Housing Code

Part 1

Chapter 4: Conclusion - Housing in the Bigger Picture

Conclusion - Housing in the Bigger Picture 

1. Institutional Framework
2. Macro-Economic Environment
3. Demographic Framework
4. Conclusion: Opportunities 

This chapter concludes the discussion on national housing policy with a consideration of housing in the broader environment. Housing is considered in respect of the institutional framework in which it functions (given the institutions established as part of the seven key strategies) as well as the macro-economic framework (within the context of the GEAR strategy) and the social framework.

Housing cannot operate in isolation. Our housing policy and the implementation to which it gives rise, operates within an institutional, macro-economic, and broad social framework:

• The institutional framework has evolved in terms of our housing policy and its seven key strategies. 
• The macro-economic environment in South Africa is governed by the Growth, Employment and Redistribution Strategy, otherwise known as GEAR. 
• The social environment is influenced by the people involved in the housing sector: housing regulators, suppliers, financiers, and beneficiaries. Demographic trends are very important in defining the problem and our progress towards a resolution of the housing crisis. The combined efforts of the various stakeholders in the housing sector is critical to the success of the housing programme. Requiring particular attention is the role of women.

4.1 Institutional Framework

Through the seven key strategies that comprise the housing policy, the housing sector has developed into a highly integrated and complex arrangement of institutions, comprising:

• Government at its three spheres of operation, as well as the various committees and boards it has established to help it carry out its role
• Facilitative Agencies, Parastatals, and Joint Venture Arrangements
• Community Based Organisations and Non-Governmental Organisations
• Private Sector

Together, these bodies carry out the policies, programmes and other activities set out in national housing policy, as defined in this Code. The activities of each are dependent on the others and without any one of them, the sector would be lacking. The interdependence of the housing sector refers not only to the spheres of government, but also to those organisations and individuals not in government. As set out in the Housing Accord reached in Botshabelo in October 1994, and demonstrated throughout this code, each stakeholder plays an integral part in carrying out the housing policy that is built on the fundamental principle of partnerships. This extends not only to formally organised stakeholders, but also to the people involved in the housing process: the communities and individuals at whom the government’s housing effort is targeted, and on whose participation the success of the housing programme is dependent. The following diagram sets out the institutional arrangements that have evolved in the housing sector.

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4.2 Macro-Economic Environment

FACT: The World Bank has classified the housing sector as a key component of the economy. In developing countries, housing investment typically: 

• comprises 2-8% of Gross National Product (GNP)
• comprises10-30% Gross Fixed Investment
• provides a flow of services equal to another 5-10% of GNP

The low income housing sector is often perceived as being mainly an important component of the social welfare system. However, the housing sector is also an important economic sector with crucial real, fiscal and financial links to the overall economic performance of the national economy. Good housing policy is therefore dependent on an understanding of how the various components of the housing market work, and how these components can be manipulated to improve the performance of the housing sector while also serving broader economic and social development goals.

The productivity and impact of housing investment is much broader than that evident in rent or bond repayments. Housing contributes to a wide spectrum of benefits to the individual household, communities, businesses, as well as to the national economy. Unfortunately, these are not always easily quantifiable. Types of benefits that stem from housing investment include:

• better health, due to improved living conditions
• improved labour productivity as workers are less susceptible to diseases associated with poor living conditions
• community pride leading to further investment in the maintenance and upgrading of housing and related infrastructure
• indirect forward employment opportunities are generated by new homeowners who have a demand for consumer products such as household appliances and furniture, stimulating production in these sectors
• indirect backward employment opportunities are generated through the relationship between the housing sector and the building material supply industry, where the construction of housing creates a demand for products like cement, bricks, glass and wood, and thus stimulates production in these industries
• the simultaneous investment in infrastructure, such as roads, water and sewerage systems, stimulates economic growth by increasing the accessibility of job opportunities to the unemployed, creating new markets for products as communities become more accessible to suppliers of goods and services via better road networks and creating direct employment opportunities in the construction sector
• an increase in households’ privacy and improved quality of life
• the creation of stable communities, contributing towards improved safety and security

In South Africa, in addition to the abstract productivity benefits listed above, housing investment has a positive income effect, creating new opportunities for earnings by low-income groups. In some townships, backyard shacks are often built solely for rental accommodation, while extra space in formal housing units is also rented out. Rental income is then used to repay the mortgage or non-traditional loan on the house. In addition to rent, housing is also used as a location for a variety of small enterprises – from spaza shops to hair salons. The income from these enterprises constitutes a direct return on the household’s initial investment.

The housing sector is influenced by the broader economy of the country through its effects on the demand and supply of housing. Low levels of growth, low per capita income, low wages and high unemployment have a dampening effect on effective demand for housing while a balance of payments constraint can act as a brake for the capacity of the construction sector to supply housing.

The way in which the housing sector is critically linked to other economic sectors and role players can be described in three ways: 

1. Real linkages refer to linkages between the housing sector and other sectors of the economy. Housing investment has real impacts on economic indicators such as fixed investment, savings, output, employment and prices. On the other hand, changes in these indicators also have a real impact on the housing sector and its performance. 
2. Financial linkages are associated with the financing of housing and related infrastructure, through financial institutions. The inflation rate and real interest rates determine the supply of finance. High inflation and negative real interest rates decrease the amount of finance available for securing housing, thereby lowering the affordability of homeseekers. Other factors which influence the supply of finance are the level of domestic savings, and the effect of monetary and fiscal policy on the capacity of the financial sector to make finance available for housing. 
3. Fiscal linkages concern taxation and subsidisation of housing and are the most direct means in which State policy affects the performance of the housing sector. 

These linkages mean that whatever happens in housing has a profound effect on what might happen in other sectors of our economy, and vice versa. The specific linkages in relation to these three categories become relevant when considered in terms of housing sector performance in the context of GEAR. This is discussed briefly, below. 

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Growth, Employment and Redistribution (GEAR)

GEAR is the framework that governs the macro-economy in South Africa. Published by the Minister of Finance in June 1996, its focus is on strengthening economic growth until the year 2000, while broadening employment and redistributing economic opportunities. Given the importance of the housing sector in the macro-economy, and the critical contribution to reconstruction and development made by the national housing programmes, the White Paper on Housing identified five key macro-economic issues for policy attention:

1. a higher rate of economic growth and, in particular, rising and more equitably distributed real per capita income
2. an increase in the level of employment
3. greater incentives to save
4. a reduction in government dissaving
5. effective containment of the rate of inflation (especially in construction prices)

The housing policy set out in this Part of the Code sought to address these five issues effectively, even before the implementation of the GEAR strategy. Housing is therefore contributing to the achievement of the goals of GEAR in a number of ways:

Real Linkages

• Investment: The housing subsidy programme and the various housing institutions (such as the National Housing Finance Corporation) represent a significant investment by the state in housing construction. The spin-off of this is the demand for further investment in municipal infrastructure, services, social and economic amenities, and so on. In this way, investment in housing operates almost like a magnet to which other forms of investment are drawn.

The real gross fixed investment by public authorities increased at an annualised rate of about 4 per cent during the first quarter of 1997. Following a growth to about 13% in the fourth quarter of 1997, growth in real gross fixed investment by public authorities slowed down to about 5% by the third quarter of 1998. These figures reflect the progress made with infrastructure and related development in accordance with the RDP objectives in 1997 and 1998. 

• Employment Growth: Housing investment has a positive impact on employment levels. The provision of low income housing is especially labour intensive, employing among others, workers from the surplus of unskilled labour in South Africa. In addition, the housing sector has substantial multiplier effects as it uses largely locally produced materials, particularly for low-income housing.
• Balance of Payments: The housing sector also has an influence on the balance of payments through imports used directly in housing construction. Housing built for high-income earners has a higher import propensity than low-income housing. The impact of low income housing on the balance of payments is therefore lower than that of housing built for high-income earners.
• Inflation: The increased demand for building materials generated by the low-income housing programme may lead to an increase in prices, thereby having a negative effect on the inflation rate. Agreements reached with building material suppliers at the National Housing Summit and contained within the Botshabelo Accord should counteract this. Building material prices have, in fact, shown a steady rate of decline since the latter half of 1996, according to the Bureau for Economic Research Building Material Price Index.
• Gross Domestic Product: The total investment in low-income housing not only contributes to employment creation but also to economic growth. Similarly, with increased GDP per capita growth (increased affordability), housing construction can also be expected to rise significantly.

The GDP multipliers calculated at 1992 prices (excluding land preparation) are as follows: 

• R0.37 direct GDP per R1 production in the home building industry. 
• R1 indirect GDP per R1 production in the home building industry. 

Between April 1997 and December 1997 R1 907.4 million was spent by government on the Housing Subsidy Scheme thus resulting in a R705.7 million direct contribution to GDP and R1 907.4 million indirect contribution to GDP. 

• Demand for Goods and Services: Progress by the government low-income housing programme and Eskom’s electrification programme increases the demand for semi-durable consumer goods, especially furniture and appliances. The combination of housing construction and electrification furthermore has a multiplier effect on the construction industry as a great deal of construction activity consists of upgrading existing housing stock.

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Financial Linkages

• Demand for Credit: The impact of the National Housing Finance Corporation, the Rural Housing Loan Fund and the range of non-traditional lenders operating in the housing market has meant that the demand for credit has increased. 
• Interest rates: Lower interest rates and more appropriate terms of repayment will allow more families to enter the home owner market. Real interest rates are historically high in South Africa as part of an anti-inflationary monetary policy. High interest rates deter households and companies from applying for credit and thus limits the supply of money in circulation. The continuing high level of interest rates has a negative effect on housing demand as it increases the cost of housing. However, the majority of low-income households eligible for subsidised housing (90 per cent) cannot afford home loans from the formal banking sector and will therefore not be severely influenced by the high interest rates on mortgage bonds. However, the market in mortgage substitutes is growing rapidly. Lower interest rates on micro loans would make housing much more affordable. 
• Savings: By providing low-income households the opportunity to own houses, the housing programme is also encouraging savings for improved housing. Households can use their savings to contribute to the product price of the house bought with a subsidy, or to extend or alter their home.

Household savings remain constrained by the high level of household debt and debt servicing costs. The ratio of household debt to personal disposable income reached a new high of 68 per cent in the first half of 1997 and the cost of servicing household debt absorbed about 14 per cent of personal disposable income in the first half of 1997.

Fiscal linkages

Taxes and subsidies also influence the willingness of households to spend on housing. Although subsidies generally, though not always, tend to increase housing demand by their beneficiaries, their overall impact on housing demand may be either positive or negative depending on the way they are financed and the form in which they are distributed. Essentially, the State has four options open to it: budget reallocation, increasing taxes, domestic borrowing, and foreign borrowing. 

Financing fiscal transfers through an increase in taxation is politically unpopular and a government following this approach must be careful not to overtax. Given the already high level of taxation compared to other countries this would appear not to be a viable option for South Africa. However, merely by increasing the efficiency of tax collection, increased income from taxes is generated that could be made available for housing. 

Domestic borrowing to finance fiscal transfers to housing carries the danger of government crowding out private borrowing on the local capital markets. It also adds to the State debt and debt servicing obligations. Foreign borrowing to finance housing both increases State debt and places a burden on the balance of payments with respect to debt servicing. This is exacerbated by the fact that housing is not an export good and has little potential to earn foreign exchange. Given the South African Government’s commitment to decrease the budget deficit to 3 per cent of GDP by the year 2000, neither of these alternatives would appear to be suitable to finance housing. 

A reallocation of resources within the budget means that the State is able to devote more resources to housing without resorting to increased taxation or deficit financing. However, reallocation also means that the State is transferring funds to housing and away from other areas of State responsibility while keeping the total level of State spending constant. This is the method currently being employed by the government to finance housing. 

The Housing Subsidy Scheme currently in place in South Africa takes the form of a cash transfer to beneficiaries. This system holds the following benefits for the economy: 

• the subsidies can be targeted at the poorest, most needy section of the population; 
• they do not involve double subsidisation of beneficiaries; 
• they are not-open ended but are one-off transfers that do not commit the State to a potentially endless flow of subsidy spending; and 
• they can be set at viable levels, and their total effect on the fiscus can be calculated with ease and accuracy. 
• Poverty Relief: The housing programme has a positive influence on the alleviation of poverty as well as contributing to the redistribution of wealth. The home that can be accessed via the Housing Subsidy Scheme may serve as collateral for credit for home improvements or other purposes such as the development of small businesses.
• Social Security: The provision of a house provides households with privacy from the broader community, protection from the elements, as well as a range of services. These services have a positive impact on the health of households, thus potentially decreasing the infant mortality rate as well as diminishing stunted growth in children and increasing the labour productivity of economically active members of the household.

The construction of residential buildings is highly favourable to employment creation and economic growth, especially given the low import propensity and the use of unskilled labour. The contributions to economic growth and employment creation will have a positive influence on the affordability of households in general, thereby contributing to the overall success of the GEAR programme and its key objectives.

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4.3 Demographic Framework

Demographic trends are very important in defining the problem and our progress towards a resolution of the housing crisis. The broad social environment is influenced by the people involved in the housing sector: housing regulators, suppliers, financiers, and beneficiaries. The combined efforts of these various stakeholders in the housing sector are critical to the success of the housing programme. Requiring particular attention is the role of women.

Demographic Profile

The results of the 1996 census conducted by the Statistics South Africa (formerly Central Statistical Services) indicated that there are 40.5 million people, of which 18.2 million (48%) are male and 19.7 million (52%) are female. 

The 1996 Census results were used by the Bureau of Market Research (BMR 1999) as the basis for calculating the 1999 population that amounts to 43.01 million.

Urban / Rural Distribution

The census results indicate that 53,7% of the population live in urban areas. Gauteng is the most urbanised province, with 97% of the population living in urban areas. This is followed by Western Cape and Northern Cape, with 88,9% and 70,1% respectively, living in urban areas.

The Northern Province has the largest rural population of just over 89%. This is followed by North West and Eastern Cape with 65,1% and 63,4% of their respective populations living in rural areas.

On the basis of these figures, it is safe to describe Gauteng and Western Cape as having generally urban housing backlogs, while in the Northern Province and Eastern Cape, the housing backlogs would be more rural in nature. The different problems in the different provinces, therefore, demand different policy responses.

Households in South Africa

The estimated number of households in South Africa in 1997 was 9,05 million. Gauteng has the highest number of households with 22% of the total number of households in South Africa, despite the fact that KwaZulu-Natal is the most populous province in the country. This can be explained by the fact that the average household size in Gauteng is 3.6 persons – smaller than in KwaZulu-Natal where the average household size is 5 persons.

Household Income

Household income varies between provinces. Proportionally more households earn less than R500 per month in the Eastern Cape (32%) and the Free State (31%), followed by the Northern Province (26%), North West (24%) and the Northern Cape (23%). The smallest proportion of households in this lowest income category is found in Gauteng (5%) and the Western Cape (6%). 

Provinces need to adopt policy approaches distinct to the problems being experienced in their area.

A large disparity of income exists between areas of residence, type of dwelling, size of household and gender of the head of household. Table 10, below, shows average monthly household income by these categories.

Table 1. Average Monthly Household Income in Various Sub-Groups of the Population

Category	Sub-Group	Average monthly household income (R)
Area of residence	Urban	4 583
	Non-urban	1 917
Type of dwelling	Formal house	4 333
	Informal dwelling	1 250
	Traditional dwelling	1 167
Household size	One person	2 083
	Two persons	4 083
	Three persons	3 917
	Four persons	4 250
	Five persons	3 833
	Six persons	3 083
	Seven persons	2 500
	Eight or more persons	2 333
Gender of Household Head	Male	4 000
	Female	2 080

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Irrespective of race, 26% of female headed households earn less than R500 per month, compared to 13% of male-headed households. By contrast, 27% of male headed households earn over R4 000 per month, while only 11% of female-headed households earn this much.

Household Expenditure

Household income has a significant bearing on household expenditure. A Central Statistical Service survey (1997) of earnings and spending in South Africa during 1995 indicated that a large proportion of the average South African household income is spent on essential products and services like food and housing. Households spend an average of 59% of their annual expenditure on four items:

• food: 18%
• housing: 16%
• income tax: 15%
• transport: 10%

The poorest households, however, spend almost 75% of their total annual disposable income on food, power and other energy sources. This leaves them with very little left to spend on housing.

Demographic trends show us where our successes in implementing the housing policy lie, and where we may improve upon our performance. An analysis of demographic trends, however, needs to be done over a number of years. Baseline statistics gathered in the 1996 census will provide valuable information in the years to come.

The Roles of Other Parties in the Housing Sector

State resources and capacity to deal with the massive housing backlogs and the process of reconstruction and development in the housing sector are severely limited. It is recognised that South Africa cannot address this massive challenge without the mobilisation of the collective resources, capacity, knowledge and skills in the broader, non-state private sector. 

Government housing policy and strategy is essentially directed at utilising limited State resources in order to achieve maximum gearing of such efforts and resources with non-state investment and delivery. For this reason, the concept of a broad partnership between the State and non-state sectors in addressing the housing challenge in the country is central to government’s approach, and formed the basis of the Housing Accord reached in October 1994, in Botshabelo, Free State. 

Non-state sectors include:

• the suppliers of materials and services to the housing sector
• the construction sector
• the financial sector
• employers
• communities and civil society
• non-governmental organisations (NGOs)

Broadly, a critical responsibility of the non-state sector is the imposition of effective measures of self-regulation, in order to contain inflationary pressures, ensure adequate consumer protection, and contribute to the housing vision by operating within the principles of fairness and transparency.

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To the extent that lack of self-regulation impedes on a sector’s ability to contribute to the housing process in a manner expected by government, government will consider certain state interventions. While considering such interventions, government however maintains that vigorous and open competition on level playing fields by a wide range of suppliers is the most effective mechanism to secure the maximum possible stability and restraint in pricing and general conduct.

As far as each of the stakeholders in the non-State sector are concerned, government’s approach will be as follows:

• Building and Construction sector: Government housing subsidy policy, tender procedures and procurement policies will increasingly be directed towards facilitating and encouraging a bridging of the gap between the established and emergent components of this sector. It is essential that an equitable and comprehensive partnership between the established and emerging contracting sectors be established which will enable the sustained upliftment, integration and growth of the latter within the main stream construction industry. Although the growth and support of the emerging construction sector is not seen as a primary housing responsibility and therefore does not justify the allocation of housing funds, housing policies and strategies should pro-actively seek to facilitate the participation of this sector in the housing process.
• The Financial Sector: The cycle of investment withdrawal in low income communities must be broken. It is to this imperative that the strategies to stabilise the housing environment, and to mobilise credit, are targeted. Given the range of mechanisms that have been, and continue to be introduced, government expects the financial sector to participate in seeking ways to achieve increased access to appropriate finance for low income earners. In this regard, the micro-lending industry has a significant role to play.
• Employers: The housing circumstances of employees have a material influence on their health and productivity. The housing crisis facing South Africa requires the mobilisation of every effort, including those of employers in relation to their employees. It is incumbent on employers to know the housing circumstance of their employees and to provide, within their means, advisory, administrative, financial and other material assistance in order to improve them. This process and challenge should be undertaken in consultation with the affected workers and the representative trade unions.
• Community and Civil Society: South Africa’s housing inheritance can largely be attributed to top down and ideologically driven development approaches. It is held that, by making housing development people-centred, and acknowledging the very real role played by the people in building their own homes, the major disadvantages resulting from past approaches will be overcome. Through the People’s Housing Process specifically, but also through each and every other mechanism in the housing subsidy programme, meaningful and structured participation by households and communities, in as many processes of housing development as possible, is central to government’s policy. With increased involvement in the decision making process, the accountability of communities in the process of housing delivery will also increase. An environment conducive to all parties using their ingenuity in meeting their obligations must be created, if sustainable development is to be achieved.
• Non-Governmental Organisations: NGO’s have played, and are playing, a significant role in supplementing and building capacity at community level. It is believed that these organisations have a very important role to play in this respect. In particular, NGO’s should continue to provide valuable support and assistance to communities, especially those faced with the challenges of engaging in a sustainable development process for the first time.

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A Focus on the Role of Women

Men and women from various economic and social backgrounds fulfill different roles in society, and are therefore affected differently by housing laws and regulations, tribal and marriage laws and social norms. The demographic trends evident in South Africa clearly demonstrate that women are generally poorer, with less access to resources than men. Work done by the People’s Housing Partnership Trust, however, has demonstrated that women play a critical role in the housing sector as homemakers, homebuilders, and income earners. Their important role is undermined by their inequality. Consequently, it is incumbent on the State to recognise that women and children are the most affected by poor housing, and to support their efforts in overcoming their personal housing problems.

Gender equality in human settlements should be aimed at correcting inequities in the housing sector so that women possess equitable access to land and property. While housing policy itself does not discriminate against women, the legal and social framework within which housing delivery takes place needs to be examined in order to remove inequities. Realising the opportunity to enhance and support the role of women through the housing policy require focused attention on:

• equitable rights for women for access to and control of land and property
• equitable access for women to obtain job opportunities and skills enhancement through the housing delivery process
• equitable involvement of women in the design of their communities
• appropriate dissemination of housing related information
• affordable access to legal advice

These issues can all be addressed at a national, provincial and local level through the existing policy.

4.4 Conclusion: Opportunities

The housing policy as set out in this Part of the Code offers enormous opportunities for all stakeholders in the housing sector, practitioners and beneficiaries alike. It also offers opportunities for the broader South African society to continue to grow and develop as the housing crisis is overcome. The most critical features of this policy, are the principles and points of departure on which it is based. Even with the development of new policy at provincial level, and even with the implementation of housing directly at the local level, adherence to these principles and points of departure will ensure that housing in South Africa is addressed in a uniform and broadly equitable way. Of course, there are always problems in the translation of a policy to an act of implementation. Again, with a focus on the principles that guide our work, these problems will be overcome.

Government, at each of its three spheres of operation, is committed to a South Africa in which every person has access to adequate housing in a manner that supports their development as functioning members of society. The opportunity to achieve this vision rests on the policy set out in this Part of the housing Code. It is now up to all South Africans to take this policy and use it to solve the housing problems in their particular areas, as effectively as possible.

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