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Government’s housing subsidy conundrum

Affordability still weighs on prospective homeowners.

Access to social housing in SA has always been a hot-button issue that predates even the dawn of the democratic dispensation in 1994.

But since then, quality housing has been at the forefront of election promises, yet the government has had a difficult task of reducing the country’s housing backlog.

SA’s housing backlog has ballooned from 1.2 million units in 1994 to 2.1 million in over two decades – indicative of the sheer demand for quality and affordable housing.

Some strides have been made in addressing the housing backlog.  Since 1994, the government has delivered 3.7 million subsidised housing opportunities to the benefit of approximately 12.5 million people, latest figures from the Department of Human Settlements show. 

Home ownership over the years has been partly helped by government’s Finance Linked Individual Subsidy Programme (Flisp) which came into effect in 2012. The programme offers housing subsidies to the  so-called “gap market” – individuals who are considered to be too rich to qualify for an RDP subsidy but earn little to qualify for home loans.

Individuals with a monthly income of between R3 501 to R15 000 qualify for the Flisp programme – which offers housing subsidies of between R20 000 to R87 000 for first time home owners.  For example, an individual earning a monthly income of R6 000 (assuming the individual has no debt) is eligible for a Flisp subsidy of about R73 000 and qualifies for a bank mortgage of R143 000. 

The subsidy can be used to decrease the mortgage bond or purchase a higher valued property. On the latter, with the subsidy in place, an individual can purchase a property valued at R216 000 instead of R143 000.  But realistically it’s difficult to find a housing unit that is worth below R350 000.

Property economist Francois Viruly says only about 30% of South Africans do not need housing subsidies from the government, but 70% are in the social and RDP housing system.

Flisp’s minimal impact

The 2015 annual report by state-owned National Housing Finance Corporation (NHFC), which administers the delivery and access to Flisp, indicates that it has forked out R29 million in subsidies during the period to some 749 beneficiaries.

But NHFC CEO Samson Moraba says Flisp has had its fair share of stumbling blocks in delivering grants at the scale and rate needed.  This is due to protected negotiations with external role players such as banks and provincial government departments.    

“Flisp continues to be an enigma, despite our best efforts to have a new approach adopted in the year under review. There has been no significant progress made with Flisp and we continued to service only four of the nine provinces, with Gauteng being the leader of the pack,” Moraba explains in the report.

More challenges

The problem is also largely three-fold: consumer affordability; constrained supply of houses; and a shortage of moderately priced housing units.

CEO of FNB Housing Finance Lee Mhlongo says many individuals still find it difficult to enter the housing market, as they are still not at a point where their income is enough to even purchase a new entry-level property.

The value of new entry-level units – typically valued above R250 000 and not more than 80 square metres in size – are rapidly rising.

A report by the Centre for Affordable Housing Finance in Africa (CAHF) notes that since 2009, properties valued at less than R300 000 have posted a cool capital appreciation of 40%, trumping properties valued at over R600 000 that are increasing  in value by almost 30%.

Other figures show a similar trend.  According to FNB, former townships (the nub of affordable housing) saw a house price growth of 11.6% for the first quarter of 2015, compared with major metropolitan areas which showed a growth rate of 7.3%.

But this stellar house price growth is further exacerbating affordability challenges. As Viruly puts it: “It’s nice to say we’ve got a market growing at 11%, but the affordability issue really starts hitting home because most people’s salaries don’t go up by 8% or 9%, or at the same level as house price inflation.”

Another issue is the creditworthiness for home loans given that some consumers have non-housing related credit like unsecured loans and store accounts, putting a strain on their disposable incomes, says Mhlongo. “And it is that reason that we find the majority of them would not be approved for home loans,” he says. 

Supply of units faltering

Property developers are also seemingly on the fence about supplying the much-needed housing units. High costs in developing units, delays in the approval of building plans and costs of municipal service infrastructure now borne by developers, are some of the reasons putting developers off.

On the shortage of housing units, Mhlongo refers to the fact that a few years back about 130 000 to 150 000 units were supplied a year to the market. But following the 2008/9 global financial crisis the supply never again reached those historical levels. “We are now probably sitting at a level of close to 100 000 units a year,” he says. 

The CAHF suggests two areas that can address the shortage of affordable units: supply quality rental housing costing between R875 and R3 750 per month and the resale of RDP houses after the eight-year pre-emptive clause barring the sale these properties in the open market lapses.

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