,3 years. Amortisation of the loan for capital expenditure) would take longer due to interest payments from net operating profit. The cost of capital thus remains crucial for the viability of this model. 49 It is assumed that informal backyard rentiers make no capital investment and that the tenants invest in the informal structures (including wendy houses. This assumption needs to be tested. 50 Assuming an average rental of R1 000 per month (including lights and water) (based on INSITE research in backyard rental neighbourhoods in Stellenbosch townships), the backyard rental sector is turning over R595 million each month, and R7,14 billion annually.




% of Total privately rented accommodation

Income bracket


Annual Revenue patterns


115 040 3 -51 15 140 000 00052 -53


% of Total publicly rented

accommodation

Income bracket


Annual revenue patterns


The social housing subsector 26 532 08 R3 500 to R 7 500 per month R950 000 000 to R3 421 600 00054

R324 000 000 to R612 000 00055

51 Data unknown. Further research required. 52 Based on 2010 prices escalated at an estimated inflation rate of 2 per cent per annum, the cost over 10 years of developing new student residences as well as maintaining/refurbishing existing stock, was projected at R151,4 billion (Social Housing Regulatory Authority, Draft Concept Note: Summary of National Rental Issues, page 19). 53 Data unknown. Further research required. 54 The National Department of Human Settlements notes that the cost of the Social Housing Programme is unclear, as funding spent on projects is not reflected in the government payment system such as the Housing Subsidy System. The final cost figures do not incorporate the full allocation of the Restructuring Capital Grant from the Social Housing Regulatory Authority (SHRA), as only the Institutional Subsidy allocation of about R127 093 per unit is recorded (National Department of Human Settlements, Towards a Policy Foundation for the Development of Human Settlements Legislation V2.0 01 November2015, pages 14 and 62). Instead we can use the National Association of Social Housing Organisations’ (NASHO) estimates of investments required for three scenarios for 2030: business as usual (BAU), 90 000 units delivered and 170 000 units delivered (see table below).

Scenarios Private debt SHI equity Capital Restructuring Grant DFI loans Institutional capacitation Total (10 years) Total (annual average)

Business as usual scenario (at 2030) - - 7 200 000 000 2 300 000 000 - 9 500 000 000 950 000 000

Low scenario (90 000 units at 2030) 3 800 000 000 816 000 000 9 300 000 000 4 800 000 000 67 000 000 18 783 000 000 1 878 300 000

High scenario (170 000 units at 2030) 3 300 000 000 816 000 000 23 300 000 000 6 800 000 000 67 000 000 34 216 000 000 3 421 600 000

Source: National Association of Social Housing Organisations (NASHO), The Long-term Financing of Social Housing Study – An Overview, pages 10 to 11. 55 Assuming an average rental of R3 000 per month (assumptions for which are explicated in the table below), the social housing rental sector will turn over R324 million monthly for the scenario where 9 000 units are delivered each year, and R612 million each month where 17 000 units are delivered each year.

Lower limit household income

Upper limit household income

Median household income

Affordable rent as % of median income

Estimated median income rent

Total annual rent in respect of 9 000 units

annually

Total annual rent in respect of 17 000 units

annually

R 15 000 R 5 500 R10 250 30 R3 000 R324 000 000 R612 000 000

Excluding inflation the annual gross rental turnover would equal capital expenditure after 2,9 years for Business as Usual and 5,6 years for the high scenario.




% of Total publicly rented

accommodation

Income bracket


Annual revenue patterns

The CRU subsector 4 000 1,2 R800 to R 3 500 per month -56 -57

The municipal rental subsector 300 000 90 Not known -58 -59

The special needs housing rental subsector 3 301 1 Not known, assumed > R3 500 per month - 60 -

56 Data unknown. Further research required. 57 Data unknown. Further research required. 58 Data unknown. Further research required. 59 Data unknown. Further research required. 60 Data unknown. Further research required.



7. LITERATURE REVIEW

7.1 SUMMARY OF FINDINGS FROM THE HUMAN SETTLEMENTS’ EVALUATIONS UNDERTAKEN

From the literature review the following are the high-level findings of the performance of the rental;

housing sector.

There is a lack of Vision for a comprehensive rental housing sector. There was no overall assessment of

the privately funded and provided rental housing sector. Almost all the research and evaluations was in

the publicly funded and provided rental housing sector, dominated by research and evaluation of the

social housing subsector.

The evaluations do not provide an assessment of the impact of the privately funded and provided rental

housing sector on inherited apartheid spatial patterns. Intuitively it appears that the established private

rental housing subsector is invested in many rental properties located close to city and town centres,

and more recently concentrated on transport networks. To this extent this subsector is probably having

a transformative effect on the apartheid urban landscape. But there is likely to be an equal

concentration of this subsector in areas that in the past were prescribed for people categorised as

white. The emerging private rental housing and the informal (backyard) rental housing subsectors, tend

to be located in and around previously segregated black townships – although there are also noticeable

exceptions in new conurbations like Cornubia and Cosmo City.

Most of the detailed evaluations of publicly funded and provided rental housing were made in respect of

the social housing subsector. Social housing was to be instrumental in achieving spatial, social and

economic integration of previously segregated urban spaces. The key evaluations have not found

conclusive evidence of this, and point to the very low volumes of social housing projects and units as

one of the main reasons for this failure. The second reason was the mistargeting of restructuring zones.

The creeping up of the floor income bands for tenants qualifying for social housing undermined a

further critical objective, namely to provide affordable decent accommodation to low and medium-

income households.

7.2 SUMMARY OF FINDINGS OF RESEARCH INTO RENTAL PRODUCTS

Census 2011 indicates that an increasingly large proportion of South African households are choosing to

rent, rather than own their accommodation. The proportion of all households renting accommodation

grew from 19 per cent in 2001 to 25 per cent in 2011, an absolute growth of over 30 per cent in the

number of households who rent. In large measure a range of demographic and economic factors are

driving rental housing demand, including growing urban migration particularly into metropolitan cities,

insufficient delivery of housing on an ownership basis (both in respect of the subsidy and affordable

housing markets) and difficulties in accessing mortgage loans due to high levels of indebtedness.

Estimates of the extent of demand for affordable rental accommodation based on the number of

households in the target income bands living in informal settlements and backyard rental is over 1,5

million households.



As indicated in the previous section 93 per cent of rental housing is financed and provided through the

private sector, and only seven per cent through the public sector, despite the private sector working

without an overarching rental housing policy, and only having to be compliant with the Rental Housing

Act. A key feature in the established private rental housing subsector is the monitoring the economic

environment and consumer credit behaviour of their tenants, in order to manage risks.

The largest volume of privately funded and provided rental housing is for households earning in excess

of R15 000 per month. These are generally relatively large sized living spaces, comprising between one

and three bedrooms, of a formal quality that complies with national building regulations. In the private

rental housing sector the collection rate is between 95 and 97 per cent, and insurance is available to

cover the risk of non-payment.

Privately provided and funded rental housing for households earning less than R15 000 often includes

slum and substandard informal housing and relatively small formal units (i.e. between 12 and 22 square

meters and with en-suite bathrooms), that would not pass muster in the social and municipal housing

subsectors. The evaluations give the impression that collection rates here are also high, and that

defaulting tenants are either evicted or make payment arrangements.

Stock in the municipal rental housing subsector consists of bachelor flats and two to three bedroom

units of free-standing, older houses, built under the previous regime. The evaluations confirm that this

stock is poorly managed and that collection rates are between 40 and 50 per cent. The evaluations

indicate that a huge investment has been made upgrading previous single sex hostels to family units,

however non-payment and lack if maintenance is threatening the viability of this form of

accommodation.

In the social housing subsector there are units that conform to relatively high quality norms and

standards, including minimum floor areas (of 30 square meters). Rents are controlled and the units are

managed by social housing institutions that are regulated by law. The evaluations tell us that the

current income bands of households renting social housing units, are steadily rising due to the escalating

costs of development and maintenance. The effect of this is that poorer households in the primary

market for social housing, are being squeezed out. The evaluations point out that collections on average

is 70 per cent, and only one out of 16 social housing institutions is financially self-sufficient.

7.3 LESSONS LEARNT FROM INTERNATIONAL RESEARCH ON RENTAL STRATEGIES AND POLICIES (IN

HONG KONG, SINGAPORE, CANADA, ENGLAND AND US).

The research into the international case studies is being undertaken by a Department of Human

Settlement research group, whom INSITE will brief.



8. POLICY, LEGISLATIVE AND REGULATORY REVIEW

8.1 INTRODUCTION

Policies and strategies have been developed primarily with regard to public funding and provision of

rental housing. Legislations covers both the private funding and provision of rental housing as well as

the public finding and provision of rental housing, although legislation is mostly focused on regulating

the public funding and provision of rental housing.

8.2 POLICY REVIEW

8.2.1 Introduction

A policy must be reviewed regularly. Such a review may result in the policy being left wholly intact. At

another time, a review may determine that the policy needs to be just tweaked somewhat and at still

another time it may determine that the policy needs to be amended substantially. A review may even

cause the policy to be scrapped in its entirety and replaced.

A criticism of South Africa’s housing policy has been that it “is targeted at meeting compensation

promises rather than addressing the various dimensions of the housing market.”61 The National

Department of Human Settlements itself admitted that “the numerous Human Settlement programmes

are not held together effectively enough within an overall policy and legislative framework that guides

the development of human settlements.”62

8.2.2 Breaking New Ground and the National Development Plan

The national department’s recent policy reviews therefore sought to firm up the shift from a housing

mandate to a human settlements one, as portended in both the Breaking New Ground strategy63 and

Chapter 8 of the National Development Plan (NDP). Some shortcomings identified by the NDP

included64:

▪ The housing subsidy programme was ignoring the workings of the market. ▪ The housing subsidy programme was failing to transform apartheid geography. ▪ Housing finance from outside government sources was unavailable or inaccessible to the bottom

end of the housing market. ▪ Inadequate attention was being paid to rental accommodation across the income bands. ▪ There was not enough incentive for public and private investors to invest in rental housing. ▪ The government lacked operational capacity to manage rental stock.

61FFC: Exploring Alternative Finance and Policy Options for Effective and Sustainable Delivery of Housing in South Africa, p.1. 62NDHS: Towards a Policy Foundation for the Development of Human Settlements Legislation; 2016, p.15. 63“Breaking New Ground” or “BNG” is the popular name for the “Comprehensive Plan for the Development of Sustainable Human Settlements” introduced in 2004. 64National Development Plan, pp.268-269.



▪ There were no enabling policies and implementing instruments to support the development of an appropriate housing mix in the inner cities.

Hence subsequent reviews emphasised the need for interlinked and accessible, mixed-use, mixed-

income, and mixed tenure developments.65 This emphasis almost guaranteed that rental housing, even

if it was not placed on an equal footing with home ownership, would be given due consideration. The

NDP applauded BNG for paying “greater attention to social and rental housing as mechanisms to

revitalise depressed property markets including the lower-end of the rental market.”66

8.2.3 The need for a comprehensive rental housing policy

The fact is that some sixteen years after the BNG was introduced and some eight years after the NDP

was introduced South Africa still does not have a comprehensive policy that responds to, frames and

caters for the different manifestations and types of rental housing. One has to rely on other official

documents and commissioned studies67 to discern subsectors of rental housing.

As referred to in the earlier section defining the sectors of rental housing, INSITE has approached the

policy review based on the observation that the overall rental housing market has two main sectors.

Privately funded and provided rental housing and publicly funded and provided rental housing. As

argued earlier, and justified, within each of these sectors INSITE has categorised four subsectors as

below.

• Privately funded and provided rental housing o The established private rental subsector o Emerging private rental subsector o Informal (backyard) rental subsector o Unsubsidized special needs housing rental subsector

• Publicly funded and provided rental housing o The social housing subsector o The municipal rental subsector o The community residential units subsector (CRU) o The subsidized special needs housing rental subsector

Because current rental policy is either silent or absent, there is no clarity, except for the identification of

social housing, cooperative housing, community residential units (CRU), public housing, informal

backyard rental housing and private rental housing. What is problematic is that there is no analysis of

how these, individually and collectively, relate (or, ought to relate) to supply and demand dynamics. We

are told that some cooperative housing arrangements fall within the social housing type while others

are discrete and distinguishable from social housing. To add to the murkiness, hostel reconfigurations

65See, for example, National Treasury: Estimates of Budget Vote 38 - Human Settlements National Expenditure 2019. 66National Development Plan, p.268. 67See, for example, DPME: Impact and Implementation Evaluation of the Social Housing Programme Report; 2016, p.3.



and refurbishments are supposedly a form of cooperative housing and yet these fall under their own

type called community residential housing. Then, social housing, cooperative housing, community

residential housing and local government rental housing are deemed to be different forms of public

rental housing. In fact, the arrangements relating to what is narrowly described as local government

rental housing applies equally to houses rented out by provincial governments.

Then there is the broad type of private rental. Although rightly belonging under it, several sub-types

such as employer-assisted rental housing, student rental housing and backyard rental housing have

emerged in recent discourse as types in their own right, and not classified under the broadly stated

private rental. Sans definitional accuracy and coherent nomenclature that would ordinarily be offered

by a proper policy, differentiating these types remains all too confusing. For this reason the definitions

of the sectors and subsectors are clearly defined in the earlier sections of this report (as summarised

above).

The 2017 State of the Social Housing Sector Report68 intimated that government had, to date, not given

due consideration to the affordable and social housing rental programme within its housing delivery

framework. We are not told what “affordable” rental is supposed to constitute and what distinguishes it

from social housing. Still, while there might be consensus that government has, indeed, paid less

attention to rental tenure in general than to ownership tenure – one Report has suggested that after the

fall of apartheid there was a push for “universal home ownership, including transferring existing

ownership of government rental stock to the tenants”69 - government has certainly paid a lot more

attention to the social housing programme than it has to other rental types.

Notwithstanding the above, the BNG ethos seemed to initiate the placement of rental housing

arrangements on a firm policy footing. There was little choice as whereas in 2001 rental housing

constituted 19 percent of all housing by the next census in 2011 this proportion had risen to 25 percent

thereby betokening an absolute growth of more than 30 percent over the decade. And, by 2016, it was

estimated that just for “affordable rental housing” there was a demand of about 1.5 million units.70

Following is a consideration of policy development (or, lack of it) with regard to the rental types listed

above.

8.2.4 Publicly funded and provided rental housing

8.2.4.1 The social housing subsector

Introduction

68State of the Social Housing Sector Report (2017), p.14. 69The Long Term Financing of Social Housing Study - An Overview; Research Report 1; 2016, p.3. 70DPME: Impact and Implementation Evaluation of the Social Housing Programme Report; 2016, p.3.



The social housing policy, as do the Social Housing Act and its regulations, provides a framework for the

establishment and operation of social housing institutions. Of course, some social housing institutions in

South Africa predate the social housing policy framework. In fact, they predate even the Social Housing

Foundation. Communicare, which currently owns and manages 3 375 rental units in 39 complexes, as

well as several stand-alone housing units in Cape Town, was founded as long ago as 1929. So, for some

social housing institutions, rather than providing for their establishment the social housing policy had

set a framework for how they were to be operated and managed.

Just as some “social” housing institutions may be said to have predated the social housing policy so too

can it be said that “social” housing projects and “social” housing subsidies predated the social housing

policy. Already in the 1990s, “social” housing projects were delivered using what was then, and is still

called the institutional subsidy.71 The current value of the institutional subsidy is R 110 000, 00 per

housing unit. Still, the Rebel Group established that the application of the subsidy was not uniform

across all provinces.72

The BNG policy document averred that the main objective of social housing was “to facilitate the

production of effectively managed institutional housing in the areas where demand for institutional or

managed housing, of all types, exists.”73 “All types” suggested that social housing was intended to be

institutionally managed yet not monotypic. Among other variations, it could, for example, be either

ownership or rental. BNG also directed that social housing must provide for “a range of housing product

designs to meet spatial and affordability requirements e.g. multi-level flat or apartment options for

higher income groups; cooperative group housing; transitional housing for destitute households; and,

communal housing with shared facilities and hostels.”74

Policy principles and objectives

Principles

Much of the BNG-NDP ethos is reflected in the principles that underpinned the social housing policy.

These principles were:

▪ Must promote the social, physical, and economic integration of housing development into existing urban and/or inner-city areas through the creation of quality living environments.

▪ Must be responsive to local housing demand. ▪ Must support the economic development of low-income communities by ensuring that they are

close to job opportunities, markets and transport and by stimulating job opportunities to emerging entrepreneurs in the housing services and construction industries.

71The Long Term Financing of Social Housing Study - An Overview, Research Report 1; 2016, p.3. 72DPME: Impact and Implementation Evaluation of the Social Housing Programme Report; 2016, p.4. 73Breaking New Ground, p.27. 74Breaking New Ground, p.27.



▪ Must ensure the involvement of residents in the social housing institution and/or key stakeholders in the broader environment through defined meaningful consultation, information sharing, education, training and skills transfer.

▪ Must ensure secure tenure for the residents in social housing institutions, on the basis of the general provisions for the relationship between residents and social housing institutions as defined in the Housing Act, 1997 and the Rental Act, 1999 - Chapter 3, section 4 (1) to (5).

▪ Must support mutual acceptance of roles and responsibilities of tenants and social landlords, on the basis of the general provisions for the relationship between residents and social housing institutions as defined in the Rental Act, 1999 – Chapter 3, sections 4 and 5, in the Cooperatives Act, 1998 (Act 91 of 1998) as well as in the envisaged Social Housing Act.

▪ Must be facilitated, supported and/or driven by all spheres of government. ▪ Must promote the creation of sustainable, viable and legally independent housing institutions

responsible for providing and/or developing, holding and managing social housing stock. ▪ Must ensure transparency, accountability and efficiency in the administration and management of

social housing stock. ▪ Must promote best practices and compliance with minimum norms and standards in relation to the

delivery and management of social housing as a sector. ▪ Must promote the use of public funds in such a manner that stimulates and/or facilitates private

sector investment and participation in the social housing sector. ▪ Must promote housing delivery for a range of income groups (including, inter alia, middle income,

emerging middle class, working class and the poor) in such a way as to allow integration and cross subsidisation.

▪ Must operate within the provisions of the Constitution, 1996, the Public Finance Management Act, 1999, the Preferential Procurement Act and other statutory procurement prescripts.

▪ May be implemented by social housing institutions of various legal forms.

Objectives

The objectives of social housing are as follows.

▪ To lay down general principles for the social housing sector. ▪ To define the legislative, institutional and regulatory environment in which the sector will operate)

– say these were achieved); ▪ To provide for a Government funding mechanism for the social housing sector to facilitate the

specific targets noted in the policy; ▪ To define key terms to ensure common understanding and synergy in the sector. ▪ To promote capacity building for the sector. ▪ To provide measures to encourage the sustainability and growth of the sector at scale.75

The first three of the objectives listed above have been met. Yet the crucial clear definition of key

terminology has not, as explained earlier. Equally significant the government and the sector have failed

to promote and implement an effective capacity building programme. The government has neglected

75Social Housing Policy, p.4.



measures to encourage the sustainability and growth of the sector at scale, at least insofar as quantum

of grants and subsidies are concerned.76

Tenure and Institutional Management

The social housing policy also confirmed the aspect of institutional management. But, in defining social

housing as “a housing option for low-to-medium income persons that is provided by housing

institutions, and that excludes immediate individual ownership”77 the programme enforced income and

tenure parameters. Where BNG spoke about social housing of “all types” the social housing policy

framed the scope of social housing as excluding only “immediate individual ownership”. Social housing

policy therefore has permitted the following forms of tenure for occupants.

• Immediate joint/collective ownership (i.e. the cooperative and share block company models that purchase property with a mortgage loan).

• Deferred joint/collective ownership (i.e. the cooperative and share block company models that purchase property through instalment sale or rent-to-buy agreement).

• Deferred individual ownership (i.e. instalment sale form of financing and tenure and rent-to-buy).

• Rental and leasing of individual units by tenants.

The policy requires that deferred joint/collective ownership would be permitted “on condition that the

persons involved and being housed through collective ownership, are fully aware, understand and

subscribe to these forms of collective ownership options.”78 Cooperatives and share block companies

would have to be accredited by SHRA as SHIs.79 Irrespective of the circumstances, SHRA has the pre-

emptive right on the sale and disposal of all social housing units.80

Targeted income bands

At one point the social housing policy affirms: “Social housing is not an option for the very poor. By its

very nature, persons accessing accommodation from housing institutions will have to earn a secure

income, formally or informally, to be able to afford the rental or other periodic payment for

accommodation.”81 Then immediately thereafter it confirms that “social housing projects could still

include initiatives where beneficiaries participate in the solution of their housing needs through the

People’s Housing Process. The programme could thus also cater for the lowest income categories

under such circumstances.”82

Demand driven programme

76Social Housing Policy, p.6 to 8. 77Social Housing Policy, p.4. 78Ibid, p.5. 79Genesis Analytics: Socio-Economic and Spatial Restructuring Impact of Social Housing; 2019, p.8. 80Rules on the Transfer or Disposal of Social Housing Stock Funded by Public Funds, p.11. 81Social Housing Policy, p.5. 82Ibid.



The social housing policy describes social housing as being demand-driven. In other words, it responds

to and is motivated by “what the market wants or is in urgent need of”. The social housing policy claims

to be catering for the demand of the following groups of people (at least in theory).83

▪ Those seeking short-term housing because of occupational mobility. ▪ Those seeking short-term housing until some point in the future when they will be able to either buy

a house or move into a rental unit that serves their requirements more appropriately. ▪ Those not able to afford rental units on the open market. ▪ Those opting for collective ownership. ▪ Those excluded from other forms of housing subsidy assistance. ▪ Those needing temporary housing e.g. vendors who are unable or unwilling to return every day to

their permanent residences usually in far-flung townships. ▪ Those in need of alternative housing (e.g. divorce). ▪ Those unable to live on their own (e.g. dependents). ▪ Those wishing to co-habit in rental housing. ▪ Those able to live on their own but with special housing needs.

But, demand is an assessed and enumerated phenomenon. However, this policy is not based on detailed

enumeration and assessment at a national level. It is unclear where in the above demand categories the

need and effective demand is concentrated. Therefore, in practice, not all these groups of people

specified in the social housing policy may be said to be adequately catered for. With respect to the last

category (special needs), although this has been spoken of in social housing policy INSITE has created

special needs subsidised housing as a descriptive category at the same status level as social housing (see

below).

Cooperatives

Introduction

The readings prescribed for this evaluation say virtually nothing about policy arrangements for

cooperative housing in South Africa. What we do know for certain is that there exists no clear national

policy for it. Other than defining social housing as “a rental or cooperative housing option,”84 not even

the social housing policy has much else to say about it.

Certain provinces have put some measures in place though. Gauteng, for example, developed a

Cooperative Development Policy in 2004. And, Kwazulu-Natal produced Interim Guidelines for housing

co-operatives in 2012.85

83Ibid, pp.9-10. 84Social Housing Policy, p.4. 85Draft Cooperative Housing Policy, p.3.



That said, there does exist a Draft Cooperative Housing Policy to regularise arrangements at national

level. It aims to86:

▪ Complement other existing housing policies (e.g. Institutional, Social Housing, Enhanced PHP). ▪ Facilitate the provision of secure, stable rental and ownership tenure for lower income persons.

Wilson has mentioned that cooperative housing was introduced in South Africa only after the

establishment of the Institutional Housing Subsidy Programme (IHSP) in 1996.87

Historical background

From general readings, however, we have gathered the following about the origins of cooperative

housing in South Africa. The principle of cooperation extends beyond the housing sector. And, its

longevity might even be linked to the age-old traditional African practice of Ubuntu as evidenced in, for

example, stokvels, burial societies and other social clubs.88

That said, the first official cooperative is understood to have been the Salt River Trading Cooperative

started in 1909. And, the first legislation for cooperatives came about in 1922. These were for poor

white agriculturalists. Credit cooperatives for African people were started in the homelands in the

1930s.

With the democratic dispensation fast approaching, in 1992 Rooftops Canada helped to establish the

Johannesburg based non-governmental organisation, Cope Housing Association (COPE). Then, in 1994,

the South African government signed a bilateral agreement with the Norwegian government (through

NBBL and NORAD) to pilot the cooperative housing model with the view to introducing it countrywide.

The pilot was driven by COPE using the IHSP in seven housing cooperative schemes. Around the same

time the non-governmental organisation Afesis Corplan had entered into an agreement with the

Swedish Cooperative Centre (SCC) to fund the Amalinda Project, comprising nine housing cooperatives

and 216 units in East London. The aim, however, was to transfer the units to individual ownership.

Consequently, the East London Housing Management Co-operative and the Newtown Housing

Cooperative (comprising 351 units) became the first two housing co-operatives to be registered. In

1997, the Social Housing Foundation was established to facilitate social and cooperative housing in

South Africa. When Rooftops Canada ended its relationship with the SHF in 2005 it also brought to a halt

technical and financial support to the cooperative housing programme.89

Cooperative policy intention

86Draft Cooperative Housing Policy, p.1. 87Report on Cooperatives and Instalment Sales, p.4. 88Draft Cooperative Housing Policy, p.1. 89Draft Cooperative Housing Policy, p.2.



The draft cooperative housing policy concedes that cooperative housing would only deliver housing on a

small scale, but that it has the potential to contribute to:90

• Affordable ownership to people who would not normally be able to access a housing loan on their own.

• Long term security of tenure.

• Resident control over their housing environment.

• Community empowerment through the election of community leaders and democratic decision-making.

• The delivery of houses that will be either individually or collectively owned.

• A quality built-environment e.g. larger houses designed to the wishes of the beneficiaries (as per the PHP model).

• The provision of open space (that would need to be managed and maintained).

The draft policy also envisages that cooperatives will participate in the housing delivery process by:91

• Cooperating through the housing process (saving, planning, building and owning together).

• Cooperate to plan and build (saving individually, planning together, building together and owning individually).

▪ Cooperate to own (buy housing together and own together). The custodian of the Cooperatives Act is the National Department of Trade and Industry (DTI) whereas

the custodian of the Social Housing Act is the National Department of Human Settlements. There are

about 198 housing cooperatives registered with the DTI. The majority of these are not housing

cooperatives per se but rather building and worker cooperatives. Irrespective, most are not operating.92

Challenges with implementing Cooperative Policy

The IHSP, which catered for housing institutions that provided tenure arrangements not involving

immediate ownership (but providing for rental, instalment sale, and rent-to-buy tenure, through share-

block and cooperative institutions),93 predated both the Cooperatives Act and the Social Housing Act.

Legal arrangements were, and continue to be, problematic on two fronts: the restriction placed on

cooperatives from getting accredited by SHRA and thus accessing the RSG; and, the fact that

cooperatives are governed by the Cooperative Act94 and not the Social Housing Act.

90Draft Cooperative Housing Policy, p.3-4. 91Draft Cooperative Housing Policy, p.4. 92Draft Cooperative Housing Policy, p.3.

93Report on Cooperatives and Instalment Sales, p.4. 94The Cooperative Act No.14 of 2005 regulates the co-operative as a legal entity based on the values of self-help, self-reliance, self-responsibility, democracy, equality and responsibility.



These contradictory legal and policy arrangements referred to above have led to the following

administrative and governance bottlenecks.

Nearly 2 289 cooperative and 9 448 instalment sale units have been developed under the IHSP. There

are 1 864 cooperative housing units still in existence – whether these currently function as co-ops is

unknown.95 Of the instalment sales units approximately 5 735 are still in existence (title has been

transferred to the other beneficiaries under the scheme).

It has not been possible to establish the exact cost to government in terms of their investment in these

schemes. At a conservative average cost of R18 000 per unit subsidy, R216 million has been invested by

government. Eighty per cent of instalment sale and co-operative housing projects have failed. They

have either been liquidated or are struggling financially. In terms of the cost to the state, over 4 000

units, or 35 per cent of the total have been “lost” or taken over by residents who may or may not have

been the qualifying beneficiaries. The loan funder to these schemes, the NHFC, has written off R122

million worth of loans made to them as irrecoverable, with another R42 million at risk (of non-payment).

The SHRA itself has invested over R 5 million through the capacitation grant to help turn around failing

co-operative or rent to buy schemes.

8.2.4.2 The municipal rental subsector

The readings prescribed for this evaluation are silent on policy arrangements for what would be

encapsulated as the municipal rental subsector in South Africa. In the absence of a coherent national

policy there often arises confusion between the type of housing in this subsector and the community

residential units (CRU), which presupposes rental stock developed, managed and owned by the

provincial or municipal government.

For the purpose of this evaluation INSITE differentiated municipal rental housing from CRU (the current

policy framework does not differentiate these two publicly funded and provided rental housing

subsectors). The municipal rented stock referred to is that stock developed under apartheid, and that

was transferred during the democratic dispensation to provincial and municipal governments. These

were intended to be sold at discounted prices to long-time tenants occupying them. The programme

(the Discount Benefit Scheme, later the Extended Discount Benefit Scheme, and, now, the Enhanced

Extended Discount Benefit Scheme). Typically, these were tenement blocks of minimal-sized flats or

individual single-storey dwellings built between 1950 and 1970. Later, these units were separated and

registered as “Housing Board” stock. 96

Some of this stock cannot be transferred to individual ownership and therefore remains in the hands of

local or provincial government. The official intention appears to be to regularise these within the CRU

95Report on Cooperatives and Instalment Sales, pp.5-6. 96GTAC/National Treasury: Performance and Expenditure Review; 2018, p.2.



Programme. But, they are already listed in the title deed initiative whereby ownership is given to RDP

beneficiaries.

While ownership vests with provincial or local government, the rental collection rate on these units is

minimal.

8.2.4.3 The community residential units subsector (CRU)

Introduction

The readings prescribed for this evaluation almost without exception skirt the issue of community

residential housing policy in South Africa. There is, in fact, currently no national policy for this type of

housing. But, the CRU Regulation Report might represent the beginnings of framing the debate around

the creation of such a national policy. This section relies heavily on that Report.

The CRU Regulation Report tells us that the CRU comprises “pre-1994 public rental stock (upgraded or

not upgraded), hostel redevelopment and new-build green-field developments.”97 Built during apartheid

times the hostels falling under this programme had previously catered essentially for African male

migrant workers at a nominal rent.

The CRU programme commenced in 2009. This programme replaced the National Hostel

Redevelopment Programme. (SHRA was established in 2010). An official source not in our readings list

informs us that “the CRU Programme aims to facilitate the provision of secure, stable rental tenure for

lower-income persons/households” (http://www.dhs.gov.za/content/community-residential-units).

Elsewhere, “lower-income” is officially defined as persons/households earning between R 1 500 and R

3 500 per month.98 Another official source tells us that the CRU Programme caters for incomes ranging

from R 800 to R 3 500 per month.99

Since 2007, some R 9,5 billion was spent to develop or refurbish 29 837 units. This incorporated 70

projects in eight provinces (Eastern Cape was the exception). Most units cost just over R 300 000. The

Human Settlements Minister and Provincial MEC for Housing (MINMEC) meeting resolution of June 2017

proposed the integration of the ‘new build’ typology into the Social Housing Programme facilitated and

regulated by SHRA.100

In all, it is estimated that there are about 2 000 such hostels comprising some 200 000 residential units

that are owned by provincial and local government. Of these, 181 were said to fall under the Social

Housing Programme. The Community Residential Units Programme has a cost per unit of R 356 375

while the current subsidy is approximately R 110 947 per unit.101

97CRU Regulation Report; 2018, p.5. 98State of the Social Housing Sector Report (2017), p.5. 99CRU Regulation Report; 2018, p.15. 100CRU Regulation Report; 2018, p.5. 101NDHS: Towards a Policy Foundation for the Development of Human Settlements Legislation; 2016, p.10.

http://www.dhs.gov.za/content/community-residential-units



No policy framework

The policy framework that does exist largely addresses pre-2009 arrangements. To all intents and

purposes only quasi-policy arrangements may be said to exist currently: there remains no policy to

direct SHRA on how this CRU programme would be administratively and legally supervised. The CRU

Regulation Report notes the following:

“The Social Housing Act does not give the SHRA a mandate to undertake

the regulation of CRU stock as it does not meet the definition of Social

Housing. Nor is the stock owned or under long term lease to a SHRA-

accredited SHI. The stock is owned by Government. Furthermore, CRUs

do not meet the requirements of an accredited project”. 102

Weak regulatory control over CRU projects have meant that what are in essence expensive products

have been delivered in poor locations. Besides rentals therefore being necessarily set at a low base

there is the compounded problem of a collection rate of just around 18 per cent. Poor management has

led to stock deterioration and non-screening of tenants. There is also much political interference

because the projects are developed and managed by local government.103

The challenges the programme currently faces includes:

• High costs involved when existing buildings were demolished to make way for new buildings.

• Spending of the grant on infrastructure upgrades rather than its intended purpose of top structures.

• Lack of knowledge about the implementation tool-kit and mistaken allocations to current residents or those outside the threshold of earnings.

• Overall poor management.

8.2.4.4 The subsidized special needs housing rental subsector

According to the Draft Final Report on Social Housing and Special Needs104 the subsidised special needs

rental housing sector covers several categories of people.

• Orphans and vulnerable children.

• The seriously ill (including those infected by HIV-Aids) if they are able to live independently.

• Older persons (including frail care, assisted living and independent living).

• Those with physical disabilities (including frail-care, assisted living and independent living).

• Those with intellectual and psycho-social disabilities.

• Victims of domestic abuse (emergency and second stage, “move-on” housing).

• The homeless/those living on the street (including street children).

102CRU Regulation Report; 2018, p.6. 103CRU Regulation Report; 2018, p.5. 104Draft Final Report on Social Housing and Special Needs, p.5.



• Those receiving substance abuse rehabilitation services.

• Parolees, probationers and youth in conflict with the law.

• Other vulnerable people such as victims of serious crime and human trafficking.

There have also been efforts to define and differentiate this group and thence locate them within the

social housing programme. An example of recent efforts to on-board and mainstream social housing

provisioning for people with special housing needs was in 2014 when some R86 million in subsidies was

availed for special needs housing. This resulted in housing for 4 753 households in KwaZulu-Natal,

Eastern Cape and Gauteng.105 Notwithstanding this inclusion of special needs housing under the social

housing subsector, we have placed it in its own subsector due to the fact that it is often funded through

public grants from departments other than the Department of Human Settlements.

8.2.5 Privately funded and provided rental housing

It is common currency that the private sector dominates the South African rental housing market

numerically. As indicated earlier more than 90 per cent of rental units are funded and provided through

the private rental sector. And 68 per cent of all rented units are provided through the established

private rental subsector

In South Africa there is no policy for the private rental housing sector, although it is regulated by

legislation. The National Department of Human Settlements is focused on the public financing and

provision of rental housing for low to medium income households. The readings prescribed for this

evaluation do not reflect about strategic objectives in relation to private funding and provision of rental

housing, except for the informal (backyard) rental housing subsector and the emerging rental housing

subsector.

8.2.5.1 The established private rental subsector

As indicated earlier the established private rental subsector attracts by far the largest investment and

number of tenants in the rental housing market. There is no policy towards the established private

rental subsector, but the Rental Housing Act of 1999 functions as a proxy for a policy. This regulates the

relationship between landlords and tenants, on the principle of a fair allocation of obligations and rights

between these two parties. The established rental housing market functions well in the sense that

rentiers secure desired returns and tenants procure the usage of accommodation that suit their needs

for quality and location and their affordability.

8.2.5.2 Emerging private rental subsector

The emerging private rental subsector is also covered by the regulations of the Rental Housing Act.

There is no policy of state funding and support for the provision of rental housing in the emerging

105Report on Cooperatives and Instalment Sales, p.15.



private rental subsector. Two documents reviewed referred to this subsector and reflected on its role

and characteristics in the rental housing sector, and on its role in a future policy.

8.2.5.3 Informal (backyard) rental subsector

Although peri-urban areas often comprise middle-income cluster complexes and high-income lifestyle

estates they are also the location for informal settlements, many of which are also characterised by

overcrowding and unhygienic conditions.106 The informal (backyard) rental subsector is also covered by

the regulations of the Rental Housing Act. Living conditions in this subsector are often not compliant

with municipal by-laws nor the national building regulations. These “second economy” arrangements

(including the informal [backyard] rental subsector) reduce the quality of life.107

There is no policy of state funding and support for the provision of rental housing in the informal

(backyard) rental subsector, although there has been research on the characteristics of this subsector. It

has been estimated that some 40 percent of residential renters in South Africa live in slum conditions.108

There is a close correlation between this and income. In 2008, for example, it was determined that 55

percent of renters earned less than R 3 500 per month and another 20 percent earned between R 3 500

and R 7 500 per month.

8.2.5.4 Unsubsidized special needs housing rental subsector

The unsubsidised special needs housing rental subsector is covered by the regulations of the Rental

Housing Act. There is no policy towards the unsubsidised special needs housing rental subsector.

8.2.6 Conclusion

This review of policy with respect to the rental housing market, demonstrates that there is only a policy

in respect of the social housing subsector within the publicly financed and provided rental housing

sector. All the other subsectors, while formally regulated in terms of the Rental Housing Act, have no

policy guidelines. A policy comprises a Vision and a framework of principles and values to guide action to

achieve the Vision and a framework of institutions and their functions to be followed to achieve the

Vision. Policy is formulated on the basis of a sound analysis of the dynamics of whatever market it is

intended to shape.

8.3 LEGISLATIVE AND REGULATORY REVIEW

8.3.1 Introduction

The National Department of Human Settlements (NDOHS) and the Social Housing Regulatory Authority

(SHRA) require the review of existing National Rental Housing Strategy and Policy and the development

106Red Book - Setting the Scene, pages 15 and 41. 107Building an Inclusionary Housing Market, p.16. 108Building an Inclusionary Housing Market, p.6.



of new strategy and policy where appropriate, as a foundation for amending existing Rental Housing

Legislation and Regulations.

In order to achieve this, a review of the current National Rental Housing Strategy, Policy, legislation and

financial arrangements is required.

This section summarises legislation in the housing sector in so far as it relates to rental housing. This is in

order to provide a basis for assessing (in later section of the report) the alignment of rental housing

policies and strategies with the intentions of the legislation covering the rental sector.

8.3.2 The Corner Stone: Constitution of the Republic of South Africa, 108 of 1996

The Constitution of the Republic of South Africa, 108 of 1996, is the driver to create a society based on

democratic values, social justice and fundamental human rights. Through the undermentioned sections,

relevant to rental housing, the Constitution aims to improve the quality of life for all citizens promising a

progressive realization of the right of access to adequate housing.

In respect of rental housing, the Constitution’s Section 26(1) aims to improve the quality of life for all

citizens promising a progressive realisation of “the right of access to adequate housing.”109 It places

positive obligations on the state to realise the socio-economic right to housing through policy and

budgetary obligations, and implementation plans. Section 26(2) states that government must take

reasonable legislative and other measures within its available resources, to achieve the progressive

realisation of the right to adequate housing.

Other sections relevant to this assessment of rental housing strategy and policy is Section 26(3), that

declares that no-one may be evicted from their home or have their home demolished without a court

order, and only after considering all the relevant circumstances leading to the eviction. Section 28 deals

with the right of children to shelter and Section 34 gives everyone the right to have any dispute decided

in a fair public hearing, before a court or independent Tribunal or Forum.

Thus legislatively, the Constitution provides a framework within which the state is required to develop

strategy, policy and legislation, in order to secure citizens the right of access to adequate housing. Public

powers or the performance of public functions requires that these powers and functions be authorised

by law and in accordance with law, and not be exercised in an arbitrary or irrational manner.110

Public powers or the performance of public functions requires that these powers and functions be

authorised by law; in accordance with law; and not exercised in an arbitrary or irrational manner.

(Promotion of Just administration Act (PAJA) 3 of 2000.

What follows is a summary of a further 13 pieces of applicable legislation still in effect.

109 The Constitution of the Republic of South Africa Act 108 of 1996. Section 26(1). 110 Promotion of Just Administration Act (PAJA) 3 of 2000.



8.3.3 Public Finance Management Act 1 of 1999

The Public Finance Management Act regulates financial management in the national government and

provincial governments to ensure that all revenue, expenditure, assets and liabilities of government are

managed efficiently and effectively.

In terms of Section 6 (1)– National Treasury must (f) monitor the implementation of provincial budgets;

2(d) may assist departments and constitutional institutions in building their capacity for efficient,

effective and transparent financial management (f) must intervene by taking appropriate steps, which

may include steps in terms of Section 100 of the Constitution or the withholding of funds in terms of

section 216 (2)of the Constitution, to address a serious or persistent material breach of this Act by a

department, public entity or constitutional institution.

8.3.4 The Municipal Systems Act 2000

The Municipal Systems Act 2000 provides for the core principles, mechanisms and processes that are

necessary to enable municipalities to move progressively towards the social and economic upliftment of

local communities. In terms of this act municipalities must (a) develop and adopt policies, plans,

strategies and programmes, including setting targets for delivery of housing; (b) promote and undertake

development. In terms of Section 55 (1) As head of administration, the municipal manager of a

municipality is, subject to the policy directions of the municipal council, responsible and accountable for

(k) carrying out the decisions of the political structures and political office bearers

The Housing Act and the Municipal Systems Act outlines the functions of accredited local authorities/

municipalities who now have the power to take full responsibility for financial administration of housing

in their jurisdiction with province assuming the role of monitoring and evaluation.

8.3.5 Municipal Finance Management Act 56 of 2003

The Municipal Finance Management Act seeks to secure sound and sustainable management of the

financial affairs of municipalities and other institutions in the local sphere of government; to establish

treasury norms and standards for the local sphere of government.

8.3.6 The Rental Housing Act 50 1999

The Rental Housing Act 50 1999 came into operation on 1 August 2000. It is one of the legislative

measures that the state has taken to achieve the progressive realization of the right of access to

adequate housing.

The RHA requires the national government to promote a stable and growing market that progressively

meets the demand for affordable housing amongst historically disadvantaged persons; and to facilitate

the provision of rental housing in partnership with the private sector.

National government must also introduce a policy framework, including norms and standards, on rental

housing. The RHA empowers the Minister to introduce a rental housing subsidy programme or other



assistance measures to stimulate the supply of rental housing property for low income housing

consumers.

The primary purpose of the Act is to stabilize and regulate the residential rental housing sector through

the establishment of Rental Housing Tribunals (RHT); and the passing of procedural and unfair practice

regulations. The RHA Act also provides for a mediation service; and if a complaint is unresolved, for a

referral for a Tribunal Hearing; and an Appeal process.

The Act through the establishment of the RHT’s not only seeks to create access to adequate housing;

but is also intended to create co-operation and remove conflict between landlords and tenants.

The Act was monitored by the NDOH after implementation and it was found necessary to amend the Act

with the Rental Housing Amendment Act 43 of 2007; and amended again by the Rental Housing

Amendment Act 35 of 2014.

This legislation is implemented and operates nationally. It addresses the obligation of government to

give meaning and content to the right of access to adequate housing through access to the free services

of Rental Housing Tribunals in the event of disputes between landlords and tenants.

The services of the RHT is provided to formal and informal tenants who reside in a house, hostel room,

hut, shack, flat, apartment, room, outbuilding, garage or similar structure which is leased, as well as any

storeroom, outbuilding, garage or demarcated parking space which is leased as part of the lease.

The RHA specifically provides for the establishment of an information office by a local municipality. The

information office is required to refer disputing tenants and landlords to the Tribunal; keep records of

enquiries received by the information office and submit reports in relation to those enquiries to the

Tribunal; as well as educate, provide information and advise tenants and landlords concerning their

rights and obligations in relation to rental housing property that falls within a local municipality's

geographical borders.

Rental Housing Tribunals have been established on all 9 Provinces. Information offices must also be

established in all nine provinces but this must be confirmed – (Johannesburg has 4, Tshwane has 5,

Ekurhuleni has 2 and Emfuleni has 1 - Tribunal hearings are held in all of these offices.)

A ruling by the Tribunal is deemed to be an order of a magistrate's court and is enforced in terms of the

Magistrates' Court Act, 1944.

8.3.7 Rental Housing Amendment Acts 43 of 2007 and 35 of 2014

The amendments to the Rental Housing Act, 1999, include setting out the rights and obligations of

tenants and landlords; requires leases to be in writing; requires MEC’s to establish Rental Housing

Tribunals in all Provinces; extends the powers of the Rental Housing Tribunals; to provide for an appeal

process; requires all local municipalities to have Rental Housing Information Offices; provides for norms

and standards related to rental housing; and extends the list of offences.



Stated specifically:

RHA Act 2007: The tenant could not have his or her possessions seized except in terms of law (by

consent or court order) or a ruling by the Tribunal; the tenant need only pay the costs of a lease if the

landlord provides proof that the landlord factually incurred expenses in relation to the lease; The

Tribunal does not have jurisdiction to hear applications for eviction orders; It is an offence to unlawfully

lock out a tenant or shut off the utilities to the rental housing property without having first obtained a

court order.

The Tribunal is empowered to:

Issue spoliation orders (A spoliation is any wrongful deprivation of another's right of possession. For

example, the landlord who is owed arrear rentals switches off the water supply to the tenant's premises

without having obtained a court order. The Tribunal order, known as the "mandament van spolie",

undoes a spoliation by ordering the landlord as the guilty party to return the thing that was spoliated,

which is the restoration of the water supply to the tenant's premises); Issue attachment orders (Orders

authorising the seizure of property to ensure satisfaction of a Tribunal ruling. The document by which

the Tribunal orders such a seizure is called a "writ of attachment" or an "order of attachment")Grant

interdicts (Orders prohibiting the tenant or landlord from doing something - For example, ordering a

tenant to stop causing a nuisance by regularly playing loud music at midnight).

RHA Act 2014:

The National Department subsequently undertook a monitoring and implementation process in relation

to the RHA. It concluded that it was necessary to again amend the RHA to not only align the RHA with

developments in the rental housing sector but clarify and enhance the Tribunal's powers to bring about

greater justice to tenants and landlords throughout South Africa.

Broadly the amendments: Introduce new definitions in accordance with developments in the rental

housing sector more specifically aimed at ensuring improved habitability (living conditions) in rental

housing property; Place further duties on the national department to: Promote rental housing and

introduce rental housing subsidy programmes to meet the growing demand for housing from low

income persons; Train members of the Tribunal and information office officials to ensure uniformity of

outcomes; Require provincial government to assist a local municipality not yet on level three

accreditation to establish an information office.

Gives the Tribunal additional powers to: Make ruling for payment of rentals; Make orders that are

necessary to give effect to the RHA; Rescind or vary (alter) Tribunal rulings that may have been

erroneously granted; Cure certain technical defects in the 2007 Amendment Act to enable the Minister

and not the MEC to make the procedural and unfair practices regulations and thereby ensure uniform

regulations throughout the country; Introduce new offences in accordance with the amendments in the

2014 Amendment Act. For example, it becomes an offence not to reduce a lease to writing; introduce an



appeal process to enhance the Tribunal rulings and thereby ensure greater justice to tenants and

landlords.

8.3.8 Housing Act 107 of 1997

The Housing Act 107 of 1997 provides for the facilitation of a sustainable housing development process.

It lays down the general principles applicable to housing development in all spheres of government; it

sets out the roles and responsibilities of the three tiers of government national, provincial and local

government in meeting the right of access to adequate housing and provides for the establishment of a

South African Housing Development Board; provides for the continued existence of provincial boards

under the name of provincial housing development boards and the financing of national housing

programmes. The Act was amended by the Housing Amendment Act 4 of 2001 to provide for the

abolition of the South African Housing Development Board and Provincial Housing Development Boards;

to establish advisory panels; to provide for the determination of procurement policy in respect of

housing development; to provide for the publication in the Gazette of lists of national housing

programmes and national institutions; to make the National Housing Code binding on all spheres of

Government; to provide for the regulation of the sale of state-funded housing.

According to Housing Act 107 of 1997, national government must establish and facilitate a national

housing development process; must publish a Housing Code that is binding on provincial and local

government; Provincial government must provide an enabling environment within the ambit of the

National Housing Policy; Local Government must pursue the delivery of housing through providing land;

services and infrastructure.

The Act provides for National Government to monitor the implementation of the Act through the

Housing Code.

Provincial government must provide an enabling environment to realise the right to adequate housing

by allocating subsidies to municipalities. Municipalities must address issues of land; services;

infrastructure to provide an enabling environment for housing delivery. In 2002 local authorities were

given the power to become the developers of low income housing. However is it a legislative

requirement that municipalities have to be accredited to be developers? Not all municipalities have

been accredited so far.

Section 2 (1) provides that National, provincial and local spheres of government must- (a) give priority to

the needs of the poor in respect of housing development (c ) ensure that housing development-(i)

provides as wide a choice of housing and tenure options as is reasonably possible. Section 3 - Functions

of national government (1) The national government acting through the Minister must, after

consultation with every MEC and the national organisation representing municipalities as contemplated

in section 163 (a) of the Constitution, establish and facilitate a sustainable national housing

development process. (2) For the purposes of subsection (1) the Minister must - (a) determine national

policy, including national norms and standards, in respect of housing development; (b) set broad

national housing delivery goals and facilitate the setting of provincial and, where appropriate, local



government housing delivery goals in support thereof. (5) The following housing assistance measures,

which were approved for financing out of the Fund in terms of section 10A, 10B, 10C or 10D of the

Housing Act, 1966 (Act 4 of1966), are deemed to be national housing programmes instituted by the

Minister under subsection (4) (g): 6(A) The Social Housing Foundation, registered as a company in terms

of section 21 of the Companies Act, 1973 (Act 61 of 1973), under the name National Housing Finance

Development Foundation, is deemed to be a national institution established by the Minister under

subsection 4 (h). Section 9(1) (1) Every municipality must, as part of the municipality's process of

integrated development planning, take all reasonable and necessary steps within the framework of

national and provincial housing legislation and policy to-(a) ensure that - (i) the inhabitants of its area of

jurisdiction have access to adequate housing on a progressive basis; (b) set housing delivery goals in

respect of its area of jurisdiction; (2)(a) (2) (a) Any municipality may participate in a national housing

programme in accordance with the rules applicable to such programme by - (i) promoting a housing

development project by a Developer.

8.3.9 National Housing Code 2009

The Code, which contains all the housing policies still in effect, has not been updated since 2009.

The National Housing Code 2009 sets the underlying principles, guidelines and norms and standards

which apply to Governments various housing assistance programmes introduced since 1994 and

updated.

The purpose of this guide is to provide an easy to understand overview of the various housing subsidy

instruments available to assist low income households to access adequate housing. In response to this

Constitutional imperative, government has in terms of the Housing Act, 1997 (Act No 107 of 1997)

introduced a variety of programmes which provide the poor households access to adequate housing.

The policy principles set out in the White Paper on Housing aim to provide poor households with houses

as well as basic services such as potable water and sanitation on an equitable basis. In terms of the

Community Residential Units Programme- The need for affordable rental housing is witnessed by the

large number of households and individuals who currently rent overcrowded and sub-standard but

inexpensive accommodation in backyards and informal settlements.

8.3.10 Social Housing Act 16 of 2008

Social Housing Act aims to establish and promote a sustainable social housing environment. This Act's

major purpose is to provide for the establishment of the Social Housing Regulatory to regulate public

funds for social housing projects Authority. The SHRA must regulate all social housing institutions

obtaining or having obtained public funds and allows for the undertaking of approved projects by other

delivery agents with the benefit of public money. Provincial government is given responsibilities to

approve, allocate and administer capital grants, as well as administer the Social Housing Programme.

Local governments are required to ensure access to land, municipal infrastructure and services for

approved projects in designated restructuring zones. A restructuring zone is a geographic area which has



been identified by a local municipality, with the concurrence of the provincial government, for social

housing and designated as such by the Minister for approved projects. Local governments are also

responsible for initiating and identifying the restructuring zones

The Social Housing Act defines the functions of National, Provincial and Local government in the

provision of social housing. It provides for the establishment of the SHRA to regulate SHI’s who have

obtained public funds; allows for the undertaking of approved projects by other delivery agents with

public money of affordable rental homes to renew communities; and gives statutory recognitions to

SHI’s.

Presently, the Institutional Subsidy Programme aims to provide rental accommodation to the low

income housing market. The very poor earning R 3 500,00 and below are not catered for by the SHRA.

The CRU (Community Residential Units) programme replaces the National Hostel Redevelopment

Programme and the proposed affordable rental housing programme. The CRU programme provides a

framework for the different forms of existing public sector residential accommodation. The CRU will

develop or re-develop public housing stock; stock formerly part of the extended discount benefit

scheme; abandoned/ distressed buildings; and new rental housing stock. This stock must be owned by a

provincial government department or a municipality. The programme is administered by provincial

housing departments.

Farm housing residents assisted programme; emergency housing programme – this type of assistance is

provided through grants to municipalities.

It important to note that social housing institutions and their tenants are subject to the RHA.

8.3.11 Spatial Planning and Land Use Management Act 16 of 2013

To provide for the uniform spatial planning and land use management in South Africa. In terms of

Section 7 - the applicant must comply by having effective tenant/membership Staffing and systems in

place including dispute resolution system.

8.3.12 Social Housing Regulations 2012

The Regulations establish rules on the transfer or disposal of social housing stock funded with public

funds.

It is intended that the regulations provide for applications for accreditation of social housing institutions;

the qualifying criteria for accreditation; provisional accreditation of social housing institutions; a register

of social housing institutions; reporting requirements; withdrawal of accreditation; compliance

monitoring; intervention in cases of non-compliance and maladministration; transfer of social housing

stock; the disposal of publicly funded social housing stock; approvals; a code of conduct; the powers of

the SHRA in respect of entry, enquiry document seizure, inspection; agreements with other delivery

agents, national and provincial government and the NHFC; offences and penalties.



8.3.13 Prevention of Illegal Eviction and Unlawful Occupation of Land (PIE) Act 19 of 1998

Section 26 (3) of the Constitution provides that no one may be evicted from their home without an

order of court made after considering the relevant circumstances. Most lease agreements contain a

clause that the lease may be cancelled should the tenant fail to comply with the terms of the lease. This

means that upon cancellation the tenant may be evicted after a court has considered all the relevant

circumstances. The PIE Act imposes certain requirements that must be followed in order to evict a

defaulting tenant or unlawful occupier. The RHT established under the RHA does not have the power to

grant eviction orders.

8.3.14 Consumer Protection Act, 68 of 2008

The Consumer Protection Act requires the National Consumer Tribunal or a court to interpret any

standard form, contract or document to the benefit of the consumer. It also gives the consumer the

right to receive information in plain and understandable language. The proposed pro-forma lease

agreement and any other residential lease agreement must therefore be written in plain and

understandable language.

An apparent conflict between the provisions of RHA and the Consumer Protection Act, for example

concerning the time periods to terminate a lease, should be referred to the RHT.

8.3.15 The National Credit Act 34 of 2005

The NCA was established primarily to promote a fair and non-discriminating marketplace for the access

of credit and to; To prohibit unfair practices. The Act introduces new rights for the consumers as well as

measures that allow consumers to make informed decisions before buying goods and services on credit;

the Act also deals with the maximum fees and interest rate charges; and prohibits reckless credit

granting.

8.3.16 Budget Vote 38 Summaries - National Treasury

This document details the 2019 “Estimates of National Expenditure.” It is compiled with the latest

available information from government departmental sources and other sources. Some of this

information is unaudited or subject to revision. Also included are tables containing information on

programme specific personnel expenditure, conditional grants to provinces and municipalities, public

private partnerships and information on donor funding. Expenditure information at the level of site

service delivery is included, where appropriate. The Estimates of National Expenditure (ENE)

publications are an integral part of the comprehensive annual budget process. The economic climate has

made it necessary to focus on reprioritising existing resources towards areas where the most value can

be derived for all South Africans. The budgets shown in this document reflect the outcome of a robust

negotiation process, led by a committee of senior officials in central government departments, under

the political guidance of the Ministers’ Committee on the Budget. There was also wide-ranging

intergovernmental consultation on budgets in the provincial and local spheres of government.



Ultimately, these decisions are considered and endorsed by Cabinet. The ENE publications present the

detail of national government’s expenditure estimates.

8.3.17 Centre for Gender Equality - Investigative Report – State of State Shelters

This report documented the provision of shelter to gender based violence victims nationally by

interviewing staff at national shelters; victims of GBV and by drawing conclusions from court cases.

8.3.18 Relationship of legislation to housing strategy and policy

Legislations covers both the private funding and provision of rental housing as well as the public finding

and provision of rental housing. Strategies and policies have been developed mainly with regard to

public funding and public provision of rental housing.

The Constitution in Section 7(1) “affirms the democratic values of human dignity, equality and

freedom.” Section 7(2) states that the State must “respect, protect, promote and fulfil the rights in the

Bill of Rights.” Constitutional provisions pertaining to socio-economic rights require the State in Section

26 (1) to give everyone” access to adequate housing” and states further that the State “must take

reasonable legislative and other measures, within its available resources, to achieve the progressive

realisation of this right” of “access to adequate housing.“

Two main policy documents give content to the NDOH mandate to give citizens access to adequate

housing i.e. (i) The Housing White Paper of 1994 and (ii) the Comprehensive Plan for the Development

of Sustainable Human Settlements, 2004. Current Housing policy is rooted in the 1994 White Paper.

Policy Approaches in White paper include:

• Stabilising the housing environment – upholding the rule of law to provide credit to the low income sector.

• Mobilising housing credit by unlocking private sector housing credit – attempts to promote saving in the low income market; this market could then contribute to their own housing; and establish their credit worthiness.

• Providing subsidy assistance – the capital subsidy and grants from government departments other than the National Department.

• The Enhanced Peoples Housing Process – communities are supported to build their own housing where communities are unable to contribute financially to their own housing to have an asset to leverage finance.

• Rationalising institutional capacities – i.e. with the o Housing Act, 1997 effective from 1 April 1998 which defines housing roles and

responsibilities in the public sector o Capacity building for regulators and implementers; Facilitating the speedy release and

servicing of land through Development Facilitation Act 67 and 1995 – HDA will facilitate the release of well-located land to deliver on government’s goal of social, economic and special integration

o Coordinating government investment in development – integrated humans settlements needs public private partnerships between developers and housing finance institutions and



government – Growth Employment and Redistribution (GEAR), Expanded Public Works Programme (EPWP), Accelerated and Shared Growth Initiative for South Africa (ASGISA).

Experiences gained from the 1994 Housing White Paper led to the Comprehensive Plan for the

Development of Sustainable Human Settlements approved by Cabinet in September 2004 which

resulted in a shift from the provision of housing through stabilising the housing environment to

sustainable human settlements. This shift entailed providing citizens with a permanent residential

structure with secure tenure, including providing for government support for rental tenure.

8.3.19 Relationship of housing strategy and policy with current reality

Since 1994, looking back over the past 26 years the housing backlog has increased; unemployment has

increased; social disparity has increased; informal settlements have increased; and the demand for

housing in whatever form still outstrips the supply or demand for housing/shelter. Access to sanitation,

electricity and water is not available to all; and cannot be paid for by everyone in receipt of these

services. Nor is government providing or capable of proving these essential services to all citizens.

State policies however do not appear to be constitutionally driven to progressively realise the right of

access to adequate housing. Policy documents refer to speeding up delivery; reducing housing backlogs;

and eradicating informal settlements. This terminology does not speak to security of tenure in the form

of rental housing but instead focusses on title/ownership/wealth creation through ownership.

The first National Housing Policy document focused on a subsidy linked to ownership and not on a

subsidy linked to rental accommodation. The Housing White paper on housing focused on the delivery

of housing units i.e. starter houses – location was distant with limited social and economic

infrastructure. Standards related to basic services, i.e. sanitation and water, and roads were not on the

agenda. In so doing by focussing on ownership, policy did not address the costs of homeownership like

rates and services which led to large scale non-payment of services; evictions for non-payment; and

attachments of assets due to non-payment for services.

Current Housing Policy does not appear to address different housing typologies; the diversity of

geographical situations; the diversity of housing options available and real housing needs. The

Comprehensive Plan includes a departure from ownership to higher density rental options, and requires

an improvement of the partnership between government and the private sector.

It is questionable whether municipalities have the capacity to fulfil their housing functions. Many

municipalities have consequently nor been assigned level three accreditation status to become a fully-

fledged developer and deliverer of housing including rental housing.

A responsive rental policy should address the inability of the poor to pay for services and rates as is

required with ownership. The current housing policy should move away from supply-based ownership to

rental options. Housing policy should address a greater choice in rental tenure options to low income

households earning less than R3 500 per month. Social housing, as an important sub-sector of publicly



funded and provided rental housing, should take into the structural, social and economic

dysfunctionality, as enshrined in the Constitution.

9. DESCRIPTION OF CURRENT FINANCING OF RENTAL HOUSING

9.1 INTRODUCTION TO SOUTH AFRICAN RENTAL FINANCIAL SECTOR

South Africa has one of the most developed and sophisticated housing finance markets in Africa. This

forms the backbone to the countries well-established residential rental market that is underwritten by

both public and private institutions. While a diversified economy and mature capital markets exists,

notable barriers to entry including market failure presents itself within certain sub-segments of the

residential rental market. Therefore, many regulatory instruments have been implemented and strong

state interventions including institutions have been mandated to attract private investments into social

and economic infrastructure. A salient feature of the South African finance landscape is the country’s

financial regulatory framework. Strong regulatory control is exercised by the South African Reserve

Bank, the National Credit Regulator and Financial Service Conduct Authority including other functional

based regulators.

The main instrument being used at the capital markets level (investors and commercial lenders and

Development finance institutions) are structured loans (debts), equity from investors or project owners

and finally concessional loans and grants and subsidies from national institutions. At the end user level,

rental agreements and lease agreements are used that charge market related rentals or rental

prescribed by the regulations.

Both the public and private sectors are heavily involved in the South African rental housing industry.

Since the democratic change in 1994, Government has delivered and financed over 2,8 million housing

units and created over 1,2 million serviced plots. As of 2017, an estimated 29,4 percent of the total

housing stock was public. The affordable housing market in South Africa makes up most properties on

the deeds registry with 60 percent of these falling under R 600 000.111 The government’s ambitious

government-subsidised housing programme had a significant impact on South Africa’s housing market

and it is the most comprehensive in the African region.

Despite the financing efforts by both the Private Sector and the Government South Africa still faces an

ever-increasing backlog with a housing deficit estimated at 2,3 million units. Of this amount at least

595 000 could be demand for rental stock, given that this is the extent of informal backyard renting.112

111 Centre for Affordable Housing in Africa, Housing Investment landscape South Africa, 2019, page 3. 112 This is on the assumption that these informal structures represent a backlog of rental housing provision.



The 2016 Census indicates that 3,6 million households occupy formal rental accommodation113. The

reduction of the rental sector in size in the Community Survey of 2016 is a concern but could be due to a

change in the way in which tenure and house type are categorised within the survey. The backyard

rental sector has comprised 5% of the housing market consistently over the period.

In total the rental sector comprises 4,47 million households (formal and backyard rental). The demand

for affordable rental housing is expected to carry on unabated as the country continues to grow and

urbanise (the current urbanisation rate is 2,04 per cent and approximately 70 percent of the population

will live in urban centres by 2030114).

Residential rental stock is financed through a complex set of arrangements between private and public

players through capital market intermediation (illustration 1). Capital markets channel savings and

investment between suppliers of capital such as retail investors and institutional investors, and users of

capital like businesses, government and individuals. While these players within the capital markets are

detached for descriptive and analytical purposes, they are nonetheless active and work collectively same

market.

The South African economy has both local and international institutional investors that control the flow

of capital that results in the delivery of residential rental units in the housing market.

9.2 INVESTORS INTO THE RENTAL HOUSING MARKET

9.2.1 Institutional investors

South Africa has a well-developed capital market with a diversity of role players. The Johannesburg

Stock Exchange (JSE) had a market capitalisation of US$1,11 trillion as of March 2018, and therefore it is

capable of effectively directing large volumes of capital into rental housing investments.

Over half of the debt listed on the JSE is placed by the South African government. Approximately R1

trillion in government bonds is listed and these instruments account for 90 percent of all liquidity

reported on the JSE. South African state-owned companies, corporates, banks, and other African

countries also issue papers for bonds on the JSE.

Foreign domiciled companies are treated as domestic companies on the exchange. Hence, investors can

now hold a larger quantity of equities. This is a more appealing prospect for foreign companies where

risks are diluted at project investment level.

113 Tenant property Network (TPN), Investor Report: “There are 2,1 million households in formal rental accommodation in South Africa. Of the 1,4 million lease agreements that TPN profiles, 22 per cent pay below R3 000 a month, 59 per cent are positioned in the R3 000 to R7 000 rental bracket and 14 per cent are in the R7 000 to R12 000 bracket. Only half a percent is paying above R25 000 a month. Almost 80 per cent of tenants are paying below R7 000 per month. The sweet spot in terms of rental collection is the R3 000 to R7 000 bracket with the most challenging tenants paying below R3 000 a month.” 114 World Economic Forum, Davos, 2020.



Figure 1 (overleaf) shows how investors play a role in the financing of rental accommodation in South

Africa. Under the above category there are local investors. The real estate investment sector is growing

in the economy and there are 27 Real Estate Investment and Service companies and 39 Real Estate

Investment Trusts (REITs) listed on the stock exchange. These are largely invested in the office, retail and

industrial sub-sectors. A few do have residential investment portfolios. Octodec, Redefine Properties,

SACorp Real Estate, Transcend, and Indluplace are the only South African REITs significantly invested in

the residential sector.115 According to the Property Sector Charter Council's report South Africa’s

residential property sector is valued at approximately R1,3 trillion116. Real Estate Investment Companies

account for the largest share of the commercial property market, at R300 billion.

In South Africa the largest Pension Fund on the African Continent is the Government Employee Pension

Fund (GEPF). This is managed by an asset manager in the form of the Public Investment Corporation

(PIC).

115 Centre for Affordable Housing in Africa, Housing Investment landscape South Africa, 2019, page 4. 116 Property Sector Charter Council report, 2016, page 20.



Rental Housing Finance System South Africa

Capital Markets

Savings - International and Local Investors

Investments

Stocks , Bonds Etc. Real estate

Lenders Investors

Debt Equity

Regulators• SA Reserve Bank• National Credit

Regulators• Financial Services

and Conduct Authority

• Social Housing Regulatory Authority

• National Home Builder Registration Council

• Basel 3

National Government Departments & Provinces

SHRA

Municipalities

Debt

CCG - Grants

USDG - Grants

Land

Rental Products in all markets

Private Housing CompaniesMOEsCooperativesSHIs

National DFIs

Debt

Compliance

Rental Collections

Repayments

Pension Funds(listed)

Pension Funds(Unlisted)

Reg28Reg28

Unregulated• Backyarders

Figure 4 South African Rental Housing Finance System



According to the Financial Service Conduct Authority the country’s pension funds manage over R4

trillion in assets and it is estimated that around 40 per cent of the JSE is owned by these institutional

investor’s funds and life companies.117 A very small percent (0,7) of assets are invested in property.

Local retirement rules stipulate that South African fund managers can only allocate a third of their asset

pool to investment options abroad. The Pension Funds Act limits equity exposure to 75 per cent of a

portfolio. In addition, there is a maximum limit of 30 per cent in offshore assets and an additional 10 per

cent for the rest of Africa.118

Regulation 28 of the Pension Funds Act, now permits funds to invest 10 per cent of their assets in

private equity in order to encourage more socially responsible investments. The PIC alone has set aside

R1,4 billion for affordable housing developments which includes rental housing.

Under this category there are also foreign institutional investors like the World Bank, the African

Development Bank and the International Finance Corporation.

DFI Investment

South Africa has seen investment in the energy sector from the World Bank and the African

Development Bank. The European Investment Bank (EIB) specifically invested in housing. A US$178

million loan to three different financial intermediaries for the funding of affordable and Social Housing

Projects and associated urban infrastructure, including social amenities, throughout South Africa.

9.2.2 Financial service providers (FSPs)

The Old Mutual Group is a Pan-African investment, savings, insurance, and banking group. Old Mutual

Group manages R1,2 trillion funds under management as of 31 December 2017. It is listed on the

Johannesburg Stock Exchange, as well as in other countries in Africa.

Old Mutual has been active in the affordable housing investment space, investing in Housing Investment

Partners (HIP). A co-founded instrument with the erstwhile The National Housing Finance Corporation

(NHFC).

Other Banking Institutions

The finance system in South Africa has strong banking institutions with a large footprint and outreach.

Active in the Housing finance markets are Absa Group Limited, First National Bank, FirstRand Bank,

Nedbank and Standard Bank of South Africa. These Banks have provided largely debt finance to some

rental delivery agents in the Social Housing Market and the middle- and upper-income markets.

Other Private Equity Funds

South Africa’s local private equity funds have notably invested in affordable housing, both domestically

and abroad. The Southern African Venture Capital and Private Equity Association reports that 5.2

percent of funds under management in financial year 2017 were invested in real estate. Notable players

117 Financial Sector Conduct Authority, 2019, page 68. 118 Business Maverick, Ruan Jooste, June 2019.



in this category is the International Housing Solutions (IHS) and MUSA Group. Investment from

international private equity players in the residential rental market has not taken off in South Africa.

9.2.3 Government investment

The South African constitution largely drives Government’s investment and intervention in the housing

sector and more specifically the affordable housing markets. A mandate via the Department of Human

Settlements to set policy and support delivery of “adequate shelter “to the previously disadvantaged”.

Government remains the dominant funder in the lower end of the income market. In 2014/15 it was

estimated that government investment into the property market had reached R300 billion with a total

asset worth of around R3 trillion.

Currently, government subsidy in rental housing is only available for Social Housing and Community

Residential Units (CRU). Subsidy funds are provided through the Consolidated Capital Grant (CCG)

administered by the Social Housing Regulatory Authority (SHRA) which includes the former

Restructuring Capital Grant, the Institutional Subsidy and CRU. In terms of the 2019 National Treasury

Human Settlements Vote (38) an amount of R2,3 billion is allocated for Social Housing over the MTEF

period, which is expected to fund the delivery of 62 489 social housing units (2017/18 to 2020/21). The

funds are provided to accredited projects and SHIs and private sector landlords in specified

Restructuring Zones in terms of specified procedures. The procedures include specifications as to the

incomes of tenants accommodated in the buildings funded, as well as rentals charged.

In the finance system, three different National Development Finance Institutions make investment to

the rental market. These are the erstwhile National Housing Finance Corporation (NHFC), the National

Urban Reconstruction and Housing Agency (NURCHA), the Rural Housing Loan Fund (RHLF) which are

now consolidated into the Human Settlements Development Bank (HSDB). These DFIs provide largely

debt and equity finance to retail finance institutions and Social Housing Institutions. The status and

impact of the merged DFIs into HSDB is unknown at the time of writing this document. Figure 2 shows

the different financing institutions for publicly financed and provided housing, the household income

categories that are targeted, and this includes tenants in rental housing.

9.2.4 Social Housing Regulatory Authority (SHRA)

The SHRA has a dual regulator and grant allocator mandate. SHRA disburses capital grants to Social

Housing Institutions. NDoHS appropriates funding for the rental programmes of the SHRA. Current

Social Housing Act and Regulation does not make provision for the SHRA to borrow or leverage current

capital allocation.

The Consolidated Capital Grant (CCG) is allocated to rental housing projects that are financially viable,

fully and properly structured, with matching funding (debt and/or equity) secured. Approvals are based

on project readiness for implementation. Financial viability is checked against a full set of key

performance indicators specified by SHRA. The project sponsor must provide equity investment (from

own savings or profits from ongoing enterprise) into the project. Loan finance is provided by a

commercial lender or a development finance institution. Loans are typically backed by security provided

by the property itself. Small Private Landlords and Individual Landlords use personal loans and

unsecured short terms loans from financial institutions.


Document name INSITE SHRA Prelim Base Line Rep20200330 12h 00.docx PAGE 63

Figure 5 SA Housing Finance Framework - CAHF 2011119

119 Centre for Affordable Housing Finance in Africa, Overview of housing finance systems in South Africa, 2011, page 16.

R15 000 Regular Market

R5000Affordable Market

R9080(Former) FSC Market

R7500FLISP Market

R3500

Subsidy Market

R2500

R1500

R0

NURCHAConstruction

finance lender

NHFC Retail lending,

Wholesale finance to

microlenders, social housing

Institutions

TUHF inner city lender to small scale

rental landlords

SHRA Regulator to create viable borrowers of social housing

institutions

RHLF Wholesale finance to housing microlenders in rural and peri-urban areas and subsidy voucher

New GuaranteeFacility



These projects must comply with specific social housing policy, standards, restructuring and

environmental objectives as determined by SHRA. Projects must be well integrated into their precinct

and should be of a high design standard. The size of units, materials used, environmental standards and

efficiencies must meet set benchmarks. Adequate maintenance to keep the building in good condition

must be provided for in the project feasibility and there must be clear indications that the project is

designed to meet the needs of tenants and to be sustainable. Figure 2 describes the income targets and

narrow roles these National Government Institutions occupy in the rental housing finance markets.

9.3 CONTEXTUALIZING RENTAL HOUSING FINANCE ARRANGEMENT IN THE SOUTH AFRICAN MARKET

9.3.1 Historical overview

Housing finance in South is characterized by three distinct thrusts in which rental housing finance is

rooted.

The first thrust is demonstrated by the initiating actions to stabilize the housing environment amidst

community uprising and payment boycotts against financial sector and the government of the day.

Based on the Record of Understanding ,a New Deal was agreed between the government and the formal

banking sector.120 This deal primarily focussed on reducing political motivated actions that resulted in

non-payment. Several initiatives and instruments notably the Masakhane Campaign, the Mortgage

Indemnity Fund, Servcon and Thubelisha Homes including the National Home Builders Registration

Council were established.121

The main goal of these initiatives and instrument were to resume lending by the bank and normalize

residential markets to enable service loan/rental payments.

The second thrust focused on increasing and mobilizing credit into the housing market. Risk sharing

mechanisms and instruments were designed largely by the public sector to increase the volume of funds

into the lower income end of the market. To achieve the above ,the National Housing Finance

corporation (Including Gateway Home Loans), National Urban Reconstruction Housing Agency, Rural

Housing Loan Fund, Social Housing Foundation, Trust for Housing Finance and Social Housing Regulatory

Authority were established. Here the main goals were to increase the number of intermediaries to

provide credit and increase rental products to low income householders. Entice formal banks to lend

down market. Government also toyed with legislative reform to force Bank to lend based on prescribed

assets.122

The final thrust relate to government subsidy instruments. These include project-linked, Individual,

rental (Institutional) and self-build (Peoples housing Process) subsidies. The main goals were to deliver

1million housing units in five years and to link credit to enhance affordability and improve the quality,

size and tenure option of end user products.123

120 Centre for Affordable Housing Finance in Africa, Overview of housing finance systems in South Africa, 2011, page 13. 121 Centre for Affordable Housing Finance in Africa, Overview of housing finance systems in South Africa, 2011, page 13. 122 Aryan and Pillay, Presentation on Financial Sector Charter, National housing Finance Conference, 2008, page 8. 123 Centre for Affordable Housing Finance in Africa, Overview of housing finance systems in South Africa, 2011, page 13.



9.3.2 Existing rental market segmentation

Figure 3 and 4 below shows a particular segmented relationship between the different types of funding

for rental housing, household income and rental typologies. This segmentation was developed for SHRA

by the Rebel Group.

Figure 6 Rental sub sectors as applied to household income124

Figure 7 Housing Typologies and Financial Instruments125

The typologies are justified in terms of the extent of state involvement and also of private sector

involvement. Formal Private Rental has deep financing scope and impact which is not dependent on

state subsidies. The volume of funding in this sub-market on an annual basis is unknown. This sub-

market is not incentivised by any public subsidies. This sub-market is the most significant contributor in

respect of private finance and delivery of rental units in the “functional “market without subsidies.

Public rental refers to the municipal owned stock and hostels conversions which include Community

Residential Units suffers from poor rental collections, poor stock maintenance and rehabilitation

implementation. Income targeting is evident in the approach from Government through the Community

Residential Units and Social Housing Programme, and also notable is the absence of the private sector in

the development, management and financing of stock in the less than R5 000 household income group.

124 Rebel Group South Africa, Rental Sector Overview and Framework, 2019, page 20. 125 Rebel Group South Africa, Rental Sector Overview and Framework, 2019, page 27.



Figure 4 highlights Rebel’s five main housing typologies for rental and primary financial instruments.126

9.4 INSITE RENTAL HOUSING FINANCE SEGMENTATION

This Preliminary Baseline report has further refined the categories of privately funded and provided

rental housing and publicly funded and provided rental housing. This is illustrated in the two figures

below. These show the eight subsectors delineated in INSITE’s segmentation, referred to under the

sections Terminology and Product Market Combinations. The INSITE segmentation is thus a fine-grained

categorisation of the funding dynamics and elements of the rental housing sectors and their subsectors.

This is useful to reflect on existing policy and strategy and also to assess historical and current financial

performance. Accordingly the following sections categorise the funding of rental housing within each of

the eight subsectors.

Source: self-constructed figure

Source: self-constructed figure

126 Rebel Group South Africa, Rental Sector Overview and Framework, 2019, page 27.

R1 500R0 R3 500 R7 500 R15 000 R22 000 plus

Informal Rental Subsector

Community Residential

Units Rental subsector

Social Housing Rental Subsector

Emerging Rental Subsector

Established Private Rental Subsector

Unsubsidized Special Needs Rental Subsector

Municipal Rental Stock Subsector

Subsidized Special Needs Rental Subsector

Pri

vate

Ren

tal

Pu

blic

Ren

tal

Monthly Household Income within the Eight subsectors

R1 500R0 R3 500 R7 500 R15 000 R22 000 plus

Informal Rental Subsector

Community Residential Units Rental subsector

Social Housing Rental Subsector

Emerging Rental Subsector

Established Private Rental Subsector

Unsubsidized Special Needs Rental Subsector

Municipal Rental Stock Subsector

Subsidized Special Needs Rental Subsector

Pri

vate

Ren

tal

Pu

blic

Ren

tal

Monthly Rental within Eight Subsectors

Private Capital

Investment –No subsidy

Predominantly

State Capital Investment –with subsidy



9.5 FINANCIAL PROFILING AND FINANCING INSTRUMENTS FOR PUBLIC AND PRIVATE RENTAL HOUSING



The formal rental sub-segment is financed largely by investors (Real Estate Investment Trusts) and

commercial financial institutions. One of the critical factors in investment is the location and target

income market for making financing decisions. The main financing instrument in this category is debt

and equity funding. In some cases, DFI financing is available to mitigate risk and enhance credit. Debt is

mobilized at below prime based on the track record of the developer or property manager. The

financing has a high leverage ratio with typically 70 per cent debt and 30 equity. The basic model has the

following elements.

Source: Self constructed

The cost of well-located land is imputed into the finance model. This model effectively copes with the

cost of compliance, maintenance including tenant management and debt repayment and provides a

return to equity holders. Private investors, banks and DFIs including pension funds have been active in

this market. The end-user instrument is a lease or rental agreement that is effectively managed through

tenant payment track record and behaviour. Extensive use of credit bureaus are used to screen and

select tenants. According to the latest available figures from the TPN Rental Payment Monitor, only

about 56 per cent of credit active consumers are in good standing at the moment, and in the R3 000 to

R7 000 a month income category, which accounts for the majority of tenants, only 73 per cent are

currently paying on time and in full.127

To manage rental payment defaults a sophisticated insurance scheme has been developed. For a risk

based premium, rental default insurance can be purchased to cover cash flow during execution of

eviction and installation of a new tenant.128

127 Trafalgar rental property report, 2019. 128 Pay Prop, rental index, annual review, 2019, page 6.

• Total Cost (land location) R900 000 plus

• Debt 70 per cent

• Equity 30 per cent

• Operation Cost (pupm) R500

• Default Insurance One per cent

• Maintenance Reserve 10 per cent

• Cash flow insurance Percentage age of defaults

• Deposit Three months in advance

• Lease Agreement Periodic Renewal

https://www.trafalgar.co.za/trafalgar-rental-index/




The emerging private rental subsector is located in previously segregated black townships.

A Cape Town-based case study revealed that the cost of the land purchased varied between R60 000

and R150 000, for land parcels varying from 60 square meters to 170 square meters. Rentals paid for

units varying between 12 square meters and 30 square meters (mostly concentrated between 15 square

meters and 23 square meters, varied between R1 500 p.m. and R2 600 p.m. Return on investment,

calculated as annual rental income divided by total financing, varied between 18,5 per cent and 43,6 per

cent.129

In the Cape Town case funding came mainly from:

• Savings from wages earned or from small business activities. • Provident fund pay-outs. • Proceeds from sale of assets (e.g. car, taxi). • Savings from stokvels. • Significant family loan. • Rolling saved operating surpluses to cover next purchase. • Short-term personal loans from banks. • Extended overdraft facilities and credit cards.130 Only one of microloans have been linked to adding additional rental space.

The subsector has demonstrated profitable business can be operated in the lower income segment of

the market. The business model is able to collect rents in cash and replace non-paying tenants. These

transactions are not recorded and thereby imply that there are no tax and regulatory cost.

Backyard tenants are willing and able to pay up to 40 per cent of their wages towards rent. In the Cape

Town case rents varied between R1500 and R1700 p.m. (for 12 square meter to 15 square meter

rooms); up to R2 200 (for an 18 square meters room); (includes water and an en-suite toilet and

shower). Cost of electricity is for tenant’s own account. 10 per cent to 15 per cent of annual rent is

allocated to maintenance (unlike the 25 per cent to 30 per cent recommended by Trust for Urban

Housing Finance (TUHF).131 Rental agreements are generally informal, landlords collect directly and visit

their properties often, and often accommodate tenants who are unable to pay due to unemployment –

they have a deposit of between one and 1,5 months to cover these eventualities.132

Forced majeure risks arise from non-insurance (to cover storms, fire etc) and because they are annuity-

income focused rather than asset-focused there is a risk of deterioration in their buildings (assets).133

Current specialised providers of small loans in Cape Town are: iBuild, Trust for Urban Housing Finance’s

uMaStandi programme and NURCHA (the study’s respondents fall below the remit of NURCHA for

129 Financing Micro Developments, Cape Town Landlords, 2019, pages 3, 4, 10, 11 and 12. 130 Financing Micro Developments, Cape Town Landlords, 2019, page 3, 4, 10, 11 and 12. 131 Financing Micro Developments, Cape Town Landlords, 2019, pages 3, 4, 10, 11 and 12.. 132 Financing Micro Developments, Cape Town Landlords, 2019, pages 3, 4, 10, 11 and 12. 133 Financing Micro Developments, Cape Town Landlords, 2019, pages 3, 4, 10, 11 and 12.



finance provision because they are too small and have no track record). Rates typically vary between 18

per cent for 7 years, 15 per cent for 15 years; and short-term at 25 per cent to 28 per cent per annum.134

While it has no specific programme for backyard rental, the NHFC is able to fund such initiatives from its

existing portfolio. It has, for example, funded iBuild Home Loans based in Cape Town, an initiative that

assists homeowners build additional rooms and backyard structures for rental.135


The majority of tenants in informal backyard structures earn between R0 and R3, 499 per month. In this

category formal written lease or rental agreements may not exist and this can complicate dispute

resolution; however, cases have been heard by the Gauteng Rental Tribunal.

This source of income remains very small and, in many cases, informal backyard rental accommodation

is provided to family , extended family and friends. Despite their limited contribution to income, the

multiple nature of incomes generated by means of either home-based enterprises or rental

accommodation should not be ignored when considering household income as a basis for specific policy

options.136

Currently no supply-side, demand-side or investment interventions exist for the informal backyard

rental subsector in erstwhile townships and informal areas.137

It is argued that a subsidised social rental costs the state more than a privately developed residential

rental with or without incentives.138


Student accommodation

Within the private rental specialised needs subsector accommodation for students is located around

tertiary institutions. This accommodation is funded through a project finance method that is based on

rental revenue from students and/or tertiary institutions, including the National Student Financial Aid

Scheme. This model uses the followings sources of financing:

• Government (through the Infrastructure earmarked Grant [IEG]) • Government through the National Academic Financing Scheme (NAFS) contributing towards

meeting student accommodation costs) • Public Investment Corporation (PIC) • Development Finance Institutions (DFIs) • Private banks and asset managers.139

134 Financing Micro Developments, Cape Town Landlords, 2019, pages 3, 4, 10, 11 and 12. 135 Financing Micro Developments, Cape Town Landlords, 2019, pages 3, 4, 10, 11 and 12. 136 Department of Human settlements and Department of Presidency Monitoring and Evaluation, Synthesis Evaluation on State Subsidised Housing, 2015, page 60. 137 Financial & Fiscal Commission, Summary of Sustainable Financing of Housing Public Hearings Nov. 2012, pages 5 and 6. 138 Exploring alternative finance and policy options for effective and sustainable delivery of housing in South Africa. 139 Draft Concept Note: Summary of National Rental Issues, pages 24 and 25.

https://ibuildhomeloans.com/



Retirement accommodation There was no information in the reviewed documents on this subsector. Instead two examples are offered to illustrate the level of rentals typical. The German Old Aged Home in Richmond, Johannesburg, is an example of private unsubsidised retirement accommodation. This is provided as affordable accommodation for pensioners, with the following offerings. Single Room with Own Bathroom R 10,160.00 Single Room with Shared Bathroom R 7,680.00 Accommodation includes meals, weekly cleaning and clothes washing, water and electricity In addition the Cape Peninsula Organisation for the Aged (CPOA) an organisation with 65 years of experience in the retirement market. CPOA currently runs more than 25 retirement facilities with about 3 000 residents. In recent years CPOA has grown it’s service offering in the more economic retirement sector. Proceeds from the resale of Life Right units from this area of the organisation are redirected to fund the company’s continued commitment to welfare retirement. CPOA provides accommodation for the aged the rentals of which range between R6 000 per month and R18 000 per month. Nevertheless CPOA continues to rely on external sponsors and donations from covenants and bequests to be able to run and manage welfare facilities for the increasing number of South African State Pensioners in need.



Social Housing is a significant driver in respect of public rental housing investments.

Background

Historically, the delivery of social housing was subsidized directly through two instruments, an

institutional subsidy (IS) or a restructuring capital grant (RCG). The RCG is intended to fund a proportion

of the capital costs of the social housing project, while the remaining portion be funded by debt or

other sources of funding. To qualify for the RCG, a social housing project must have at least 30 per cent

• Capital Cost R 400 000

• Consolidate Capital Grants R 237000 (RCG R126000 + Institutional Subsidy R111000)

• Debt R163 000

• Equity (10%) R40 000

• Operational Cost (pupm) R900

• Primary market 30% @ R870

• Secondary market 70% structured

• End user deposit 1 – 3 months

• Formal lease Annual renewal

• Tenant Training and Social programmes Imputed in cost of business

• Land (subsidized or unsubsidized) Source: Self constructed

http://www.germanoldagehome.co.za/Pricing/PricingEN.aspx

https://cpoa.co.za/index.php/cpoa-welfare-facilities



of the units allocated to individuals in the primary target market, who would pay subsidized rentals of

between R500 and R1 166. Additionally, the RCG increases proportionately to the number of tenants in

the primary target market to a maximum of 70 per cent. The financing instrument is the Consolidated

Capital Grant and the basic project finance model for stock development is as follows. A key feature of

this model is that rental level and income band are defined for accredited Social Housing Institutions.

Overall, the RCG is intended to deliver a return that covers financing costs, operating costs, provision for

long-term maintenance as well as additional margin for future reinvestment. Following the Department

of the Presidency monitoring and Evaluation (DPME) evaluation of social housing, the Restructuring

Capital Grant quantum and income bands were adjusted, and a single social housing funding stream was

introduced. As of October 2017, the Social Housing Programme is largely funded through the

consolidated capital grant (CCG), which is transferred to the SHRA.

This model is used by SHIs, MOEs, Cooperatives and Other Delivery Agents (ODA) that are accredited

Social Housing Institutions. Currently the bulk of debt finance is provided by Development Finance

Institutions (DFIs) particularly the National Housing Finance Corporation (NHFC) and the Gauteng

Partnership Fund (GPF).140 Land is either an equity contribution or imputed into the basic model. No

operational grants are available other than for MOEs who do receive operating grant from their parent

municipality. The revenue generated from rental income must cover operational expense and loan

obligations.

The primary subsidy is an objective subsidy instrument that combines the Restructuring Capital Grant

(RCG) and institutional Subsidies to contribute to the capital cost of a unit on a project in the form of a

consolidated capital grant. Targeting a mix of rentals affordable to households with incomes from R3

500 to R22 000, it allows for subsidization of all accessing social housing but internal cross subsidizing

where the lowest income beneficiaries receive more subsidy than higher income households. The

secondary subsidy is not obligatory for a Social Housing project. However, if properly targeted can assist

social housing projects to have a deeper down-market reach and/or better locations in areas with higher

property values and support medium and high-rise developments which are generally not affordable

with the existing financial model.

Most often such secondary subsidy comes via the municipality in the form of:

• Reduced land costs. • Waiving or reducing planning and building charges. • Reduction of bulk infrastructure costs. • Rates and municipal charge reduction.

• Operating subsidies to Municipal Owned Entities.

• Density bonuses.141 Most of these are ‘objective subsidy’ amounts provided at the discretion of the municipality. Their

application varies between municipalities and sometimes between projects in a single municipality. In a

140 Implementation & Impact Evaluation on Social Housing, 2016, page 4. 141 Draft Concept Note: Summary of National Rental Issues, pages 25 and 26.



few cities these incentives are now being built into their social housing programmes and are applied

across the whole programme or in some instances on a site-specific basis.142

Thus national, provincial and local authorities may all be involved in making contributions to the capital

costs of social housing projects.143

The table below is the expenditure trends and estimates for significant spending items with respect to

social housing spend and government’s contribution to the sub-sector.144

R thousand

Audited outcome Adjusted

appropriation

Average growth rate

(%)

Average:

Expenditure/ Total vote

(%)

Medium-term

Expenditure

estimate

Average growth rate

(%)

Average:

Expenditure/ Total vote

(%)

2015/16 2016/17 2017/18 2018/19 2015/16 - 2018/19 2019/20 2020/21 2021/22 2018/19 - 2021/22

Social Housing Regulatory

Authority: Consolidated

capital grant

109 210 424 388 851 658 743 640 89.5% 1.7% 723 706 762 747 804 646 2.7% 2.2%

Table 1 Expenditure Trends and Estimates for Significant Spending Items

The Social Housing Regulatory Authority is expected to spend R2,3 billion over the medium term to

finance and regulate 30 000 affordable rental units through accredited social housing institutions.145

The RCG stood at R 125 615 per unit in 2015. This was not escalated since inception of the programme

in 2008. An additional variance is available based on the number of units in the “primary target market”

– there is a sliding scale that determines the allocation of the grant depending on the project’s

proportional spread across primary and secondary market segments, with a primary floor rent of R

749.146

With respect to debt finance to date, the NHFC, and to a lesser degree the GPF and an offshore agency

Dutch Investment and Guarantees for Housing(DIGH) and more recently a few local banks have been the

major financiers of Social Housing. Currently, these debt instruments are not considered very effective

instruments for stimulating SH development.147

The mixture of development funding differs by project and institution. SHIs are expected to invest equity

in their social housing projects, although this has not occurred at a substantive level. Currently, this is

limited to an average of three per cent of total capital costs development.148

Financial Sustainability of SHIs

Project and Portfolio Financial Sustainability remains a key problem for SHIs.

142 HSRC, Socio-economic and spatial restructuring impact of social housing, and Genesis analytics, page 2. 143 National Housing Code, 3 Vol 6, Social Housing Policy, 2009, page 56. 144 National Expenditure, National Treasury Republic of South Africa, 2019, page 2. 145 Estimates of Budget Vote 38 Human Settlements, page 2. 146 Implementation & Impact Evaluation on Social Housing, 2016, page 11. 147 Implementation & Impact Evaluation on Social Housing, 2016, page 11. 148 Implementation & Impact Evaluation on Social Housing, 2016, page 15.



Development Costs

It is evident that Social Housing Development Costs adversely impacts sustainability of SHIs.

Development costs for new builds (including land, VAT and commercial development) ranged from R7

000 to R12 000 per square metre in 2013, with an average of R8 700. The variability in costs can be

partially explained by varying local building regulations and municipal contributions to servicing land

earmarked for social housing with bulk infrastructure. Construction costs, comprising the bulk of

development costs, are however, to some degree, for the account of the SHI. The exceptions here are

MOEs SHIs who benefit from their relationship with the parent Municipality. Design specifications and

the chosen procurement model will influence these. For example, a turnkey model under which the

construction company takes all risk and responsibility, is likely to be more expensive than one in which

the SHI acts as project manager, sourcing the required professionals, contractors and materials as cost-

effectively as possible. The profit orientation of the developer is also relevant. Appointment of a non-

profit developer, where these exist, may also yield a reduction in build costs.

Refurbishments are far less expensive than new builds, ranging from R3 000 to R8 000 per square metre,

or R5 500 on average. However, the extent to which developers can save by opting for refurbishment

depends on three factors, namely:

• The suitability of the existing built form.

• Availability at the right price point.

• Costs associated with change of building use (for example, rezoning or possible tenant eviction). However, the upward movement in development costs of projects, as a result of construction cost

inflation, is evident in efficiently run developments, negatively affected project viability.149

In the Social Housing Sector, the capital financing costs, and sustainability is sensitive to end-user rental

structures and tariffs. There is little variation in loan interest rates amongst the lenders most active in

the sector. The primary sector lender is the NHFC which generally lends from prime to prime +2.

Although there are examples of banks’ lending to projects at prime, their investment in the sector is to

date minimal. The exception in lending is the Gauteng Partnership Fund (GPF), established by the

Gauteng Province, which has provided loan finance at below prime to projects. While they are generally

the junior loan financier on projects, this model of a Development Finance Institution (DFI,) and its

ability to help blend loan financing, has proven important in facilitating higher levels of sustainability.150

“Mismatching” is the relationship between the tenant’s income, the rent price of a subsidised rental unit

and the features (mainly size in this context) of the house. Mismatches are households in subsidised

rental units who can no longer be qualified as primary or secondary target group households. Two types

of “mismatching” can be identified:

• Spatial mismatching - the size of the household contrasts with the size of the rental unit and

• Financial mismatching -This type of mismatching can be subdivided into: o Households that live in a relatively expensive subsidised rental unit in relation to their

income and,

149 The Long-Term Financing of Social Housing Study, An Overview” Research Report 1 ,2016, pages 5 and 8. 150 The Long-Term Financing of Social Housing Study, An Overview” Research Report 1, 2016, pages 5 and 8.



o Households that live in a relative cheap subsidised rental unit in relation to their income (they earn more than the upper limit of the defined income band).151

Operating Costs

The sustainability of SHIs is dependent upon viable projects and, over time, a strong and larger portfolio.

At a project level sustainability is affected by the right tenant mix, adequate scale (400 units or more)

and debt financing. Affordable rentals are the most sustainable project type, offering SHIs the

opportunity to build more sustainable developments and portfolios. The long-term finance research has

shown that between 2008 and 2015 there was a substantial drop in the financial viability of projects as

shown by the graphs in table 2.152

Table 2 The economics of operating social housing units 2008 and 2015 compared.153

Table 2 shows that the average management costs for an effective and efficient management of stocks

and tenancies has increased from R677 to R1000 (2008 to 2014) due mainly to the inflationary increase

in input costs which include maintenance (reactive and planned), municipal and communal utility

charges, building insurance, rental collection costs, security and cleaning. The lack of any change in the

RCG quantum and the targeted rentals for an unchanged income bands have also added to the strains

on project affordability. The man factor contributing to these increased management costs are:

• Above- inflation increases in municipal and utility charges. • Annual increased utility charges, when billed directly to the low- and moderate-income

households.

In Municipal Owned Entities (MOEs) SHIs the operating cost per unit can be high as R1 700 per unit per

month.

151 Social Housing Regulatory Authority, Draft Concept Note: Summary of National Rental Issues, page 26. 152 The Long-Term Financing of Social Housing Study, An Overview” Research Report 1, 2016, page 5 and 8. 153 The Long-Term Financing of Social Housing Study, An Overview” Research Report 1, 2016, page 6.



Conclusion

This reality leads to the conclusion that the financial model is misdirected because cross subsidising

favours the higher income bands as opposed to penetrating the lower income bands in Social Housing

Projects.154

Private sector participation in social housing

The City of Cape has implemented a few projects through a competitive bidding process in which it has

asked for development proposals for innovative ideas for rental housing in specific locations. Subsidies

have been used; however, the underlying financing structure is not in the current research. What is

evident is that projects are scoped using the Social Housing Guidelines to get access to subsidies

including the land which is made available through a land availability agreement. Awards are then made

to developers and property managers to build and manage the scheme as Social Housing.

Through the consultations additional information will be elicited to include for comparative basis.


Municipal rental stock is targeted to income groups earning between R500 to R3 500 per month.

Municipal rental stock and hostels are free of loan obligations and legal and financial encumbrances.

However, under Municipal control rental collection is weak at best and maintenance very poor. The

current rental tariffs have not kept up with inflation and combined with limited budget for maintenance

allocated by Municipalities, these units remain in a state of disrepair. In hostels rent collection and

utility service payments are extremely difficult to implement and suffer from the “moral hazard” risk.

Over time rental escalations have not been implemented successfully because no control exists to

replace tenants whose income has exceeded the targeted income category. In many cases lease

agreement may not exist or have not been renewed or updated in terms of current legislative reforms.

As early as 2011 the South African Cities Network noted that municipalities were increasingly dependent

on government grants and subsidies (both for capital and operating expenses ) and suggested that the

financial resilience of South African cities “has slipped”. In nominal terms, the equitable share grant

from central government grew nearly four times during the period 1996 to 2011 (with the same trend

having been discernible after the original Regional Services Council levy replacement was considered).

There is evidence that the equitable share has impacted negatively on municipalities’ resilience to

generate own income. Furthermore, there is limited discussion on how to expand income from property

rates and other avenues available to municipalities. It has become increasingly common for

municipalities experiencing funding shortfall to negotiate increases either in the equitable share or in

national grants.

154 Draft Concept Note: Summary of National Rental Issues, pages 2 and 3.



Fully subsidised government housing has had a negative impact on municipal finances. Development

contribution related to new low-income housing developments has a detrimental impact on municipal

finances – in many cases specifically on their housing development funds. Though this is not the case in

Cape Town, housing development funds have come under severe pressure and are close to depletion in

Manguang, eThekwini and Emfuleni. In eThekwini, this contribution has been as high as R110 000 (per

stand) in order to deal with problems of topography. This in turn suggests that the development

contributions historically made by municipalities may not continue in perpetuity. Property rates are

however, not necessarily levied on all these properties. According to the current valuation roll for

Johannesburg, the R150 000 residential exclusion eliminates rates liabilities for 32 per cent of residential

property owners or for 24 per cent of the total number of ratepayers in Johannesburg.155


The Community Residential Unit (CRU) programme targets low income earners of between R 1 500 and

R 3 500 per month. It now falls within the regulatory purview of the Social Housing Regulatory Authority

(SHRA).156

CRU has been financed by subsidies, developed and managed by Municipalities. The CRU Programme

has a cost per unit of R 356 375 while the current subsidy is approximately R110 947 per unit.157 No

operational subsidy is available. Collections rates are poor due to political reasons associated with the

transition from hostel (free) to CRU accommodation (user pay principle). Many municipalities are unable

to collect and have not provided adequately for maintenance.

City of Cape Town’s latest strategy on hostel upgrading is to use the CRU subsidy mechanism instead of

the Institutional Subsidy which does not provide sufficient support for Co-operatives. “There is interest

amongst communities to set up co-operatives for the hostel upgrading process, but without intensive

support encompassed in a policy framework, this will not take place.”158


There are old age homes that receive government subsidies for rental accommodation of elderly people.

There are also centres for accommodating and caring for people living with HIV-Aids, subsidised by the

government. To support frail care, state old age pensions and the Department of Social Development

subsidy cover 51,9 per cent of frail care costs and organisations like the Association for the Aged (TAFTA)

are left to provide the remaining 48,1 per cent of the cost, a shortfall of around R3 800 per person per

month. There is currently no Department of Social Development subsidy to support assisted living to

help meet the costs of providing assisted living, leaving an approximate shortfall of R2 950 per person

per month. To support social services through Lifestyle Centres the Department of Social Development

allocates R16 per person per day for a maximum of 100 people attending each Lifestyle Centre, leaving a

155 Urban Landmark Report, 2009, Synthesis Evaluation on State Subsidised Housing, 2016, page xii. 156 State of the Social Housing Sector Report, 2017, page 5. 157 NDoHS, Towards a Policy Foundation for the Development of Human Settlements Legislation V2.0 01 November2015, page 13. 158 2nd Draft Co-operative Housing Policy Summary, page 2.

http://www.seniorservice.co.za/subsidised-old-age-homes-johannesburg

http://www.seniorservice.co.za/subsidised-old-age-homes-johannesburg



shortfall of R64 per person per day. Some of the TAFTA centres have more than 400 attending

members! 159

There was no information provided in the documents reviewed. From the limited information reviewed

on-line it appears that in this subsector a contractual basis exists for aged, infirm/frail citizens, through

which the state provides a subsidy. This subsidy likely comes from the Departments of Health and/or

Social Development, and not from the Department of Human Settlements.

9.6 FINANCIAL PERFORMANCE OF SUB-SECTORS



One of the striking features of the established private rental sector is the availability of performance

statistics and acute sense of the economic trends and tenant credit behaviours. In this section rental

market is characterized into four broad categories:

• Rent and deposits,

• Credit scores,

• Income and spending, and

• Accounts and payment behaviour.

In general the Pay Prop report indicates that rental growth figures continued their sideways trend in

2019 – and, as they did for most of 2018, remained below the rate of inflation.160

Rent and deposits

National rental growth (measured Year of Year) in the final quarter of 2019 was 3,27 per cent, the

lowest figure for the year see Table 3 overleaf). The average rent increased from R7 610 in Q4 2018 to

R7 844 in Q4 2019. The average damage deposit ratio for the quarter was 1,27, slightly up from Q4 2018

(1,26). This means that, on average, tenants paid a damage deposit equal to1,27 times the monthly

rent.161

Credit Scores

There was a slight improvement in the average credit score over the past year. It increased from 643 to

645 and a decrease was measured in the percentage of high-risk tenants, from 26,4 per cent to 25,6 per

cent (see Table 4 overleaf).

Income and spending

Nationally, an increase in net monthly income (i.e. take-home pay) of R33 297, which was higher than

the percentage rental increase – creating some extra breathing space for renters (see Table 5

overleaf).162 In the past quarter, tenants spent an average of 44,9 per cent of their net income on debt

159 TAFTA figures based on actual costs on 31 March 2015. 160 Pay Prop, rental index, annual review, 2019, page 4. 161 Pay Prop, rental index, annual review, 2019, page 14. 162 Pay Prop, rental index, annual review, 2019, page 16.

https://www.tafta.org.za/ageing.html



repayments (down from 45,7 per cent) while the average rent-to-income ratio remained at 28,9 per

cent. Because of the decrease in the debt-to-income ratio, the affordability ratio decreased to 73,8 per

cent, leaving 26,2 per cent of net income after rent and debt repayments (see Table 5 overleaf).

Accounts and payment behaviour

Overall, the number of National Loan Register accounts held by the average tenant remained

unchanged for the year at an average of 2. The average number of Consumer Protection Act accounts

per tenant fell from 8,6 to 8,2. Regarding consumers’ payment behaviour, there was an overall



Table 3 Rent and Deposits163

163 Pay Prop, rental index, annual review, 2019, page 10.

Q EC FS GAUTENG KZN LIMPOPO MPUMA NW NC WC National R

EN

T A

ND

DE

PO

SIT

S

Rent

Q4 2018 5 703 5 942 8 064 8 129 7 173 7 248 4 986 8 153 9 124 7 610

Q4 2019 6 001 6 421 8 360 8 303 7 146 7 398 5 318 8 281 9 299 7 844

Rental growth

Q4 2018 3.39% 8.25% 4.84% 7.25% -4.01% 4.74% -0.09% -0.70% 3.96% 4.09%

Q4 2019 5.23% 8.05% 3.66% 2.14% -0.38% 2.07% 6.67% 1.57% 1.91% 3.27%

Damage deposit

ratio

Q4 2018 1.34 1.19 1.23 1.15 1.26 1.11 1.04 1.14 1.61 1.26

Q4 2019 1.42 1.20 1.22 1.21 1.23 1.11 1.04 1.15 1.63 1.27



Table 4 Credit Scores164


Q EC FS G KZN LIM MPU NW NC WC National C

red

it S

core

s

Credit Score V3 Q4 2018 637 644 640 641 643 642 653 634 653 643

Q4 2019 638 648 643 643 636 643 655 641 653 645

% high risk v3

Q4 2018 31.4% 24.1% 28.9% 28.7% 25.8% 24.6% 20.2% 32.1% 18.3% 26.4%

Q4 2019 30.6% 23.4% 26.7% 27.0% 32.9% 24.9% 19.1% 26.5% 18.5% 25.6%

* Credit score v2

Q4 2018 627 632 629 631 631 629 640 623 639 631

Q4 2019 629 636 632 632 624 630 641 628 640 633

* % high risk v2

Q4 2018 45.4% 37.7% 42.3% 37.7% 33.7% 42.4% 30.4% 48.4% 29.2% 38.5%

Q4 2019 42.6% 33.1% 37.3% 38.7% 46.6% 35.8% 28.2% 44.2% 28.6% 36.6%



Table 5 Income and Spending165


Q EC FS G KZN LIM MPU NW NC WC National

INC

OM

E A

ND

SP

EN

DIN

G

Income

Q4 2018 27 125 31 796 31 962 33 954 28 457 32 036 31 917 31 509 35 815 32 177

Q4 2019 27 903 30 542 32 922 35 876 29 184 33 200 36 090 29 176 36 698 33 297

Debt-to-

income ratio

Q4 2018 43.7% 37.6% 46.3% 45.6% 43.0% 46.8% 67.8% 35.0% 40.2% 45.7%

Q4 2019 45.9% 42.2% 45.9% 42.2% 55.7% 36.6% 54.0% 62.6% 37.8% 44.9%

Rent-to-

income ratio

Q4 2018 29.5% 26.9% 29.6% 30.4% 27.1% 29.7% 22.1% 27.3% 29.8% 28.9%

Q4 2019 29.5% 26.7% 30.1% 28.4% 30.5% 27.1% 21.9% 28.9% 30.4% 28.9%

Affordability ratio

Q4 2018 73.1% 64.5% 75.9% 76.0% 70.1% 76.5% 89.9% 62.3% 70.0% 74.6%

Q4 2019 75.4% 69.0% 76.0% 70.6% 86.2% 63.7% 75.8% 91.5% 68.2% 73.8%



Table 6 Accounts and Payment Behaviour166

improvement from Q4 2018 to Q4 2019. Only 18,1 per cent of tenants had a major delinquency in Q4 2019, compared to 19,4 per cent in Q4 2018. While the

highest number of months in arrears for the average consumer remained at 3,8 months in Q4 2019, the average time since the average consumer was three

months in arrears on any account worsened to 8,1 months – down from 8,4 months a year previously (see Table 6 above).167

166 Pay Prop, rental index, annual review, 2019, page 10. 167 Pay Prop, rental index, annual review, 2019, page 10.

Q EC FS G KZN LIM MPU NW NC WC National A

CC

OU

NT

S &

PA

YM

EN

T B

EH

AV

IOU

R

NLR accounts

Q4 2018 1.9 2.0 2.2 1.4 2.1 2.8 1.8 2.6 1.5 2.0

Q4 2019 2.5 2.2 2.0 2.1 2.7 1.9 1.8 1.8 1.5 2.0

CPA accounts

Q4 2018 8.0 8.0 8.6 8.6 8.9 9.2 9.5 8.9 8.1 8.6

Q4 2019 7.7 8.4 8.3 8.2 8.7 7.8 8.7 8.1 7.7 8.2

Major delinquencies Q4 2018 22.2% 22.3% 19.0% 21.4% 15.7% 26.1% 17.9% 26.1% 13.7% 19.4%

Q4 2019 18.5% 21.5% 17.2% 18.3% 21.9% 24.2% 16.5% 23.9% 13.2% 18.1%

Months since 3

months in arrears

Q4 2018 7.8 8.2 7.8 9.0 9.5 8.9 8.3 7.6 8.9 8.4

Q4 2019 7.0 8.2 8.4 8.4 5.2 8.4 8.2 5.8 9.0 8.1

Highest months in

arrears

Q4 2018 4.3 3.5 4.0 3.8 3.9 4.0 3.5 4.3 3.0 3.8

Q4 2019 4.2 3.8 3.9 4.1 4.1 4.1 3.5 4.1 3.0 3.8



In terms of rental yield nine out of the top 20 suburbs that attained the highest yield in the country for

sectional title schemes are in the city of Tshwane, with the top performing suburb Philip Nel Park in the

west of Pretoria averaging a yield of 20,1 per cent over the last five years. With 92,3 per cent of tenants

currently in good standing on their rental payments. In terms of full title properties, the highest yield in

the country is to be found in Cosmos City in Johannesburg with a good-standing rental payment

percentage of 91,2 per cent.168


There is information on this subsector but limited a micro-case study in Cape Town. Ratio and

performance-based financial assessments on an extended scale were not made available. More

information is required if SHRA wants this aspect of the report to be developed. Without these

comparisons the baseline for South African rental sector would be incomplete. This knowledge

development of this subsector also provides a baseline of comparison of performance with the social

housing subsector.


The documents reviewed as well as INSITE’s own knowledge through its own research, suggests that

tenants occupying informal backyard structures, through informal agreements, tend to pay regularly,

and where not there are often payment arrangements. It also seems that backyard rentiers supply of

units is demand driven, and seem to be fully occupied. However, no statistic is available on the financial

performance of this sub-sector.


The performance of this subsector is not measured on a typical commercial basis relating to return of

equity and return on investment, but rather on the basis that they adequately cover operating costs and

generate a surplus for their accumulated (non-distributable) reserves. There was no information in the

documents reviewed in respect of measuring performance of the type of non-profit institutions in this

subsector referred to earlier.



The following are the salient financial performance in respect of Social Housing Institutions under the

regulation of the SHRA. Some indicators include 2019 figures which are not finalized.

The State of the Social Housing Sector report published in 2017 illustrates a selection of the key ratios

for the 2017/18 financial year. These are discussed below. The SHRA indicated that it was not possible to

provide this data for the entire Medium Term Strategic Framework (MTSF) period owing to

shortcomings in data availability.

168 TPN Credit Bureau, Investor Report, 2017.



Business Start Cost

A key characteristic of the established SHIs is that in developing stock they benefitted from seed, bridge

or other funding that subsidized the costs of institution building and allowed them to develop and

operate stock to the point where sufficient rental income was generated to fund operating costs. This

was particularly the case for MOEs but also for other SHIs that have benefited from donor and other

support. It is argued that where SHIs partnered with turn-key developers, business start-up costs are

contained as such SHIs are not required to capacitate themselves to be developers of stock but can

rather focus on managing stock, with their limited capacity. Emerging SHIs are struggling to provide their

own project equity and to obtain commercial loans owing to an inadequate track record. There is a need

for the sector financiers – government, DFIs and commercial institutions - to address a gap in the

provision of business start-up funding if the sector is serious about growing the number of SHIs

developing and operating stock.

Capital Development Cost

The development costs of new buildings (including land, VAT and commercial development) vary

between R 7 000 and 12 000 per square meter (in 2013 Rand), with an average of R 8 700 per square

meter. The inconsistency in costs is attributed to varying local building regulations and municipal

contributions to servicing land earmarked for social housing with bulk infrastructure. The data shows a

great degree of variability in respect of the average development cost per unit. The average annual cost

per social housing unit as used by SHRA in the Determination of the Income Band Study in September

2017 was:

• Primary Unit: R 360 000. • Secondary Unit: R 400 000. • Weighted Average: R 388 000. The average unit cost increased at an average annual rate of 11 per cent per annum between 2007/08

and 2013/14. Construction costs have increased by an estimated 39 per cent over the last five years.

Inflation increased at an average annual inflation rate of 6,4 per cent between April 2008 and March

2017. The SHRA contends that the failure to make CPI-linked adjustments to the RCG, undermined

investor confidence in the sector and adversely impacted on the long-term sustainability of the sector.

The current increased quantum and income bands increases is viewed by the SHRA as blunt because it is

not presently indexed to inflation.169

Operating Costs

The SHRA considers operational efficiency as an important determinant of financial sustainability in an

environment where revenue generation is constrained by regulatory thresholds and low tenant

incomes. The cost structure of SHIs includes the sum of direct operating costs (excl. utilities), overhead/

indirect costs, interest costs, and outsourcing costs per unit per month (pupm). Operating cost typically

include direct and indirect cost as follows:

169 SHRA, State of the Sector Report, 2017, unaudited date, 2019, page 63.



Direct Costs Indirect Costs

1. Different types of maintenance minus maintenance cost recovery

1. Administration costs (excl. salaries and remuneration)

2. Direct staff salaries (including cost of compliance and regulation)

2. Office staff salaries

3. Head office costs charged to projects 3. Maintenance, security and cleaning salaries not outsourced

4. Bad debt (written off/adjustments) 4. Executive Director’s remuneration

5. Depreciation housing stock assets 5. Non-executive directors’ remuneration 6. Taxes/levies 6. Depreciation head office assets.

7. Utilities 7. Administration costs

8. Other (insurance, legal fees, managing agent fees, cleaning, security, health & safety, commission aid, etc.).

9. Different types of maintenance minus maintenance cost recovery

Outsourcing is a common practice in SHIs in all or some of their activities to the annual value of R 137

million (SHRA, 2017). Currently, the SHRA sets the operational cost benchmark at R 1 350 per unit per

month (pupm) as threshold above which it becomes inefficient for SHIs to operate. More than half of

SHIs (68.2%) are unable to operate below the R 1 350 pupm threshold underscoring the challenges SHIs

face in containing their ‘total operating costs’. It is notable that all the MOEs have operational costs

higher than the benchmark. The average operating costs of the non-MOEs was R 1 532 pupm in

2017/2018 in comparison to R 4 031 pupm for the MOEs. The SHRA analysis indicates that here is no

correlation between the number of units under management and the average total operating cost

however, there is a correlation between MOEs and higher operating costs.170

Maintenance Costs

There is large variance in the maintenance costs across all accredited SHIs. The average cost of

maintenance pupm is the lowest for those managing less than 2 000 units. To address this

problem the SHRA has included a new clause in its contracts with SHIs that a percentage of

turnover must be kept in a bank account for repairs and maintenance. MOEs are precluded by

the MFMA from creating any reserve account.

Staff Cost

The SHRA advances the notion that higher salaries can crowd-out funding for operational

expenses such as maintenance. MOEs on average pay a higher salary per staff member. In the

case of MOEs it seems that MFMA prescribes the minimum staff requirements to be compliant.

The non-MOE SHIs have lower staff costs, with those managing between 1 001 – 2 000 units

having the lowest average cost.

170 SHRA, State of the Sector Report, 2017, unaudited date, 2019.



Revenue

Revenue generation within the social housing environment is driven by four factors:

• Rental mix (which determines average revenue per unit); • Collections ability; • Debtor management; and • Tenant turnover. There is a wide variance in rentals charged per unit amongst different sized units and within the same

unit category. The wide variance is due to rental escalations that has occurred over a long period of

time. There is a high level of non-compliance with the Social Housing Regulations in that maximum

rental per month during the 2016 calendar year varied between R 1 839 and R 7 785 per month

rendering some units unaffordable to the secondary target market. The rental increases are not

regulated, with some increasing the rental above and others below CPI.

The SHRA concludes that across all provinces most units are managed above the R 875 - R 1 049 rental

bracket underscoring the belief that rental below R 1 049 is not the most viable rental option that SHIs

should adopt.171

Rental Collections

The SHRA has set a 95 per cent rental collection benchmark; although the annual average is 78

per cent (72 per cent 2019). A noticeable variation in rent collection among the SHIs is visible;

with the MOEs on average having much lower rental collection rates (58 per cent).

Debtors and outstanding debts

In the Social Housing sector most SHIs in all housing stock categories have debtors over 90 days

as a percentage of total debtors. The MOEs have a relatively high ratio. In 2016, this debt

amounted to R 56,7 million. There were four SHIs with debtors of greater than R 5 million.

Vacancy rates

The SHRA has set a “financially tolerable” vacancy rate of less than two per cent for 2017/18.

Across all unit categories a vacancy rate higher than the two per cent benchmark was recorded

with one having a vacancy rate of 31,04 per cent In 2019 the average vacancy rate is 4.7 per

cent.

Cost to income ratio (efficiency of minimizing costs while increasing profits)

The SHRA considers a ‘direct cost to income ratio’ of less than 40 per cent as an acceptable

benchmark (’good’) and above 60 per cent as unacceptable (‘poor’), as an efficiency measure of

the SHI’s performance. More than 50 per cent of SHIs are within the acceptable benchmark. It is

notable that all MOEs have breached the unacceptable (‘poor’) threshold. For 2019 the average

cost to income ratio is 46,7 per cent.

171 SHRA, State of the Sector Report, 2017, unaudited date, 2019, page 64.



Current Ratio (ability to pay debts)

The Current Ratio is a formula: Current Liabilities divided Current Assets. The current ratio is a

liquidity ratio that measures a company's ability to pay short-term obligations or those due

within one year. It tells investors and analysts how a company can maximize the current

assets on its balance sheet to satisfy its current debt and other payables.

The SHRA sets a benchmark of greater than two as ‘good’ and less than one as ‘poor’. Eight of

nineteen SHIs are poor, seven are below (but above 1) and 5 are above 2. This picture indicates

that a significant number (8) out of 20 SHIs are experiencing severe cash-flow problems and are

unable to satisfy their current liabilities.

Long Term Sustainability

There are indications that even those SHIs with capacity to deliver are starting to move away from social

housing. Eighty-two per cent of SHIs indicate that they are actively seeking alternative, non-subsidised

residential project options due to negative conditions in the Social Housing sector. Sixty-three per cent

of respondents from SHIs fully agreed and 19 per cent partly agreed that their SHI is actively pursuing

alternative projects and market opportunities such as unsubsidized, affordable rental housing in order

to grow their portfolio over the next two years.172

Public private participation in social housing

At time of writing this report no financial information was available from the reading list, about

the financial performance of public private participation procurement in social housing. It

appears that public private partnership procurement might be implemented largely (or even

solely) in the Western Cape. Through interviews with Western Cape officials and focus groups

some information should be gathered and verified.


With respect to rental payments for municipally-managed housing units, the extent of non-payment is

calculated as the difference between the rent raised (i.e. invoice generated and posted to tenants) and

the rent collected (i.e. through a bank deposit). This deficit is added to the outstanding debtors’ balance

each year.

Rent collection rates vary per province, with an average collection of 43 to 48 per cent over the three

financial years 2013, 2014 and 2015. The debt has accumulated over many years and has not been

written off. It is highly unlikely ever to be recovered.173

The average expenditure per unit per month exceeds the rentals charged. There is a growing operating

shortfall on the portfolio of what were then properties, that was being covered by the Human

Settlement Development Grant (HSDG) top slice (state asset management grant) and provincial

equitable share. Eastern Cape was an outlier at an average accumulated arrears of R10 361 per unit per

month. However, the detailed costs obtained from the provincial Port Elizabeth regional office were in

172 Impact and Implementation Evaluation of the Social Housing Programme, 2016, page 63. 173 Performance and Expenditure Review, Provincial government housing rental stock Human settlements, May 2018, page 15.

https://www.investopedia.com/terms/c/currentratio.asp

https://www.investopedia.com/terms/c/currentassets.asp

https://www.investopedia.com/terms/c/currentassets.asp



line with the other provinces at R2 054 per unit per month in 2015/16. The difference of R8 307 per unit

per month in the Eastern Cape case, was not explained.174

After 2015, all these units were transferred back to local governments. No municipal financial

information on the performance of the rental stock, was available. Additional information will be

required to compare municipal rental housing financial performance with the financial performance of

the other rental subsectors.


The documentation reviewed contained no assessment of the financial performance of this sector.

Municipalities are unlikely to have disaggregated this from their municipal accounting system.


This accommodation is provided mainly on the basis of need, and not income. The costs are highly

subsidised from government departments like the Departments of Health and Social Development. The

gaps in funding is usually me with funds raised from philanthropic donors. The was no information the

documents reviewed about the financial performance of the projects and organisations in this

subsector. Probably this is because of the highly subsidised and grant-funded nature of this service.

9.7 IMPACT OF NORMS AND STANDARDS ON RENTAL HOUSING FINANCIAL PERFORMANCE

South Africa depended on the “Red Book and Blue Book” for engineering guidelines for design and

construction of infrastructure and different housing typologies. The Rebel Group South Africa has

produced different norms and standard for each subsector in the privately funded and provided rental

housing sector and the publicly funded and provided rental housing sector. The Rental Housing Act of

1999 requires the Minister of Human Settlements to promulgate regulations for norms and standards

for the entire rental market. When implemented these norms and standards will have an effect on the

physical construction cost of the units in the eight rental sub-categories.

There are three main implications to policy development from a financial perspective, of norms and

standards for rental housing. Firstly, the regulatory capacity will need to be created to effectively

regulate the different rental subsectors in different locations. This will entail a significant operational

cost for which there is currently no budget provision in the fiscus. Secondly, if subsidies are used to

incentivize selected rental subsectors these costs will have to be incorporated into the subsidy

instrument. Finally, when applied to the private rental sector the additional costs of implementing these

norms and standards will have to be recovered through increased rental tariffs.

Rental pricing in the emerging and informal (backyard) rental subsectors are sensitive to the increased

costs arising from improved norms and standards. It unlikely that the rentiers-developers and the

households informally leasing backyard space will absorb these extra costs. This will lead to a rising level

of rents in these subsectors. In the absence of increased state subsidies this will change the income

profile of tenants: they will tend to be households earning in higher income categories.

174 Performance and Expenditure Review, Provincial government housing rental stock Human settlements, May 2018, page 15.



9.8 TAXATION AND RENTAL HOUSING

Property taxes are one way that local governments raise the revenue they need to provide services for

residents. National government also taxes the value of residential properties and their improvements

through several mechanisms. Taxation is a tool that governments can use to encourage investment in

rental housing.

There are several ways to assess the extent to which taxation of rental housing is an obstacle to

investment. First, the effect of each tax on the rate of return can be measured. Second, the estimated

effect of tax evasion. Third, taxation of rental housing should be compared with taxation of alternative

investment in (for example) financial products, non-residential real estate, and owner-occupied

residences.175 South Africa has tax burdens on the development of stock associated with value added tax

(VAT) on goods and services, which includes rental housing.176

Transactional cost associated with the transfer of land for rental developments also attracts transfer

duties. Transfer Duty is a tax levied on the value of any property acquired by any person by way of a

transaction or in any other way. For the purpose of Transfer Duty, property means land and fixtures and

includes real rights in land, rights to minerals, a share or interest in a “residential property company” or

a share in a share-block company. A fee based on sliding scale of the value of the rental housing

property, is payable. This applies to all rental housing subsectors except the municipal rental housing

subsector, or in the case of the other subsectors where a land availability agreement is used.

If you own one or more rental properties, the SA Revenue Service (SARS) requires you to calculate your

expenses and profits in relation to these properties – and to pay tax on your profits. Money received for

the occasional rental of a holiday home or for the rental of a room in your home or a cottage on your

property forms part of your income and must be declared to the Receiver. Rental property owners can

claim certain expenses incurred in the letting of property that can be deducted from the gross rental to

determine the actual operating profit and thereby reduce the amount of tax payable. These expenses

include municipal rates and taxes, the interest paid on the mortgage over the property, the cost of

advertising for new tenants, the fees paid to a managing agent, the annual homeowners’ insurance

premium, the cost of repairs and maintenance and the cost of garden and security services.177

9.9 CONCLUSION

The current rental model to ensure long term sustainability is unclear particularly in respect of the lower

income groups. The data indicates that for the income group below R5 000 the state is the only delivery

agent and subsidies are the main sources for development of new stock. No operational subsidy or grant

is available for ongoing costs of running projects for the benefit of this income category. However, some

Municipal Owned Entities that are SHIs do receive operating grants from their parent municipalities.

The Finance and Fiscal Commission (FFC) noted that the current housing finance policy is unsustainable.

This means that the state cannot fund publicly provided housing on an ongoing basis in the same way as

hitherto. Increased costs over time have meant that more and bigger subsidies are required to deliver

175 Rental Housing, Lessons from International Experience and Policies for Emerging Markets, World Bank, 2013, page 40. 176 For a VAT vendor a 15 per cent tax is added to all construction and maintenance invoices. 177 Trafalgar Property Management Services, How to Save Taxes on your Property, 2019.



on commitments. This point also covers publicly funded and provided rental housing. The budgetary

implication of eliminating the housing backlog is estimated at R35 billion, which the FFC notes is far

beyond the fiscal capacity of the state, especially within the context of slower economic growth.

In view of the current macro-economic situation and fiscal constraint, stakeholders interviewed by the

FFC recognised the need to look at how state support can be refined and resources better utilised. To

realise the goal of adequate housing for all, the following were some of the interventions identified:

• Supply incentives, which stimulate the supply of housing and imply that the state trusts the market (private sector).

• Demand incentives, which enhance the effective demand for housing by improving affordability (for example, through housing vouchers).

• Investment incentives, which entail broadening the suppliers to include large-scale companies178

178 Financial & Fiscal Commission, Summary of Sustainable Financing of Housing Public Hearings November 2012, page 52.



10. REVIEW OF INSTITUTIONAL ARCHITECTURE OF RENTAL HOUSING AND MANDATES

10.1 INTRODUCTION

The diagram below illustrates all the relevant institutions involved in the funding and provision of rental housing. These are categorised according to

Parliament/

Legislature

NDoHS

Provincial Depts of

Human Settlements

Rental Tribunal NHBRC SHRAHDA

GPF

Municipal Depts of

Human Settlements

(MDoHS)

NHFC

TUHF Int. Fin Banks

Developers &

Construction Co

MDoHS

(municipal

rental housing

subsector)

Backyarder

Landlords

r(informal

[backyard

rental

subsector)

SHIs (MoEs,

Coops ODAs)

(social housing

subsector)

Private

Landlords (emerging

private rental

subsector)

MDoHS(CRU rental

subsector

Tenant Committees

NGOs (subsidised

special needs

housing

subsector)

Private Landlords(established

private rental subsector)

Real Estate

Investment Trusts

(REITS)

Private

companies(unsubsidised

special needs

housing

subsector)

Philanthropists

PFMA, MFMA,

Housing Act, Rental

Housing Act and Social

Housing Act

Constitution of South Africa

NDP



the following areas:

• Government.179

• Human settlements development agencies.

• Regulatory institutions.

• Financial institutions.

• Delivery agents.

• Developers and construction companies.

• Tenant consultation groupings.

The following sections list the institutions by category, their roles and functions, the specific rental housing subsectors where they practice these roles and

implement their functions, and their challenge and problems.180

10.2 GOVERNMENT INSTITUTIONS

Institutions Roles, responsibilities and functions Rental housing subsector location Challenges and problems

Parliament - Legislature

• Promulgates and pass laws to govern the country

• Provides oversight and management of performance of Outcome 8

Overall rental housing market, and there is no distinction from the vantage point of Parliament of the public funding and provision of rental housing from the private funding and provision of rental housing

National Department of Human Settlements (NDoHS)

• Gives effect to Constitution of South Africa (Chapter 2: Bill of Rights Housing: everyone has the right to have access to adequate housing)

Overall rental housing market, predominantly in the public funding and provision of rental housing

179 It should be noted that the Departments of Health and Social Development provide additional grants for special needs accommodation. 180 Sourced from Social Housing Regulatory Agency and National Department of Human Settlements, State of the Social Housing Sector Report 2016.




• Sets policies, guidelines and regulations for the facilitation of a sustainable housing development programmes

• Allocates budgets for the implementation of housing programmes

Provincial Departments of Human settlements

• Ensure fairness, equity and compliance with national and provincial norms and standards

• Ensure the protection of consumers by creating awareness of consumers rights and obligations

• Facilitate sustainability and growth of the rental housing market

• Mediate in the case of conflict between stakeholders in the rental housing market, through the housing tribunals

• Submit (In consultation with municipalities) proposed restructuring zones to the Minister of Human Settlements

• Monitor social housing projects to ascertain compliance with prescribed norms and standards

Overall rental housing market, predominantly in the public funding and provision of rental housing

• Other than in Gauteng, KwaZulu-Natal and Western Cape, there is no evidence of appropriate skills and capacity to promote social housing

• Other than in KwaZuluNatal, there is no evidence that consumers are actively educated about their rights and obligations

• Other than in KwaZuluNatal, there is no evidence that mediation takes place in all provinces

• There is no evidence of monitoring of social housing projects to ascertain compliance with prescribed norms and standards

Municipal Departments of Human Settlements

• Encourage the development of new rental stock

• Provide access to municipal rental stock, land and buildings for social housing development in designated restructuring zones

• Provide access to municipal infrastructure and services for approved projects

• Initiate and motivate the identification of restructuring zones

Eight subsectors of the rental housing market: established private rental, emerging private rental, informal (backyard) rental, unsubsidised special needs housing rental, social housing, municipal rental, community residential units and subsidised special needs housing rental

• There is a lack of skills and capacity to drive creation of new rental stock

• They focus more on BNG/RDP houses than rental stock

• The provision of municipal rental stock, land and building for social/rental housing is either non-existent or the process is long and arduous thereby slowing down the delivery of social/rental housing




• Approve building plans for rental housing projects

• Collect rates, taxes and service charges from tenants

• Promulgate by-laws in respect of rental housing

• Although the avenue exists in the MFMA to make land available for programmes like social housing at a more affordable rate, land alienation follows a market-related process as prescribed by the MFMA with the result that suitable well- located land for the development of Social Housing becomes too expensive to SHIs

• In many instances, municipalities have budgetary constraints to provide access to municipal infrastructure – this results in delays in implementation of projects

• The lengthy time taken in approving plans hinders the delivery of rental/social housing

• Municipalities do not provide alternative accommodation to tenants who are unable to afford rentals levied by the SHIs – this puts pressure on the collection rates of SHIs

• Municipal tariffs on rates, taxes and services are levied at commercial rates to SHIs resulting in the passing down of such charges to the tenants consequently rendering the rentals unaffordable



10.3 HUMAN SETTLEMENTS DEVELOPMENT AGENCIES.

Institutions Roles, responsibilities and functions Rental housing subsector location Challenges and problems Housing Development Agency (HDA)

• Formulates a development plan, that includes rental housing, to be approved by the Minister of Human Settlements, in consultation with the relevant authorities in the provinces and municipalities

• Develops strategic plans with regard to the identification and acquisition of state, privately and communally owned land that is suitable for rental housing

• Prepares necessary documentation with regard to plans for rental housing, for consideration and approval by the relevant authorities as may be required in terms of any other applicable law

• Monitors progress of the development of land and landed property acquired for the purposes of creating rental housing

• Enhance the capacity of organs of state, including skills transfer, to enable them to meet the demand for rental housing delivery

• Ensures that there is collaboration and intergovernmental and integrated alignment for development services in respect of rental housing

• Identifies, acquires, holds, develops and releases state, private and communal land for rental housing development

• Undertakes such project management services as may be necessary, including

Seven subsectors of the rental housing market: established private rental, emerging private rental, unsubsidised special needs housing rental, social housing, municipal rental, community residential units and subsidised special needs housing rental

• Skills, Capacity and budget constraints

• Too much reliance is placed on municipal funding of projects and municipalities in most instances have funding constraints themselves




assistance relating to approvals required for rental housing development

• Contracts with any organ of state for the purpose of acquiring available land for rental housing

• Assists organs of state in dealing with rental housing developments that have not been completed within the anticipated project period

• Assist organs of state with the upgrading of informal settlements, in respect of the rental housing

• Assist organs of state in respect of the rental housing component of emergency housing solutions

10.4 REGULATORY INSTITUTIONS.


Social Housing Regulatory Authority (SHRA)

• Advises and informs the Department of Human Settlements about social housing

• Registers and accredits SHIs • Recommends the placing of Restructuring

Zones • Sets standards for the operation of SHIs,

accredits SHIs, monitors SHI compliance and acts in event of SHI non-compliance

• Administers the investment of, and disburse, public funds for social housing projects and programmes

• Reports on compliance (both in respect of individual SHIs and the social housing subsector)

Two subsectors of the rental housing market: social housing and community residential units

• Skills and capacity challenges as a result of staff turnover with the result that assessment and other functions pertaining to grant applications have to be outsourced

• SHIs would prefer representative offices of SHRA at provincial level to facilitate contact, speedier resolution of problems and capacitation of start-up SHIs

• More compliance-focused than enabling the rapid delivery of social housing




• Long turnover times to respond to SHI complaints and queries

• Subsidy income bands are not adjusted to indices such as CPI and capital subsidy quantum are not regularly reviewed to keep up with escalating building costs

National Home Builders Regulatory Council (NHBRC)

• Provides warranty protection against defects in new rental housing builds

• Regulates the house building industry • Provides protection to housing consumers

(including tenants in the rental housing market) in respect of the failure of home builders to comply with their obligations in terms of Housing Consumer Protection Act

• Establishes and promotes ethical and technical standards in the house building industry

• Improves structural quality in the interests of housing consumers and the house building industry

• Promotes housing consumer rights and provides housing consumer information

• Communicates with and assists house builders to register in terms of the Act

• Assists house builders, through training and inspection, to achieve and to maintain satisfactory technical building standards


• There are capacity constraints • Inability to regulate in the Informal

sector, and backyard rental accommodation in many instances do not meet liveable standards

• General perception by public that they are mainly interested in insurance revenue collection.

Rental Tribunals

• Resolve disputes between landlords and tenants

• Refer cases to the magistrates courts

• Make orders to rectify complaints

Eight subsectors of the rental housing market: established private rental, emerging private rental, informal (backyard) rental, unsubsidised special




needs housing rental, social housing, municipal rental, community residential units and subsidised special needs housing rental

10.5 FINANCIAL INSTITUTIONS.


Gauteng Partnership Fund (GPF)

• Addresses funding challenges in the affordable housing

• Assists rental housing entities to procure finance at the most favourable terms in order to promote affordable, quality accommodation that is well-managed for the target market

• Has a Rental Housing Fund for mainly start-up rental housing entities that require additional funding into a project. The equity-type loan enhances the debt to equity ratio for projects to enable lenders to finance on favourable terms.

The social housing subsector • Since GPF is funded by the Gauteng Provincial Housing Department, it always has funding constraints due to other competing funding requirements of provincial programmes

• Since it is an entity of the Gauteng Provincial Government its favourable funding cannot be accessed by SHIs outside of Gauteng

National Housing Finance Corporation (NHFC)

• Provides housing finance to intermediaries, mainly Retail Finance Intermediaries, Property Practitioners/Developers and Social Housing Institutions

• Supports and capacitates emerging housing intermediaries through partnerships with other local and international organisations such as the African Development Bank (AfDb) and the European Investment Bank (EIB)

The social housing subsector • Budgetary constraints due to no further funding from the fiscus other than start-up capital at inception in 1996

• Cost of funding expensive for SHIs as it needs to preserve its capital to sustain itself from the lending income

• Operates more on a commercial financier basis than a Development Finance Institution in order to preserve capital.




• Offers a range of wholesale housing finance options through the consolidation of other housing finance DFIs – i.e. NURCHA and Rural Housing Loan Fund (RHLF)

• Inability to innovate new housing finance products due to Research and Development constraints and expertise

• Inability to ‘crowd-in’ the private sector financiers to accelerate the delivery of housing due to its risk averseness

Banks/Commercial Lenders

• (Some) provide loan finance to delivery agents in the affordable housing sector, mainly to private landlords, and Nedbank is been limitedly active in the Social Housing Sector.

International Housing Solutions (IHS) provides finance and also acquires rental portfolios in the Affordable Housing Market

Three subsectors of the rental housing market: established private rental, unsubsidised special needs housing rental, social housing subsectors

• Commercial lenders are risk averse to Social Housing and do not provide finance for more than 10 to 12 years. Social Housing require loans over a 20-year term

International Financiers

• Make available funding to the affordable sector (including the publicly financed and provided rental housing sector) through South African lending institutions such as NHFC and the Commercial Banks (these include multilateral DFIs such as French Development Agency [AFD], European Investment Bank [EIB)])

Three subsectors of the rental housing market: established private rental, unsubsidised special needs housing rental, social housing subsectors

• Loans are normally foreign currency denominated. Volatility in the currency market could affect the eventual cost of the loan to the SHIs

Trust for Urban Housing Finance (TUHF) (specialised commercial property financier)

• Drives inner city investment by providing access to finance for entrepreneurs from all walks of life, to purchase and subsequently convert or refurbish buildings in the inner cities of South Africa to deliver affordable residential rental units.

• Provides following financial products:

Two subsectors of the rental housing market: established private rental and emerging private rental

• TUHF financing is in great demand and hence they run out of finance, thereby limiting the amount of loans they can advance

• They depend to a certain extent on NHFC for both equity and loan funding as NHFC is a shareholder in TUHF




- Property finance: A single loan facility over 15 years for acquisition and development of affordable rental units, with a prime-linked interest rate and once-off raising fee. Financing structure includes grace periods to accommodate the property development and tenanting stages

- Equity support via the Inthuthuko Equity Fund which supports previously disadvantaged individuals by contributing to the 20 per cent deposit or equity necessary for loan approval

- Support for the entrepreneurs throughout the process from negotiating the purchase price to construction and then renting and management

• Do not provide funding to the Social Housing Sector as they do not have a 20-year product to cater for SHIs

10.6 DELIVERY AGENTS.


Private Landlords

• Provide unsubsidised rental accommodation to identified market segments in accordance with the demand

• Provide efficient and effective administration and collection systems and skilled personnel to administer rental accommodation successfully

Established private rental subsector Do not find it attractive to provide Social Housing due to the regulations and compliance which they consider onerous.




• Implement mechanisms, systems, policies and procedure to take swift action against defaulting tenants

• Raise finance on the open market to fund their buildings and operations

• Maintain their buildings to increase asset value in accordance with market valuations, trade the assets on the open market to raise cash or make other strategic acquisitions to grow and sustain their businesses.

Emergent Landlords

• Provide unsubsidised rental accommodation to identified market segments in previously-=segregated townships, in accordance with the demand

• Provide efficient and effective administration and collection systems to administer rental accommodation successfully

• Rely on own finance to fund their buildings and operations

Emergent private rental subsector

Social Housing Institutions

• Apply for and obtain accreditation from the SHRA to be able to access the Consolidated Capital Grant

• Develop social housing stock, particularly in designated restructuring zones

• Manage social housing stock within prescribed rental bands

• Manage tenants

Social housing subsector • Due to the reliance on low subsidised rental revenue and not expanding into the general unsubsidised affordable rental market SHIs are not sustainable. In terms of State of the Social Housing Sector Report 2016181 “the current performance

target set by the SHRA in respect of SHIs for cost to income ratio is ≤40%”

181 Social Housing Regulatory Agency/Department of Human Settlements Department, Social Housing Sector Report 2016, Page 80




- “The average cost to income ratio for 2015 was 100%” meaning that all revenue collected went towards operational expenditure

- “In 2015, SHI A had the best performance (55 per cent) and SHI I the worst (158 per cent )”

Clearly this research indicates that the sector is not sustainable. • Under “Asset Preservation” the same

report (Page 85) states: - “Asset management and

preservation is a key output of the SH program. …. The units must be of a design and standard that remains attractive to potential and existing tenants at all times, and the SHI must use the asset to leverage its appreciated value for growth of its SH property portfolio. SH Regulations require the SHIs to develop a fully costed long-term maintenance plan on completion of each project developed, and to undertake annual building condition audits in order to refresh the long-term maintenance plan. It requires the SHRA to monitor compliance of this requirement and to provide a consolidated view of the state of repair of the SH portfolio”.




The SH Regulations further stipulate that 1,02% of the total development costs be ring-fenced for

• maintenance, of which a sizable portion must be reserved

• for cyclical maintenance. The financial analysis from the SFS of the 12 SHIs indicates that most of the SHIs are unable to make any maintenance reservations”

Municipal Owned Entities (MOE)

• Develop and refurbish public rental housing stock

• Administer social housing stock, including public rental stock (and in many instances) Community Residential Units)

• Manage the tenant-landlord relationship (through training and tenant programmes)

Social housing, community residential units and municipal rental housing subsectors

• They utilise the Municipal systems and procedures to collect rental revenue which are more appropriate for rates and services collection and not geared for administering rental units, thereby rendering the whole administration and management of rental stock inefficient and ineffective

• Poor rental collections and non-existent enforcement systems result in non-payment of rental by most tenants

• Insufficient rental revenue to administer and maintain the rental units results in community protests and rental boycotts leading to further deterioration of the units

• Skills and capacity at MOEs are top-heavy and therefore costly with few skilled staff at lower levels resulting in




operating overheads being out of kilter with revenue collection with the result that municipalities have to fund the operations of the MOE

• MOEs cannot raise debt finance on their own to fund new projects or refurbishment but have to receive allocations from the municipality thereby stalling the process of obtaining funding to implement new projects

• They are unwilling to evict non-paying tenants, posing a political moral hazard risk

Backyard landlords182

• Function to offer well-located, cheap accommodation to tenants (including family and friends)

• Earn income as landlords

Informal (backyard) rental subsector • By its nature of providing cheap accommodation to low income earners the landlords compromise on safety, quality and hygiene standards of the accommodation

• Due to its proliferation in the Informal sector regulatory bodies and local authorities do not have the capacity or knowledge to regulate them

• Over-regulation can adversely impact the much-needed service provided by the backyarder landlords

• Other than in developed suburbs, and in some instances costly microloans, the landlords cannot access finance to

182 Building an Inclusionary Housing Market, page 20.




construct proper units in accordance with norms and standards

10.7 DEVELOPERS AND CONSTRUCTION COMPANIES.

Institutions Roles, responsibilities and functions Rental housing subsector location Challenges and problems Developers and Building Contractors

Provide construction services to the rental market either on a turnkey basis or on a contractor-managed basis

Seven subsectors of the rental housing market: established private rental, emerging private rental, unsubsidised special needs housing rental, social housing, municipal rental, community residential units and subsidised special needs housing rental

• Many of the large and reputable construction companies such Murray and Roberts, Stocks and Stocks, and Basil Read and others have folded due to the downturn in the economy.

• Smaller resilient companies such as Motheo Construction and Calgro M3 have skills and expertise in the Social Housing sector and form firm partnerships with SHIs to deliver Social Housing at scale

10.8 TENANT CONSULTATION GROUPINGS.


Tenant and Backyard Committees

• Lobby public and private landlords

• Take action against landlords for the non-delivery of services

• Negotiate rental increases with landlords

• Provide feedback of information to their tenant constituency

• Negotiate with municipal governments


• In backyard rentals o Especially in informal settlements

they could be disadvantaged by poor quality accommodation and do not (in practice) have recourse against errant landlords

o The system of collection of rents by the landlord is efficient and non- payment can result in immediate eviction or lock-out




o For all practical purposes they are in most instances not protected by the Rental Act

• Public sector tenants o They occupy public sector

accommodation and, in many instances, discontinue the payment of rentals but expect services to be delivered by the local authority and, if not, could initiate violent protest and boycott action. Since the accommodation is owned by government, they have an entitlement approach

• In Co-operatives o Rental and service charges

collections are low as the members of the co-operatives are joint owners of the units and do not see the need to pay, consequently putting the institution in jeopardy

o There is no-evidence of any rental co-operative in South Africa being sustainable

o Nearly all of them are under administration by the SHRA

• Social Housing tenants o In most instances these tenants

understand and appreciate the benefits they enjoy by virtue of




the subsidies provided by government

o However, in instances they would, via Tenant Committees, boycott rental payments either through political influence or any event that they do not support e.g. eviction of a rental defaulter by the SHI

• Eviction of defaulters is a long an arduous process as tenants understand their rights and obligations but also have a good understanding of loopholes to avoid speedy eviction

• Private sector tenants These are the most efficient payers as they understand that it is a pure business relationship between them and the landlord regulated by the lease agreement and non-compliance can lead to swift eviction

10.9 CONCLUSION

From a policy perspective the current institutional architecture reveals a fragmented picture at the national level. It is not comprehensive to cover all the

players and subsectors of the rental housing market.



11. ASSESSMENT OF IDENTIFIED STRENGTHS AND SHORTCOMINGS OF THE RENTAL HOUSING SECTOR

This section of the Report assesses the performance of various aspects of the current rental housing

policies, strategies, practices, outputs and outcomes, in terms of seven functions referred to in the

earlier section dealing with INSITE’s approach to this project. This is the seven-Ss method of assessing

organisational functionality across seven organisational dimensions.

INSITE categorised the assessments that have been made by the authors of the documents read, in five

categories, which reflect the four critical themes that are to be explored in greater detail by dedicated

groups of experts and practitioners, through structured and facilitated workshops; and a fifth theme.

The four themes are the following: 1) Subsidies, funding and financing, 2) Housing delivery and

management (including capacity), 3) Economic growth, sustainability and rental supply/demand, and 4)

Legislation and regulation. In addition, there is a specific assessment through a fifth theme, Policy and

Strategy.

11.1 ALIGNMENTS AND MISALIGNMENTS AT POLICY AND STRATEGY LEVEL

11.1.1 Between national, provincial, municipal, SHRA and delivery agent rental housing

policies and strategies

Introduction

A strategy is essentially a ‘road map’ or guide, and a policy provides consistent parameters for decision

making and activities. Government at the national level establishes human settlements goals and

strategies to provide a framework for policy development. Strategy provides guidelines for how housing

sector role-players should operate inter and intra-institutionally in the housing sector. The national

strategic framework for human settlement assists with policy development at national, provincial and

municipal level, as well as within SHRA and among delivery agents of housing e.g. SHIs, housing co-

operatives, MOEs, etc. These policies should operate in alignment with the national strategy/strategies.

Strategy and Policy Intention:

There are a number of approved policies for rental housing, including policy-related information in the

Rental Housing Act, 50 of 1999 and the Social Housing Policy of 2005. In addition there are a number of

official and un-official guideline documents in circulation discussing rental housing strategy and policy

(official documents denoted with an asterisk).

• NDoHS. Housing White Paper (1994).*

• NDoHS. Urban Development Framework (1997.*

• NDoHS. Breaking New Ground (BNG) (2004).*

• NDoHS. Social Housing Policy (2005).*

• Financial and Fiscal Commission. Building an Inclusionary Housing Market: Shifting the Paradigm for Housing Delivery in South Africa (2012).



• National Planning Commission. National Development Plan (NDP) 2030 - Our Future: Make it Work (2012).*

• CoGTA. Integrated Urban Development Framework (IUDF) (2016).*

• NASHO. Special Needs Housing Policy (2016).

• NDoHS. Second Draft of the Co-operative Housing Policy (2018).

• SHRA. CRU Regulation Report Final (2018).

• National Treasury, City Support Programme. Managing Urbanisation to Achieve Inclusive Growth (2018).

• Commission for Gender Equality - The State of Shelters (2018/19).

• 5 yearly Medium-Term Strategic Frameworks (MTSFs.)*

• APPS (Annual Performance Plans) (of relevant government departments).*

• SHRA concept note on rental housing.

Consistent policy themes have originated from The Constitution (1996), and have been repeated in

documents such as the NDP (2012), the Housing Act (1997), the Rental Housing Act (1999) and the Social

Housing Act (2008).

The Constitution establishes the right to have access to adequate housing (including children’s rights to

shelter), within the resources available, to achieve progressive realisation of this right, outlawing

arbitrary evictions and creating the injunction for legal dispute resolution mechanisms. The NDP

identifies spatial restructuring as key to integrating towns and cities, and rental housing forms a critical

element of the restructuring of space. The intention is to make measurable progress with regard to

breaking apartheid spatial patterns by 2030. The Housing Act commits government to facilitate

sustainable housing, and defines roles and responsibilities for spheres of government. For example,

provincial government has the function of channelling housing funds to municipalities. “The Housing Act

together with the Division of Revenue Act (DORA) 2006, allows for provincial housing departments to

accredit municipalities. When officially accredited, municipalities can administer any national housing

programme in their area of jurisdiction. Provincial governments are then responsible for monitoring the

performance of the accredited municipalities. Accreditation empowers a municipality to undertake any

housing function similar to provincial governments in that it receives, evaluates and approves or denies

applications for subsidies in line with the local housing strategy and housing delivery goals”.183

The Rental Housing Act assists National Government to achieve the progressive realisation of housing

and to stabilise and regulate residential rental housing markets that have received public funding. This

includes tenant/landlord regulations to administer their relationship. If disputes between tenants and

landlords cannot be resolved, the Act provides a conflict resolution mechanism administered through

the Rental Housing Tribunals.

The Rental Housing Amendment Act requires leases to be in writing. It has a very broad definition of a

rental structure that covers a range of formal and informal units. The Social Housing Act (2008)

promotes a sustainable social housing (SH) environment, not totally reliant on subsidies, but including

debt financing and SHI equity to fund construction.

183 National Treasury. Provincial Budgets and Expenditure Review: 2002/03 – 2008/09. Chapter 5. p 68.



The Social Housing Policy identifies the intention of national government to facilitate the SH

environment and to fund SH. Provincial government is required to facilitate the development of the SH

environment, ensuring that tenants and landlords are protected, and provided with access to dispute

resolution through Rental Housing Tribunals, established in each province, should conflict arise between

them. Provinces are also required to provide mediation should SHIs and local government be in conflict

in relation to SH projects. Provincial government also has to administer project capital grant funding and

cost grants for newly established SHIs. In addition provinces are expected to monitor the progress of

grant allocation.

Regulations in terms of the Social Housing Act establish Restructuring Zones (RZs) and income targeting

in the selection of tenants to get to the required 70/30 ratio.

Social Housing Policy outlines municipal roles that include facilitating SH delivery and providing for SH

project planning in their IDP and SDF planning processes. They also have to identify RZs and Integration

Zones, to be approved by the NDoHS and Treasury. In addition, they are required to encourage the

upgrading of existing units and the development of new SH units by providing preferential access to land

and to municipal infrastructure and services. Where appropriate, they should provide local fiscal

benefits to tenants. Lastly they should assist SHIs with resources and grant funding during their

establishment phase.

Identified roles for SHRA include administering Consolidated Capital Grant (CCG) funding; accrediting,

regulating and monitoring SHIs; and supporting SHI staff and skills capacity. SHI roles include developing

and/or managing housing stock for low to moderate income groups; promoting and sustaining quality

living environments; re-investing operational surpluses;184 acquiring the balance of capital funding for SH

construction through private debt (targeted at 30 per cent of all investments) and own equity; and,

consulting with local government to develop SH housing plans as part of the IDP framework.

Current reality

National

• Special Needs Housing and Shelter for Children is not being attended to in policy as required by the Constitution and the constitutional commitment to human dignity.

• There is no quantifiable indicator and tool for measuring progress in respect of the impact of SH in RZs. The RZs have failed to achieve spatial integration because the restructuring grants are being directed to the urban periphery. Most cities and secondary towns have not benefitted from densification, and the impact and benefits from efficiency in infrastructure has not materialised.

• There are often overlapping roles of national and provincial governments, and due to independent spheres of government, local governments and provincial governments can sometimes contradict each other with respect to projects planned, applied for and approved in terms of subsidies.

184 Note: For Public Rental and CRUs run my municipalities, the Municipal Finance Management Act (MFMA) prohibits the building of a reserve account to cover maintenance.



Provincial

• Some provincial governments believe that the power to administer and allocate housing subsidies should remain a provincial competence, despite a number of municipalities having applied to receive and administer subsidies.

• Provinces appear not to monitor their subsidy allocation process and the use of these subsidies.

• It is an open question whether the Built Environment Performance Plans’ (BEPPs’) indicators align with provincial plans. This can result in provincial housing projects being implemented in areas outside the IDP.

Municipalities

• Municipalities do not act proactively to assist SHIs to develop and expand.

• With revenue under pressure, most municipalities have an interest in realising the full potential value of centrally located land rather than making this available for SH development. While the MFMA does not prohibit municipal land from being alienated for SH, the practice is often to exclude this land from SH use.

• Municipal-owned entities are able to get cheap/free land for social housing. They also get operational subsidies and access to Urban Settlement Development Grants (USDGs). The main problem here is that these subsidies do not adequately leverage private debt.

SHRA

• SHRA should have used subsidies and grants to restructure apartheid cities. SHRA has not enforced the intention of the national policies and strategies partly because they play the financier and referee of the process. Practically, SHRA was unable to increase the quantity of the grant but maintains the rental bands, putting the SHIs under financial stress. This is disabling rather than enabling the SH sector, contradicting the national intention of sustaining the sector. This is exacerbated by differential rentals being charged by SHIs.

• Over a 20 year period only one institution (the Johannesburg Housing Company) has reached a level of financial self-sustainability.

• There has been a decrease in terms of spend on capacity building of SHIs.

SHIs

NASHO concludes that SHIs individually have capacity to deliver no more than 500 units per annum.

SHIs as members of NASHO, argue that they need to have more funds (subsidies) to grow their

portfolios. However, there are too few SHIs to achieve the strategic impact envisioned by national

government.

Assessment:

Between the NDP and the constitution there is an alignment to address housing rights, and to do so

within a restructured spatial environment. When considering systems alignment, the three pieces of

legislation and their regulations are not aligned with provincial, municipal and SHRA practices, and the

impact on the ground for SHIs. Legislation deals with certain sections of the market and there is an

uneven concentration of legislative and regulatory impact in SH. SH’s impact is too limited to suggest



that any significant policy, strategy and/or legislative intentions have been realised, particularly from a

spatial restructuring perspective, where little impact has been made on spatial-economic urban

restructuring.

Private rental delivery agents trade successfully in their sub-sector despite the intentions of rental

housing policy, strategy and legislation. Private rental is not having the intended impact of providing

accommodation to tenants below a floor income, but it is affordable for middle and higher income

households. Some private rental tenants have their rights regularly ignored or violated, and some are

not aware of the powers and functions of Rental Housing Tribunals (RHTs).

The large-scale construction of offices and apartments for rent (the first in 20 years) in Rosebank,

Johannesburg has occurred in part because of significant state investment in transport infrastructure

(Gautrain Rapid Rail and Station). The Rosebank development has the potential to restructure specific

spatial landscapes and crowd-in further private and public sector investment, aligning private rental

with government’s urban restructuring strategy and policy.

As with the formal private sector, backyard developers with no assistance from government strategy or

policy, deliver informal and some formal housing to households in the ‘deeper-down’ poorer income

earning bracket (less than R3 500 per month). This housing is mostly located in previously segregated

townships, often in unhealthy conditions and with relatively high rentals for the below R3 500 per

month target market. The backyard rental sub-type does not realise the spatial restructuring strategy of

government, particularly on issues of health and safety and agreed norms and standards for rental

housing.

11.1.2 Between all the delivery strategies in the housing delivery value chain

Intention of rental housing implementation strategies

The analysis of institutional intentions was made with the rental sector as a whole in mind.

Initially, national housing strategy was formulated to promote home ownership, and subsidies were

instrumental in achieving this. With the Comprehensive Plan, Breaking New Ground (BNG), the national

housing strategy introduced rental housing in its discourse.

The Public Finance Management Act (PFMA) arrogates to the National Treasury a monitoring function to

monitor provincial departmental budgets, and assist departments to build financial management

transparency. The Housing Act provides provincial departments with the authority to control subsidy

disbursements to municipal government. The Municipal Finance Management Act (MFMA) gives

authority to municipalities to set housing targets and develop housing. Municipalities must adopt

national and provincial strategies, policies and programmes and incorporate these in their plans.

Private rental and SH delivery agents have differing business models and strategies, Private rental is

driven by revenue and profit, and SHIs are aligned with a non-profit approach, accompanied with more

tolerance for issues of non-affordability and rental default.

It is unclear from the reading material what rental housing strategy municipal delivery agents are

adhering to in their building and management of CRUs and in the management of public rental housing.



The Social Housing Regulatory Authority (SHRA) is an arm of the NDoHS, established by statute. The

regulations in terms of the Social Housing Act provide a framework for how the SHRA should implement

its mandates.

Current Reality

The descriptive analysis of actual practices was made with the whole rental sector in mind.

• It appears that there are differing views at the national level of government in relation to the impact of subsidies. The National Treasury places emphasis on the financial returns on subsidy disbursements and the leverage effect of subsidy to debt, whereas the NDoHS appears to emphasise social impact.

• Many municipalities have rental housing strategies that are not aligned to national strategy, and many do not have anything beyond a rental housing plan in their IDPs. Some municipalities, particularly the smaller ones, tend to focus solely on capital subsidies for home ownership projects, and do not pay sufficient attention to alternative forms of tenure such as rental.

• SH delivery agents are accredited and monitored by SHRA in terms of national and provincial guidelines, and this influences their strategies. SHIs deliver to a range of tenants earning in low and medium-income brackets.

• Private renters operate wholly outside of this subsidy system. Private rental companies generally target households in the middle to higher income brackets.

• Backyard rentiers also operate outside the housing subsidy system and generally provide accommodation to a range of low to middle-income households .

Assessment

A brief assessment of the alignment between intentions and actual practices was made with the rental

sector as a whole in mind.

The strategies of the institutions in the value chain align in some respects, but not in others.

Alignment occurs between certain role-players in the value chain, such as between SHRA and NDoHS,

and also between SHRA and SHIs. Thus, in the SH sector there is alignment. However, municipalities

have little if any social housing strategies that would direct their role in facilitating implementation

through land availability etc. that would contribute to densification of cities.

The relationship of SHRA to provinces remains unclear and should be explored further. This relates

specifically to the point about the allocation of grants for social housing.

Linkages outside these relationships are hardly discernible.

Private rentiers – including backyard renters – fall outside the official segment of the rental housing

value chain that provides subsidies. There is no implementation strategy that exists that if implemented

would encourage the players in the established rental housing subsector to move downmarket into the

social housing subsector.



11.1.3 Between tenants’ practices and rental policy perceptions about their aspirations

Intention of the policy outlook

The analysis of how tenants’ aspirations are viewed was made with the rental sector as a whole in mind.

There is an assumption underlying the Rental Housing Act, the Social Housing Act, and the Social

Housing Policy, that the essential role of tenants is to be consumers that comply with ‘the rules of

rental’ and who pay their contractually agreed rentals. In addition, they should receive tenant and

consumer education pertaining to their rights and obligations.

This assumption aligns with the view of private rental delivery agents, as well as backyard rentiers. Some

SHI delivery agents hold this view.

There are some SHIs who hold the view that their tenants are not simply paying customers but also

partners in a developmental process.

The views of tenants-occupants about their status either as tenants or as owners of their units, is not

well known. There have been instances where tenants in conflict with landlords have used the argument

that they should own their units. The impression is that there are also many tenants that understand

their obligations as tenants, and regularly pay their rent.185

Current Reality

The descriptive analysis of actual practices was made with the SH sub-sector and the private rental sub-

sector in mind.

Social housing sub-sector

The expectation is that one needs to pay your rent, but in practice if one is unable to pay, then SHIs tend

to engage with the defaulting tenants with the aim of making alternative arrangements to address the

arrears.

Tenants question different levels of rent charged for similar social housing units. This can often escalate

into a conflict with SHIs. The key factor here appears to be the government subsidy paid to the SHIs, and

the fact that tenants are aware of this, and expect equity in rent-setting. This anecdote suggests that

there is also an awareness by many tenants of their rights and obligations.

Private rental

In the private sector, there is a full range of responses from illegal evictions, to court-approved evictions,

to informal arrangements to settle.

185 More surveys of and research into the consciousness of different categories of rental tenants is required.



Assessment

The brief assessment of the alignment between intentions and actual practices was made with the

rental sector as a whole in mind.

Tenants who are typically aware of the role of the tribunals will use that as a recourse to obtain redress.

There are likely to be a large number of tenants and landlords who are unaware that RHTs exist. Some

may be aware of their existence but are unaware that its services are free, and therefore do not use this

route, because of the potential expense.

It is likely that all tenants would like to own their own home; some see themselves as owners (despite

renting) and others as owners-in-waiting (making-do with renting).186

11.2 ALIGNMENTS AND MISALIGNMENTS AT DELIVERY, MANAGEMENT (CAPACITY) LEVEL

11.2.1 Between rental housing policies and new and existing delivery agents

Intention

The analysis of policy Intentions was made with the SH sub-sector and the CRU housing sub-sector in

mind.

Social Housing sub-sector

Initially the Social Housing Foundation (SHF) was started by the National Housing Finance Corporation

(NHFC), to provide advice and capacity for emerging SHIs.

SH policy then motivated for the creation of a regulator for social housing, namely SHRA, as an

institution with the explicit (and double) intention of expanding and regulating the SH market.

Expanding the market implies growing the number of SHIs and also building their capacity to maintain

and manage their property portfolios.

186 This would be an interesting question to put to a sample of tenants.



CRU housing

The National Housing Code made provision for the upgrading and conversion of public and private

hostels from single-sex rooms to family units for rental. This happened in some metropolitan

municipalities. The hostel redevelopment programme was renamed Community Rental Units (or CRU) in

the Housing Code amendment of 2009. A municipality and/or provincial department may fulfil the

developer role in respect of developing CRU housing units.

Current Reality

The descriptive analysis of actual practices was made with the SH sub-sector and the CRU housing sub-

sector in mind.


Support organisations like the Social Housing Foundation (SHF) and later the SHRA have facilitated the

emergence of new social housing institutions by providing initial advice and capacity building as well as

capital grants (in the case of SHRA). Under the SHRA’s mandate there are now 16 SHIs and most of these

have continued to exist but with uneven performance.

CRU housing

The CRU units were developed through partnerships between national government, provincial

governments and the relevant municipalities.

Assessment

The brief assessment of the alignment between intentions and actual practices was made with the SH

sub-sector in mind.

SH policies were implemented through the SHF and SHRA. After two decades there are too few SHIs to

have the strategic impact envisaged. A number of these SHIs are not functioning optimally and some are

in distress, arising from a limited quantum of capital grant as well as difficult trading conditions. This

limited impact also says something about the interventions made by the SHF and SHRA, with perhaps

too much emphasis on regulation and compliance and not enough focus on institution building. As

NASHO explains, “there has not been an overall strategic focus in the institutional development of SHIs

to achieve government objectives. As a result, there are only 11 SHIs with sustainable businesses187. The

SHRA acknowledges that the nature of capacitation and funding of SHIs to date has not resulted in the

sector meeting its unit delivery targets.188

The CRU units were set up by municipal governmental departments, meaning that there were no new

organisations established through these developments. The effective functioning of these departments

is not clearly understood at this stage.

187 NASHO. Sustainable Social Housing Institutions: the Business Trajectory of South African SHIs. 2016. p 15. 188 SHRA. State of the Social Housing Sector Report. 2017. p 18.



11.2.2 Between governmental structures and efficiently functioning delivery agents

Intention

The analysis of the intentions of government structures and delivery organisations was made with the

SH sub-sector in mind.

The governmental structures include SHRA, provincial and municipal departments, and the delivery

organisations include SHIs and private management companies and landlords.

SHRA’s objective is to get to a quantity of 30 000 social housing units under SHI management by 2020.

SHI’s objectives are not clearly expressed and defined in the documents read. Anecdotal evidence

suggests that many SHIs are driven to secure grants in order to develop new projects to survive. But that

in the medium term they are often unable to provide sustainable housing stock that pays for the costs of

its maintenance, and produces a surplus.

Provincial departments tend to focus on receiving and assessing municipal applications for capital

subsidies for housing and informal settlement upgrade. Besides a very limited ownership of rental stock,

these departments have very little interest in engaging with affordable rental housing.

Municipal departments tend to focus on RDP housing because there is a social need and a demand for

these units, and this means that their immediate objectives are to secure subsidies for BNG housing.

A second important objective is the provision of serviced land to people living in informal structures, to

counteract health hazards.

Private management companies and landlords tend to focus on rent collections, property maintenance

(except back yard rentiers who are not building long-term assets but are focused on economic survival)

and property management (including tenant management).

Current Reality

The descriptive analysis of actual practices was made with the SH sub-sector in mind.

SHRA only achieved 13 968 of the MTSF target of 27 000189 units for 2019. The balance of units were still

in planning and construction phases. This shortfall is a direct reflection of SHI performance.

There is only one SHI that is financially sustainable demonstrating that most SHIs are ineffective in

achieving financial sustainability.

The performance of provincial departments has not been well covered in the documents read. Where

reference to provincial departments was made it was noted that these departments tend to focus on

achieving quantities of housing units rather than contributing to a qualitatively changed and

restructured urban space. The current human settlement evaluation system limits the approach used for

performance measurement e.g. it is based on the number of units and serviced sites as key indicators of

189 SHRA. State of the Social Housing Sector Report. 2017. p 17.



success.190 Provinces and municipalities are clearly focusing on providing individual ownership units

where it is easiest to meet numerical targets. It is generally known that the municipal departments are

only able to develop an exceedingly small number of BNG units and a larger number of serviced sites per

annum. Almost all these units and sites are for ownership occupation.

Private management companies and landlords focus on their return on investment.

Assessment

The brief assessment of the alignment between intentions and actual practices was made with the SH

sub-sector in mind.

The SHRA has fallen significantly short of its own targets. One should keep in mind that SHRA has limited

leverage over the planning and construction that is managed by direct delivery agents (SHIs on the

ground). Most of the delays were reported as arising from work stoppages due to conflicts with

communities and workers. SHRA is measured over targets that they do not have enough control over.

SHIs faced similar work stoppages and community conflicts. While SHIs are at the coalface of delivery,

there are external social conditions and pressures over which they have limited influence.

There is weak alignment between strategy and systems, where fiscal incentives in the system of

“intergovernmental transfers are fragmented and focused on outputs rather than development

outcomes.”191 Alignment with SH strategy and the expansion of the SH sector at the local level is in all

likelihood not a priority when output targets are being sought, as SH projects are more complex to

implement from a regulatory, fiscal and design standpoint, and SH does not deliver similar unit numbers

to large Greenfields housing or serviced site developments.

Neither provincial nor municipal departments have prioritised an engagement to support affordable

rental housing. Their historical focus has been on providing RDP/BNG units in line with election

promises, and a single budget allocation.

Private companies and landlords (including backyard rentiers) are at this point the most effective and

efficient providers of a range of rental housing from slums and sub-standard quality units to units that

comply with advanced norms and standards. Insofar as affordable rental housing for households earning

less than R15 000 monthly is concerned, the leading role is played by a mix of private and municipal

organisations, as indicated in the table below.

Rental housing subsector Current number of units Backyard rentiers 595 000

Emergent rentiers-developers 500 000

Municipal renters – public housing 300 000 Municipal renters - CRU stock 30 000

Social housing institutions 26 532 Source: earlier table under product-market combinations (PMC) section

190 NDoHS. Towards a Policy Foundation for the Development of Human Settlements Legislation. 2016. pp 8-9. 191 CoGTA. Integrated Urban Development Framework: A New Deal for South African Cities and Towns. 2016. p 107.



11.2.3 Between government and delivery agents on how they should relate to tenants

Intention

The intention of the Rental Housing Policy in the form of the Social Housing Policy of 2005, and various

legislation as it applies to tenants and landlords is to provide protection for the rights of both parties.

The Rental Housing Act (RHA), 50 of 1999 focuses on making provisions for the facilitation of sound

relations between tenants and landlords, and to this end, describes ways in which co-operation can

occur and conflict between tenants and landlords can be addressed. The Act describes the principles

and requirements for leases and lease agreements; outlines general principles for resolving disputes in

the rental housing sector; and, describes the institutional powers and duties that RHTs will have when

addressing and resolving disputes.192

Amendments to the Rental Housing Act that impact on tenant/ landlord relationships relate to the

requirement that lease agreements need to be in writing; that an appeals process needs to be provided

for by RHTs; that norms and standards will be drafted for rental housing; and that all local municipalities

need to establish rental housing information offices (RHIOs). RHIOs need to provide information and

advice to tenants and landlords (in their jurisdiction) on rental property rights and obligations, and

where necessary, refer disputing tenants and landlords to the respective RHT.193

Current reality

Provincial government

Provincial governments are required to play the role of providing a provincial legislative and regulatory

framework for SH, consistent with the national framework, and within which SHIs must operate, also

ensuring that housing consumers are protected. KwaZuluNatal province provides consumer education,

but it is unclear from the initial readings what other provinces are doing in relation to housing

consumers.

192 The Rental Housing Act, 50 of 1999. p 1. 193 The Rental Housing Amendment Act, 35 of 2014. p 1.



Shared values - governmental structures, rental housing delivery organisations and tenants

Tenants and landlords do not understand their rights and obligations. Lease agreements need to be in

writing and in plain language. There is very little in the way of shared values between governmental

structures, rental housing delivery organisations and tenants on the issue of paying rent and service

charges; enforcement at the municipal level is not being done in terms of legislation. In SHIs, there

appears to be a growing attitude towards non-payment, especially if shared space and units are not

maintained.

CRU and public rental

Very little ‘relationship’ communication occurs with tenants living in municipal public rental facilities,

including CRUs such as converted hostels and municipal apartments. Poor management and

maintenance of municipal rental stock causes tensions with tenants. Communication does occur when a

crisis situation presents itself, such as water or electricity cut-offs or sanitation issues.

Some municipalities have leases dating back from 1949 that have not been updated.

Social Housing

SHI officials have regular meetings with tenants; one can assume that information is shared and that this

in itself builds relationships, but what is not clear is the quality of the relationship i.e. whether

landlord/tenant relationships are strengthened through information sharing.

Assessment

Tenant/landlord legislative principles particularly relating to conflict resolution are being implemented;

RHTs are operational and functional in all nine provinces. It is not clear whether all municipalities have

adhered to the requirement to establish RHIOs, but clearly consumer rights information is being

provided to some tenants and landlords in Gauteng Province for example, where Tribunal Hearings have

been heard at RHIOs in Johannesburg, Tshwane, Ekurhuleni and Emfuleni. RHTs are making orders,

which are equivalent to municipal court orders, and as the number of resolved cases grows, this could

assist with promoting a culture of respect for rental housing laws and shared values.

Presently however, there are no generic ‘tenant relations’ shared values to speak of among rental

housing delivery agents and owner builders in the private rental market, SH, and informal (backyard)

rental sub-sectors. In the established private subsector, it is about paying and adhering to rules that

appear in one’s lease agreement.

In the informal (backyard) rental subsector, some landlords live close to their tenants and use a tenant

selection process with a focus on employed people. If rent is not paid, the tenant is usually asked to

vacate, even if the conditions of the shacks are poor, or services are not being provided. However, if the

process of eviction is done illegally, RHTs have the mandate to intervene if approached, and have been

doing so. Most complaints are about illegal eviction with some relating to maltreatment.

Tenant relations are very strained in some CRUs, housing co-operatives and SHIs because of poor

maintenance and unaffordable service charges. Tenants complain about paying for services when their



units are not being maintained. Rent boycotts and building hijackings are occurring more frequently,

and tenants are articulating demands to own instead of rent their units saying they are tired of paying

rent. There does not appear to be much provincial housing consumer education on this issue, to assist

housing delivery institutions. At the municipal level, rental housing issues do not appear to be a high-

level consideration for intervention, given that CRU/municipal rental collections average 20 per cent per

month across municipalities.

11.2.4 Between rental housing policy and legislation and the key activities of delivery agents

Original Intention

The intention of the Rental Housing Act is the proper functioning of the rental market. To achieve this, it

sets out the rights of both tenants and landlords in all sub-markets and protects these rights. Each sub-

market has its own policies.

The intention of the PIE Act is to empower vulnerable tenants to balance the power of the landlords.

The success of the renting business model is that income streams are flowing, and this requires

adherence to the rights and obligations of both the payers and the receivers of payment.

Current reality

• Private rentiers are able to collect at a high rate (97 per cent), and have strong short-term objectives

that they focus on, one of which is the rapid response required to tenants defaulting on rental.

Actions taken sometimes include the locking-out or eviction of tenants in arrears. This infringes on

the rights of the tenants.

• In the social housing sub-sector the SHIs have a much lower rate of collection (70 per cent) and their

(SHI) rights are sometimes infringed upon by recalcitrant tenants. Differential rentals in the social

housing sector, given that rental and subsidy levels have not adjusted annually, are a source of

contestation by tenants.

• Backyard tenants are often at the mercy of main house rentiers.

• Occupants of CRU units sometimes take over public assets from municipalities who often lack

capacity to effectively manage these assets. Municipalities also have problems with financial

systems and controls. They have a concentration of skills at top management, but operational

management in respect of CRUs appears very weak. Operational managers seem unwilling or unable

to respond to cases of indigence.

• A lack of maintenance evokes dissatisfaction from tenants, and creates a vicious cycle of tenants

defaulting on payments, which limits ongoing operational funding. This is what is referred to as

‘moral hazard risk’. At root this manifests as a lack of common interest by all players to play their

designated roles. This lack of shared values is particularly acute in the case of municipal rental units

and CRU units that are often ill-maintained. Some tenants claim that prior to refurbishment, they

lived in the units for free, and cannot understand why they should now have to pay if the

refurbished units are not maintained. This is the environment within which rent boycotts and



building hijacking takes place. The defaulting and building occupations of municipal public housing

and CRUs, often becomes the source of protests and demands; social movements influence the

politics around dealing with this problem in councils. Often this does not resolve the issues but leads

to deadlock. Recourse to Rentals Tribunals has limited potential because Tribunals lack the power to

order evictions. A robust system to track and inform tenants of rent collection does not appear to

exist. This situation creates an incentive for municipalities to access more and more subsidies to

fund the gaps in this income stream. In light of the above, some private rentiers won’t take on

subsidies because of the negative effect that this could have on the perceptions of other tenants.

• Backyard tenants and tenants in the established private rental subsector who are unable to afford rent have no relief provided.

• Social housing institutions have a strong interest in securing subsidies, and are not focusing on their larger mandate.

• The only province utilizing private sector participation (PSP) procurement is the Western Cape. The model appears similar to that of the private sector where most activities are implemented by skilled professionals provided by the province or municipalities. Defined, non-core work, is sourced out. PSP procurements appear to function as effectively as private rental.

Assessment of the current reality

The Rental Housing Act facilitates the working of the private market, PSPs and, to some extent the SH

market. Nevertheless, SHIs do not efficiently exploit the possibilities provided by the Act.

The Rental Housing Act appears to be of little relevance to the problems besetting municipal-owned

public housing and CRUs, where the stock is deteriorating, being occupied by tenants mostly not paying

rent, and the source of significant social protest. These reflect deeper problems:

• Affordability of poorer tenants not being addressed.

• Limited public subsidies.

• Ongoing overcrowding and homelessness.

• A lack of human resources and systems capacity at municipal level (lack of leadership, lack of collection capabilities, lack of dealing with evictions, and a focus often on compliance, rather than focusing on innovative ways to deliver rental housing).

11.2.5 Between capacity and operating an effective rental product

Intention

The policy intends that the relationship between the tenant and the landlord creates a sustainable

platform for rental housing, presumably by providing decent products and an effective service.



Current reality

Established private rental subsector

Collection and other Systems:

In the established private rental subsector, skills, leadership and systems are visible. Established

property management companies have strong screening systems; collection systems; and security for

protecting assets.

Maintenance:

Planned building maintenance programmes are in place and contingencies are formulated for

unplanned maintenance including the revenue to cover both planned and unplanned maintenance.

Maintenance costs are built into rental costs, and are mentioned in the lease agreement.

Tenant education:

This is routine and mandatory; the lease management process is part of tenant education; and when

signing a lease, you are required to give an undertaking that you understand the terms and conditions.

Your signature on the document bears witness to this.

Operational Leadership:

Leaders have access to operating performance systems; leadership is results-based, based on

profitability and is required by the property company to be customer-focused.

Social Housing subsector


SHIs do have some systems in place. Collections are not optimal: 85 per cent as opposed to the target of

97 per cent. SHIs do not have the skills required to manage some of the systems e.g. rent collection; and

the screening system when selecting a tenant. The process in some SHIs is inadequate as the basics of a

credit rating such as verified payment slips, bank statements and checking that the applicant has a

decent credit record are not always requested or required.

Maintenance:

SHIs mostly respond to maintenance crisis. They are required to have a maintenance reserve, but they

do not have the revenue for it. The value of assets deteriorates as a result because maintenance is not

being performed. SHIs need to have a property management system to retain the value of properties,

and unfortunately, most do not.

Tenant education:

There is tenant education on obligations, but it is not necessarily effective. When it comes to dealing

with the non-payment of rent, this is often not dealt with decisively in the regular meetings with



tenants, either as a collective problem for the SHI (and its tenants), or with the action required to

initiate an eviction process.


Leadership is compliance focused with many regulations to adhere to that require report formulation,

particularly on financial, governance, and maintenance of stock. The ability to comply and the capacity

to provide the necessary compliance reports is constrained.

CRU and municipal rental subsectors


Collections are disastrous with 20 per cent collections on average per month. CRUs do not have

dedicated skills and capacity to effectively collect rental and their collection systems are in place, but

not well managed. CRU officials would have to spend too much time collecting too little revenue, and

thus rent collection is poor. CRUs are also politically charged living environments, with a ‘high moral

hazard risk’ for political councillors, and it appears from CRU collection statistics that the effort to collect

revenue for both rental and maintenance, is simply not a priority.

Credit rating, screening and vetting is not routinely carried out.

Maintenance:

Maintenance involves crisis responses. Maintenance is a low priority for CRU/municipal rental housing.

Rental housing is not a strategic focus for municipalities, as they do not have sufficient resources.

Municipalities are not allowed to have a maintenance reserve and neither are MOEs. Thus profits

cannot be saved so that one can respond to urgent maintenance. Maintenance is supposed to come

from revenue, but the revenue stream is not strong enough and thus the buildings, without being

maintained begin to deteriorate rapidly.

Tenant education:

No tenant education provided.




Rental housing is not a key component of performance indicators; municipal leadership are not taking

responsibility for public rented stock and have not recognised that rental can provide a sustainable

product to its citizens.

Informal rental (backyard) housing subsector


The backyard collection system is informally collected in cash at different times with no systems

involved. Collection is very efficient because the landlord is in close proximity to the tenant. The

landlord is able to respond efficiently if a tenant defaults.

Tenant education:

There is no evidence of tenant education, yet their rental system works.


There is entrepreneurial leadership shown as rentiers exploit accommodation gaps in the market and

the desire to get things done by building for themselves without any state subsidies.

Assessment

Established private and informal (backyard) rentiers have the capacity, skills and leadership to

effectively operate and manage an efficient and effective rental product.

SHIs including MOEs are overburdened with regulatory compliance including SHRA regulations and the

MFMA respectively. This leaves very little time for innovative thinking on new projects, effective

maintenance programmes and dealing with defaulting tenants. Consequently they are also unable to

effectively deal with capacity and skills issues. CRUs and municipal stock assets managed by

municipalities reveal poor collection abilities, poor maintenance and poor leadership to create an

operating environment in which rental housing can be sustained and flourish. The environment is largely

politically compromised, and does not deliver the service required; municipalities are unable to

effectively deal with rent boycotts and building hijackings and the political leadership do not show the

inclination to assist.

11.3 ALIGNMENTS AND MISALIGNMENTS AT LEGISLATION AND REGULATION LEVEL

11.3.1 Between legislation, regulations and by-laws and expanded demand/supply (including

effective rights/obligations)

Intention

The analysis of intentions underlying legislation, regulation and by-laws was made with the rental sector

as a whole in mind.



The Constitution and the Housing Act intend to facilitate access to adequate housing regardless of

tenure.

Besides the Social Housing Act there is no legislation that explicitly facilitates the supply of any form of

rental housing. Regulations published under this Act emphasised the importance of marketing (i.e.

clearly communicating the nature of the social housing product and rights and obligations in relation to

renting it).

The National Housing Code (2000) made provision for the subsidisation of defined rental housing

through the institutional subsidy. This was augmented by the Restructuring Grant (2006) for defined

rental, in spatially targeted restructuring zones. These subsidies were provided to SHIs on condition that

they controlled the rentals they charged for defined income categories.

The Rental Housing Act intends to stabilise and regulate the rental housing market by preventing

unlawful evictions, and ensuring that tenants pay for the accommodation that they are renting. The Act

established Rental Housing Tribunals to hear, mediate and adjudicate on disputes between landlords

and tenants.

Municipal by-laws have to comply with the Constitution and national legislation, thus municipal by-laws

relating to rental housing must conform constitutionally and with relevant national legislation,

regardless of local specificities.

Current Reality

The descriptive analysis of actual practices was made with the rental sector as a whole in mind, with

some specific analysis of the SH rental housing subsector.

Rental sector as a whole

Given that provincial governments have established rental housing tribunals in every province, there

was overall compliance with the regulations of the Rental Housing Act. These tribunals have been

effective in providing a place for complainants to have their complaints heard with no personal expense

attached; mediation and adjudication services are free. Anecdotal evidence suggests that there have

been many positive outcomes to the resolution of landlord/tenant disputes.

The development of backyard informal rental units in many cases does not comply with municipal by-

laws. Some metropolitan municipalities have not adjusted their by-laws (i.e. zoning rules) in order to

accommodate SH developments in restructuring zones. There appears to be an uneven application of

municipal by-laws in respect of building and zoning requirements.

Social housing subsector

The rate of supply of ‘social’ housing units dropped significantly after the promulgation of the Social

Housing Act and its accompanying regulations. In 2006 there were already 19 SHIs with 11 232 units



under management.194 From 2008/09 to 2013/14 SHIs added only 2 500 more SH units. The delivery rate

then picked up again from 2014/15 to 2018/19 when 12 800 units were added. This means that there

are currently 26 532 SH units under management. Thus SH unit output decreased dramatically between

2008/09 and 2013/14.195 Today there are only 16 SHIs (managing at least 400 units) listed on the NASHO

website.

Further investigation is needed to assess whether most SHIs complied with this injunction to market SH

units and the benefits of living in a social housing project. This compliance would have likely been

monitored and assessed by SHRA.

Assessment


rental sector as a whole in mind, with some specific analysis of the SH rental housing sub-sector.


The regulations have been effective in protecting consumer and landlord/management agents’ rights

and obligations. The Rental Housing Act requires each municipality to establish a RHIO, whose role is to

educate the parties on their rights and obligations, and keep records of enquiries. It is not certain how

many of these offices have been established.

By-laws are necessary to operate an effective rental housing market. These laws are often subject to

pressures from individuals and interest groups. It appears that by-laws are often ineffective in managing

and maintaining the neighbourhoods and RZs in which SH occurs. There is a lack of enforcement of by-

laws, often contributing to unsafe and unhealthy living environments, and counter to providing the type

of environment that is conducive to both SH project investment and potential private sector investment.

The Maboneng District in the Johannesburg CBD is a good example of the additional investment that can

be crowded-in to a previously run-down area of the CBD when by-laws are enforced, regular municipal

clean-ups occur, and public infrastructure works. Maboneng has attracted private investors willing to

invest in the gap housing rental market.


The Social Housing Act established SHRA who provide accreditation and other services to SHIs. The

combined effect of these practices appear to have had an uneven impact on the supply of SH units.

Clearly other factors have also contributed to driving output up, down and then up again. First there was

a deep decline in the rate of output but that has improved significantly since 2014. There was sufficient

demand taken up by the provision of these units. Nevertheless, output of social housing units has

consistently lagged far behind targets set: (2008/09 to 2013/14): 12 800 units; (2014/15 to 2018/19):

27 000 units. Some experts suggest that between 100,000 and 150,000 units are needed by 2020.196

194 Support Programme for Social Housing. Synopsis of the Findings of the Curative Organisational Diagnosis of Social Housing Institutions. 2005. 195 HSRC. The Role of Social Housing in Reducing Poverty and Inequality in South African Cities. pp 26-39. 196 HSRC. The Role of Social Housing in Reducing Poverty and Inequality in South African Cities. pp 26-39.



11.3.2 Between legislation and efficient functioning of structures/agents

Intention

The analysis of the intention of legislation was made with the rental sector as a whole and also the SH

sub-sector in mind.


The overall intention of the Social Housing Act is to provide for the establishment of the SHRA to

regulate the provision of social housing and to provide funds for social housing projects. The overall

intention of the PFMA and the MFMA is to define good financial governance practices to assist service

delivery to communities, and to exert control to ensure that these practices occur.


The Social Housing Act, through regulation and the provision of grants, and the MFMA and PFMA,

through regulating the acquisition, development and disposal of municipal and public land, impacts the

provision of rental housing.

Current Reality

The descriptive analysis of actual practices was made with the rental sector as a whole as well as the SH

rental housing subsector in mind.


Many municipal officials and rental housing practitioners are of the opinion that the MFMA sets out

rules and criteria that prevent municipal structures from making land available cheaply for affordable

rental housing. For example by requiring municipal land to be disposed of through open market

processes and for the highest bidder, it effectively prices out SHIs. Presumably, the PFMA likewise

hinders the disposal of provincial land for affordable rental housing.

Social housing subsector

In the same way, the effectiveness of delivering affordable rental accommodation cannot be laid at the

door of the Social Housing Act but rather reflects the combined practices of governmental structures

and delivery organisations.

Assessment


rental sector as a whole in mind.

When assessing the positive or negative impact of legislation on the functioning of government

structures and delivery organisations, one must bear in mind that the intention of the legislation does

not coincide with the interests of any delivery agent (both within and outside government structures).



Land is a resource that could serve the interests of social housing (e.g. for affordable rental

accommodation) and the interests of for-profit private land developers. Legislation like the MFMA

intends to define good financial governance practices and to create mechanisms to enforce these.

There is nothing in the MFMA and PFMA that prohibits municipalities to dispose of their land, to meet

social goals (the ‘public good’), through targeted sales bidding processes.

Rather the inability to dispose of land cheaply for affordable rental housing appears to be due to a

misunderstanding of the import of the legislation or a lack of shared values between municipal leaders

and national housing policymakers and the National Treasury, in relation to state land disposal for rental

housing.

11.3.3 Between laws and regulations, and delivery agents’ operations

Intention of the relevant Acts

Rental Housing Act – To protect the rights and obligations of tenants and landlords.

Social Housing Act – To create a sustainable and a viable social housing environment.

National Credit Act – To protect borrowers from predatory lending, and thereby provide for credit

vetting and scoring.

Municipal Finance Management Act (MFMA) – To collect all revenues due to a municipality and MOE;

and if there are defaults, to use remedies to correct this. Accounting officers must not alienate public

assets without a competitive process.

Prevention of Illegal Evictions Act (PIE) – Initial focus was on preventing the Illegal evictions of people

living on agricultural land. More recently, the Act is used to address different types of illegal evictions,

including those in urban areas.

Current reality

The Rental Housing Act does protect both parties, but in the implementation of the Act, it appears that

tenants are favoured over landlords with the following implications:

• Court and/or tribunal processes provide for dispute resolution and alternative accommodation to be sourced, which has a cost implication, negatively impacting landlord revenue streams.

• The landlord may need to conform/comply with certain building norms and standards for designated rental types and this will have a cost implications for new projects.

Prevention of Illegal Evictions Act: One now has to justify in your papers for eviction that you have

complied with all PIE requirements including alternative accommodation where appropriate, before an

eviction order can be granted with cost and time implications, and adverse impact on revenue.

Social Housing Act: Requires a compliance-driven results focus whereby accredited institutions have to

comply with a series of reports on financial and operational performance, governance and risk, and

applying for ongoing accreditation. This is onerous for SHIs.



Regulations do not promote the taking-on of non-accredited projects that could contribute to revenue,

and the regulations appear not to have kept up with economic trends in the market e.g. the subsidy

quantum has not kept up with building material inflation, and the non-indexation of income bands has

not consistently kept pace with CPI (only one increase 2017). Rental subsidies are not related to the cost

of a unit, the rental tariff, or the income band, and are not indexed to market factors such as CPI or

equivalents.197

National Credit Act: Requires the need to comply with credit and income vetting, and the use of credit

bureaus to objectively screen tenants.

Municipal Finance Management Act (MFMA): Executive authorities are not effective in implementing

the revenue collection component of the Act. The Act prevents municipalities from rapidly releasing

land for rental development because of the alienation requirements. There is misalignment between the

financial years of municipalities (end June) and other state institutions (end February), thus affecting

capital budget alignment with the Treasury. Adjustments constantly have to be made in the mid-term

budgetary review to adjust spending to ensure that budgets are spent within the Treasury’s timeframe.

Municipal policy is not catering for a reduction in SHI service costs for tenants with constrained income.

This may be as a result of the MFMA requirements for the collection of revenues that does not permit

reductions in service charges. In the SHI operating environment, tenants pay for prepaid water and

electricity, but some refuse to pay rental.

With respect to MOEs, the MFMA, prescribes key positions that have to be present in each MOE, thus

overloading the top management staff compliment and putting pressure on revenue. Co-operatives find

it difficult to cope with the prescribed regulatory environment, because of their loose managerial

formation.198

Assessment

The Rental Housing Act assists with providing a framework for tenant/landlord relationships.

The Credit Act promotes credit quality in selecting tenants, but it has an operating cost element.

MFMA, PIE, and Social Housing Act. Some reform process is required for these Acts to become more

effective in assisting the rental housing sector as a whole. These Acts need to focus on enabling the

sector rather that overburdening it with regulation. The rental sector is a youthful sector and therefore

needs a period of substantive growth, allowing the sector to mature. Over-regulating it too early may

constrain and even create a ‘barrier to entry’ for fledgling institutions, making it difficult for existing

institutions to grow their portfolios or reach a portfolio level that is sustainable.199

There is clearly misalignment between the legislative systems and the operating systems within the

delivery institutions; there is also misalignment between these legislative systems and the original

197 NDoHS and DPME. Implementation Evaluation of the Social Housing Programme, Summary Report. 2016. pp 23-26. 198 NDoHS. Co-operative Housing Policy, Summary Report. Second Draft. 2018. 199 NASHO. Housing Institutions: The Business Trajectory of SHIs. 2016. pp 4-5



strategy and policy as outlined in the Social Housing Policy (2008). The intention of the Social Housing

Policy was to grow a sustainable rental housing sector, and this is not happening.

11.4 ALIGNMENTS AND MISALIGNMENTS AT SUBSIDIES, FUNDING AND FINANCING LEVEL (INCLUDING

SOCIAL HOUSING FUNDING MODEL)

11.4.1 Provision of funding between national government, and provincial and municipal

governments and delivery agents

Intention

To provide sufficient funding from national, for provincial, and local governments to administer rental

housing subsidies and other services for affordable rental housing delivery agents.

Current Reality

Province

There are roles for provinces stipulated in the Social Housing Act that are currently not being carried out

sufficiently e.g. co-ordination of the provincial steering committees on SH -according to the NDoHS, only

two provincial steering committees are actually meeting their requirements200; allocation of subsidies is

not in alignment with project pipelines; monitoring and evaluation of SH projects is not sufficient,

particularly in relation subsidy allocations and timelines. From the readings it is unclear whether this is a

financial constraint or a capacity constraint. This should be clarified in the interviews.

Local government

The USDG can also be used for SH and currently there is no capacity to administer these grants. From

the readings once again, it is unclear whether this is a financial constraint or capacity constraint. This

should be clarified in interviews.

SHRA gets a capacity grant to administer subsidies. However, the subsidies are subject to an assessment

process which is sometimes not aligned to the delivery pipeline of SHIs.

Assessment

There are breakdowns in the allocation process at provinces, local municipalities and SHRA that cause

delays in the implementation of projects. This could be as a result of inadequate finances to run the

departments concerned. It could also be related to operating systems, or to a lack of skills and staffing in

the departments.

200 NDoHS and DPME. Impact and Implementation Evaluation of the Social Housing Programme, Summary Report. 2016. p 10.



11.4.2 Between revenue generated and operating costs

Intention

The rental housing model is designed to recover all operating costs and make a surplus that can be

invested in new projects and support maintenance programmes. Shareholders’/stakeholders’

expectations can then be met because the institution is a going concern.

Current Reality

Revenue generation covering operational costs and sufficient capital investment in the asset base

Established private rental subsector:

Revenue covers operating costs and allows capital accumulation, which then allows both for

maintenance, and the building of new developments. Assets can be leveraged and traded in the capital

markets. In the informal (backyard) rental subsector, investments are made by landlords, for which

income is recovered to cover operating costs. Established private and informal (backyarders) rentiers

are both catering for the needs of their markets.

SHI/Co-ops:

These institutions also recover revenue but in a less effective way. They have very small surpluses that

are generated for use in future projects, or even to meet maintenance requirements. SHIs are

constrained through not being able to realise the capital worth of their buildings, because the asset is

not tradable, even if the subsidy has been paid off. In terms of SHIs requiring debt financing for new

projects, the NHFC was not able to scale up finance for rental housing delivery, because of the size of its

balance sheet – R11 billion for lending.201

The condition of SHI assets and the legislative provisions applied to them make it impossible to leverage

additional finance, and trade these assets in the capital markets. The state is therefore stuck with poor

assets. The Social Housing Act prevents these assets from being traded, thus courting the potential for

circulating bad assets and bad debt.

CRUs and Public Rental Stock:

There is insufficient revenue collection in CRUs and Public Rental Stock and this does not cover

operating costs. Assets cannot be maintained and the MFMA regulations make them untradeable.

201 NDoHS and DPME. Implementation Evaluation of the Social Housing Programme, Summary Report. 2016. pp 23-26.



Assessment

Municipal management is unable to set Economic Cost Recovery (ECR) rentals against actual cost

experienced in the administration and maintenance of CRU development, as tenants in the income

bands would struggle to afford the rental. Consequently many of the rentals are set well below ECR, and

an additional operational subsidy is required because CRUs are not generating enough revenue.202

In the established private rental housing subsector, cost recovery covers operating expenditure and

capital investments. Their tenants have a level of affordability that allows them to recover rentals.

Furthermore the property asset is tradeable and has market value.

Backyard shack rentiers are covering their costs, but research does not point to the improvement of

property over time. Their rentals are targeted to where there is demand and they are not constrained by

the Social Housing Act, thereby being able to act on defaulters. They operate off a business imperative,

as opposed to a softer welfare approach used by state rental institutions; they are not constrained by

the state welfare model. Their cost of compliance is low.

Most SHIs experience unpredictable revenue with inconsistent annual revenue. Only one SHI is

financially self-sustainable i.e. Johannesburg Housing Company. Most are unable to attain the 97 per

cent collection rate required by the SHRA. They do not generate sufficient revenue to cover operational

costs, nor sufficient capital investment to expand their asset base.

Housing Co-ops, CRUs and Public Rental Stock all struggle to increase primary (tenant) revenue, thus not

generating sufficient revenue to cover operational costs and sufficient capital investment to expand

their asset base.

11.4.3 Between the actual and the targeted rent collection rate

Intention

The social housing policy intends:

• To create profitable, sustainable rental housing institutions

• To create broader access to housing on a sustainable basis – i.e. rent collection and enough revenue

for operational expenses and expansion

• To create a rental asset that can perform in terms of producing a safe product; a sustainable

revenue with high occupancy; and meet tenant expectations

Current Reality

Rent collection rate

• Established and emerging private rental housing subsector collection – 97 to 99 per cent collection

202 SHRA. Community Residential Unit Regulation Report: Recommendation Report on SHRA Implementation of CRU Regulations. 2018. pp 5-6.



• Informal (backyard) rental housing subsector – close to 100 per cent203

• SH rental housing subsector - target is 97 per cent but average actual collection rate is 85 per cent;

housing cooperatives have a collection rate of 20 per cent

Trends

Rates of increase of rents in the rental sector as a whole have declined over the last five years due to the

economic downturn with a technical recession on and off over the last three years. Unemployment is

growing and the ability to pay rent has deteriorated due to economic hardship. The willingness to pay

is affected by a culture of entitlement created through various subsidies, politically driven hijackings of

buildings and rent boycotts e.g. military veterans taking over SHI units in Pietermaritzburg and the EFF

encouraging tenants not to pay for units at Yeast Housing in Tshwane. There is a perception that

municipal owned stock should not be paid for, because the stock is not worth paying for, and is poorly

serviced.

Assessment

Profitable, sustainable rental housing institutions; safe products; a sustainable revenue; meeting tenant

expectations.

Established private rental housing subsector and the informal (backyard) rental housing subsector are

collecting rent efficiently. Most units in the established private rental housing subsector are of a good

quality that provides adequate shelter and a healthy living environment.

Units in the informal (backyard) rental housing subsector are of a poor quality, mostly not compliant

with municipal by-laws for habitable dwellings.

SHIs collection rates are lower and are compromised by the lack of systems and procedures and poor

management of non-payment due to moral hazard political risks. Co-operative housing, the municipal

rental and CRU rental housing subsectors suffer from the same risks.

For the SH rental housing subsector to obtain a rating agency investment grade asset class (Standard

and Poor Baa3) or Moody’s (BBB) collections need to be consistently above 95 per cent and low risk.204

The asset can then trade effectively in the market. It can be sold, or used to leverage funding or used in

an asset swop.

SHIs, CRUs, co-ops, backyarders and Public Rental are unlikely to class their assets as investment grade.

203 Private Rental and Backyard Shack average monthly rental collections will be confirmed through the consultation process. 204 A security has an investment grade rating if it has a rating that falls within the range of Aaa to Baa3 from Moody's or AAA to BBB- for Standard & Poor's. The company's securities have investment grade ratings if it has a strong capacity to meet its

financial commitments. May 16, 201

https://www.investopedia.com/ask/answers/what-does-investment-grade-mean



To create broader access to housing on a sustainable basis

The established private rental housing subsector and the informal (backyard) rental housing subsector

are providing broader access to accommodation, than the SH rental housing subsector. However, in the

case of backyard shacks, decent accommodation would not be sustainable because of limited access to

services, poor safety management and overcrowded conditions.

The SH programme started well in providing access to decent housing sustainably, but affordability has

pushed them into higher rental income brackets, cutting off access for households in the Primary Target

Market. Co-operative Housing, Public Rental and CRUs are providing broader access to rental housing

for the same Primary Target Market, but their financial sustainability is undermined by their poor rental

collections, and therefore decreasing revenue.

There is a misalignment of two strategies in relation to rental housing sustainability and wider access.

SHRA’s strategy is aimed at targeting the primary target market, (up to 70 per cent of the SHI occupants)

to broaden access to SH. Most SHIs, out of necessity, are targeting higher income brackets for unit rental

to attain financial viability.

11.4.4 Between subsidies and rental demand

Intention

The Social Housing subsidy is meant to gear up rental housing investment in the market together with

debt financing from the private sector, the NHFC, and other provincial DFIs to scale up delivery.

Current reality

The Capital Grant Investment has geared funding mainly from the NHFC and some funding from the

Gauteng Partnership Fund (GPF) and Nedbank. Where CCG is invested, it leverages on average a further

33 per cent (R946m) in private loan finance and three per cent in equity investment.205

On an annual basis, the demand for rental housing is increasing, and the capital subsidies from

government to these agencies are decreasing. While Human Settlement budgets for rental housing have

increased annually (Budget Vote 38), the budget is incapable of meeting demand; between 100,000 and

150,000 units are needed, according to some experts.206

Assessment

The gearing effect is limited to public sector debt funding, and limited private sector funding. For

subsidies to achieve a higher level of rental delivery, an increased ratio of private sector debt gearing is a

prerequisite.

In essence, the CCG is the only grant that injects 70 per cent equity and requires 30 per cent gearing to

finance a project. This is inefficient because public funding should promote a higher gearing ratio; for

205 HDA/NASHO. Reviving our inner Cities: Social Housing and Urban Regeneration in South Africa. 2013. p 29. 206 HSRC. The Role of Social Housing in Reducing Poverty and Inequality in South African Cities. pp 26 to 39.



every R3.00 of subsidy spend, R7.00 should be geared from the private sector. The net result of this

gearing ratio is that delivery cannot be scaled up because too much state equity is injected into a single

project. A higher debt-to-equity ratio is common practise in the established private rental housing

subsector.

The CCG is not being used as a sharp instrument to gear: a) stacking-up other public sector investments

and subsidies (transport, health, and social) etc. in order to maximise spatial/ economic interventions; b)

crowding-in private sector investments in rental housing instruments and products.

Scaling-up the delivery of units by using housing subsidies to leverage more private and public sector

investment, and spreading the finance into more rental housing projects is what is required.

11.5 ALIGNMENTS AND MISALIGNMENTS AT ECONOMIC GROWTH, SUSTAINABILITY, SUPPLY/DEMAND

LEVEL

11.5.1 Between land availability/costs (green/brownfields) and rental housing development

Intention

The analysis of institutions’ intentions was made with the Rental Sector as a whole and also the Social

Housing sub-sector in mind.

Rental Sector as a Whole

The intention to make access to land for black people as a redress for past discriminatory and oppressive

policies, is enshrined in the Constitution. This forms part of a commitment to land reform.207

The Housing Act gives the Minister of Human Settlements authority to obtain funds for the acquisition

of land for housing208.

Provinces may pass planning laws; and both Provincial and Municipal spheres of government must

prepare Spatial Development Frameworks (SDFs) based on norms and principles guided by

developmental goals.

The National Development Plan (NDP) seeks to revise the housing finance regime, re-shape regulations

and incentives for land use, transform spatial arrangements toward compact cities and promote active

citizenry in meeting housing needs.209 In the absence of a policy on rental housing there is a default to

the NDP. According to the NDP, housing strategy should contribute to achieving housing and land

policies that accommodate diverse household types and circumstances (one area where rental is

implied) and that address inequalities in the land market that make it difficult for the poor to access the

benefits of life in towns and cities. This is contextualised within two further strategic objectives: 1)

Adopt stronger measures to reconfigure towns and cities towards more efficient and equitable urban

207 South African Human Rights Commission. The Right to Adequate Housing Factsheet. pp 4-5. 208 Government Gazette No. 18521 Vol 390. Housing Act 107 of 1997. pp 5, 10-13. 209 Exploring Alternative Finance and Policy Options for Effective and Sustainable Delivery of Housing in South Africa, author?, date and page number[s]).



forms. 2) Ensure that municipalities put economic development and jobs at the heart of what they do

and how they function.

The Municipal Finance Management Act (MFMA) assumes that for Municipalities, long term planning

and budgeting is in place for capital expenditure and that long term spatial planning includes the

demand for the best use land for rental housing.210 Municipalities are required to identify land for

catalytic projects in their Built Environment Performance Plans (BEPPs), and these could include rental

housing.211

The Spatial Planning and Land Use Management Act (SPLUMA) seeks to create a single, integrated legal

planning system in which the roles of each sphere of government are clarified. The Act intends to

provide for uniform spatial planning and land use management in South Africa. The strategic objective is

efficient land use and spatial planning and management of rental housing. SPLUMA also seeks to

promote integration of work, living and recreational spaces, as well as something called inclusive

development (which might explain why it has a special section devoted to rental).212

SPLUMA is intended to impact on municipal planning practices. Each municipality now needs to provide

a single and inclusive land use scheme and must establish municipal planning tribunals and appeal

structures to decide on a land development application.

SPLUMA provides a framework for land usage and land use management, guided by principles of spatial

justice, spatial sustainability, efficiency, and spatial resilience. SPLUMA therefore provides a policy

framework and intention for making land available to black people for, inter alia, rental housing.213


Various past legislation as well as the current social housing policy express the intention to use land as

an important instrument to achieve spatial restructuring through the instrumentalisation of SHIs.

The Housing Act makes it clear that the state may purchase or expropriate land for the purposes of

subsidised housing. Land can be acquired via donations (including land from state-owned enterprises),

via negotiated purchase or expropriation. This subsidised housing could include rental housing.214

The 2004 Comprehensive Plan (BNG) identified Social Housing as a way for government to provide

strategic land for rental housing development, targeting low to middle income households.215 Social

housing is intended to address a key strategic challenge, namely the making available of land or

property in Restructuring Zones, that is socially and economically viable, and close to amenities.216

210 Municipal Finance Management Act. p 56. 211 SHRA. State of the Social Housing Sector Report. 2017. p 19. 212 Spatial Planning and Land Use Management Act, 16 of 2013. 213 Presidential Advisory Panel on Land Reform. Final Report of the Presidential Advisory Panel on Land Reform and Agriculture. 2019. p 31. 214 Presidential Advisory Panel on Land Reform. Final Report of the Presidential Advisory Panel on Land Reform and Agriculture. 2019. p 88. 215 NDoHS and DPME. Impact and Implementation Evaluation of the Social Housing Programme: Summary Report. 2016. p 3. 216 NDoHS and DPME. Impact and Implementation Evaluation of the Social Housing Programme: Summary Report. 2016. p 5.



Social housing policy requires local governments to provide preferential access to land for social housing

development.217 Land can be made available by municipalities through sale or leases at discounted

rates, and the intention is for this to be an additional financing measure.218 The Housing Code refers to

the acquisition and use of land for affordable housing (including rental housing) in two key functions.

Funding, where local authorities can top-up further by for example making land available for free or

through other in-kind contributions. There is however no obligation on them to do so. Delivery includes

the production of accommodation units, as well as the delivery of infrastructure and public

environments. It includes delivery initiation and governance.219

Furthermore the Inclusionary Housing (IH) strategy provides for a proposal that IH fees in lieu could be

used in social housing projects to de-risk and prepare public land to be rendered to Social Housing in

good areas. Municipalities are obliged by law to provide access to land in restructuring zones (RZs) and

provide municipal infrastructure and services for approved projects.220

As stated above, within this subsidy environment it is expected that the SHI would make a financial

contribution, by either paying for the cost of the land acquisition or for municipal engineering

services.221

Current Reality

The descriptive analysis of actual practices was made with the Rental Sector as a Whole and the Social

Housing Sub-Sector in mind.


Current existing housing, urban and spatially-linked laws, policies and instruments have been

implemented without the lens of land reform and land reform objectives (see Section 25 of the

Constitution). Decisions in relation to land and more specifically, the decisions taken in locating housing

developments and where investments in development are made, have been made in fractured way.222

Even where land is made available, poor intergovernmental relations mean that housing developments

can take up to three years from the establishment of a township to the handing over of houses.223


A continuous supply of adequate, affordable and appropriately located land is a precondition for a

sustainable social housing sector.224

217 NDoHS. Social Housing Policy. 2005. p. 17. 218 SHRA. State of the Social Housing Sector Report. 2017. pp 16-17. 219 NDoHS. National Housing Code, 3 Vol 6, Social Housing Policy. 2009. pp 46-56. 220 SHRA and Genesis Analytics (Pty) Ltd. Socio-Economic and Spatial Restructuring Impact of Social Housing. 2018/19. pp 2-3, 7, 13-14. 221 NASHO. Social Housing and Special Needs Housing: Final Draft Report. p 16. 222 Presidential Advisory Panel on Land Reform. Final Report of the Presidential Advisory Panel on Land Reform and Agriculture. 2019. p 35. 223 Exploring Alternative Finance and Policy Options for Effective and Sustainable Delivery of Housing in South Africa. pp 4-5. 224 NASHO. The Long Term Financing of Social Housing Study: An Overview. Research Report 1. 2016. pp 5-8.



Most of Social Housing projects are developed on an ad-hoc basis related to land availability, without

sufficient consideration of possibilities of linkage to urban regeneration or other government-driven

programmes. Most of the projects are located in near-city or suburban areas as opposed to inner city

areas. In 2013, 78 per cent of Restructuring Capital Grant (RCG) projects were implemented in suburban

areas. There are significant concerns around Restructuring Zones (RZs), which are identified through

more of a political than urban planning-directed process, with the consequence being that many RZs

are dispersed and ineffective as launch pads for growth, and little consideration has been given to the

effectiveness of social housing investments in RZs (and their impact on urban regeneration).225

Insignificant amounts of land have been expropriated for subsidised housing, particularly for Social

Housing or Community Residential Units (CRU).226

Over time, land in suitable locations has also become increasingly difficult to identify and procure.227

Land servicing costs also pose a challenge for social housing through their impact on development costs,

which vary widely across a sample from a NASHO research study. In this sample, all-in development

costs for new builds (including land, VAT and commercial development) ranged from R7 000 - R12 000

per square metre in 2013, with an average cost of R8 700. The great variability in costs can be partially

explained by varying local building regulations and municipal contributions to servicing land earmarked

for social housing with bulk infrastructure.228

The costs of acquiring and servicing land close to Central Business Districts and other urban cores results

in peripheral development. Even where land is made available, poor intergovernmental relations mean

that housing developments can take up to three years from the establishment of a township to the

handing over of houses. A combination of land assembly problems, administrative and land-market

inefficiencies and regulatory costs drive house prices up by 30 per cent on average.229

225 NDoHS and DPME. Impact and Implementation Evaluation of the Social Housing Programme: Summary Report. 2016. p 6. 226 Presidential Advisory Panel on Land Reform. Final Report of the Presidential Advisory Panel on Land Reform and Agriculture. 2019. p 88. 227 NASHO. The Long Term Financing of Social Housing Study: An Overview. Research Report 1. 2016. p 4. 228 NASHO. The Long Term Financing of Social Housing Study: An Overview. Research Report 1. 2016. pp 5-8. 229 Exploring Alternative Finance and Policy Options for Effective and Sustainable Delivery of Housing in South Africa. pp 4-5.



Assessment


Rental Sector as a Whole and also the Social Housing Sub-Sector in mind.


In the papers and documents read there is insufficient evidence of the need and demand for rental

housing. The Financial and Fiscal Commission argues that as a starting point, it is important namely to

understand (1) the housing demand, which is a function of the demographic profile, location, tenure and

price, and (2) the housing supply, which is a function of land, finance, infrastructure, regulation and

construction.230

The limited availability of well-located and affordable land and insufficient resources has a dampening

effect on the rapid expansion of the supply of rented accommodation, assuming that there is an

untapped demand for this form of tenure.231 One report concludes that ensuring that the social

infrastructure is upgraded (to support efficient land use) and that the bureaucracy is managed, would

provide assurance for the private sector to build houses and increase access from temporary ownership

(rental) to permanent ownership.232 What precisely is the relevance of this for rental housing? We need

to explore these themes further.


South Africa’s national housing subsidy is based on a capital grant that finances the top structure. It is

insufficient to cover the costs of higher density development and higher land costs in well located

areas.233 This means that the subsidisation of social housing could be driving a process of constantly

climbing land prices in urban areas, that undermines one of the objectives of the Social Housing

programme.

The purpose of social housing is to provide well located land for longer-term use by low- and moderate-

income families. In many instances this land is very valuable. If social housing is perceived as a ladder to

homeownership (which it is in some documents articulating policy) then these same units could be

alienated to private ownership (instalment sale is a legal form of purchase that fits well into this

process). As soon as the units are turned to ownership the household receiving it can trade it in the

market at market prices. In many instances this will mean that subsequent sales are only affordable to

middle- and higher-income earners and therefore the opportunity is lost to moderate- and low-income

households in the future.234

This leads to questioning the assumption that accessible urban land can be available to develop

medium-density housing at a viable financial cost for affordable housing products. Such land is often in

230 Financial & Fiscal Commission. Summary of Sustainable Financing of Housing Public Hearings. 2012. p 2. 231 Financial and Fiscal Commission. Exploring Alternative Finance and Policy Options for Effective and Sustainable Delivery of Housing. 2013. p 2. 232 NASHO. Social Housing and Special Needs Housing: Final Draft Report. 233 Exploring Alternative Finance and Policy Options for Effective and Sustainable Delivery of Housing in South Africa. pp 4-5. 234 SHRA. Draft Concept Note: Summary of National Rental Issues. p 27.



high demand from multiple users, even if it is in public ownership. Public bodies will have to sacrifice a

financial windfall if they are to transfer their surplus land to social housing organisations at low cost.

They may not have the resources to maintain a pipeline of land supply for social housing. There may also

be substantial economies of scale associated with building larger numbers of social housing units on

cheap peripheral (Greenfield) land. Experience suggests that building on Brownfield sites is a slower

process subject to more complex negotiations, regulatory hurdles and bureaucratic procedures.

Assuming that centrally located urban land can somehow be obtained for affordable social housing, an

effective functioning system for the RCG means a functioning SHI, access to land and cooperative

arrangements with municipalities. Since the allocation is based on a project readiness assessment

approach, municipal areas with well-functioning SHIs and with access to land and some co-

operative arrangements with municipalities, are more likely to have prepared projects and therefore

receive the RCG allocation. The absence of Restructuring Zones in certain cities/towns in specific

provinces probably contributes to the uneven investment of the RCG.235

Even with functioning SHIs, a further precondition for expanding centrally-based affordable housing

projects is the sharing of the value of doing this by the Municipalities. Many municipalities are reluctant

to allocate land at affordable prices in CBDs and well-located areas. There is a reliance on private

developers to bring on land for social housing, and they tend to bring peripherally located land on which

they are unable to build and sell high-value developments.236

The proposition that social housing projects in RZs are going to have a positive impact on economic

development and the creation of employment, plays down the general lack of demand for low-skilled

labour, and the intense competition for available jobs in economic nodes. Moving people closer to these

opportunities will not necessarily transform their chances of obtaining work or better paid jobs,

especially if they face other barriers to employment, such as limited skills or onerous domestic

responsibilities.237

There is a general failure to recognise that social equity could complement long-term economic

benefits. 238

235 HDA/NASHO. Reviving our inner Cities: Social Housing and Urban Regeneration in South Africa, Research Report. pp 3-5, 7, 19, 20, 22, 27. 236 HDA/NASHO. Reviving our inner Cities: Social Housing and Urban Regeneration in South Africa, Research Report. pp 3-5, 7, 19, 20, 22, 27. 237 HSRC. The Role of Social Housing in Reducing Poverty and Inequality in South African Cities. pp 6-7. 238 HDA/NASHO. Reviving our inner Cities: Social Housing and Urban Regeneration in South Africa, Research Report. pp 3-5, 7, 19, 20, 22, 27.



11.5.2 Between rental sector and amenities, services and work opportunities (urban

settlements)

Intention

The analysis of institutions’ intentions was made with the National Economy, the Rental Sector as a

Whole and also the Social Housing Sub-Sector in mind.

The National Economy

The following are the economic development assumptions of the National Development Plan (NDP):

• Raised employment through faster economic growth.

• Improved quality of education, skills development and innovation.

• A built, capable state that plays a developmental, transformative role.

• Upgraded informal settlements and fixed housing market gaps.239

The NDP furthermore identifies the following key challenges that have to be taken up and responded to

with strategies:

• Too few people work.

• The quality of school education for black people is poor.

• Infrastructure is poorly located, inadequate and under-maintained.

• Spatial divides hobble inclusive development.

• The economy is unsustainably resource intensive.

• The public health system cannot meet demand or sustain quality.

• Public services are uneven and often of poor quality.

• Corruption levels are high.

• South Africa remains a divided society.

The NDP reflects on a key risk facing government, namely social instability arising from both racial and

class disparities. In this regard the NDP notes the distance between citizens and the government. It

acknowledges the frustration over the pace of service delivery and concerns that communities are not

being listened to sincerely. It also emphasises the historical – and existing – spatial inequities that put

the poor on the margins of urban development and opportunities, as a just cause for grievance.240 At

least four objectives referred to earlier are closely related to the structuring of space and the economy.

How space is structured has a significant impact on where housing is provided, as well as the access to

amenities and economic opportunities for the people housed in these spaces.

239 Department of the Presidency. National Development Plan 2030: Executive Summary. pp 15-17, 24, 37.

240 Department of the Presidency. National Development Plan 2030: Executive Summary. pp 16, 17, 27, 30, 37, 45, 46.



The NDP added four thematic areas: 1) rural economy, 2) social protection, 3) regional and world affairs,

and 4) community safety. The NDP proposed a multidimensional framework to bring about a virtuous

cycle of development, with progress in one area supporting advances in others.

The NDP proposed immediate short-term interventions as follows, with respect to housing.

• Promotion of mixed housing strategies and more compact urban development to help people access public spaces and facilities, state agencies, and work and business opportunities.

• Investment in public transport, which will benefit low-income households by facilitating mobility.

• Reducing the costs of food, commuter transport and housing, while raising the quality of free or low-cost education and health care.241

Most of the interventions are intended to be realised at a local level. The Municipal Systems Act

provides for different government resources between various spheres of governance and within

municipalities, to be aligned so that they enhance a municipality’s capacity to undertake its mandate,

part of which is to encourage and facilitate local economic development.242


The NDP notes that BNG has given “greater attention to social and rental housing as mechanisms to

revitalise depressed property markets including the lower-end rental market.243

The above is the context within which to understand the import of the National Treasury’s Human

Settlements performance review and the Financial and Fiscal Commission (FFC) Report referred to

earlier. The Treasury document tells us that “from 1950 to 1970, the purpose of the public rental

housing programme was to fill the gap between supply and demand for formal housing.” 244 The

intention of the FFC report and options presented was not to formulate a specific housing strategy but

to identify various supply-side, demand-side and investment interventions and to evaluate the fiscal,

economic and household impact of different options applied to alternative housing circumstances. This

was undertaken in order to stimulate debate on how best housing finance should be reviewed. The FFC

observed that “the starting point is to understand (1) the housing demand, which is a function of the

demographic profile, location, tenure and price, and (2) the housing supply, which is a function of land,

finance, infrastructure, regulation and construction.245

A recent (2016) National Department discussion document argues that it should be a priority to ensure

that economic development and jobs are at the heart of municipal strategy and planning.246


241 Department of the Presidency. National Development Plan 2030: Executive Summary. pp 16, 17, 27, 30, 37, 45, 46. 242 Municipal Systems Act 243 National Development Plan. p 268. 244 GTAC/National Treasury Performance and Expenditure Review: Provincial Government Housing Rental Stock and Human Settlements. 2018. p 2. 245 Financial & Fiscal Commission. Summary of Sustainable Financing of Housing Public Hearings. 2012. p 2. 246 National Department of Human Settlements. Towards a Policy Foundation for the Development of Human Settlements Legislation. 2016. p 14.



The NDP refers specifically to the imperative to change inherited urban spatial patterns in order to get

onto a new economic growth path. It argues that a sustainable increase in employment will require a

faster-growing economy and the removal of structural impediments, such as poor-quality education or

spatial settlement patterns.247 One of the intentions of the Social Housing Policy is to restructure and

integrate fragmented elements of urban space.

The State of the Social Housing Sector Report (2017) refers to various international schemes to stimulate

the rental market e.g. the Netherlands (direct assistance to qualified renters), Germany (rent increase

caps) and the United States (vouchers).248 This draws on international examples of an economic

stimulation function for housing and within that an economic stimulation function for affordable rental

housing, usually identified as Social Housing.

The Social Housing Policy emphasises support for the economic development of low-income

communities by ensuring that they are close to job opportunities, markets and transport and by

stimulating job opportunities to emerging entrepreneurs in the housing services and construction

industries.249

Through various policy documents, Social Housing is perceived to have the potential to contribute to job

creation through construction activities, as well as management and maintenance of Social Housing

rental stock. The programme purportedly has further potential to contribute to economic revitalisation

and urban regeneration in underperforming areas.250

Current Reality

The descriptive analysis of actual practices was made with the Rental Sector as a Whole, the Social

Housing Sub-Sector as well as with the Private Building and Small Renting Sector in mind.


Current existing housing, urban and spatially-linked laws and policies and instruments have been

implemented without the lens of land reform and land reform objectives (see Section 25 of the

Constitution).251

A Financial and Fiscal Commission report observes that 40 per cent of the available and used rental units

are in a state of slum conditions.252 What is interesting about this statement is the fact that a significant

number of housing units have been built since 1994 but there remains a backlog. The problems analysed

are that target numbers were not reached. And many existing rental units have not been maintained to

acceptable standards.

247 Department of the Presidency. National Development Plan 2030: Executive Summary. pp 15-17, 24, 37. 248 SHRA. State of the Social Housing Sector Report. 2017. p 14. 249 (Source reference: Social Housing Policy, not specified further – check with Lux). 250 SHRA and Genesis Analytics (Pty) Ltd. Socio-Economic and Spatial Restructuring Impact of Social Housing. 2018/19. pp 2, 8-9. 251 Presidential Advisory Panel on Land Reform. Final Report of the Presidential Advisory Panel on Land Reform and Agriculture. 2019. p 35. 252 Financial and Fiscal Commission. Exploring Alternative Finance and Policy Options for Effective and Sustainable Delivery of Housing. 2013. p 2.




In executing these roles and responsibilities, the National Department is supposed to “build capacity for

provinces and municipalities”, and promote “consultation with all stakeholders in the housing delivery

chain, including other sector departments, civil society and the private sector”. This capacity building

should be targeted at the critical impact of economic development and jobs, but this is not identified as

a critical outcome.253

There is further comment in respect of municipalities not playing their local economic development

(LED) facilitation role through Social Housing. Municipalities are not integrating plans for Social Housing

in their Integrated Development Plans (IDPs). With the devolution of built environment powers and

functions to some Metros, it is hoped that housing issues will play a more central role in broader

economic development and infrastructure plans.254

Social Housing investment has not yet reached a scale by which concomitant economic investment or

activity can accurately be measured in SA. The Social Housing programme has injected over R5-billion

into the SA economy and proof exists that temporary construction employment has been created in the

building of Social Housing units. Social Housing has had limited direct permanent job creation potential

with the only permanent jobs being tenant management and repair and maintenance.255 In municipal

strategic planning, there has not been a direct link between the identification of Restructuring Zones

and Municipal Local Economic Development Plans. 256

Private rental

Conventional wisdom has it that there is significant potential to grow the economy and create

employment opportunities through facilitating the emergence and consolidation of the development of

small business entrepreneurs. One of the documents read was a study of the potential multiplication

effect on business opportunities in the building and small renting sector, a case study from Khayelitsha

Cape Town. The study noted that households earning less than R15 000 per month spend R2 billion

annually on home repairs and improvements. Within this market there are 3,5 million 15 to 35 year-olds

with regular salaries in the R3 500 to R15 000 income category. The study concluded that the growth

potential of these businesses was not realised due to lack of support from both public development

financing institutions (DFIs) and private financial institutions. This meant that building and letting

volumes increased incrementally in small volumes.257

253 National Treasury, Republic of South Africa. Estimates of Budget Vote 38 Human Settlements, National Expenditure. 2019. p 0. 254 NASHO. Social Housing and Special Needs Housing - Final Draft Report. 255 Department of Human Settlements and Department of Performance Monitoring and Evaluation. Housing Programme – Summary Report. 2016. p 7. 256 Assessment of the Implementation of Restructuring Zones (RZs) and the Effectiveness thereof as an Urban Restructuring Tool pp 5, 7, 54-56. 257 Financing Micro Developments – Cape Town Landlords. 2019. pp 16-17.



Assessment

The National Economy

Noticeably absent from the expressions of intent is a theory of how the stimulation and development of

the rental housing sector might contribute to the development of housing, amenities, services and work

opportunities in urban settlements. Focusing specifically on the small emerging private developer-

rentiers in townships, one study document argued that this impact would happen though a

multiplication effect in terms of work opportunities and value-add in both forward and backward

linkages from the development process, as well as the property maintenance and management

processes.258

With respect to all the policy documents, the question of how the development of the housing market

and specifically the rental housing market can contribute to significantly reducing high levels of

unemployment, are not mentioned. These points are critical because they relate directly to an

important theme running through most of the key policy documents referred to, namely the interactive

relationship between the real economy and the development of human settlements and private and

rental housing

Thus lacking in the Financial and Fiscal Commission Report259 is an analysis of why three million

Reconstruction and Development Programme (RDP) housing units appears to have had limited

economic impact in terms of jobs and small businesses in the building industry.

A Presidential Advisory panel targets the silos in local government decision-making processes. It

recommends an overhaul of the fractured way in which decisions are made in relation to land and more

specifically, the decisions taken in locating housing developments and where investments in

development are made. It asks what sectors of the economy benefit from State investments in land.260


The same Presidential Advisory panel points to a lack of a comprehensive approach to Land Reform,

including urban land – and not just rural land – which should take into account the Integrated Urban

Development Framework (IUDF), spatial transformation and a unitary, equitable tenure system. It

further recommends the preparation of a National Land Reform Bill, that provides criteria for identifying

redistribution applicants, prioritises between competing needs for land, and prefers vulnerable groups

in society. It also refers to an urban property strategy that should be developed to utilise state land and

state-owned enterprise land, particularly under-utilised and vandalised/poorly maintained property for

housing. A national spatial fund should be created for procuring land deemed to be well located.261

258 Financing Micro Developments – Cape Town Landlords. 2019. pp 16-17. 259 Financial and Fiscal Commission. Exploring Alternative Finance and Policy Options for Effective and Sustainable Delivery of Housing. 2013. p 2. 260 Presidential Advisory Panel on Land Reform. Final Report of the Presidential Advisory Panel on Land Reform and Agriculture. 2019. p 35. 261Presidential Advisory Panel on Land Reform. Final Report of the Presidential Advisory Panel on Land Reform and Agriculture. 2019. pp 5, 11, 58, 82.



Private rental

The study into the businesses of the smaller developer-landlords concluded that a key challenge lies

with the interest rates charged by established financial institutions’ and their loan origination practices.

A second challenge is local government’s costly and restrictive regulatory role. Partly as a result, the

rentier-developers hold short-term time horizons resulting in their neglecting maintenance. A fourth

challenge is a relatively weak and inaccessible supply chain network.262

The above study argues that a business case could be made to support the provision of 80 000 small

flatlets nationally, through emerging micro-property developers. The business case is based on

demonstrating a scale of opportunity for investment by homeowners in their own properties. Drilling

down into those in this category who live in inadequate conditions, yields 80 000 opportunities for

developers-rentiers. These opportunities could be divided across 1000 projects (developments, with 8

flats per development) per annum for 10 years. Taking the average price of developing a small flatlet (as

revealed by the Centre for Affordable Housing Finance [CAHF]), one gets to R712,8 million per annum

and R7,123 billion over 10 years.263

11.5.3 Between the rental housing sector and innovative, green building technologies264

Definition

Green affordable housing is reasonably priced housing that incorporates sustainable features. According

to Wikipedia the phenomenon became increasingly common in the United States with the adoption of

state and local policies that favour or require green building practices for publicly owned or funded

buildings.

A similar trend has emerged in South Africa in recent years, and it also applies to new builds of private

housing.

Potential benefits of green affordable housing include lower energy cost burden and improved health.

One challenge to green affordable housing is the tendency to overlook long-term benefits in the face of

higher upfront cost.

The challenge for green housing advocates is to see to the life cycle cost of the building. Many

affordable housing projects already find it a challenge to raise capital to finance basic affordable

housing.

262 Financing Micro Developments – Cape Town Landlords. 2019. pp 16-17. 263 Financing Micro Developments – Cape Town Landlords. 2019. pp 11-12, 16-17. 264 Norms and Standards for Backyard Rental – Social Housing Regulatory Authority and Department of Human Settlements - November 2019, pages 2 and 3 Norms and Standards for Public Sector Rental – Social Housing Regulatory Authority and Department of Human Settlements – November 2019, pages 2 and 3 Norms and Standards for Community Residential Units (CRU) Social Housing Regulatory Authority and Department of Human Settlements - November 2019, pages 2 and 3 Norms and Standards for Private Sector Rental – Social Housing Regulatory Authority and Department of Human Settlements – November 2019 – pages 2 and 3

https://en.wikipedia.org/wiki/Affordable_housing

https://en.wikipedia.org/wiki/Green_affordable_housing

https://en.wikipedia.org/wiki/Whole-life_cost



Although there is no single definition for what constitutes a Green Building, some elements recur in

describing the concept. A Green Building can thus be defined as a high-performance building designed,

built, operated and disposed of in a resource-efficient manner with the aim to minimize the overall

(negative) impact on the built environment, human health and the natural environment. Some examples

of green building features are choice of site and orientation, efficient use of materials and resources,

indoor environmental quality and innovation.

Intention

The analysis of institutions’ intentions was made with the National Economy, the Rental Sector as a

Whole and also the Social Housing Sub-Sector in mind.

National Economy

In 2011 the government adopted a national strategy for sustainable development, that included

guidelines for the development of integrated human settlements and green housing. The strategy has a

number of components: enhancing systems for integrated planning and implementation, sustaining

ecosystems and using natural resources efficiently, moving towards a green economy, building

sustainable communities and responding effectively to climate change. Insofar as housing is concerned

the strategy has the objective of developing and supporting quality housing projects/programmes

including building community self-sufficient farming strategies, indigenous knowledge, the sustainable

production of herbs and traditional medicine, and businesses to secure societal equity and cohesion.

More specifically the strategy aims to improve the quality of housing and other structures to optimise

resource efficiency (energy, water, building materials, etc.)265

The application of innovative building technologies is embedded in the construction (or retro-fitting) of

green buildings, residential rental buildings included.


The Integrated Urban Development Framework (IUDF) lays out norms and standards for urban design,

which cover all buildings and within residential sector rental accommodation. The IUDF says that urban

design principles should produce safe, liveable and inclusive urban spaces, resulting in an improved

quality of life for all residents. It emphasises that creating sustainable human settlements is not simply

about building houses and rental stock, but includes the provision of social, public and economic

facilities. Therefore, differentiated norms and standards need to be developed that go beyond

engineering services, to include social facilities, public spaces and green infrastructure. Spatial contracts

also need to be introduced, to ensure that all social and economic infrastructure services are aligned to

housing and transport provision.266

265 Department of Environmental Affairs, National Strategy for Sustainable Development and Action Plan [NSSD1] 2011 to 2014, page 9; 30; 31. 266 Cooperative Governance and Traditional Affairs, Integrated Urban Development Framework – A New Deal for South African Cities and Towns, 2016 pages 64 to 66



Encouraging quality delivery within the housing environment can be approached in various ways, some

focused on prescriptive dictates while others aimed at providing broad parameters for guidance. An

important focus is on efficient buildings, i.e. those that provide for the efficient usage of energy with

minimum negative environmental impact. Different types of mechanisms are used: Design guidelines,

Norms and standards, Technical specifications, Statutory compliance and Core standards. It is a given

that all developments must demonstrate compliance in terms of the National Building Regulations and

Building Standards Act 1997, SANS 10400, as well as a series of Normative References and Standards as

issued by the South African Bureau of Standards (SABS) Standards Division such as SANS2001. SANS

10400 sets out a series of compliance routes: deemed to satisfy requirements, functional regulations

and prescriptive regulations including for example, Deemed to Satisfy Requirements, Functional

Regulations and Prescriptive Regulations. In addition there are also Certifications that utilise a rating

system such as the Green Building Code of South Africa (GBCSA) Green Star or EDGE Programmes to

create a platform for measurement of green or resource efficient buildings. The rating systems and tools

create a common language and standard of measurement for green buildings, promoting integrated,

whole-building design.267


The Social Housing Regulatory Authority (SHRA) emphasises that greening is an energy efficiency

measure to minimize running and management costs.268

Insofar as environmental impact of social housing products (units) is concerned, deep space effects on,

and steps that need to be taken to create adequate natural light and ventilation and circulation quality,

etc. affects both social housing and private sector brownfield project costs.269

Energy saving measures are prescribed by the latest SANs and therefore have to be provided.270

CRU Housing sub-sector

In introducing ‘norms and standards’ for CRU a SHRA report seeks Consistency but not Uniformity,

Minimum Compliance but Maximum Quality and Market Responsiveness and Flexibility. It notes that

challenges that are occurring due to climate change also require consideration in terms of ensuring that

buildings can cope with rapidly changing temperatures and that the use of scarce resources such as

water is optimised.271

267 Social Housing Regulatory Authority and National Department of Human Settlements, Norms and Standards for Community Residential Units (CRU), November 2019. 268 Social Housing Regulatory Authority, Draft Concept Note: Summary of National Rental Issues”, page 22 269 Social Housing Regulatory Authority, Local projects specific cost driver - site shape, size, location, topography, geotechnical and environmental condition - Table 15: Local project specific cost drivers 270 Social Housing Regulatory Authority, Evaluation of the Cost Drivers of Social Housing Brownfield and Newbuild Mid-rise Projects, pg. 64 271 Social Housing Regulatory Authority and Dept of Human Settlements, Nov 2019, Norms and Standards for Community Residential Units (CRU), Nov 2019



Current Reality

The descriptive analysis of actual practices was made with the Social Housing Sub-Sector in mind.


There are Alternative Building Technologies (ABT) or Innovative Building Technologies (IBT) for building

energy and resource efficient buildings.

Social housing institutions (SHIs) are keen to explore ABT/IBT solutions for social housing but cannot

afford to be the test cases for these systems. South African consumers tend to prefer the brick and

mortar solutions and there is limited end-user acceptance of ABT products. Labour used in projects are

also geared to the traditional construction approaches. Most SHIs see the products as more expensive

to utilise. ABT is being considered and approached on a project-by-project basis at this stage in the

sector.

SHIs that have tried ABT solutions have found that they save on construction cost, especially time-

related costs such as preliminaries and escalations, but the solutions are not flexible and robust and are

costly at maintenance stages of the project. The solutions require specialised skills for construction and

not many contractors are trained for implementation or need to be trained as part of the process,

affecting the cost savings achieved through the use of ABT. Some systems require more time at the

finishing stages, so time savings gained during construction may be lost during the completion stage.

The scale of the projects also affects the solution applied and any cost savings achieved.

SHIs have mainly tried energy efficiency measures and systems and not ABT building systems and

materials. Solutions for student accommodation are being considered but they may not be suitable for

residential tenants as yet.272

The measures recommended are not necessarily tried and tested and are therefore adding to capital

and operational costs of SHIs. For example, Heat pump/solar geysers – savings on energy but products

and maintenance have mixed reviews and many lessons and experiences with different products.

Some Social Housing projects are meeting Green Building Council SA (GBCSA) requirements for “Edge”

rating, providing an opportunity for the funder to access Development Bank of Southern Africa (DBSA)

green funding. The funder is therefore able to offer prime interest rates to the SHIs. The SHIs are keen to

pursue this Edge rating in projects.

Not all municipalities understand the charges for utilities in cases where energy saving measures are

being used.

Tenant understanding and behaviour with respect to the various energy saving measures also needs to

be addressed.

272 Social Housing Regulation Authority, Evaluation of the Cost Drivers of Social Housing Brownfield and Newbuild Mid-rise Projects.



Replacement costs of geysers are significant for SHIs.

Boreholes appear to be more efficient and cost effective than the provision of rain water tanks.273

Assessment


Social Housing Sub-sector in mind.

SHIs have not embraced energy efficiency components and appliances, in the form of ABTs and IBTs,

because these are unpopular with their client base, too complicated to work with by construction

labour, and appear to be more costs in terms of overall development costs.

11.6 STAKEHOLDER PROPOSED REFORMS TO INCREASE DELIVERY OF RENTAL HOUSING

Recommendations relating to Rental Housing Policy and Strategy

With respect to general policy and strategic issues:274

• There needs to be more transitional low-cost rental and rent-to-buy options

• Participation of all players should be maximised

• Citizens should be encouraged to contribute to the cost of their housing, limiting the entitlement to free housing to the very poorest

• For formally owned houses, the state should provide services, such as electricity, water and sanitation where backlogs exist, while the households should build the top structure

• The state should provide vouchers, which households could use to purchase building materials

• The household’s contribution would depend on household income: the higher the cost, the more the household should contribute

• Households should be encouraged to save towards meeting their housing needs, through for example a savings scheme similar to Fundisa

• Private sector involvement in this market could be stimulated by the state With respect to general policy and strategic issues:275

• The subsidy programme must give more attention to the workings of the market, including the rental market

• More attention should be paid to rental accommodation across income bands

• There should be more incentives for public and private investors to invest in rental housing

• There must be enabling policies to support the development of an appropriate housing mix in inner cities

With respect to cooperative housing:276

• Cooperatives and instalment sales should be removed from SHRA’s scope

• Cooperatives should be placed under an ownership programme

• Funding and oversight for cooperatives should be relocated to an expanded, revamped People’s Housing Process (PHP)

273 Social Housing Regulatory Authority, Evaluation of the Cost Drivers of Social Housing Brownfield and Newbuild Mid-rise Projects, pg. 64. 274 National Association of Social Housing organisations, The Long Term Financing of Social Housing Study, Research Report 1 2016, pages 3 to 6. 275 National Planning Commission, National Development Plan, pages 268 to 269. 276 Draft Housing Assistance Policy and Programme for Housing Co-operatives, pages 6 to 7.




• Cooperatives Policy on Financing277 o Human Settlement MECs will administer the Programme and will consider, approve and fund

all project applications submitted by qualifying Housing Co-operatives (established in terms of the provisions of the Co-operatives Act, 2005);

o Monthly household income: The gross monthly income of the members of the Housing Co-operative may not be in excess of R3 500,00

o Grants are available to Housing Co-operatives for the acquisition and/or development of housing opportunities for its members (who satisfy the qualification criteria as set out in the Housing Co-operatives Programme.

With respect to Community Residential Housing:278

SHRA is unable to regulate municipalities and provinces, since these are spheres of government with their own constitutionally defined autonomous functions.

• The new greenfield developments (which are deemed to become viable over a five-year period) could be donated and transferred to accredited SHIs for improved management, cross subsidisation with the SH portfolio and planning that will achieve viability over of the long term

• This will depend on the willingness of the Municipality to transfer the properties, the locality, leases and performance of the project, the write off of historic debt, a once off grant for maintenance (if required) and regularisation of the tenancies and rentals

• Regarding the existing stock (hostels and public housing), it is clear that any substantial regulatory role for the SHRA in the CRU programme would require substantial review of existing policy and legislation

• SHRA could do nothing – in terms of the legal review that says that the SHRA has no jurisdiction over the CRU programme and nor does it have jurisdiction over municipalities and provinces

• Or, SHRA could undertake an investigation of all the CRU stock or a sample of the stock with the view to ascertaining the stock that can be regularised to become viable over of the long term, to negotiate with municipalities and provinces to transfer this stock to accredited SHIs, to negotiate with accredited SHIs to take on the stock and to regulate such stock when it is transferred and lastly to negotiate for operational subsidies for such stock as well as for a once off maintenance subsidy

• 2016 assessment of the CRU programme highlighted major problems in the structuring of the programme and the provincial and municipal capacity to undertake these functions

• The Social Housing Act does not give the SHRA a mandate to undertake the regulation of CRU stock as it does not meet the definition of SH. Nor is the stock owned or under long term lease to a SHRA accredited SHI. The stock is owned by Government. Furthermore, CRUs do not meet the requirements of an accredited project

• Because the regulatory framework for SH is well defined around norms and standards for capital development and the regulatory functions of the SHRA are financed through specific legislated national budget allocations, it is possible with agreement from the NDoHS and the Treasury to channel CRU capital financing resources through the SHRA

• Any substantial change that gives SHRA direct regulatory authority over all or aspects of the CRU programme would require substantial policy, legislative and regulatory changes

277 National Department of Human Settlements, Housing Assistance Policy and Programme for Housing Co-Operatives, Version 1 of February 2018 pages 11 to 29. 278 Community Residential Units (CRU) Regulation Report, pages 5 to 7.




With respect to the informal (backyard) rental housing subsector:279

• Backyard dwellings should meet minimum standards, which will require standardising and streamlining the sometimes cumbersome municipal regulations. Such dwellings should consist of a formal structure and have access to basic infrastructure such as sanitation, water and electricity.

With respect to the informal (backyard) rental housing subsector:280 The two interventions deemed appropriate are either relocating the households to subsidised RDP housing or owner-upgraded backyard rental units (with incentives). Subsidised RDP housing has a higher impact on all households but imposes a significant cost to the State. When owners are given a sliding scale incentive to upgrade their backyard rental units to a prescribed minimum standard, the outcome is a significant cost reduction to the State, improved gearing levels from households and better developmental outcome.

With respect to credit behaviour:281 Rehabilitating credit behaviour is essential for improving the overall impact of assisting households to access housing. This will, however, require investing substantial resources and take a significant amount of time to filter through. The outcome of improved credit-worthiness has far wider positive implications than simply for the housing sector, and the value placed on such interventions should recognise this. The cost and resources necessary for credit rehabilitation interventions should be absorbed in budget lines broader than those in the housing sector.

With respect to housing delivery reforms:282 The government should embark on housing delivery reforms taking into consideration the following principles:

• Refocusing on building a single, inclusionary housing market

• Redefining the role of state

• Reviewing housing entitlements

• Improving institutional coordination

With respect to inclusionary housing:283 Refocus on building a single, inclusionary housing market. The current, de facto housing finance policy fails to recognise adequately the role of the housing market in providing access to housing at scale. This market already operates, either formally or informally, across all market segments and in both primary and secondary markets, but fails the poorest households the most.

With respect to the role of the state:284 Review the role of state. Houses are only one component of human settlements, as a sustainable human settlement consists of two components: the public good and the private good. When providing housing, it is important to differentiate between human settlements components that can

279 Financial and Fiscal Commission, Exploring Alternative Finance and Policy Options for Effective and Sustainable Delivery of Housing in South Africa, pages 5 to 6. 280 Financial and Fiscal Commission, Exploring Alternative Finance and Policy Options for Effective and Sustainable Delivery of Housing in South Africa, pages 14, 35, 53, 55. 281 Financial and Fiscal Commission, Exploring Alternative Finance and Policy Options for Effective and Sustainable Delivery of Housing in South Africa, pages 14, 35, 53, 55. 282 Financial and Fiscal Commission, Exploring Alternative Finance and Policy Options for Effective and Sustainable Delivery of Housing in South Africa, pages 14, 35, 53, 55 283 Financial and Fiscal Commission, Exploring Alternative Finance and Policy Options for Effective and Sustainable Delivery of Housing in South Africa, pages 14, 35, 53, 55. 284 Financial and Fiscal Commission, Exploring Alternative Finance and Policy Options for Effective and Sustainable Delivery of Housing in South Africa, pages 14, 35, 53, 55.




be considered a public good and those that are a private good. Understanding this difference is essential and will enable the state to concentrate on delivering public-good components and creating an environment in which the individual households and private sector are able to concentrate on providing the private-good components of human settlements. In theory, some characteristics of a public good are non-rivalry and non-exclusivity. Houses are essentially a private good. The infrastructure, services and facilities that build healthy, vibrant communities have public-good characteristics. Even serviced land, with secure title, has a greater public-good characteristic than the houses themselves. This suggests that the State should focus on delivering appropriate public goods to support human settlements and on streamlining the institutional and regulatory red tape in the delivery of human settlements. Review housing entitlements. The Bill of Rights (Section 26(1) of the Constitution of the Republic of South Africa) entitles everyone to access to adequate housing. Section 26(2) of the Constitution takes this further and says that the State must take reasonable legislative and other measures to ensure the progressive realisation of this right. However, the State is not obliged to provide free housing. The thinking and perception of households need to shift, from being passive recipients dependent on the State, to becoming actively engaged in meeting their own housing needs and mobilising their own resources as end-user contributions. The government should invest a significant proportion of resources in interventions that stimulate additional funding from the private sector (banks and private developers) as well as household contributions towards housing delivery. Such interventions include:

• Investment incentives using tax rebates

• Upgrading of backyard rental with incentive

• Housing voucher

With respect to SH and special needs housing:285

• Special needs should not be a priority because: (a) affordable housing delivery in general within the South African housing sector is challenging; and, (b) SHIs are focused on meeting strict entry criteria set by Social Housing regulations to qualify for social housing. o Special needs is not a financially sustainable option on a per unit cost basis, as so many of the

beneficiaries are in receipt of state grants o There is generally no revenue support to special needs beneficiaries. An SHI must employ

their own social welfare workers or partner with an NGO which can provide this support • A SHRA Concept Note286 recommends that Student Housing be incorporated as a sub-set within

Social Housing. Social Housing policy/regulations/model can accommodate student accommodation, because it is medium high-density rental accommodation, similar in type to communal housing, requires institutional management, is located in urban areas in relation to Restructuring Zones and the Department of Higher Education and Training (DHET) requirements as formulated in the Guidelines and the Policy on Norms & Standards. The Social Housing policy would have to be adjusted to cater for this specific target market (i.e. single persons from households), provide for smaller units other than the 30 m2 for Social Housing and determine an adequate grant quantum on the basis of development and management costs. Affordability is key in any solution for the student accommodation challenges. In this regard consideration would be needed in the following aspects:

285 National Association Social Housing Organisation, Social Housing and Special Needs Housing Final Draft Report, pages 5 and 16. 286 Social Housing Regulatory Authority, Draft Concept Note: Summary of National Rental Issues, page 22.




o Longer debt repayment periods o Alternative building designs, new technologies/materials and greening/energy efficiency to

minimize running/management costs o Low-budget hostels to be considered o Centralised procurement (to save on development costs) o Refurbishment of existing buildings preferred (lower upfront investment) o Standardised buildings (cost saving) o Funding to be ring-fenced and the new DFI to be allocated additional capital to allow for

concessionary top-up funding to be blended with private sector funding o Assess the applicability of the asset-based sale and lease-back funding model (PH: Meaning

that the SHI sells the asset to the funder, and then leases the whole asset from the new owner?)

o Policies on allocation of units, income bands, rentals and institutional arrangements to be developed.

• A SHRA Concept Note287 recommends that Pensioner Housing be incorporated as a sub-set within Social Housing. Social housing policy/regulations/model can accommodate housing for pensioners but needs to build in ways to get the necessary care for pensioners. This could be met through giving a head lease (say 10 flats) to service providers providing this care (usually provided by NGOs and funded philanthropically and through sourcing other public grants, like from Community Development). To incorporate Pensioner Housing as a sub-set within Social Housing, the Social Housing Policy would have to be adjusted to: o Cater for this specific target market (i.e. couples or single persons dependent entirely on a

state pension grant) o Provision of smaller units other than the 30 m2 for Social Housing o Problems of providing ‘head’ leases. o Overall such a project provides a small way forward on provision for state pensioners.

However, it does require a good NGO with access to alternative care funding to work in partnership with SHIs. Presently there are not many such NGO’s even within the larger Metro areas.

With respect to SHIs:

• The National Association of Social Housing Organisations (NASHO) recommends that the policy-makers recognise the different funding and capacitation needs of Social Housing Institutions (SHIs) at different points in their lifecycle; that government offers greater support to emerging SHIs, while enabling the flow of commercial finance (principally debt) to more established SHIs, through deploying alternative public finance instruments with less regulatory restrictions, reflecting a partnership approach to sectoral development.288

• The NASHO modelling of the above recommendations for their moderate scenario results in a

significant rise in the extent of debt funding from private sources (from R0 – low [Business as Usual - BAU] scenario - to R3,8 billion in 2030) and likewise for SHI equity (from R0 to R816 million); at the same time this is accompanied by significant increases in the CRG (from R7,2 billion to R9,3 billion), DFI loan funding (from R2,3 billion to R4,8 billion) and institutional

287 Social Housing Regulatory Authority, Draft Concept Note: Summary of National Rental Issues, pages 14 to 15. 288 National Association of Social Housing Organisations, The Long Term Financing of Social Housing Study – An Overview, pages 8 to 10.




capacitation expenditure (from R0 to R67 million). To reach the 170 000 unit number (i.e. the High scenario) will push CRG to R23 billion and DFI debt funding to R6,8 billion. Interestingly the extent of private debt will fall in the High scenario to R3,3 billion.289

With respect to tenure:

• The status of the Social Housing Policy and the Social Housing Programme Guidelines in relation to the Social Housing Act is not clear. There is some ambiguity between rental in perpetuity and the transfer/sale to individual ownership and this needs to be solved by defining in which cases will transfer to ownership be considered. The role of the private sector before and after the 15-year period is unclear and needs urgent revision. If the Build Operate Transfer (BOT) model is to apply for every private sector application then one only needs to define under what conditions/modalities transfer will take place. The phrase “the public sector retains the stock” in the Social Housing Policy needs to be clarified. The question whether the private sector is allowed to sell the property before expiry of the BOT period and whether the repayment approach in the Guidelines needs to be adjusted, needs to be clarified.290

Recommendations relating to housing delivery and management (including capacity)

With respect to Provincial Departments of Human Settlements:291

• Provinces should employ more skilled personnel to facilitate growth and sustainability in the rental sector

• Implement effective consumer education on rights and obligations

• Get actively involved in mediation between the various stakeholders

• Actively monitor social housing projects to ensure compliance with prescribed norms and standards

With respect to Municipalities:292

• Employ appropriate skills and increase capacity to create rental stock

• More focus should be given to other forms of housing than BNG/RDP

• Make concerted effort to allocate municipal land and building for rental/social housing and shorten the process and time for making such allocations

• As permitted by the MFMA under special circumstances, make land/buildings available to SHIs at less than market-related rates such as 99-year leases with nominal leases or land availability agreements to enable the development of Social housing at scale

• Allocate a larger budget for infrastructure development to speed up rental housing delivery

• Turnaround time for building plan approvals should be shortened

• Municipalities should develop and implement special reduced tariff policies and implement same for Social Housing Institutions to promote affordability to the tenants

• Consider providing alternate accommodation to the indigent who cannot afford rentals

289 National Association of Social Housing Organisations, The Long Term Financing of Social Housing Study – An Overview, pages 8 to 10. 290 Social Housing Regulatory Authority, Draft Concept Note: Summary of National Rental Issues, pages 23 to 24. 291 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016. 292 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016.




• Municipalities should develop alternate accommodation for indigent persons who cannot afford the rentals so that they can be migrated to such alternative accommodation

With respect to the Housing Development Agency (HDA):293 • Employ more skilled technical personnel such as engineers, town planners and project managers • More operational and capital funding should be provided to enable them to procure more land

and roll out projects at an accelerated rate With respect to the National Home Builders Registration Council (NHBRC):294 • Employ more built environment technical personnel to cover inspections on a larger scale • Implement more consumer education and conduct more extensive public relations to address the

adverse publicity • Should provide more training to builders and contractors on building standards • Actively research and approve alternate building technologies to reduce cost of housing and speed

up delivery

With respect to the Gauteng Partnership Fund (GPF):295

• More funding should be made available to GPF

• Expand its mandate to finance projects countrywide

With respect to the National Housing Finance Corporation (NHFC):296

• Government should consider making more funding available to ensure the realisation of the NHFC mandate

• Should constantly research, develop and implement new housing finance products to increase delivery of housing in the affordable housing sector

• Develop models to crowd-in the private sector funders to increase delivery of rental/social housing

With respect to Municipal Owned Entities (MoEs):297

• Consider de-coupling the MOE from the Municipality and develop its own systems and procedures and management separated from the parent municipality to make them more efficient

• Employ more skilled staff at lower levels to implement stringent rental collection systems and procedure to enhance revenue collection and skilled staff to carry out repairs and maintenance

• De-coupling MOEs from parent municipality will enable them to raise their own finance to develop new rental stock as well as become sustainable

• De-coupling will also enable the strict application of default mechanism should tenants not be willing to pay rent

With respect to SHIs:298 • The rentals collected together with the intense social/community programmes that are required

to be implemented are insufficient to sustain the institutions, provide for long term maintenance

293 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016. 294 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016. 295 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016. 296 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016. 297 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016. 298 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016.




and provide for capital accumulation to fund future unsubsidised projects to mitigate their risks of total reliance on subsidised rental income; therefore:

- SHRA should provide grant funding for social/community development programmes - In order to be sustainable and provide for long term maintenance of the units SHIs

should expand their mandate to include unsubsidised housing portfolios in the affordable and upper Income markets

With respect to established rental housing management companies:299

• Government together with SHRA should research appropriate incentives to entice them to play in the Social sector in order to accelerate the provision of affordable Social Housing

With respect to tenants and tenant committees:300 • Authorities should pay more attention to backyard rental landlords and tenants to facilitate

acceptable quality accommodation but should be mindful that over regulation will affect the sector adversely; financing and technical advice should be provided to landlords, again to improve the quality of the accommodation

• In respect of Public Sector housing, the older housing stock should be transferred to the occupants/beneficiaries to curtail any further spending on maintenance and upkeep. One transferred the maintenance of the units become the responsibility of the owners. Any new stock delivered under the Social Housing programme must be separated from the older units and administered on a strict tenant-landlord relationship and non-payment of rental should result in swift eviction

• It must be regulated that Boards of Co-operatives must comprise of majority of independent non-members to ensure good corporate governance. Rental collection and maintenance of the buildings should be outsourced to private sector administrators; Leases must ensure that defaulters, despite being members can be evicted and membership of the co-operative revoked of it is legally possible to do so

• On- going tenant education regarding rights and obligations is an imperative in the Social Housing sector to ensure its survival. Provincial governments should be part of the tenant education system to convey to the tenants that non-payment of rental would lead to eviction. Lesson should be learnt from Private sector landlords as to how swift evictions are carried out of defaulting tenants

• Local authorities/provincial housing departments should implement programmes to provide alternative accommodation for tenants who cannot afford the rentals

With respect to public stock and community residential units (CRU):301

• Develop policies and mechanisms to transfer the units that were supposed to be transferred to the beneficiaries so that the burden of administration and upkeep transfers to the beneficiary

• Skill and capacitate staff responsible for the administration of the programme and rental collection to enhance efficiency

• Maintain the property to prevent falling into disrepair and dilapidation

• Operational subsidies are to be provided to the CRU administrators to subsidise operating costs and maintenance of the units.

299 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016. 300 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016. 301 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016.




With respect to public private partnerships:302 • As an implementation instrument Public-Private Partnership Led Rental Initiatives shall be

adopted. The strategy might include: 1) Government develop the stock and ownership of the stock transferred to the municipality; 2) Private company or a Social Housing Institution manages rentals and maintenance of the stock; 3) The rental managing institution account to the relevant Municipality; 4) Social Housing Regulatory Authority (SHRA) perform regulatory and oversight function; and 5) Department of Human Settlements provide oversight and conduct performance monitoring.

With respect to SHRA:

• A Human Sciences Research Council (HSRC) Report303 notes that there is growing recognition of the need for the SHRA to play a developmental role in capacitating SHIs, municipal governments and other stakeholders – thereby moving beyond a narrow focus on institutional oversight and programmatic reform.

• Congruent with this NASHO has argued that SHIs go through different stages of development, during which they have different needs and require different forms of support.

• The HSRC Report notes that NASHO recommends a nuanced capacity development strategy, which offers greater support to emerging SHIs while enabling more established SHIs to get greater access to commercial funding.

• Furthermore, notes the HSRC Report, NASHO recommended that strategic partnerships and alliances are established between government, new and established SHIs, and the private sector to enable skills and knowledge transfer.

• Appropriate and aligned sector Capacity Development should be undertaken. The roles and functions of the NDHS, SHRA and other organisations, specifically NASHO, in respect of institutional capacitation and SHI capacitation must be resolved, and implemented. SHRA in turn must continue to implement a clear SHI capacitation strategy that is clearly linked to delivering the SHIP, and assists to develop existing and new SHI delivery capacity.304

With respect to strengthening the state’s developmental capacities: • The National Development Plan proposes a change of approach away from trying to find new

structural arrangements, which is destabilising, towards identifying and resolving specific weaknesses in coordination and capacity. The state needs to improve its management of the system, including mediating agreements between district and local municipalities where there is duplication or conflict over the allocation of responsibilities and resources. Provinces should focus on their core functions and develop their capacity to support and oversee local government.305

• The National Development Plan calls for the adequate funding of anti-corruption institutions and their proper staffing, the appointment of specialised teams and courts, greater central oversight of longer-term state procurements, and tackling societal factors that contribute to corruption.306

• The National Development Plan emphasises that an administrative head of the public service should be created, with responsibility for managing the career progression of heads of department, including convening panels for recruitment, performance assessment and disciplinary procedures.307

302 National Department of Human Settlements, Towards a Policy Foundation for the Development of Human Settlements Legislation V2.0 01 November2015, pages 61 and 84. 303 Human Sciences Research Council (HSRC), The role of social housing in reducing poverty and inequality in South African cities, pages: 28; 36; 39; 42. 304 Impact and Implementation Evaluation of the Social Housing Programme – Full Evaluation Report, March 2016, page 74. 305 Department of the Presidency, National Development Plan 2030 – Executive Summary, pages 45, 46, 47. 306 Department of the Presidency, National Development Plan 2030 – Executive Summary, pages 45, 46, 47. 307 Department of the Presidency, National Development Plan 2030 – Executive Summary, pages 45, 46, 47.




• The National Development Plan argues that the government has to set the ethical bar and take the necessary initiatives to develop partnerships that can move the developmental state to be a win-win for all, black and white and rich and poor.308

• The National Development Plan recommends the medium- to long-term task of building capacity for a developmental state. This requires, inter alia, a hybrid system for appointing heads of departments, incorporating both political and administrative elements; a graduate recruitment programme and a local government skills development strategy to attract high quality candidates; a strengthened Public Service Commission role in championing norms and standards, and monitoring recruitment processes; and, a purely administrative approach for lower-level appointments, with senior officials given full authority to appoint staff in their departments.309

Recommendations relating to legislation and regulation (from the readings) With respect to informal (backyard) rentiers:310

• Limited regulation should be considered on the one hand to improve safety and hygiene standards and on the other hand not to constrain the sector to provide an essential service to the mass market.

With respect to the Municipal Finance Management Act (MFMA):311 • Consider amendment to facilitate the provision of land for Social Housing purposes at discounted

rates or long- term lease (e.g. 99-year leases) at nominal lease tariffs.

With respect to the Rental Housing Act 50 of 1999 and the Rental Housing Amendment Act of 2014:312

• National, provincial and local government should implement consumer education. With respect to the informal (backyard) rental housing subsector:313

• Municipalities need to review existing by-laws and survey people living in backyard dwellings. Currently no supply-side, demand-side or investment interventions exist for backyard dwellings.

With respect to CRU rental housing subsector:314

• House non-qualifying tenants (incomes above R3500 p/m) in an affordable housing product or if above R15 000, and give notice to vacate.

With respect to SHIs: A revised, simplified, less onerous regulatory regime should be developed and implemented by the

NDHS and SHRA in order that SHIs are not overburdened by compliance requirements315

308 Department of the Presidency, National Development Plan 2030 – Executive Summary, pages 45, 46, 47. 309 Department of the Presidency, National Development Plan 2030 – Executive Summary, pages 45, 46, 47. 310 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016. 311 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016. 312 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016. 313 Financial and Fiscal Commission, Exploring Alternative Finance and Policy Options for Effective and Sustainable Delivery of Housing in South Africa, pages 5 to 6. 314 Community Residential Unit (CRU) Regulation Report: Recommendation Report on SHRA’s Implementation of CRU Regulation, -November 2018 pages 7, 30 to 31. 315 Impact and Implementation Evaluation of the Social Housing Programme – Full Evaluation Report, March 2016, page 75.



Misalignment between legislation and social housing practices Advice about recent/future amendments in the legislation316

General content of legislation, policy and strategy with regard to rental housing The words “adequate housing” is not defined anywhere in NDOH policy or strategy or legislation.

Legislation defines the word adequate. Such definition should be linked to each housing option rather than having one definition for the words “adequate housing.” In defining this right one would have to look also at the interdependency of rights that include protection under the law from unlawful eviction; the right to physical and mental security/health.

References in policy documents etc. to the Department of Housing.

Should be deleted and replaced with reference to the Department of Human Settlements.

Section 7.2 9 (National Housing Code) refers to Provinces responsibility to administer the disbursement of grant finance which is now the responsibility of the SHRA.

This section of the Code needs to be revised, including the funding arrangements.

Social Housing Policy, Section 9.2 of the National Housing Code – “Capital Grants for Social Housing Projects” discusses the value of a grant to be awarded per project and that this will be determined on a project to project basis based on a certain internal rate of return and not on a fixed grant quantum. This has not been implemented in practice. Fixed grant quantum have been awarded to all projects.

Section 9.2 of the National Housing Code needs amendment.

Social Housing Policy, Section 9.3 of the National Housing Code – refers to a split in the capital grant, i.e. standard and top up variable. There is only one capital grant to be administered by the SHRA.

This section is outdated and needs to be revised.

Policy makes provision for a 2,5 per cent annual rental escalation, which should be applied by all SHIs. Change in rental levels: SHIs incur annual escalations in running costs (salaries, rents, utilities, etc.). Evidence exists that some SHIs are increasing rentals by up to 18 per cent per annum in all likelihood due to ensuring sufficient operating income to meet Debt Service

Amend policy to bring it into line with practices? Reduced cost of public debt: lower interest rates (or grants) allow improved sustainability.

316 Recommendations from the INSITE team member legal advisor.




Cover ratios required by SHRA, debt service commitments and municipal utility charges.

A revised less onerous regulatory regime developed by the NDHS and SHRA could be considered so that that SHIs are not overburdened by compliance requirements.

Amend the SHRA regulations accordingly.

Insufficient incentives for the Private Sector to get involved in downmarket Rental Housing.

Legislation and policy to address this gap.

Credit Bureau information also impacts the bottom end of the market due to negative reporting on the credit history of consumers.

The manner in which credit bureau information is uploaded and the type of information uploaded should be revised.

Rental Housing Act (RHA) and Amendments

National government has not developed rental housing norms and standards, which means that the Rental Housing Tribunals are unable to consider norms and standards when making rental determinations.

The 2014 Amendment Act rectifies this gap and provides that the Minister may make regulations relating to norms and standards that are aligned to the Policy Framework concerning: • Terms and conditions of the lease • Safety, health and hygiene • Basic living conditions including access to basic services • Size of dwellings • Overcrowding • Affordability The calculation method for escalation of rentals and the maximum rate of deposits which may be payable for a dwelling. These may be set per geographical area to avoid unfair practices particular to that area.

Section 3 of the RHA empowers the Minister to introduce a rental housing subsidy programme or other assistance measures to stimulate the supply of rental housing property for low income persons.

This subsidy programme exists for social housing but must still be drafted so that the state can intervene in some of the other rental housing subsectors, where market failure exists.

What does habitable mean? Must be defined in terms of the various subsectors in rental housing.

Social Housing Policy refers to the Social Housing Corporation.

This must be amended to refer to the SHRA.

Social Housing Act There has been a shift in the budgeting for social housing in that the SHRA deals with the allocation of the institutional subsidy, and not Provinces. But the Social Housing Act has not yet been amended.

Amend the Social Housing Act to reflect the changed practices and amend the role of the provinces.




Social Housing Regulations – see 23(3) and 23(4): The old income bands detailed here changed in Feb 2017. The Minister announced on 19 June 2017, that MinMec, -approved adjustments include the shift in income bands which raises the lower qualifying household income limit for the primary market from R3 500 to R5 500 per month and the upper qualifying household income limit from R7 500 to R15 000 per month. MinMec also approved an increase in the Restructuring Capital Grant from R125 615 per unit to R155 000 per unit and consolidation of the Community Residential Unit/Hostel with social housing.

Regulations need to be amended.

The Social Housing Act refers to the capital grant “as the grant contemplated in the social housing policy.”

Thus the Social Housing policy would need to be revised.

Social Housing policy refers to escalating rentals taking into account the CIPX. The Act and Regulations are silent on how rental escalations must be applied.

Proper detail may be necessary here to address affordability of tenants and SHI’s.

The Social Housing regulations section 4.2.5 refers to monitoring of projects to be done by Province.

This should be amended to have SHRA monitor if SHRA is disbursing funds.

The Social Housing Act does not give the SHRA a mandate to undertake the regulation of CRU stock as it does not meet the definition of Social Housing. Nor is the stock owned or under long term lease to a SHRA accredited SHI. The stock is owned by Government. Furthermore, CRUs do not meet the requirements of an accredited project.

Because the regulatory framework for SH is well defined around norms and standards for capital development and the regulatory functions of the SHRA are financed through specific legislated national budget allocations, it is possible with agreement from the NDoHS and the Treasury to channel CRU capital financing resources through the SHRA. Any substantial change that gives SHRA direct regulatory authority over all or aspects of the CRU programme would require substantial policy, legislative and regulatory changes.

According to the Social Housing Act, SH projects must exclude any individual members gain from grant funding acquired for a SH Project. Due to the ownership restriction at present, the nature and regulatory requirements of housing co-operatives are unable to meet the requirements of the Social Housing Act and therefore cannot access funding for medium density inner city rental housing projects.

If synergy can be reached between the requirements of the Co-operatives Act and the Social Housing Act for rental co-ops, then housing co-operatives




would be able to apply for accreditation from the SHRA and, if approved, access the Restructuring Capital Grant (RCG).317 The development of a national statutory body solely dedicated to supporting co-op development and management is suggested but would require legislative intervention. A core role of that body would be to identify co-ops at risk and to provide support accordingly.

Housing Act (1997)

This Act assigns roles to municipality’s accredited in terms of the Act. It does not speak specifically to Rental Housing. It provides for housing goals to be set but these goals are not specifically defined with regard to rental housing options and deliverables.

Should there be an amendment to this Act to define the goals for municipalities specifically in relation to social housing?

Shelters do not accommodate people where the gender status of a person has not been legally amended; such a person will not be admitted (LGBTQA + Sector.)

Amend the Act accordingly.

In terms of the Housing Act the approval of projects lie with Province – should this continue/is this working or should the Housing Act be amended and in which respects.

It may be that the “words allocate and administer” with reference to Province would have to be amended if it is intended that Province still has a strong role to play.

Municipal Finance Management Act (MFMA) Section 14 of the Municipal Finance Management Act and the regulations promulgated thereunder that govern asset management. However, immovable state owned assets (land and buildings) could be treated separately from other capital municipal assets in order to properly give effect to local government’s obligations to redistribute land and advance spatial justice through the use of municipal land.

Review section 14 of the Municipal Finance Management Act and the regulations promulgated thereunder that govern asset management.

317 The final Draft Report on Cooperatives and Instalment Sales states that: “Primary and secondary housing co-operatives registered under the Co-operatives Act of 1981 and accessing funding through this programme will be considered together with the social housing institutions and will have to be accredited as social housing institutions. Separate guidelines, however, will be drafted to accommodate the specific nature, operations and regulatory requirements of the housing co-operatives. Housing cooperatives and the co-operative tenure form will allow for and encourage members’ contributions to be invested into the projects as equity contributions in order to reduce the overall debt funding required for the project. In these cases, the housing co-operative option must be structured in such a way to exclude any individual member gain from the grant funding provided to the project.” (P.17)




A precedent is the Section 9(3) of the Housing Act 107 of 1997 establishes the means by which the state may purchase or expropriate land for the purposes of subsidised housing. Land can be acquired via donations (including land from state-owned enterprises), via negotiated purchase or expropriation. (P88) However, insignificant amounts of land have been expropriated for subsidised housing, particularly Social Housing or CRU.



Recommendations relating to subsidies, funding and financing (including social housing funding model) With respect to banks and commercial lenders:318 State should consider provide de-risking mechanisms to entice Commercial lenders to participate specifically in the Social Housing sector. With respect to international financiers:319

• The loans should be made available in South African currency to provide certainty as to the capital amount, the cost of the loan and the repayments of the loan.

With respect to the Trust for Urban Housing Finance (TUHF):320

• TUHF should consider listing on the JSE to raise more funding

With respect to informal (backyard) rentiers:321

• Consider providing finance, skilling and assistance to the sector so that better quality units can be developed. Indlu, a private sector REIT has begun successfully experimenting with developing and financing decent quality backyard rental units.

With respect to SH rental housing subsector: The following are recommendations pertaining to reforms in the Social Housing sub-sector. • The National Department of Human Settlements commits to continue providing capital subsidies

to Social Housing Institutions for the development and management of affordable rental stock for low – middle income households.322

• There should be funding for operational costs and support services which are essential when servicing people with special needs. This should include support and development programmes for the people. These costs should come from the municipality, the Department of Social Development, Health and Human Settlements.323

• Dedicated Funding for disabled adaptations There should be a dedicated subsidy grant for disabled adaptations to SHI units, and clarity on where to get the funding from. SHIs should be able to apply for the Variation to the additional subsidy which could be made available in terms of the variation calculator and is guided by the National Department of Human Settlements Variation Manual which is adjusted annually. This comes from provincial government, as an addition to the institutional subsidy, in the same way as the geo-technical addition, and as per the Military Veterans programme. If this is not available, then there should be a variance made to the RCG for disabled adaptations and retrofitting to cover this cost.324

• Invest a significant proportion of resources in interventions that stimulate additional funding from the private sector (banks and private developers) as well as household contributions towards housing delivery. Such interventions include Investment incentives using tax rebates.325

318 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016. 319 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016. 320 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016. 321 Consider providing finance, skilling and assistance to the sector so that better quality units can be developed. Indlu, a private sector REIT has begun successfully experimenting with developing and financing decent quality backyard rental units. 322 National Department of Human Settlements, Towards a Policy Foundation for the Development of Human Settlements Legislation V2.0 01 November2015, page 61. 323 National Association of Social Housing Organisations, Social Housing and Special Needs Housing, Final Draft Report, Page 64. 324 National Association of Social Housing Organisations, Social Housing and Special Needs Housing, Final Draft Report, Page 64. 325 Exploring alternative finance and policy options for effective and sustainable delivery of housing in South Africa page 55



Recommendations relating to subsidies, funding and financing (including social housing funding model)

• SHIs need to be seen as businesses requiring operational resources, capacity and financial knowledge over the long term, given that the period from first set-up to completion of the 1st project of up to 300 units can take approximately 3 years before generating any cash flow. To get to the point of comfortable profitability and commercial sustainability can take a minimum of seven years for a SHI business. Better appreciation of a SHI’s primary functions and capacity requirements is essential so that both SHRA and NDoHS can provide the right type of capacity support.326

• SHI capacity development recommendations: Developing and financing of a five year plan to strengthen SHI capacity in the Sector.327

• Dedicated capital funding is needed in order to carry out adaptations of units for people with particular physical needs. The problem is that no dedicated capital funding is available to SHIs for this purpose. “SHIs are providing/retrofitting units for people with physical disabilities out of their own funds - either out of total scheme costs if a new development (and from their geotechnical allowance, if that has been made available) or out of their operating maintenance budgets”.328

• Income bands must be indexed to inflationary increases in incomes at least every three years.329

• Social housing Policy must reference the cost of RCG in line with CPI rather than building cost inflation, as with other subsidy instruments.330 331

• The NHFC provides an important service to the SH sector, as the largest provider of debt finance for SH projects. The envisaged restructuring of DFIs may have an influence on the ability of a future DFI to service social housing. It is therefore important that this critical input to a sustainable SH sector in South Africa is taken into account in this process, and that the NHFC’s ability to continue to provide debt to SHIs is not negatively affected.332

• Private Sector Financing Approaches: Alternatives that create better frameworks for private sector participation in the SH sector as funders and managers of SH stock must be considered. This will need to consider how to deal with the lack of collateral for private funders, either through changes in policy or via the creation of a guarantee mechanism. In addition, consideration of a mechanism that could allow potential private sector investors to exit the sector must also be considered.333

• SHIs should be encouraged to provide housing products to meet local conditions and to provide accommodation for all income groups in the local area with a particular focus on those at the lower end of the primary market. To this end a review of standards and targets should be undertaken. Accommodation standards should be changed at the lower end of the subsidised SH sector to provide more affordable accommodation. This could include consideration for

326 National Association of Social Housing Organisations, Sustainable Social Housing Institutions, The Business Trajectory of South African SHIs, 2016, page 6. 327 National Association of Social Housing Organisations, Sustainable Social Housing Institutions – The Business Trajectory of South African SHIs, 2016 page 16. 328 National Association of Social Housing Organisations, Social Housing and Special Needs Housing – Final Draft Report, January 2016, page 23. 329 Department Monitoring and Evaluation, Impact and Implementation Evaluation of the Social Housing Programme Full Evaluation Report, Final, March 2016, page 74. 330 Department Monitoring and Evaluation, Impact and Implementation Evaluation of the Social Housing Programme Full Evaluation Report, Final, March 2016, page 74. 331 Daily Maverick, Urgent policy reforms are needed to break the social housing backlog, Andreas Scheba, Ivan Turok and Justin Visagie, 27 February 2020. 332 Department of Human Settlements and Department of Performance Monitoring and Evaluation, Impact and Implementation Evaluation of the Social Housing Programme, Summary Report 2016, page P29. 333 Department of Human Settlements and Department of Performance Monitoring and Evaluation, Impact and Implementation Evaluation of the Social Housing Programme, –Summary Report 2016 - pages 29 to 30.




intermediate accommodation types, such as bachelor units, rooms with shared ablutions and shared rooms.334

• The inherent complexity in the SH programme’s funding and financing model requires review. The multiple sources and types of finance should be simplified, aligned and streamlined. This should enhance and not undermine the unique focus of each of the subsidy instruments (RCG, IS and CRU) and the opportunity they provide in respect of meeting local conditions, the needs of different income groups and specific municipal restructuring agendas. In particular the RCG, IS and debt financing from NHFC and GPF need to be aligned so as to provide funding for a selected project. Debt funding should be provided on a concessionary basis.335

• A medium to long-term funding commitment to SH must be made, in order to create a platform for certainty within the sector. This in turn must be based on a realistic assessment of delivery targets for the sector. This stability will encourage commitment from SHIs, as well as provide a platform for potential improved private sector engagement in the sector. An important part of overcoming the current delivery slowdown in the sector is to ensure this longer-term funding picture is clear for SHIs to commence rebuilding project pipelines.336

• The financial framework must be continually assessed to ensure that the social housing financing model is appropriately structured. Frequent review of subsidy is necessary to prevent regression. SHRA should improve project cash-flow, especially through considering de-linking final payment to project tenancy. In large developments that are unphased, the final payment issue is a challenge.

• At a project level, a need has been identified to link the final payment milestone to the actual construction process, rather than tenant occupancy, as this disqualifies many SHIs from participating in the market owing to a lack of bridging finance. The NHBRC fee structure is argued by some SHIs to be penalising toward social housing. Some innovative approaches to social housing financing are emerging, including diversification of services and portfolios of SHIs, to allow cross-subsidisation from market-related developments to secure financial viability of social housing portfolios.

• A growing emphasis on crowding-in additional financing measures is necessary, such as: o Land made available by municipalities through sale or leases at discounted rates; o Discounted development contributions; o SHI equity investment; o Supplementation from other provincial and local government grant sources such as the

USDG; and, o Greater financing made available through DFIs.337

• The Genesis Report338 argues that to ensure commercial sustainability of the SHIs, a mix of low-, middle- and high-income tenants should be considered, because diversity among the income groups will allow for cross-subsidisation to occur within social housing, and that the impact of social housing should be studied longitudinally.

With respect to special needs housing:

334 Department of Human Settlements and Department of Performance Monitoring and Evaluation, Impact and Implementation Evaluation of the Social Housing Programme, –Summary Report 2016 - pages 29 to 30. 335 Department of Human Settlements and Department of Performance Monitoring and Evaluation, Impact and Implementation Evaluation of the Social Housing Programme, –Summary Report 2016 - pages 29 to 30. 336 Department of Human Settlements and Department of Performance Monitoring and Evaluation, Impact and Implementation Evaluation of the Social Housing Programme, –Summary Report 2016 - page 29. 337 Final Draft Report on SH and Special Needs, pages 16 to 17. 338 Genesis Analytics, “Socio-economic and spatial restructuring impact of social housing”, pages 1 and 5.




• As contained in the Draft Special Needs Housing Policy, project preparation funding should be available to the developer of the SNGH. This enhances the development of high-quality SN group Housing, from supporting subsidy applications and provides for thorough feasibility work. Currently only two provinces make provision for preparation funding for SNGH – KZN and Western Cape in terms of a Project Preparation Funding policy. The amount they provide is deducted from the subsidy on approval.

• Assistance with operational costs and support services are essential when servicing people with special needs; financial support should come from the municipality, the Department of Social Development, Department of Health and from NDoHS. Institutional funding for special needs should remain available for SN Group Housing from provincial human settlements departments, and the province should allocate a proportion of their housing budgets for special needs housing.339

• Dedicated Funding for disabled adaptations: There should be a dedicated subsidy grant for disabled adaptations to SHI units. “SHIs should be able to apply for the Variation to the additional subsidy which could be made available in terms of the variation calculator and is guided by the National Department of Human Settlements Variation Manual which is adjusted annually”.340

• Under the current funding framework, it would be easier for a new SNGH to be developed via an accredited SHI, as they might have access to any top up loan funding required to cover the full costs of development. That presupposes that there is sufficient operational funding to cover the management and care costs required by the SHI and/or the NPO”

With respect to cooperative housing: The Programme is targeted at households earning between R1 500,00 and R7 500,00.341

• Operating funding The cost of running the co-operative and the buildings has to come from the members in the form of a user (rental) charge o Setting the rate of the user charge (Rent Setting) needs to be done in such a manner to

ensure that operating costs are covered but also ensuring affordability for the target market. Therefore cost-recovery rentals will apply

o Operating costs include administration costs of the co-operative and managing agent (including staff, office etc.), emergency and general maintenance, general upkeep and cleaning, insurance of buildings, education and training for residents, security and furniture. Rates, taxes and services and utility costs of common areas

o Annual rent increases will relate to the operating cost increases. These increases need to be set by the co-operative and payable by the members

o Rates and taxes should be captured in the operating budget for the project and should be included in the user charge or levy. If beneficiaries are indigent they might be eligible for exemption from payment of rates

o Electricity on individual units should be collected through the installation of pre-paid meters. Common area electricity costs should be included in the operating budget and therefore captured in the user charge or levy

339 National Association of Social Housing Organisations, Social Housing and Special Needs Housing – Final Draft Report, January 2016 pages 57 to 58. 340 National Association of Social Housing Organisations, Social Housing and Special Needs Housing – Final Draft Report, January 2016, page 59. 341 2nd Draft Co-operative Housing Policy Summary page 11.




o Water usage to individual units should be controlled through flow-meters installed on each unit

o The cost of water usage in common areas should be included in either the operating budget and recovered from the user charge, or chargeable directly to the occupier of the unit

o The responsibility for proper efficient management of the housing stock will rest with the housing co-operative

o The disability allowances outlined in the Housing code will apply to the CRU programme o VAT will apply to the Co-operative housing programme. As these are rental properties, input

VAT can be claimed but output VAT cannot be charged (unless it is a PHP project run via the municipality)

o Co-operatives can employ a Managing Agent to manage the properties on their behalf. Their fee would have to be covered by the operating costs342

With respect to the emergent private rental housing subsector: Additional ideas on finance include the following:343 • Novel financial services/bank loans • Innovative products • Invest to build economic infrastructure (technical, financial and administrative competence in

rentier-developers) • Easy/local access to finance • Reasonable interest rates (including taking into account group/individual savings to justify loans) • Digital payment system for their tenants • Support to improve client credit ratings

Recommendations relating to economic growth, sustainability and rental supply/demand

With respect to Developers and Contractors:344

• Government’s business economic stimulating packages should be focused towards more Capital expenditure to increase the number on participants in the Construction sector and grow more small and medium enterprises.

With respect to communal housing:

• RCG should be available for communal housing schemes “Communal housing units should be eligible for RCG (not just 30m2 self-contained units). Social housing should therefore include the development of high quality, secure and affordable accommodation with shared kitchens and bathrooms. (Transitional) and communal housing should therefore be added to the Regulations for RCG as an admissible product design”.345

With respect to the emergent private sector subsector:

• There should be business opportunities resulting from the multiplication effect from savings and borrowings of up to 1000 new business people (having a positive knock on effect on wages and the purchase of building materials). And the incomes will be invested in other sectors of the

342 2nd Draft Co-operative Housing Policy Summary page 17. 343 Centre for Affordable Housing Finance, Financing Micro Developments – Cape Town Landlords, 2019, pages 16 to 17. 344 Social Housing Regulation Authority and National Department of Human Settlements, State of the Social Housing Sector Report, 2016. 345 National Association of Social Housing Organisations, Social Housing and Special Needs Housing - Final Draft Report, January 2016, pages 59 to 60.




economy. There will also be a widely dispersed housing delivery system delivering 8000 new units per annum346

• A full business case should be made to support the provision of 80 000 small flatlets through emerging micro-property developers. The business case is based on demonstrating a scale of opportunity for investment by homeowners in their own properties. Households earning less than R15 000 per month spend R2 billion annually on home repairs and improvements. Within this market there are 3,5 million 15 to 35 year-olds with regular salaries in the R3 500 to R15 000 income category. Drilling down into those in this category who live in inadequate conditions, yields 80 000 opportunities for developers-rentiers. These opportunities could be divided across 1000 projects (developments, with 8 flats per development) per annum for 10 years. Taking the average price of developing a small flatlet (as revealed from the Centre for Affordable Housing Finance [CAHF]) you get to R712,8 million per annum and R7,123 billion over 10 years347

With respect to sustainable medium-rise SH products:348 • SHRA together with sector partners/agencies should look at testing and funding the various

product options for social housing or medium to higher density development use as a means to identify and support systems that can be used for this sector o The medium to long term implications (or lifecycle) of the solutions as well as maintenance

implications need to be examined rather than just upfront construction processes o Procurement processes for these systems also need to be considered as conventional

procurement processes favour traditional building methods • Potentially this could be done through the NHBRC and CSIR innovation hubs, where they are

currently looking at solutions for affordable BNG/RDP housing o NHBRC is also looking into user-acceptance issues o Guideline specifications for the sector would also assist the sector in the use of these

products o The Alcari team in the past developed guidelines for evaluation of alternative building

technologies (ABTs), and these could be refined in any future follow-up studies on the subject to assist with the above

• The Genesis Report349 argues that the development of social housing should be closely linked to urban regeneration and that there should be a concerted effort between private and public investment. To achieve this there should be o A set of service provider guidelines that inform the security measures added to social housing

projects o Alternative tenure options should be available to tenants, to help them move out of social

housing o Community development programmes should partner with existing community organisations

to ensure further integration with the community o Social housing institutions should be charged concessionary commercial rates and taxes

(currently some SHIs are charged commercial rates and taxes while others are charged a special NPO rate)

346 Centre for Affordable Housing Finance, Financing Micro Developments – Cape Town Landlords, 2019, pages 16 to 17. 347 Centre for Affordable Housing Finance, Financing Micro Developments – Cape Town Landlords, 2019, pages 16 to 17. 348 Social Housing Regulatory Authority (Alcari), Evaluation of the Cost Drivers of Social Housing Brownfield and Newbuild Midrise Projects; Social Housing Regulatory Authority and Department of Human Settlements, Norms and Standards for Social Housing Sector Rental –– November 2019 – pages 2 and 3. 349 (Genesis Analytics, “Socio-economic and spatial restructuring impact of social housing”, pages 1 and 5.




o SHRA negotiation with municipalities to ensure that all SHIs are charged consistent concessionary rates

With respect to restructuring zones:

• The National Department of Human Settlements recommends extending the development of rental housing stock beyond the restructuring zones in order to respond to new developmental needs.350

• The National Association of Social Housing Organisations (NASHO) recommends stronger linkage of social housing investment to other government programmes for the regeneration of cities – failure to ensure concerted efforts by all stakeholders and creating incentives for that is a major weakness that needs to be redressed if we are to edge towards genuine restructuring and meeting of transformation objectives as outlined in urban restructuring and revitalisation programmes.351

• The National Association of Social Housing Organisations (NASHO) recommends the strengthening of mechanisms to acquire land and buildings in better located areas of the cities.352

• The National Association of Social Housing Organisations (NASHO) recommends stronger structured relationships between Social Housing Institutions, municipalities and both Provincial and National public authorities around urban regeneration planning and implementation. Specifically these relationships should aim at developing stronger partnerships of equality with private developers for the joint development of mixed income and function land that is both cost and quality effective. To achieve the above the parties should evaluate and review Restructuring Zone policy and procedure to ensure that public authorities determine these in a manner that meets spatial development objectives and not by project-specific dimensions.353

• The Genesis report notes that current policy only examines whether or not a site is in a restructuring zone, and recommends that going forward there should be a closer link to municipal development plans because greater integration is needed between the municipalities and the Social Housing Regulatory Authority (SHRA) to ensure that social housing compliments urban regeneration. The Genesis Report argues that to achieve this, a coordinated effort is needed between public and private investments.354

• A Human Sciences Research Council (HSRC) report notes that SHRA has called for the removal of Restructuring Zones, and that SHRA suggests a stronger emphasis on site-based assessments of projects and alignment with other municipal spatial investment instruments. In the case of metropolitan municipalities, social housing should be linked to BEPP’s Integration Zones, which are supported by existing local and national governance frameworks and are arguably more appropriate and relevant” according to SHRA. The importance of stronger partnerships between SHIs and local municipalities such as the release of state-owned land for housing development.355

• A fundamental review of RZs and how SH projects are located, approved and implemented should be undertaken on the basis that SH investments should be focused in fewer urban areas (and this must include the de-designation of certain RZs), and concentrated in more specifically targeted

350 National Department of Human Settlements, Towards a Policy Foundation for the Development of Human Settlements Legislation V2.0 01 November2015, pages 62, 69 and 70. 351 Housing Development Agency/National Association of Social Housing Organisations, Reviving Our inner Cities: Social Housing and Urban Regeneration in South Africa, Research Report, page 6. 352 Housing Development Agency/National Association of Social Housing Organisations, Reviving Our inner Cities: Social Housing and Urban Regeneration in South Africa, Research Report, page 6. 353 Housing Development Agency/National Association of Social Housing Organisations, Reviving Our inner Cities: Social Housing and Urban Regeneration in South Africa, Research Report, page 6. 354 Genesis Analytics, Socio-economic and spatial restructuring impact of social housing, pages 1 and 5. 355 Human Sciences Research Council, The role of social housing in reducing poverty and inequality in South African cities, pages: 28; 36; 39; 42.




areas of restructuring in limited cities in order to improve the levels of investment in these areas and the ability to coordinate other funds in these areas. These areas should be designated in relation to the state of their economies, the importance of urban spatial, economic and social restructuring within them, and the likely long-term development potential of these areas to generate maximum benefit from SH investments. This must be a technical, not a political decision.SH investments should be more closely aligned with, or linked to existing planning instruments (e.g. SDFs, Housing Plans, IDPs) in order to ensure SH investments better meet municipal spatial restructuring priorities, and to ensure better alignment to municipal land allocation and other public investment in such areas.356

• The National Association of Social Housing Organisations (NASHO)357 recommends the review of the efficacy of the Restructuring Zone implementation in supporting achievement of the spatial intent of the Social Housing Programme; clarifying the potential impact of social housing in regeneration programmes; better promotion of existing ‘best practices’ in the sector (e.g. eKhaya Neighbourhood Programme); and, fuller research of the impact of Social Housing on the developmental trajectory of tenant families and the impact of Social Housing on surrounding neighbourhoods.

With respect to the private informal(backyard) rental subsector:

• A National Department of Human Settlements document358 recommends adjusting planning regulations for certain areas to allow for a second dwelling without the necessary applications. The same document proposes that government provide for an additional slab subsidy to encourage households to offer rental accommodation. It notes that this will also be used as a source of income to the rentier households. It says that households provided with additional slab must be encouraged to incrementally build a formal structure to be utilised for rental or other income generation endeavours.

356 Impact and Implementation Evaluation of the Social Housing Programme – Full Evaluation Report, March 2016, page 74. 357 Housing Development Agency/National Association of Social Housing organisations, Reviving Our inner Cities: Social Housing and urban Regeneration in South Africa, Research Report, page 6. 358 National Department of Human Settlements, Towards a Policy Foundation for the Development of Human Settlements Legislation V2.0 01 November2015, pages 62 to 63.



12. MAKING THE CASE FOR A COMPREHENSIVE RENTAL HOUSING

SECTOR

12.1 FRAMING A STRATEGY FOR RENTAL HOUSING

While it is not the intention to complete this section at this juncture, INSITE provides some thoughts

about what is emerging as a case for a comprehensive rental housing policy.

• Notwithstanding the underlying assumption that rental housing is a ladder to home ownership, increasingly the data is demonstrating that there is a persistent rental housing reality that covers the full spectrum of household income.

• The rental housing product market combination has been strengthening over the past 20 years, as demonstrated by the growing numbers of tenants in rental housing between 2001 and 2011, and further growth from 2011 until the present.

• For all practical purposes this is a private rental housing market.

• The persistent growth of private rental product market combination raises the question about the role of this sector for households earning under R15 000 per month.

• The role of social housing is meant to be focused on urban spatial restructuring, affordable decent accommodation for households earning less than R15 000, and financial independence.

• The precondition for achieving all of these goals is rapid growth of the sector – to date social housing comprises less than one per cent of the rental housing sector.

• Careful consideration should be given to the emerging formal and informal backyard rental housing subsectors, in respect of financing support and norms and standards.

• There is a question mark over the financial viability of the municipal rental housing subsector and the CRU rental subsector, and their future roles in the rental housing sector.

12.2 ANALYSIS OF IDENTIFIED STRATEGIC OPTIONS

Strategic options will be identified once the national consultations and the focus groups are complete,

and then through the four thematic group workshops.



13. IDENTIFYING KEY QUESTIONS AREAS FOR THE NATIONAL

CONSULTATIONS QUESTIONNAIRE

This Preliminary Base Line Report has gathered a broad range of information across all eight subsectors

of the rental housing market in South Africa. Where the information was available the team also

explored in depth the strengths and weaknesses experienced by governmental structures, the SHRA as

well as delivery agents, who are structurally and through processes bound up in some or other way with

the funding and provision of rental housing in South Africa. The team also identified and captured any

and all recommendations that were in the documentation reviewed – a relatively long list of these is

contained in the categorised section above.

The next priority is to fill gaps in our understanding of the status quo of the current funding and

provision of rental housing in South Africa; to trace and parse out (crystallise) the trends emerging from

a complex picture of strengths and weaknesses in the funding and provision of rental housing in each of

the defined eight subsectors of the rental housing market; and, to finally align the categorised

recommendations with this strengths-weakness analysis.

Part of the above process will be through inputs from international case studies.

The description of the product-market combinations of the South African rental housing market, as well

as the strength-weakness analysis and the aligned recommendations with a set of strategic options, will

then be tested through a set of questions for the international case studies, and also through detailed

probing questions to guide discussions with the interviewees and focus group participants, that form the

object of the next phase of this project.

At this stage the following three areas of questions have been identified. These will be developed in the

form of a questionnaire that will be submitted to the Project Steering Committee in the next phase of

the project. There will also be a separate set of questions for the international case studies research

team.

1) Scope of rental housing in South Africa (extent of demand and supply and product-market

combinations).

• What are the known PMCs currently in each of the eight rental housing subsectors? We know 90 per cent of the PMCs in respect of less than 1% of the market (i.e. social housing).

o Gaps in our knowledge about the four private market subsectors, and the three public rental housing sectors.

• Confirm delivery of units and investment in the informal private, emergent private, established private and special needs private rental housing subsectors; and also in the public special needs subsector.

• Confirm the patterns of investment in terms of asset value and annual rental turnover in each of the eight subsectors of the rental housing market.

2) Patterns emerging from assessments of the rental housing market and its subsectors in respect of

policy and strategy; housing delivery and management; legislation and regulation; subsidies, funding

and financing; and, economic growth, sustainability and supply/demand. The executive summary

reflects some of the immediately perceived strengths/weaknesses of the rental housing market. These

aspects will require further interrogation to clarify and construct patterns on the basis of which to

develop the questions.



3) Aligned recommendations – as indicated a complex set of preliminary recommendations have been

gathered at the end of this report, and these will be aligned to relevantly address the analysed strengths

and weaknesses. The relevance of these recommendations will be tested through specific questions. At

this stage it seems that the following broad questions regarding the recommendations and a strategy,

should be included.

• Which other countries implemented a rental housing strategy? (this question will be addressed by the team undertaking the international case study research).

• Why did these countries implement a rental housing strategy? What problem(s) were they addressing? Did these countries develop a compendium of strategic interventions and if so what were the key reinforcing strategies? How did they finance their strategy(ies)? How did they implement their strategy(ies)? What are the key lessons learnt from the implementation? (this question will be addressed by the team undertaking the international case study research).

• Why do we need to have a rental housing sector in South Africa? What should be the strategic objective of such a sector, if any? (these and related questions will be explored through the national consultations and focus group discussions).

• Can a rental housing strategy work in isolation without the support and reinforcement of other strategic interventions? (this and related questions will be explored through the national consultations and focus group discussions).

• Given the above strategic objective, what rental policies and legislation would need to be in place to facilitate the attainment of the strategic objective(s)? (this and related questions will be explored through the national consultations and focus group discussions).

• Confirm the relevance and appropriateness of certain financial instruments and institutional structures/forms necessary for the delivery of the rental policy objective (this and related questions will be explored through the national consultations and focus group discussions).

PRELIMINARY BASE LINE REPORT

Documents