Housing Code

Part 1

Chapter 3: South Africa’s Housing Policy in Seven Strategies

1. Stabilising the Housing Environment
2. Mobilising Housing Credit
3. Providing Subsidy Assistance
4. Supporting The People’s Housing Process
5. Rationalising Institutional Capacities
6. Facilitating Speedy Release And Servicing of Land
7. Co-ordinating State Investment In Development

Government’s overall approach to the housing challenge is aimed at mobilising and harnessing the combined resources, efforts and initiative of communities, the private sector, and the State. This approach has been adopted against the backdrop of severe market and societal abnormalities associated with the policies and political turbulence of the pre-democratic era. This chapter sets out the seven strategies which together comprise South Africa’s national housing policy.

The 1980’s specifically, were characterised by municipal services and bond boycotts initiated by the civic movement and communities aimed at undermining the status quo, and responding to the anomalies of apartheid housing, including bad building methods. As a result the new South African government inherited a severely traumatised and fragmented housing sector. Government’s answer to the housing legacy of apartheid lay in developing a single cohesive policy and implementation structure.

Elements of the current housing policy had been debated at length prior to the democratic elections, within the negotiating chambers of the National Housing Forum. At these negotiations a number of intricate legal and institutional interventions were researched and developed. With the election of the Government of National Unity in April 1994, a two pronged approach of (1) normalising the low-income housing market and (2) mobilising greater flows of savings and credit for housing development was adopted. Interventions in support of this approach ranged from agreements between government and the financial services sector, to the establishment of a range of institutions that provide financial services, focus on mediating conflicts, provide alternative credit mechanisms, and stimulate savings and end-user investment. In addition, various other facilitative mechanisms were developed in support of this approach.

South Africa’s housing policy is based on seven key strategies:

1. STABILISING THE HOUSING ENVIRONMENT in order to ensure maximum benefit of State housing expenditure and facilitate the mobilisation of private sector investment.
2. MOBILISING HOUSING CREDIT and private savings (whether by individuals or collectively) at scale, on a sustainable basis and simultaneously ensuring adequate protection for consumers.
3. PROVIDING SUBSIDY ASSISTANCE to disadvantaged households to assist them to gain access to housing.
4. SUPPORTING THE PEOPLE’S HOUSING PROCESS entailing a support programme to assist people who wish to build or organise the building of their homes themselves.
5. RATIONALISING INSTITUTIONAL CAPACITIES in the housing sector within a sustainable long term institutional framework.
6. FACILITATING SPEEDY RELEASE AND SERVICING OF LAND.
7. CO-ORDINATING AND INTEGRATING PUBLIC SECTOR INVESTMENT and intervention on a multi-functional basis.

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Each of these seven strategies is integral to the policy. Without one, all others are lacking. For this reason, government policy must be seen as a package of these seven interrelated and interdependent strategies. For instance, housing subsidies are critical for the majority of the population, but not sufficient for acquiring formal homes. For this, housing credit is also necessary. However, without a stable housing environment, it would be impossible to mobilise housing credit at scale. For those who cannot afford credit, support for the people’s housing process is critical. And none of this would be possible without the appropriate institutional framework.

The reasons for these specific seven strategies are set out earlier, in the sections which outline our basic points of departure and fundamental principles. It is our responsibility, as implementers of this policy, to uphold the points of departure and principles in all that we do.

The following table summarises the policy initiatives that have arisen as a result of these seven strategies. These initiatives are elaborated in the sections that follow.

Table 1. Summary of Policy Initiatives Arising out of the Seven White Paper Strategies

STRATEGY	POLICY INITIATIVE
Stabilising the housing environment	Record of Understanding	Banking Code of Conduct Mortgage Indemnity Scheme National Home Builders Registration Council Servcon Housing Solutions Masakhane Campaign
	“New Deal”	Thubelisha Homes
	Housing Consumers Protection Measures Act
Mobilising credit	National Housing Finance Corporation	Rural Housing Loan Fund Niche Market Lenders Programme Housing Equity Fund Housing Institutions Development Fund Gateway Home Loans
	Nurcha	Guarantee Programmes Joint Venture Development Fund
	Social Housing Foundation
Providing subsidy assistance	Housing Subsidy Programme	Project-linked Individual Consolidation Institutional Relocation Rural
	Discount Benefit Scheme
	Hostels upgrading programme
	Bulk & Connector Infrastructure Grant (now part of CMIP)[1]
Supporting the people’s housing process	National Housing Policy: supporting the People's Housing Process	Institutional Arrangements: Support organisations Funding Decision-making
		Project Application Process: Community workshops
		Peoples Housing Partnership Trust UTshani Fund
Rationalising institutional capacities	Housing Act, 1997
Facilitating the speedy release and servicing of land	Development Facilitation Act, 1995[2]	Land Development Objectives
	Legislation and Policy for the release of land[3]	Less Formal Townships Establishment Act, 1991 Provision of Certain Land for Settlement Act, 1993 Settlement and Land Acquisition Grant Extension of Tenure Security Act, 1997 Communal Property Association Act, 1996 Interim Protection of Land Rights Act, 1996 Land Reform (Labour Tenants) Act, 1996 Upgrading of Land Tenure Rights Act, 1991 (amended in 1996) Protection of Illegal Evictions from, and Unlawful Occupation of Land Act, 1998
	Housing and Infrastructure Services	Norms & Standards Environmental Standards[4] Physical or Engineering Standards
	Technology choice and infrastructure on site
Co-ordinating state investment in development	Urban Development Framework	Integrating the City Improving Housing and Infrastructure Building Habitable and Safe Communities Promoting Urban Economic Development
	Rural Development Framework[5]
	Local Government Transition Act[6]	Integrated Development Plans
	Co-ordinated Government	Housing Minmec Heads of Housing Committee Budget Management Committee Integrated & Co-ordinated Information systems

These initiatives are now considered in detail.

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3.1 Stabilising the Housing Environment

This part of the Code deals with the following policy initiatives:

Stabilising the housing environment	Record of Understanding	Banking Code of Conduct Mortgage Indemnity Scheme National Home Builders Registration Council Servcon Housing Solutions Masakhane Campaign
	“New Deal”	Thubelisha Homes
	Housing Consumers Protection Measures Act, 1998 (Act No. 95 of 1998)

A stable public environment, which poses no abnormal political risk to investors due to a breakdown in due legal process, is required for viable private investment and the successful implementation of government’s housing programmes. Historically, the low income housing sector has been characterised as highly “risky”, given land invasions, payment boycotts, high levels of building material losses, time delays in implementation, policy uncertainty, and so on. The private sector is reluctant to invest in such an environment of high and erratic risks. This situation also holds true for individuals who are unlikely to invest in their own housing in the context of an unstable and insecure environment. Without a stable housing environment, the principles of private sector participation and a people-driven housing process are not achievable.

The response to this problem is not straightforward. Risk is not a homogenous feature in the low income housing environment. A range of risks exist. Some of these (such as commercial and marketing risk) are the standard sort of risks for which private sector management mechanisms and significant risk management experience exist. Others, however, are abnormal risks, born of the context in which the low income housing sector currently operates. Political and administrative risks are complex to manage and experience in dealing with these risks is limited.

Attention to the need for a “stable housing environment” was originally raised by the private sector, and specifically by South African mortgage lenders who suffered serious capital exposure as a result of bond boycotts. For mortgage lenders, therefore, the key aspect of stabilising the housing environment is ensuring that the "sanctity of contract" is respected and upheld by all parties. The role of the private sector in any market is to mobilise and deploy resources so that it earns a profit that is commensurate with the risks taken. If the risks are perceived to be high and not easily defined, the private sector will choose to invest elsewhere.

Stabilising the housing environment must therefore be addressed from three points of view, simultaneously:

1. Political and administrative certainty must be ensured by a stable and consistent policy and a system of resource allocations, and honest, transparent and reliable administrative practices.
2. There is a critical need to decrease both real and perceived risk, and to assign the management of that risk to the appropriate players. In this, government recognises and accepts the responsibility to create and maintain a lawful environment in which contractual rights and obligations are respected and enforceable.
3. There is also a need to build trust among the non-State sector (private sector and communities) that all role players are acting in good faith in the housing process. In this, there is an obligation on both the private sector and communities to support government in its efforts in stabilising the environment.

Factors that contribute to a stable public environment, lower risk levels, and improved trust include:

• improved living environments (clean, safe neighbourhoods in which local by-laws are upheld);
• the efficient delivery and maintenance of municipal services;
• the construction of good quality housing;
• regular payment of rates, services, and rentals or mortgage payments;
• reliable and competent local governance; and
• the existence of civic pride among residents.

A stable environment is a value-based judgement reliant on a long term intervention and the mutual co-operation of all players.

Government has promoted the principle of partnerships in adopting a multi-pronged strategy to stabilise the housing environment. First, the former Association of Mortgage Lenders and the Department of Housing reached agreement on measures to stabilise the housing environment in the “Record of Understanding”. This was replaced in 1998 by the “New Deal” signed by the Banking Council and the Department of Housing

As a result of the “Record of Understanding” and the “New Deal”, the following initiatives were established to stabilise the housing environment:

• the Masakhane Campaign
• the Mortgage Indemnity Fund
• Servcon Housing Solutions
• Thubelisha Homes
• National Home Builder’s Registration Council

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Together, these five initiatives seek to improve service delivery, decrease risk levels and build trust within the housing industry and between beneficiaries and service providers. In addition to the above institutions, the agreements between the financial lenders and government also led to the establishment of initiatives to mobilise credit, which are discussed in the next section, under the strategy “mobilising housing credit”.

The two agreements and the five initiatives to which they gave rise are discussed in greater detail below.

The Record of Understanding (ROU)

The Record of Understanding was signed in October, 1994 and confirmed Government’s and the private sector’s agreement that a stable public environment is required for viable private investment, and that the achievement of such an environment was the responsibility of the State, the private sector, and communities. Six basic points of departure reiterated an overall principle of partnerships and fairness that form a cornerstone of government’s housing policy, namely:

• The Record of Understanding outlined a two-point strategy for stabilising the housing environment:

1. Strategies to increase the availability of credit.
2. Risk alleviation interventions. These were:

• a vigorous and unprecedented national and provincial campaign aimed at the improvement of service delivery and the resumption of payment for goods and services received and the reinstatement of the due process of law, through the Masakhane Campaign
• mortgage indemnity for a fixed period on a geographic basis, through a Mortgage Indemnity Scheme, undertaken by the Mortgage Indemnity Fund
• management of non-performing loans by rescheduling of loans or “rightsizing” households into affordable property, through Servcon Housing Solutions
• management of existing properties in possession, through Servcon Housing Solutions
• the introduction of a product defect warranty and self-regulation in the building industry, through the National Home Builder’s Registration Council

the need for joint and simultaneous action sustainability of initiatives stability and civil obedience and the sanctity of contract level playing fields transparency and accountability non-discrimination Due to a range of complex structural and contextual circumstances highlighted by the closure of the Mortgage Indemnity Fund in May 1998 and the need for continued efforts to stabilise the housing environment, the Record of Understanding was reformulated. Specifically, the following key issues needed attention in a new agreement: The need to continue the normalisation process.

The need to agree a framework that would ensure future lending by financial institutions and increase co-operation with Government in an effort to create greater access to housing credit in low income communities.

During 1996, the Government and the Banking Council began negotiations to terminate the Record of Understanding and provide another framework, which would determine the role of formal lenders in the low-income market. A revised “heads of agreement”, known as the New Deal, was signed between Government and the Banking Council[7].

The “New Deal”

The “New Deal” came into effect on 1 April 1998. It provides for a framework for greater co-operation and risk sharing between government and banks, in the absence of the MIF which closed in May 1998. Government and the banks will initially attempt to realise portfolio disposal[8] by rightsizing, rescheduling, rental, or installment sale. In the case where such endeavours fail, each party will equally and jointly share costs of the defaulting portion of the bond portfolio and in the case of a shortfall, government will guarantee fifty per cent of the debt burden. In terms of the New Deal, Servcon Housing Solutions’ mandate has also been reformulated.

The major elements of the New Deal are:

• All properties in possession and non-performing loans on 31 August 1997 and not resolved by May 1998 will be placed under a new portfolio to be managed by Servcon until resolved, for a period of 8 years (until 2006).
• MIF cover on the relevant portion of this portfolio and other loans covered under the ROU will immediately be terminated, with no recourse under any circumstances.
• Government and the Banking Council will participate on an equal share basis in Servcon over an eight year period, until 2006.
• A Policy Committee under the Chairmanship of the Minister of Justice and Chair of the Banking Council will be established. It will meet twice a year to review progress related to the effectiveness of the legal process linked to default on mortgage loans throughout the country, and in particular the Servcon portfolio. A Co-ordinating Committee convened by the Chief Executive of the Banking Council and Director General of the Dept of Justice will report to the Policy Committee and will co-opt relevant departments and entities onto the committee, as required.

In addition, to assist increased and sustainable development, both government and the formal financial institutions have agreed to participate in a project called “Gateway”, hosted and co-ordinated by the National Housing Finance Corporation. This project is discussed in greater detail under the strategy on mobilising housing credit. Ultimately, the New Deal is a partnership between government and lenders (traditional and non-traditional) to further enhance the financial aspects of housing delivery through risk sharing, collaboration and increased credit mobilisation, with end-user savings as a crucial component of risk sharing. In this, government’s responsibility has increased. Government is now obliged to carry not only the political risks associated with normalising the environment but also the financial risks associated with mobilising savings and credit.

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The New Deal seeks to assist 33 089 families to normalise their contractual relations with the financial institutions.

The policy intention of the New Deal is to continue government’s strategy to stabilise the housing environment by sharing risk and building trust among the players in the industry. To this end, the institutions and programmes established in terms of the Record of Understanding and maintained through the terms of the New Deal are interconnected, and each is reliant on the success of the entire approach in order to operate effectively.

Masakhane Campaign

The Masakhane campaign (let us build together) was initiated by the Departments of Housing and Constitutional Development and the former office responsible for the RDP. While overall responsibility for the campaign currently rests with the Department of Constitutional Development, individual local governments are undertaking its implementation. Broadly, the campaign seeks to change public perceptions and attitudes regarding the rights and responsibilities of individuals, communities, and local government. More specifically, it encourages residents to pay their rates, services and mortgage or rental payments, contribute towards their community and feel a sense of civic pride. In return, they may expect improved municipal governance and service delivery.

Since its implementation in 1995, Masakhane has become the name for what has always been a general principle of government. As a people-driven process of working together, it encompasses all aspects of our society – social, economic, environmental, cultural, and so on, calling on each individual, group, community and department to play their part in the reconstruction of South Africa. Central to this approach is the building of partnerships – a key principle of our housing policy.

As government policy, Masakhane is the way in which we undertake all that we do, build trust among the various role players in the housing sector, and realise the fruits of our policy together, in the building of homes for the homeless. This is what stabilising the housing environment is all about.

At a local level, Masakhane receives special attention annually, in the context of a Masakhane Focus Week. These weeks vary from province to province, local area to local area. The campaign seeks to demonstrate to local communities that municipalities use rates, taxes and services charges to pay for the local services such as water, health care, sewerage, community facilities, public safety, housing, and so on, that benefit communities. The link between the payment of rates, taxes and services charges, and the receipt of effective and efficient local services demonstrates that both residents and municipalities have important roles to play in the delivery of services. In this way, Masakhane is a process of increasing and deepening awareness of the new relationship between government and the people so that all might play their part effectively.

The Mortgage Indemnity Fund

The Mortgage Indemnity Fund (MIF), a wholly government-owned company, was established as a short-term[9] intervention in June 1995, to encourage mortgage lenders to resume lending at scale in the affordable housing market in a sustainable manner in neglected areas in the country. The MIF provided retail lenders with an indemnity insurance for a limited period against loss in certain areas, if they were unable to repossess due to a breakdown in the due process of law.

The main functions of the MIF were to:

• Assess and provide cover to accredited financial institutions willing to lend at scale in areas deemed ready for and in need of such cover.
• Assess prioritised areas and provide accreditation thus opening the flow of credit into these areas and ensuring fair lending practices.
• Resolve problems in areas that were unable to be accredited [deferred] by enabling borrowers and lenders to create platforms that helped build relations.
• Support payment normalisation programmes implemented by Servcon and accredited financial institutions.
• Develop a sound, effective and efficient claims system geared to adjudicating claims accurately and timeously.
• Monitor the exposure, assumed by government by the provision of cover, by gathering relevant information on MIF risk areas with the aim of devising remedial mechanisms, claims prevention strategies, and general risk containment programmes where these were deemed necessary.

In carrying out its role, the MIF was situated between banks, government and communities. Its primary task was to build bridges and trust across the divide that existed between them. The MIF therefore had to balance the responsibility for promoting housing finance investment, with that of building the relations between government, borrowers and lenders – the three main role-players of the strategy to stabilise the housing environment and the housing finance process. While the MIF’s operations were only temporary, it played an essential bridging role between government, financiers and communities, attempting to lay the foundations of a healthy and sustainable mutually beneficial, future relationship. Thus, the MIF sought to ensure that financiers committed themselves to responsible lending practices in providing finance in areas where it was needed, but not readily available, and that communities and individuals committed themselves to meeting their obligations and responsibilities.

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The key objectives of the MIF were:

• To encourage private sector banks to resume lending at scale in both the primary and secondary housing market, where mortgage lending was disrupted due to past circumstances.
• To indemnify accredited financial institutions against loss where they were unable to repossess properties due to a breakdown in due process of law.
• To become an interface between government, the private sector, housing financial institutions and communities to establish a sound working relationship between them.

By its closure in May 1998, the MIF was able to generate R10 billion in new loans. In its three years of operation, the MIF found that making the housing finance sector work had a lot to do with relationships between lending institutions and borrower communities. As part of this growing awareness, the MIF implemented two programmes supplementary to the cover it provided:

• The Education Outreach Programme
• The Dispute Resolution Programme

Education Outreach Programme

The toll-free Housing Helpline still operates and can be reached at 0800-111-663.

The Education Outreach Programme was launched in 1996. The programme provided housing information to consumers in the lower income groups. It distributed education material, trained housing information officers, and promoted a toll-free helpline and advice centres (in co-operation with the Housing Consumer Protection Trust).

In addition, as a condition of accreditation, financial institutions were required to provide approved consumer education to all new home loan applicants from previously disadvantaged communities. Financial institutions have a social responsibility to continue with consumer education in the interests of fair lending practice.

Dispute Resolution Programme

The MIF programme provided a range of services:

• facilitators, to assist in defining the main issues of the dispute and, if possible, to reach a resolution
• technical investigations, to define the technical problems surrounding a dispute, such as the quality of the building product, the legality of the development, or the value of the product versus its cost
• commissions of inquiry, to investigate issues of dispute and make recommendations on the resolution
• mediation, to assist in resolving a dispute that has already been clearly defined
• arbitration, to resolve a dispute with a legal agreement based on a judgement made by an arbitrator

The MIF’s Dispute Resolution Programme was also launched in 1996 to assist communities and financial institutions to resolve disputes. The programme was based on a non-legal method for resolving disputes, especially useful when disputes were a result of a misunderstanding or mistrust. In order to get the MIF to help them, disputing parties needed to promise that they were serious about resolving the dispute, and that they would participate in the dispute resolution process in good faith.

The focus of these services was on helping disputing parties understand what their dispute was really about. Once both parties equally understood the nature of the dispute, the MIF’s services helped the parties to reach a solution.

As a result of the MIF’s interventions, not only were disputing parties able to resolve their disputes, they were also able to develop approaches to deal with situations in which new disputes might arise. The MIF assisted disputing parties to develop solid relationships with one another.

Through its efforts, the MIF sought to decrease real risk while also building trust among stakeholders in the housing sector, that investment in low-income housing, by both individuals and financial institutions, was a viable enterprise. Over 543 areas previously denied housing investment benefited from the MIF’s intervention with the return of financial lenders to their markets. In this, the MIF contributed to stabilising the housing environment and increasing lending in low-income areas. Having accomplished its mandate it laid the foundation for longer term stability under the “New Deal”.

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Servcon Housing Solutions (SHS)

Payment Normalisation Programme

Loans are rehabilitated and payment is normalised through a number of mechanisms including installment sale, rescheduling, and rightsizing:

• If the family can afford the property, installment sale provides them with the opportunity to buy the property back in terms of a subsidised installment programme.
• For those people who have not yet had their properties repossessed and are still in a mortgage situation, Servcon arranges for their loan repayments to be rescheduled.
• Families who cannot afford the properties they are currently occupying are eligible to participate in the rightsizing programme. Through this programme, Servcon assists families find alternative, affordable, long-term accommodation. While this process is underway, occupants are permitted to continue living on the property, for which they are charged an affordable rental. Families participating in the rightsizing programme are eligible for relocation assistance (subsidy) under the Housing Subsidy Scheme.
• In order to give people more time to get their financial affairs into shape so that they may cope with paying after a long time of not paying, or to give them time to get a job, Servcon also offers a rental programme. Initially, the rent is less than half of a mortgage installment, and increases over a 3-4 year period.

Servcon Housing Solutions is a private company, established in June 1995, in terms of the Record of Understanding. As a joint venture company, government owns 50% and the Banking Council (formerly the Council of South African Banks) owns 50% of the nominal shareholding.[10] Servcon was initially given a three year mandate to deal with the estimated 14 000 repossessed properties and non-performing loans held by banks as a result of bond boycotts and consumer affordability problems, where defaults occurred before June 1995. In March 1997, 10 500 additional non-performing loans were taken over from the banks and absorbed into the Servcon Programme. Servcon’s mandate is to assist households who have defaulted on their loans to resume payment in a way that is mutually satisfactory to the household and the financial institution. This is known as the payment normalisation programme. Over the course of its original term of operation, new challenges have encouraged Servcon to reform its mandate. Under the “New Deal”, Servcon's life has been extended by eight years, until the year 2006.

The current portfolio comprises a total 33 089 properties in possession and non-performing loans (including the 24 500 in the original mandate). The cut-off date for this portfolio was 31 August 1997 – any properties in possession and non-performing loans that arise after that date are not included in the Servcon portfolio. The risk sharing policy under the “New Deal” will assist Servcon meeting its mandate. In particular, adequate rightsizing stock will be made available by a new Company called Thubelisha Homes.

The policy intention behind Servcon’s mandate is to encourage new lending by relieving banks of their non-performing loans and properties in possession. Over the long term, Servcon’s intervention is expected to improve relations between borrowers and lenders by mediating their relationship and demonstrating good practice in the building of solid relationships with borrowers.

Servcon’s activities are necessary to normalise the housing environment and to overcome the non-payment syndrome, thereby enabling lenders to once again rely on the legal process. This necessitates the gradual reintroduction of the eviction process in those cases where the programme is rejected.

Thubelisha Homes

Thubelisha Homes is a Section 21 Company set up jointly by Servcon and government (Department of Housing) as part of the “New Deal”. Its mandate is to procure or develop housing stock appropriate for rightsizing, so that Servcon’s payment normalisation programme can be fully implemented. Thubelisha Homes is part of government’s strategy for normalising the housing environment.

Thubelisha Homes has seven key objectives:

1. To determine the nature and scale of demand for rightsizing stock. This is done together with Servcon, on the basis of Servcon’s rightsizing client list.
2. To secure funding to finance rightsizing. Government has provided an initial R50m grant to Thubelisha Homes in addition to relocation assistance (subsidy) available to all rightsizing clients. The remaining finance required is to be covered on the basis of a partnership between the NHFC and the mortgage lender originally involved with the client, provided via Thubelisha Homes.
3. To develop and finance stock. Four basic levels of houses are delivered:

• Basic shelter, priced within the subsidy only sector
• Enhanced basic unit, priced to require additional finance above the relocation subsidy amount
• Starter housing unit that is “bondable” (eligible for mortgage finance)
• Enhanced starter unit

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It is anticipated that Thubelisha Homes will provide approximately 60% of Servcon’s portfolio, i.e. 20 000 rightsizing units. In this regard, Thubelisha Homes will secure access to relocation subsidies and, where feasible, end-user finance for rightsized households.

4. To evaluate and approve clients. Rightsizing clients are assessed on current affordability, based on approximately 25% of their salary and their rental payment record, achieved while they temporarily rent the properties in which they live before rightsizing.
5. To sell the developed houses. Where no finance is required, the product is transferred directly to the purchaser. Where finance is required, Thubelisha Homes takes possession of the property and disposes of it in one of two ways:

• deed of sale: the clients pay Thubelisha Homes a monthly instalment for 4 – 7 years, after which they take transfer of the property
• convertible deed of sale: the clients pay on a twenty years installment basis, taking transfer after 4 – 5 years, at which point they obtain a mortgage to pay off the balance still owed.

6. To collect rental and other payments. Rental payments are collected on a monthly basis from rightsizing clients who are renting or who have purchased housing stock.
7. To report to stakeholders. Stakeholders include the Department of Housing, mortgage lenders, Servcon, and the NHFC.

The National Homebuilders Registration Council

The National Home Builder’s Registration Council (NHBRC) was established in June 1995 as a Section 21 Company, to provide standards for the home building industry and protect housing consumers from unscrupulous builders. As a self-regulatory body, the NHBRC provided additional methods of redress for consumers in response to mounting concern from consumer bodies and mortgage lenders.

FACT: In 1994, over 60% of the 40 000 complaints received by the Housing Consumer Protection Trust (HCPT) from consumers, related to problems with developers and home builders. This led to 11 000 files being opened, of which only 60 led to summons being issued and only two had a successful outcome. The experiences of the HCPT and other consumer groups in this regard, made it clear that methods of legal redress against bad building were inadequate.

Mortgage lenders found similarly that a significant proportion of the 50 000 homes that they had repossessed as a result of bond boycotts in the early 1990’s had gone into default because of construction defects.

The NHBRC registers home builders, sets minimum standards and requires registered builders to offer a Standard Home Builder’s Warranty (valid for 5 years) on all bondable new homes. Every builder who wishes to access credit must be registered with the NHBRC and follow its building standards and guidelines. Housing consumers who want to use a bank loan to buy a newly built home, may only buy a home that has been built by a registered builder. Currently, all new homes built by the registered builder must be enrolled with the NHBRC. For each enrolled house, the builder must pay a levy of 1,3% of the total contract value, to the NHBRC. Most of this levy goes towards the Defects Warranty Fund, which is used to pay for repairs to building defects when the builder refuses to fix them, or when the builder absconds. The NHBRC also contributes towards empowerment within the building industry. Successful applications for registration result in a builder being given either provisional or full registration.

Provisional registration alerts NHBRC that the builder is fairly new and inexperienced, requiring additional engagement by the NHBRC to ensure that quality standards are maintained. With provisional registration, builders are limited to the number of houses they may build in a twelve-month period.

In addition, the NHBRC:

• carries out spot check inspections on enrolled homes under construction to verify that home builders comply with the NHBRC’s building “Standards and Guidelines”
• provides a Conciliation and Arbitration service to consumers and registered home builders where major structural defects arise after completion of the enrolled unit

Through its efforts, the NHBRC also provides greater comfort to financial institutions by ensuring that even in the low income housing sector, they are investing in quality products. This reduces risk levels related to the potential for bond boycotts, as well as the potential to dispose of the property and recoup their investment in the case of default. In this way, the NHBRC seeks to serve both the interests of a stable housing environment, as well as to encourage the mobilisation of housing credit to low income earners.

In stabilising the housing environment, the NHBRC has significantly decreased the provision of defective housing in the market, leading to a decrease in the level of dissatisfaction which has contributed to the abnormality of the market in the past, and contributing to trust between players in the industry.

Housing Consumers Protection Measures Act, No 95 of 1998

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Housing Consumers Protection Measures Act

Essentially, the Act provides for the NHBRC to undertake all the activities it had before becoming a statutory body:

• regulating the home building industry
• representing the interests of housing consumers by providing a warranty to protect them against defects in new houses
• providing protection to housing consumers when home builders fail to comply with their obligations in terms of the Act
• improving home building quality by establishing and promoting technical and ethical standards that address structural quality as well as the building process
• assisting home builders through training and inspection to achieve and maintain satisfactory technical standards of home building
• promoting consumer rights and providing consumer information
• expanding consumer protection to housing subsidy sector of the market.
• communicating with and assisting builders to register in terms of this Act

In November 1998, the Housing Consumers Protection Measures Act, No. 95 of 1998, effected the conversion of the self-regulatory NHBRC into a statutory body. The Act came into operation on 1 June 1999. The NHBRC’s scope will be expanded progressively, commensurate with the building of capacity and the conclusion of service agreements with the respective Provincial Housing Development Boards. The aim of this process to extend protection to owners of new homes built by registered homebuilders for households who are only utilising their subsidies to pay for their housing, by 1 January 2000. The Housing Consumers Protection Measures Act increases the powers and jurisdiction of the National Homebuilders Registration Council by making it a statutory body. Its primary mandate is to regulate the activities of practitioners who are involved in the business of home building, so that over time, quality standards in South Africa’s home building sector improve. The original intention behind the creation of the NHBRC in June 1995, was that it would be a self-regulatory body. Government’s support of this approach was on the basis that the NHBRC received united industry support.

Notwithstanding the NHBRC’s efforts, it was, however, resisted by groupings in the industry, and this undermined its effectiveness. In the absence of united support from key stakeholders in the industry, government has taken the step to legislate the efforts of the NHBRC by making it a statutory body.

In terms of the Housing Consumers Protection Measures Act, 1998, all new homes (not only those for which mortgage finance is sought) must be built by NHBRC-registered builders. This does not include owner builders. Prior to the promulgation of the Act, the NHBRC only enrolled homes with purchase prices of between R20 000 and R250 000. Registered home builders are obliged to comply with good building practices, as defined by the NHBRC Technical Requirements and published in the NHBRC’s Home Building Manual. The existing requirement that building adhere to the National Building Regulations remains in effect. Ultimately, the NHBRC Technical Requirements will be integrated into the National Building Regulations.

The consumer’s contractual agreement for quality building rests with the builder, and not with the NHBRC. While the NHBRC seeks to operate in the interests of the consumer in ensuring that the builder meets their responsibilities, it does so on the basis of a warranty offered by the builder to the consumer. In cases where the builder fails to honour the agreements contained within the warranty, the NHBRC may compensate the consumer for rectification of defects. This is only subject to the availability of funds however, and the NHBRC is under no obligation to do so. The policy intention of this feature is to ensure that the building industry takes responsibility for improving and maintaining quality standards.

3.2 Mobilising Housing Credit

This part of the Code deals with the following policy initiatives:

Mobilising credit	National Housing Finance Corporation	Rural Housing Loan Fund[11] Niche Market Lenders Programme Housing Equity Fund Housing Institutions Development Fund Gateway Home Loans
	Nurcha	Guarantee Programmes Joint Venture Development Fund
	Social Housing Foundation

The strategy to mobilise housing credit is closely linked with the strategy to stabilise the housing environment, in that both seek to increase the level of investment in the low income housing sector. While the strategy to stabilise the environment seeks to decrease abnormal “political” risk, however, the strategy to mobilise housing credit seeks to manage and cushion commercial risk and to share it between the range of players in the housing sector, including the individual, the private sector, and the State. In the long term this should encourage lending to the low income sector at scale to become normal market practice.

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At the root of the strategy to mobilise housing credit is the fact that access by the poor to housing credit has been limited for a range of reasons beyond affordability. Phenomena such as red-lining and discrimination, as well as poorly designed credit instruments, and a lack of a consumer willingness to save, are understood as factors limiting the access of the poor to finance. Clearly, one reason why financial institutions employed such measures is related to the “unstable environment” in which lending operated. While that environment is being stabilised, however, perceptions of risk still exists and trust is still elusive. Consequently, the strategy to mobilise housing credit involves the development of mechanisms and approaches towards risk management and sharing and the development of a track record of experience in the low income market, so that the private sector is “brought back” into the low income housing market. The aim is to change risk perceptions that inhibit lending to previously disadvantaged people.

The risk sharing interventions developed in respect of this strategy are varied. Based on the principle of partnerships, the policy seeks to mobilise the capacity of both individuals and institutions in the non-state sector to participate in a range or matrix of intricate, inter-dependant, market-enabling measures aimed at mobilising credit on the basis of a two-pronged strategy.

• A collection of financial and development guarantees supported with government funds, though managed on the open market, indemnifies banks from loss of investment as a result of risk, without exposing government to moral hazard.
• Mechanisms to mobilise the provision of credit on a risk-sharing basis, so that financial institutions may develop low income housing sector experience and a track record, suitable for operating on their own, without State intervention, in the long term. These mechanisms include:

• risk sharing financial products
• support for the development of the micro lending industry
• a focus on mobilising housing credit in rural areas
• a focus on social housing and mobilising credit for housing institutions
• development of a secondary mortgage market
• consumer education and protection measures
• attention to developers’ finance needs, including the provision of bridging finance

On the basis of these two areas of focus, the strategy to mobilise housing credit is spearheaded by two institutions:

• The National Housing Finance Corporation (NHFC) and its subsidiary funds and institutions provide loans, guarantees and other products to support the entry of financial lenders back into the low income sector for a range of tenure types in both urban and rural areas, satisfying both areas of focus.
• The National Urban Reconstruction and Housing Agency (Nurcha) provides guarantees for bridging finance (development capital), and housing loans, while also undertaking a range of other initiatives to support players in the low income housing sector to carry out their respective roles.
• The Social Housing Foundation (SHF) provides training, advice and technical support to established and emerging social housing institutions, while also supporting through policy development and other initiatives, the growth of the social housing sector.

In addition, the Record of Understanding and the “New Deal”, reached between the Banking Council and the Department of Housing, was significant in the development of the strategy to mobilise housing credit. The Code of Conduct implemented among mortgage lenders by the Banking Council, ensures an agreed upon method of how each party in the development process, financial institutions and communities, are expected to act in respect of each other. In particular it governs the behaviour of these parties to ensure that business is conducted in an appropriate and fair manner. The intention of the Code of Conduct is to facilitate an increase in savings and credit among the low income sector, by significantly enhancing the normalisation of the environment and humanising the relationship between banks and communities. The development of a fixed installment credit instrument by some banks also contributed towards increasing access to credit by low income earners.

The clear linkage between mechanisms developed in terms of the strategy to stabilise the housing environment, and those developed in terms of the strategy to mobilise housing credit, is set out in the diagram that follows.

Figure 1.

The relationship of two strategies: stabilising the environment and mobilising credit

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The National Housing Finance Corporation (NHFC)

The National Housing Finance Corporation is a public company, wholly owned by government, and operating under specific exemptions from the Banks Act 1990 (Act No. 94 of 1990). Set up as a development finance institution in April 1996, the NHFC’s main role is to pilot and explore ways of sustainably providing housing credit to low income earners. In time, it is expected that the NHFC’s efforts will create an environment in which the capacities in the finance sector can be mobilised to service the under- and un-serviced segments of the housing market. The NHFC leverages funds outside of government sources to support its activities.

NHFC IN CONTEXT: The NHFC is one of five state-owned development finance institutions in South Africa.

With initial, permanent capital provided by government, each one supplements its capital with private sector funding. In this way, partnerships between the public and private sectors are created.

South African Government
Industrial Development Corporation	Development Bank of Southern Africa	Khula Enterprise Finance	Land and Agricultural Bank	National Housing Finance Corporation
Industrial development finance for, and investments into, industrial concerns.	Infrastructural development finance for provincial / local authorities, parastatals and utilities.	Small, medium and micro enterprise development finance for lending intermediaries financing small, medium and micro enterprises	Agricultural development finance.	Housing development finance for intermediaries financing housing and housing institutions.

Figure 2. NHFC in Context

The NHFC aims to create housing opportunities for low and moderate income families by:

• Funding intermediaries to promote broader access to housing
• Building adequate and sustainable capacity within organisations which it funds
• Partnering organisations to pioneer new finance and housing delivery approaches.

To achieve this mission, the NHFC focuses its efforts in three distinct areas:

1. Debt Finance: The NHFC makes loans available to established housing institutions, non-bank lenders and banks, for on-lending to households eligible for credit.
2. Equity Finance: The NHFC provides financial gearing capacity to social housing institutions and non-bank lenders.
3. Capacity Building: The NHFC provides assistance to emerging and new institutions to provide them with institutional capacity that will enable them to fully participate in this market.

The four programmes in which these areas of focus are achieved, are set out in the figure below. While the Social Housing Foundation is no longer a programme of the NHFC, it is incorporated in the figure to demonstrate both its origin and its focus. It is addressed in greater detail later in this section.

Note: While the SHF was initiated as a programme of the NHFC on the basis set out in this figure, it is now an independent body.

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Figure 5. NHFC Programmes

Niche Market Lenders (NML) Programme

The NML Programme is the main debt funding programme of the NHFC, and is targeted at housing institutions, non-bank lenders, and small banks. The NML Programme focuses on providing scale debt funding to lenders in the low-income housing market. The criteria for selecting clients focuses on, amongst other things, the ability of the borrower (the Niche Market Lender) to manage its loan book effectively. As a result the programme has developed the capacity to assess its clients and monitor progress in the formal lending environment.

The NML Programme provides debt finance to:

• Niche Market Lenders, who on-lend micro and mini loans to their customers
• Provincial Development Corporations, who provide small mortgages to their customers

This programme fulfills the policy intention of government to provide specific support for the development and expansion of the non-traditional, micro and niche market lending sector. Micro and mini loans are smaller than mortgage loans (with values up to R 20 000) and are more flexible, with shorter repayment terms (up to 60 months). The NML Programme supports the introduction of alternative payment methods by the beneficiary to the lender, including cash payments and stop order facilities against a regular salary, on the basis that these are deemed to be secure. Additional security is also provided by the beneficiary ceding investments, insurance or pensions and provident funds. These micro lenders are further supported by interventions of Nurcha and the NHFC.

Housing Equity Fund (HEF)

The HEF is a highly innovative fund, targeted at new and emerging institutions and non-bank lenders, providing both debt and equity finance. The NHFC takes a higher risk with its equity funding than with the debt funding of the NML. Its products and diverse lending approaches are directed at four key goals:

1. empowerment of new and emerging housing institutions
2. introduction and testing of new lending methods through identified pilot projects
3. strengthening the capital base of new and emerging institutions
4. supporting vigorous competition among lenders

The focus of the HEF is to build housing lending capacity in strategic niches: institutions that will, in the long run, provide finance to the low income housing market. With HEF finance, new and emerging lenders develop sufficient capacity so that they are able to access scale debt financing either through NML and/or through private sources.

While conceptually part of the National Housing Finance Corporation, the HEF is an off-balance sheet fund, legally separate from the NHFC. NHFC provides management services to the HEF on the basis of a management agreement.

Rural Housing Loan Fund (RHLF)

The RHLF was established through an intergovernmental agreement between South Africa and Germany, and receives funding from the German Development Bank. The strategic aim of this programme is to develop financial mechanisms and services in rural areas of South Africa. Its support is targeted at all types of financial institutions that operate in the rural areas, including social housing institutions, non-bank lenders, housing institutions and small banks.

In order to meet its mandate the RHLF provides funding and technical assistance to lenders to further enhance their distribution and networks in rural areas as well as providing assistance in the piloting of new loan products. Furthermore, the Fund provides loans to start up lenders in certain identified strategic niches focusing on marketing and institutional establishment. The fund also supports the development of lending schemes, which assists farmworkers and rural inhabitants to access service connections and bulk infrastructure in rural areas. The particular interventions of the RHLF are equity investment, structured debt packages and technical assistance to its borrowers.

RHLF is a legally separate body from the NHFC, with whom it holds a management agreement.

Housing Institutions Development Fund (HIDF)

The HIDF aims to promote the establishment of innovative and sustainable institutional capacity in the housing sector. It aims to assist institutions to improve their sustainability through the provision of finance for use towards institutional development objectives and housing stock development.

The HIDF’s products are targeted at the pre-institutional establishment phase of housing institutions, at their development phases, and at capacity building and institutional development needs. Once an institution has established sufficient capacity through the assistance of the HIDF, it can apply to the NML for further debt financing.

Originally the HIDF was mandated to offer structured loans to existing housing institutions. However, few institutions already existed. It became evident that start-up equity funds were a more appropriate package for institutions that were entering the market. Therefore the HIDF has provided both operational funding and project finance for institutions that have a suitable risk profile. Such institutions include but are not limited to, employers, local authorities, developers and non-governmental organisations.

While conceptually part of the National Housing Finance Corporation, the HIDF is an off-balance sheet fund, and legally separate.

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Gateway Home Loans

In addition to its four wholesale programmes, the NHFC is developing a new programme aimed at providing sustainable housing finance at scale for the purchase of houses by people in the low and moderate income bands, using existing intermediaries. Gateway Home Loans has been established as a subsidiary of the NHFC with the mandate of addressing the gap in the housing finance market: while mortgages are not widely available for loan sizes of less than R60 000, the micro loan industry typically provides loans of less than R10 000. Gateway seeks to address primarily the need for loan products in the R10 000 - R50 000 range.

To do this, Gateway has established a secondary market process. In this process, Gateway accredits primary market lenders, from which it agrees to buy standardised home loans on pre-agreed terms. Initially, these loans will be held in portfolio by Gateway. Later, when a portfolio of sufficient size and quality has been built up, the loans will be pooled, and funded through debt issues in a process known as securitization.

The initial standardised product to be offered by Gateway, known as the “Makhulong Home Loan”, has three characteristics:

• it requires payroll deduction by employers for repayments;
• it relies on financial collateral (and not the value of the property as in a mortgage) in the form of a provident fund guarantee, for at least half the loan;
• it may be used only for the purchase of a house.

Hence, it is a mortgage substitute product which gears the basic fully guaranteed micro-loan product available from banks to enable the purchase of the house. The target market for this product is clearly formally employed people. However, Gateway envisages introducing extensions to this product as well as other products with different focus, once the process is working effectively.

Policy Focus of the NHFC

In summary, the critical factor of the NHFC is that it seeks to expand the boundaries in which retail lending for low income housing takes place:

• By emphasising the role that niche market and micro lenders can play, the NHFC is broadening the range of lenders able to provide credit, highlighting those best suited to provide credit to low income earners.
• The NHFC’s specific focus on rural housing is leading to the availability of housing credit in areas that previously had no access to credit.
• Similarly, the focus on social and institutional housing is looking at ways to provide households with collective access to credit in a way that overcomes their individual affordability constraints.
• Guarantee and other risk sharing mechanisms are beginning to entice the traditional banking sector back into some segments of the low income market, so that over the long term, a track record of viability and opportunity can be developed.
• A focus on the gap in the financial product market (loan sizes between R10 000 – R50 000) ensures that products are being developed to address the specific finance needs of low income households.
• And finally, through diverse lending methods, the NHFC supports a variety of housing delivery approaches including incremental development, home improvement, and newly built houses.

In all of these areas, the NHFC clearly supports a critical principle that underpins government’s housing policy: innovation.

National Urban Reconstruction and Housing Agency (NURCHA)

Nurcha was established in May 1995 as a Presidential Lead Project mandated to address the housing backlogs and inequities of the past. Operating as a non-profit (Section 21) company, it aims to facilitate low cost housing development, focusing on the needs of families earning less than R1 500 per month. Nurcha provides:

• bridging finance guarantees for developers and contractors to cover the costs of development prior to subsidies being paid,
• end user finance guarantees to assist people earning up to R1 500 per month to access loan finance in approved projects, and
• capacity building grants to communities for community development processes.

Nurcha has five strategic goals:

1. to facilitate low cost housing development by guaranteeing loans made by commercial banks
2. to focus on the housing needs of families earning up to R1 500 per month
3. to promote small and medium enterprises in housing and urban development
4. to strengthen the capacity of institutions involved in low cost housing delivery
5. to assist in the development of a housing market that meets the needs of all South Africans

Nurcha’s primary sponsors are the South African Government and the Open Society Institute of New York. Guarantee capacity has also been raised from the Swedish International Development Organisation, the Norwegian Agency for Development Co-operation, the Thembani International Guarantee Fund, the United States Agency for International Development (USAID), and the Futuregrowth Fund.

Nurcha has two categories of programmes:

1. Guarantee Programmes: Facilitating Bridging Finance & Facilitating End User Finance
2. Joint Venture Development Fund

These are described below.

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Guarantee Programmes

Nurcha’s guarantee programmes fall under two headings:

1. Facilitating Bridging Finance:

Nurcha offers guarantees to encourage financial institutions to make bridging finance loans to developers and contractors. For established and larger developers, Nurcha will share up to 60% of the risk with the bank making the loan. With emerging and small contractors who are perceived to be high risk borrowers, Nurcha offers guarantees of up to 70% in order to encourage lending into this important sector of the economy. In addition, Nurcha will assist emerging contractors with aspects of their cash flow planning, and may provide some management assistance during the course of the project.

2. Facilitating end-user finance

Nurcha’s objective is to find ways to release credit for housing to people who do not meet the criteria of existing lending agencies. There are three areas of focus:

• Savings linked credit schemes allow for credit extension based on an end user’s savings record. By saving over a period of time, a borrower proves an ability to pay regular installments. The savings can provide a layer of security in the event of default. Nurcha is willing to guarantee a portion of the balance of the loan.
• Housing institutions are being developed to create accommodation for both rental and installment sale schemes. Nurcha and the Home Loan Guarantee Company (HLGC), a private sector guarantee facility, have come together to provide a guarantee which indemnifies housing institutions against losses resulting from non-payment by beneficiaries. This guarantee addresses the income risk faced by social housing organisations, by providing three months instalment payments, should a beneficiary not pay. The guarantee amount is payable for any loss suffered as a result of non-payment, except if the loss arises out of collective or boycott action by tenants, and certain other exclusions.
  A critical feature of this facility is that in carrying the initial cashflow risk, it provides support while the housing institution gears up its capacity to operate in the long term. Consequently, the cover is conditional on the housing institution implementing recommended internal debt collection procedures approved by Nurcha / HLGC. In addition, both the housing institution and the beneficiary must undergo education and training.
  Nurcha / HLGC and the NHFC co-operate to create a package of financing for new housing institutions. NHFC’s Housing Institution Development Fund provides wholesale funding for housing institutions, while Nurcha/HLGC secure a portion of the rental flow to the institution during the early years of its existence.
• Established banks (and non bank lenders) may also be eligible for Nurcha guarantees to encourage them to move beyond their existing lending programmes. For example, lending agencies whose programmes are based around payroll deductions may receive guarantees from Nurcha to pilot other forms of repayment.

Joint Venture Development Fund

In 1996, the Joint Venture approach towards subsidised project delivery became a key policy initiative of government. The policy is in keeping with the preamble to the Housing White Paper, which states that “a partnership between the various spheres of government, the private sector and the communities is envisaged. This is seen as a fundamental prerequisite for the sustained delivery of housing at a level unprecedented in the history of this country. It requires all parties not only to argue for their rights, but also to accept their respective responsibilities.”

The Joint Venture Development Fund was originally established by government and placed with the NHFC. In April 1998, the NHFC signed an agreement with Nurcha to have Nurcha manage the Fund and its approved project on the NHFC’s behalf. The government’s purpose of this R100m fund is to have equity invested into joint ventures with private sector developers and contractors, to encourage and facilitate housing in the R20 000 – R60 000 range in targeted areas, where little development has taken place. This construction financing tool applies equally to home ownership and to rent-to-buy projects, in areas targeted to promote densification and physical and social integration.

In terms of the policy guidelines, the Fund may invest up to 70% of the required working capital in projects to construct 1 000 or more housing units. The private sector contributes the balance. The private sector partner’s role will be to manage the development and construction aspects as normal, including the marketing and ensuring that end-user financing is in place. Nurcha will manage the joint venture company, and monitor the private sector’s conformity to the agreed project detail.

The Social Housing Foundation (SHF)

In November 1997, the NHFC established the Social Housing Foundation to develop expertise and delivery mechanisms in the social housing market. The SHF’s mission is to promote, support and assist the integrated process of sustainable social housing in South Africa. In meeting its mission, the SHF seeks to improve the environment in which social housing organisations currently operate, to contribute towards the further development of the industry, and to raise the profile of social housing, as a valuable contribution towards low income housing in South Africa.

The SHF has defined its role in response to the social housing environment. It has four main functions:

1. The provision of training, advice and technical support to established and emerging social housing institutions. Emerging social housing institutions are taken through the “path to becoming a sustainable institution” which seeks to develop internal capacity so that the institution becomes a viable enterprise and is able to access institutional subsidies and other funding.
2. Advice on the development of policy for social housing in South Africa, and undertaking research into local and international experiences in social housing. Policy proposals developed by the SHF are submitted to the Minister for consideration and further development within the department.
3. The facilitation of an international networking and support programme.
4. Interaction with donor organisations both nationally and internationally, raising the profile of social housing in South Africa, to benefit the industry’s funding environment.

Although originally established by the NHFC, the Social Housing Foundation is now an independent, Section 21 Company, funded by government as well as international donors. Its board includes representation from various actors in the housing sector as well as the National Housing Finance Corporation.

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3.3 Providing Subsidy Assistance

This part of the Code deals with the following policy initiatives:

Providing subsidy assistance	Housing Subsidy Programme	Project-linked Individual Consolidation Institutional Relocation Rural
	Discount Benefit Scheme
	Hostels upgrading programme
	Bulk & Connector Infrastructure Grant (now part of CMIP)[12]

South Africa is fortunate in having a sophisticated construction industry and an advanced financial sector that have the capacity to meet the effective demand for housing products and services. This demand, however, currently constitutes only 20% of all households requiring housing. High levels of unemployment and relatively low average wage levels contribute to a major affordability problem in South Africa, and the ability to pay for housing is severely limited among most families in the country. Consequently, government has adopted a strategy to provide subsidy assistance to households who are unable to satisfy their housing needs independently. Given the constraints imposed by the need for fiscal discipline, it is clear that the State is not able to provide sufficient subsidy to cover the costs of delivering a formal complete house to every South African in need of housing. As such, the policy favours the principle of “width” rather than “depth”: it is better to provide a lesser subsidy to more households, than to provide a greater subsidy to fewer households. Government acknowledges that the subsidy it provides will of itself never be enough to ensure that all persons in South Africa realise the constitutional right to have access to adequate housing.

FACT: The housing department estimated in 1997 that the housing backlog was 2,2 million units. This means that at least 2,2 million families are without adequate housing. Because of population growth, this figure grows by about 204 000 every year. In urban areas, it is estimated that the backlog in 1997 was 1,92 million units. In rural areas, the backlog in 1997 was estimated at 300 000 units. This doesn’t mean that families are necessarily homeless, but rather that their housing conditions are unacceptable, in terms of what the government has defined as its national housing vision. Households who cannot independently provide for their own housing needs are defined as households who earn not more than R3 500 per month. All households earning not more than R3 500 per month are eligible to apply for a housing subsidy. In 1996, just over 80% of all households in South Africa earned note more than R3 500 per month. More than half of all families in South Africa earn R0 - R1 500 per month. For example, in 1997, the Minimum Living Level (MLL) for an urban black family, was defined as R1 254,59 per month (though this figure changes from time to time, due to inflation).

For this reason, housing policy relies on a partnership between the provision of state subsidies on the one hand, and the provision of housing credit (if the beneficiary can afford this), or personal resources (savings, labour, creativity, etc.) on the other.

The strategy to provide housing assistance has given rise to a number of government housing programmes. Together, these are known as National Housing Programmes. These comprise the following:

• Housing Subsidy Scheme
• Discount Benefit Scheme
• Hostels Upgrading Programme
• The Bulk and Connector Infrastructure Grant[13]

Each provincial MEC has the responsibility to prioritise how much funding from the province’s equitable share of housing funds, received from the South African Housing Fund, should be set aside for the various national housing programmes and provincial housing programmes, which is not inconsistent with national housing policy. The MEC is accountable to the provincial legislature in this regard.

The detailed provisions regarding each of the subsidy programmes, with the exception of the Bulk and Connector Infrastructure Grant, which is no longer available through the Department of Housing, are set out in Part 3 of this Code which replaces the Implementation Manual: Housing Subsidy Scheme and Other Housing Assistance Measures.

The various programmes included within the strategy of providing subsidy assistance, with the exception of the Bulk and Connector Infrastructure Grant, which is now incorporated as part of the Consolidated Municipal Infrastructure Programme (CMIP) and available through the Department of Constitutional Development, are set out below. The policy relating to the People’s Housing Process is set out in Section 3.4 of this Part of the Code.

Principles Governing Subsidy Allocation

Government’s approach towards the allocation of subsidies is based on a number of key principles:

• Gearing: Measures should aim to gear non-state investment to the greatest possible extent. To this end, government has supported a policy of joint venture partnerships with the private sector in housing delivery (see Sections 3.2 and 3.3 of this Part of the Housing Code).
• Facilitation: The State’s involvement should be structured to challenge non-state capacities to increasingly respond to the needs and requirements on the ground, while also complementing and strengthening existing delivery capacities.
• Transparency & Equity: Financial exposure to the State should be clearly identified, quantified and contained in a manner which can be effectively managed and capped. Moral hazard associated with state funding / guarantees should be minimised. This principle also relates to the policy on hidden subsidies, addressed below.
• Creativity & Innovation: Creativity and innovation must be actively encouraged and rewarded, requiring the flexible application of the policy.

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Policy on Hidden Subsidies

The policy on hidden subsidies is set out in detail in Part 3, Section 2.6.2 of this Code. Hidden subsidies refer to the provision of undeclared financial assistance. It is government policy that:

• the housing subsidy must be equitably applied for the purpose for which it was intended
• all other national subsidies must be transparently acknowledged and declared, and discounted in given instances to obviate duplication of funding from different national resources
• Additional sub-national subsidies must be approved by Provincial Government, transparently acknowledged and declared

Except for the housing subsidy, a range of subsidies are currently available from national government for the purposes of development. The various subsidies and the Housing Subsidy Policy in respect thereof are set out below.

1. The Department of Land Affairs offers a Settlement/Land Acquisition Grant (Settlement Grant). A person may not receive both a settlement grant and a housing subsidy and vice versa.
2. The Department of Constitutional Development offers subsidies as part of the Consolidated Municipal Infrastructure Programme (CMIP). These subsidies essentially relate to bulk and connector services, and does not affect the Housing Subsidy, which is utilised for specified, internal engineering services and top structures.
3. The Department of Water Affairs and Forestry offers subsidies as part of its RDP Water Supply & Sanitation Programme. Where these subsidies in respect of water and sanitation have been given and where the beneficiaries are otherwise eligible for housing subsidies, the water and sanitation subsidies must be discounted against the housing subsidies.
4. Eskom and the National Electricity Regulator offer subsidies as part of their respective electrification programmes. Consequently, the national “Norms and Standards” determine that electricity may not be funded out of the housing subsidy, with the exception of high mast lighting for residential purposes. High mast lighting for residential purposes may be funded out of the housing subsidy where this is feasible and practicable, on condition that such street lighting is not funded from the CMIP initiative or from funding available from other resources.

In addition, funding from other sources may also be available to a particular subsidised housing project. The various sources and the Housing Subsidy Policy in respect thereof are set out below.

1. Housing assets from the previous dispensation. Provincial and local governments may utilise housing assets created in terms of the previous housing dispensation only in accordance with the Housing Act, 1997, and the national housing programmes set out in Part 3 of this Code. For example, state financed serviced land may not be provided at a nominal cost or free of charge.
2. Additional / hidden subsidies from sources other than the national fiscus. The introduction of additional subsidies from provincial / local government financial sources is allowed on specific authority and at the discretion of Provincial Legislatures, provided that:

• Any additional subsidy must be openly declared, accounted and budgeted for so that all residents in a particular province know who and what is being subsidised, and by whom, and for what amount.
• Special measures be introduced by Provincial Governments to prevent unfairly prejudicing the residents of neighbouring local governments that may be unable to match the financial contribution(s) of more well-off neighbours (should such additional subsidies come from local government sources).
• Any increased subsidy be sustainable and replicable for residents throughout the particular province who are in similar circumstances in future financial years, and that such subsidy be accessible on open and equal terms to all qualifying within the provincial, local government or metropolitan area(s) concerned.

These measures can only be finalised following consultation and in concurrence with the Department of Constitutional Affairs, State Expenditure, and the Finance & Fiscal Commission.

In applying their discretion, Provincial Legislatures will however have to take cognisance of the fact that all initiatives will be for their account only, and that Central Government will make no financial provisions for the consequences of any such decision. National Housing Subsidy funds may not be utilised for this purpose.

Policy Intention of the Various National Housing Programmes Offering Subsidy Assistance

Each of the National Housing Programmes that offers subsidy assistance has a specific policy intention. These are set out in the table below:

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Table 2. Policy Intentions of the Various Subsidy Mechanisms

National Housing Programme	Policy intention
Housing Subsidy Scheme	To assist persons who cannot independently provide for their own housing needs.
Project-linked subsidy	To assist beneficiaries to acquire ownership of fixed residential properties for the first time, and to enable such beneficiaries to buy homes in projects approved by Provincial Housing Development Boards.
Individual subsidy	To assist beneficiaries to acquire ownership of fixed residential properties for the first time, and to enable beneficiaries to buy existing homes or homes in projects not approved by Provincial Housing Development Boards.
Consolidation subsidy	To enable beneficiaries, who have only received serviced sites under the previous dispensation, and who hold ownership rights to such sites, to provide or upgrade a top structure on such site.
Institutional subsidy	To provide subsidised accommodation through institutions, to persons who qualify for individual ownership subsidies, on the basis of secure tenure such as rental, installment sale, shareblock, etc.
Relocation Assistance	To enable defaulting borrowers of mortgage loans, who were three months in arrears with their installments on 1 August 1997 and whose loans cannot be rehabilitated, to right size to affordable housing. This forms an integral part of government’s strategy to stabilise the housing environment.
People’s Housing Process	To support people who want to build their homes themselves to access consolidation, project-linked, institutional and rural housing subsidies as well as other support measures.
Rural subsidy	To enable households who have uncontested informal land rights in respect of state land to access the housing subsidy to provide for their housing needs.
Discount Benefit Scheme	To promote home ownership in respect of housing stock that has been created in terms of the previous dispensation.
Hostels Re-Development Programme	To create humane living conditions in the public sector hostels.

Housing Subsidy Scheme

A person is eligible for a housing subsidy if:

• His or her household income is not more than R3500 per month
• He or she is a South African citizen or permanent resident
• He or she is legally competent to contract (over 21 years of age and of sound mind)
• He or she is married or co-habitating
• He or she is single and has dependents
• He or she is acquiring a home for the first time
• He or she has not received a subsidy previously

Note: in the cases of the consolidation subsidy, relocation assistance, as well as for disabled persons, a number of exceptions to the above criteria apply. These exceptions are set out in detail in Part 3 of this Code.

The Housing Subsidy Scheme is the primary assistance measure in terms of the national housing policy. From 15 March 1994, it replaced all previous government subsidy programmes, other than where commitments under previous schemes were already made and had to be concluded. Households with an income of not more than R3 500 per month, who have not owned property or received government housing assistance previously, and who satisfy a range of other criteria, can apply for the subsidy, and use it to get housing. There are six subsidy mechanisms: project-linked, individual, consolidation, institutional, relocation assistance, and rural.

• Project linked and individual ownership subsidies of between R5 500 - R16 000, are offered on a stepped scale, linked to household income, on the condition that beneficiaries acquire secure, registered tenure.
• The consolidation subsidy provides a “top-up” amount of R8 000 to households that have only received serviced sites under a previous subsidy programme, and that hold ownership rights to such sites.
• The institutional subsidy provides a R16 000 subsidy to an institution that provides housing on the basis of rental, rental with the option to buy, installment sale, or other forms of secure tenure, for each household that lives in the institution’s housing stock and who has a household income of not more than R3 500 per month.
• Relocation assistance (subsidy) is offered to borrowers who, on 31 August 1997, were at least three months in arrears, and who are now prepared to relocate to more affordable housing. Servcon Housing Solutions Ltd. mediates the awarding of the relocation subsidy as part of the strategy to stabilise the housing environment. Servcon is one of the statutory bodies established as part of the housing policy and strategy, and is discussed in Section 3.1 of this Part of the Code.

With the exception of the relocation, individual, and individual consolidation subsidies, each of these subsidies can also be applied for via the People’s Housing Process. The policy behind the People’s Housing Process is described in greater detail in Section 3.4 of this Part of the Code.

The subsidy is intended to help households access housing with secure tenure, at a cost they can afford, and of a standard that satisfies the norms and standards determined by the Minister of Housing. In principle, households may only receive the subsidy once. However, there are cases where exceptions apply. These are addressed in Part 3 of the Code.

In each case, the subsidy is intended to facilitate access to a wide range of residential property, including:

• newly constructed, bondable, single housing units
• units in newly constructed multiple unit complexes, including flats
• units in reconditioned or refurbished buildings
• existing housing of any type
• in situ upgrade of existing unserviced or minimally serviced settlements
• incremental housing schemes, where a serviced site is provided as the first stage, with the residual of subsidies being used for home building purposes

The range of housing types allowed for by the policy demonstrates the underlying principle of supporting the development of a vibrant housing market in which new development, refurbishment and upgrades, and a secondary market is stimulated.

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Applications & Funding

The individual application process for each of the subsidies varies. Generally, the developer or estate agent selling the house assists the household to apply for the subsidy. In other cases, the household can approach the Provincial Housing Development Board directly. When individual subsidies are linked to credit, applications can be submitted to accredited financial institutions. Accessing the subsidy via the People’s Housing Process (see Section 3.4 of this Part of the Code) is yet another approach. The range of options available in the applications process reiterates the intention of government to include a range of both public and private players in government’s housing process.

Amounts Available

The following table shows the subsidy amount for which households of the different income categories are eligible to apply, depending on the mechanism they choose:

Table 3. Housing Subsidy Income Categories

Income per month	% of eligible population	Subsidy for immediate ownership: Project-linked, Individual, Rural, and Relocation subsidy mechanisms	Top-up, consolidation subsidy (available only to those who have already benefited from a previous site and service state subsidy)	Subsidy for rental or installment sale: Institutional subsidy mechanism
R0 – R1500	76,18	R16 000	R8 000	R16 000
R1501- R2500	16,67	R10 000	R0	R16 000
R2501- R3500	7,15	R5 500	R0	R16 000
	100,00

Increases to the above amounts apply in two situations:

1. Cost of Land and Geophysical Conditions: The PHDB may decide to increase the normal subsidy amount reflected in the table by a reasonable amount, not exceeding 15% (or R2 400 on the full subsidy amount of R16 000), in order to compensate for abnormal development costs arising from locational, geotechnical and topographical conditions.
2. Disability Variation: in situations where the subsidy is being awarded to a household where a member of that household is disabled, a number of variations to the General Rules apply, including a variation to the subsidy amount payable.

Provincial Housing Development Boards should retain as much discretion as possible in establishing a province-specific approach for applying this variation of the subsidy amount. This would allow PHDBs to define specific areas with a specific percentage variation. However, while PHDBs do have the authority to increase the subsidy on the basis of the above two conditions, the national subsidy allocation to the province is fixed. This means that any variations would decrease the overall number of subsidies that can be made available from any given allocation of housing funds.

Cost of Land and Geophysical Conditions

The concept of a 15% increase has been introduced primarily for two reasons:-

• Location: To provide an incentive to developers to develop well-located land where people can live close to places of employment or at least close to good transport routes. This should also promote the densification of cities and large towns, thereby minimising urban sprawl.
• Geophysical Conditions: To provide compensation for difficult development conditions, including topographical and geotechnical conditions.

Where the conditions relating to excessive slopes, sandy soil, or medium dolomite are so adverse that the 15% variation is insufficient to address abnormal development costs, the MEC may, in respect of the specific area concerned, approve the additional amounts of the remaining subsidy for services as prescribed in the Norms and Standards in Respect of Permanent Residential Structures, provided that the amount available for the top structure will be reduced by such additional amounts. The reduction of the amount for the top structure implies that the minimum norm in respect of the size of the dwelling