Presentation Outline 1. The FFC and the public hearings on housing finance 2. FFC starting points and stakeholder views Building an Inclusionary Housing Market: Shifting the Paradigm for Housing Delivery in South Africa 3. Key challenges identified 4. Research gaps and next steps Presentation to the FinMark Forum 25 April 2012 FinMark Forum – 25 April 2012 2 FFC programme on housing finance What is the FFC? • Concerned by evidence of real challenges in housing delivery • An independent, impartial and expert commission: system and financing model – Committed to enhancing the developmental impact of – Mismatch between growing demand and supply capability public resources through the financial and fiscal system – Protests related to delays, quality, location, fairness – Supported by a full time secretariat with a significant – Growing fiscal burden in a period of austerity research component • FFC focussing its work on housing finance: – Deepen analysis of human settlements challenges • A Constitutional institution governed by: – Develop special (“out of cycle”, long term and systemic) recommendations – Section 214 a – j, which defines a broad terrain for its – Provide a platform constructive interaction between stakeholders activities • First round of public hearings – The IGFR and FFC Acts, which protect its independence • Held on 13 - 14 Oct 2011 in Ekurhuleni, with stakeholders making while providing a clear advisory role in policy making extensive submissions (see www.ffc.co.za) – Specific roles and functions articulated in a range of other • Focused on analysis of the problems and challenges, not solutions legislation (eg MSA) • Not a traditional FFC research instrument: action oriented and consultative 4 FinMark Forum – 25 April 2012 FinMark Forum – 25 April 2012 3
Government is not the primary source FFC starting points of housing finance • An unsustainable housing subsidy approach – Inadequately financed but fiscally unsustainable – Distortionary effects on house prices and perverse incentives for beneficiaries • Inefficiencies in most aspects of the housing delivery chain – Subsidy administration, Land location and acquisition, Development planning and control systems, Infrastructure delivery, Tenure provision • Significant knowledge gaps in the sector – Extent of the demand for housing in SA – Supply-side constraints (subsidized and mortgaged housing) – Nature and extent of housing affordability – Regulatory impacts: what incentives and constraints are created by the current legislative, policy, fiscal and regulatory framework FinMark Forum – 25 April 2012 FinMark Forum – 25 April 2012 5 6 Rich set of stakeholder concerns FFC perspective on the key challenges • Generally, stakeholders agreed with the FFC starting points 1. Insufficient scale relative to demand • Stakeholders emphasised the following points as concerns: 2. Fiscal and physical sustainability – Policy flexibility versus implementation rigidity 3. Household affordability • While national policy gives provincial and local governments the flexibility to adapt housing policy and plans according to their context, 4. Informality stakeholders perceived national government as dictating a “one size fits all” approach 5. Barriers in the delivery chain (land, – Legislative and administrative barriers in the housing market infrastructure, zoning, registration in deeds, • Include limited accreditation of municipalities to perform housing etc) functions (Housing Act) • Regulatory constraints (MFMA) prevent metros using own revenues as bridging finance for low-income housing developments FinMark Forum – 25 April 2012 FinMark Forum – 25 April 2012 7 8
1. Insufficient delivery Rising backlog • Impressive progress since 1994 unfortunately no longer sufficient – Nearly 3 million fully subsidised houses since 1994 (average of 167,000 houses / yr); – Rising backlog - More than 2 million households are presumed homeless in South Africa • Needs of lower income households not being met - Historical issues of size of subsidy and availability of credit - Distortionary effects of subsidy: gap market • Poor data and understanding of housing demand – While stakeholders agreed that the demand for adequate housing remains high, it is difficult to ascertain accurately the extent of this because of poor data on past delivery, trends, needs and effective demand – Good data is needed and can be used to improve understanding of the current situation and to inform housing policy FinMark Forum – 25 April 2012 FinMark Forum – 25 April 2012 9 10 Exploding waiting lists Declining outputs FinMark Forum – 25 April 2012 FinMark Forum – 25 April 2012 11 12
Declining delivery with rising 2. Sustainability allocations • The budget allocated has increased significantly but has not resulted in increased delivery • As costs increase over time, more and bigger subsidies are required to deliver on promises, which makes the current housing finance policy unsustainable • To eliminate housing backlog at a cost of R140 000 per unit, about R300 billion is required - a sum far beyond the fiscal capacity of the state • Assuming a delivery rate of 250 000 houses per year, the annual budgetary implication is R35 billion FinMark Forum – 25 April 2012 FinMark Forum – 25 April 2012 13 14 Rising backlogs vs Spending 3. Affordability • Average price of house is over R500 000 &"$!# &$"!!# • Household earning about R10,000 per month could afford the cheapest house costing about &"!!# &!"!!# !".$%%$&'() R250,000 %"$!# %$"!!# – However, delivery in this segment of the market is far !"#$%%$&'() )*+,-./0#1-23456# below the estimated demand %"!!# %!"!!# 78/90:96# • According to the Affordable Land and Housing Data Centre, in 2010 only 6,252 new units priced between R250,000 and !"$!# $"!!# R500,000 were registered on the Deeds Registry • Shortfall of 5 to 6 million properties under R100 000 !"!!# !"!!# %''(# *+,-()) &!!%# &!%%# (Lightstone, 2011) FinMark Forum – 25 April 2012 FinMark Forum – 25 April 2012 15 16
Household income Production • According to Stats SA (2011), residential building activity for this segment of the market has been negative since about 2009 and has only recently started moving again – Growth in residential building activity: houses (<80m 2 ), 2-month moving average FinMark Forum – 25 April 2012 FinMark Forum – 25 April 2012 17 18 4. Informal settlements are an emergency … and informality may be part of the solution • Accepting informality as a reality and as a point of entry into the housing market 2628 300 1066 – Stakeholders suggested that the 60% at the bottom of the estimate market could access decent housing only through combination of informal self-build and government 2010 2001 1994 financing assistance – Could have a real impact on reducing backlogs • Shift from a focus on ownership to all forms of • Nationally 10 shack fires each day, over 200 deaths p.a. • 7% HIV annual incidence rate - 1.8% in urban formal areas housing supply is required • Diarrhoea-related infant mortality up to 10 times higher than urban formal areas – Instead of a narrow focus on ownership, there is need to • Official estimates over 40% unemployment compared to 26% national average consider other forms of tenure and incentivising them • Service delivery protests average two per week where possible FinMark Forum – 25 April 2012 19 20
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