Presentation to the Port Folio Committee

1

• Presentation to the Port Folio Committee
• An overview of the current Inclusionary Housing
  Policy and its development progress

2
POLICY INTENT

• To achieve a more balanced outcome of built
  environment creation in the direction of more
  racially integrated and income inclusive
  residential environments

3
Scope of the Policy

• A cross-cutting initiative embracing a wide scope
  of activity.
• A general shift in imagination in terms of which
  Housing practitioners in both the public and
  private sectors should consciously be striving to
  avoid racial and class exclusivity in all
  projects that they conceive and initiate.
• Aiming for a socio-economic mix in all projects.

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KEY CONTEXTUAL CONSIDERATIONS

• Inclusionary housing in South Africa cannot be
  primarily about trying to leverage scale delivery
  of affordable housing as a by-product of the
  production of houses for middle and higher income
  sectors of the market by big developers.
• The limited scale of delivery by private
  developers overall in responding to what is a
  relatively small (in proportional terms) market
  for middle income and up market housing. In the
  midst of a property boom South Africa has
  averaged 40 000 private sector per annum

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KEY CONTEXTUAL CONSIDERATIONS

• South Africa has levels of income inequality
  which are among the highest in the world.
• Steep income cliffs can be expected between
  rich and poor and these cliffs are likely to be
  much steeper in the average inclusionary housing
  project in South Africa than in the USA or the
  UK.
• It is harder to achieve inclusionary outcomes and
  retain project viability in South Africa than
  elsewhere.

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KEY CONTEXTUAL CONSIDERATIONS

• Processes of built environment creation in South
  Africa are still extremely segregated in race and
  class terms.
• Spatial polarization has very negative practical
  implications for lower income households but also
  subverts the very important national process of
  building a single nation.

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OBJECTIVES

• To make a contribution towards achieving a better
  balance of race and class in new residential
  developments.
• To provide accommodation opportunities for low
  income and lower middle income households in
  areas from which they might otherwise be excluded
  because of the dynamics of the land market.
• To boost the supply of affordable housing (both
  for purchase and rental).

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OBJECTIVES

• To mobilise private sector delivery capacity for
  the provision of affordable housing.
• To leverage new housing opportunities off the
  existing stock of sites at the same time
  contributing to the densification of South
  African cities.
• To make better use of existing sustainable human
  settlements infrastructure.

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PRINCIPLES

• Win-win arrangements wherever possible
• In principle there should be no mandatory
  inclusionary requirement unless this is supported
  by reasonably proportional incentives
• Flexibility is essential to accommodate project
  specific circumstances

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PRINCIPLES

• Best place for decisions on the extent of the
  incentives to be provided and the proportional
  inclusionary requirements is at the local level.
• Avoid fragmentation and confusion associated with
  different authorities taking different approaches
  stick to the same principles.

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PRINCIPLES

• Existing development/use rights are protected by
  law and need to be treated with respect.
• Due process will need to be followed in the
  pursuit of all objectives which potentially
  impinge on existing development/use rights.

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WHO WILL BE ASSISTED ?

• Must be older than 18 years of age.
• Must be lawfully resident in South Africa
• Must not have benefited previously from access to
  an inclusionary housing unit.

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WHO WILL BE ASSISTED ?

• Must, if access to an affordable unit is to be
  achieved via purchase, have a gross household
  income of less than the top of the Financial
  Sector Charter (FSC) upper cut-off point 40
  (the Rand amount will be gazetted each year).
• Must, if access is to be achieved via rental, be
  able to afford a rent at or below the rent
  someone earning at the top of the FSC range 20
  can pay assuming that people can afford to pay a
  quarter of their monthly income on rent. (the
  Rand amounts will be gazetted each year).

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WHO WILL BE ASSISTED ?

• However these current provisions as well as the
  product value indicators will have to be revised
  in view of adjustments to the FSC and the latest
  economic circumstances.

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THE ESSENCE OF THE POLICY

• Two distinct but complementary strategies are
  proposed
• A voluntary Pro-Active component (VPA).
• A compulsory but incentive-linked
  regulation-based component - referred to below as
  the Town Planning Compliant (TPC) approach.

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VOLUNTARY APPROACH

• Municipalities
• Identify inclusionary housing projects that they
  wish to actively pursue with private sector
  partners.
• Bring local government-owned land to the process
  as well as other incentives.
• Require the provision of a proportion of the
  units as affordable stock which will vary
  depending on the extent of the incentives
  provided and what a mixed income project will
  tolerate to make it viable.

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COMPULSORY APPROACH

• Key national inclusionary housing parameters
• Do not apply in low income areas and in projects
  supported by subsidies made available in terms of
  the programmes outlined in the National Housing
  Code.
• Affordable units should be similar in style to
  the more up-market units, be integrated into
  middle and upper income developments and not
  located in separate areas.

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COMPULSORY APPROACH

• Rezoning or subdivision approval is made
  contingent on meeting specified inclusionary
  requirements in return for being awarded certain
  development rights.
• Win-win opportunities
• Public investment in bulk and connector
  infrastructure as an incentive.
• Density bonuses.
• Allow for multi-story units and some commercial
  rights but may require that 30 of the units in
  the project must be affordable.

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COMPULSORY APPROACH

• Key national inclusionary housing parameters
• Compulsory prescriptions will vary between 10
  and 30 of housing units developed.
• Will apply to all private residential development
  projects of 2 or more units.
• Maximum proportion of affordable / inclusionary
  units in any single project should not exceed
  60 of all units.

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COMPULSORY APPROACH

• The compulsory approach is currently under
  evaluation against the recent Appeal Court ruling
  regarding the unconstitutionality of Chapters V
  and VI of the DFA
• We may have to reconsider the programme and
  convert it to guidelines for incentive driven
  outcomes through the VPA option

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On-selling

• In the first 5 years the owner of an inclusionary
  housing unit can sell the unit at original price
  plus building inflation (except in the case of
  hardship that can be proven objectively in which
  case the unit can be sold at market price).
• Improvements can be factored in at cost plus
  escalation
• After 5 years the unit can be sold at market price

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On-selling

• If any unit is sold within 5 years the new owner
  must be eligible for inclusionary housing
  purchase and will be subject to the same
  restrictions for 5 years after date of purchase.
• On-selling of sites only will be subject to the
  same provisions as those that apply to the sale
  of an inclusionary housing unit.

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DEALING WITH STEEP INCOME AND PRICE CLIFFS

• In projects where the average price per unit
  exceeds the top of the range for affordable
  housing as defined by the FSC 40 x 3 (at
  present R1,050 million) the top of the affordable
  housing range can be increased to the current
  cut-off for the waiving of transfer costs on
  purchase (currently R500 000).
• Local authorities can in such instances (and at
  their discretion) require that up to half of the
  inclusionary units be below the top of the
  affordable housing range 40 (currently R350
  000).

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DEALING WITH STEEP INCOME AND PRICE CLIFFS

• In instances where the average price per unit
  exceeds the top of the range for affordable
  housing 40 x 6 (at present R2,1 million)
  inclusionary requirement can
• Be met off-site, but only in another inclusionary
  housing project (where more inclusionary housing
  is provided than is required).
• Be met on-site in terms of the current transfer
  fee waiver cut-off (R500 000) .
• Be met by paying a fee in lieu of inclusionary
  provision

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FEES IN LIEU OF MEETING INCLUSIONARY REQUIREMENT
ON SITE

• If a developer is required to provide 20 units to
  meet inclusionary requirements then the fee in
  lieu of will be equal to 20x (the top of the FSC
  range 40).
• The amount to be paid per unit by the developer
  as each of the first 20 units is sold is
• Total Fees in-lieu-of owed 20 (paid
  up-front)
• 20

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MINIMUM PHYSICAL SPECIFICATIONS

• Minimum floor area of 40m².
• Internal bathroom and kitchen area.
• Building standards set by regulatory authorities.
  
• May relax the above specifications provided in
  the opinion of the official the aims and
  objectives of inclusionary housing will be
  advanced by such relaxation.

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INCLUSIONARY HOUSING CREDIT SCHEME

• Under construction

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INCENTIVES

• Possible introduction of Tax Credit Scheme along
  the lines of similar schemes in the USA?
• Energetic efforts will be made to mobilize,
  acquire and free-up State (include land owned by
  SOEs), Provincial and Local Government Land for
  inclusionary housing purposes in suport of the
  voluntary process.

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INCENTIVES

• Fast-tracking of development approval processes
  will be an incentive which can generally only be
  offered in deal-driven initiatives. It should
  used sparingly since, in principle, all
  developers should be able to have their
  development proposals processed expeditiously?

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INCENTIVES

• Incentives are the basis of the Town Planning
  Compliant component of the IHP. Particularly
  important are density bonuses/allowances and in
  certain instances use rights.
• Provision of bulk and link infrastructure could
  be a powerful incentive if linked to inclusionary
  housing provision.

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INCENTIVES

• A wide range of government subsidies will be
  available to support developers in fulfilling
  inclusionary housing requirements. These include
  but are not confined to Credit Linked Individual
  Subsidies and Social Housing Subsidies .

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LEGISLATION REQUIRED

• New legislation will be created to operationalise
  the National Inclusionary Housing Policy if the
  compulsory option is retained. Such legislation
  will
• Require municipalities, as the main implementing
  arm of the TPC component, to draw up and
  implement local IHP Plans.
• Require all spheres of government to apply IHP
  schemes in line with National Policy and
  parameters (and prescribe clearly where such
  parameters are articulated)
• Specify reporting requirements and
  responsibilities.

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Work in Progress

• A recent workshop was conducted and the comments
  received are being assessed
• Inclusionary housing legislation
• Implementation guide-lines
• Discussion with Treasury re. Tax issues and
  Inclusionary Housing Credits
• Constitutionality of the TPC is being investigated

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Summary of the feedback received

• The 40sqm size norm should be reconsidered as
  smaller units are also feasible
• A major concern is that very few municipalities
  have the required capacity to administer this
  very complex programme
• The 5 year restriction on the sale of
  inclusionary units was both supported and apposed

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Summary of the feedback received

• The envisaged impact of the Policy
• The uneven application of the policy may lead to
  withdrawal of developers from an area and
  focusing on another more favourable area
• It may bring the private sector housing
  development market to its knees
• Market forces should determine values and it
  should be flexible
• The incentives must be clearly defined and
  published
• The financing of bulk and connector services is a
  major concern and
• The policy may be unaffordable to the target
  group.

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CHALLENGES

• High amount of effort with limited potential
  impact.
• Level of sophistication required to model viable
  projects and implement them successfully may not
  be readily available Hence, may want to pilot
  the roll out.
• Negative impact on residential development sector
  risk of withdrawal of private sector need
  further consultation and buy-in.

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Conclusion

• There is considerate concern regarding the impact
  of the policy on the private sector development
  market
• The capacity of municipalities to implement the
  policy is a major concern
• The Appeal Court Judgment on the DFA may have
  implications for the obligatory provision of the
  policy
• Further consultation is required
• Ministerial support for the programme is pending

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• THANK YOU