Today was the launch of the research into government subsidised housing assets. Its been a long process – about 18 months since the original terms of reference was written – and there’s been an enormous level of detail and nuance in the findings. Our launch this morning included about seventy people, from government and the private sector. There were two main presentations – one on the research into asset performance, and the other on an Urban LandMark research initiative that considered the reasons for the backlog in title deeds, offering recommendations for a viable way forward. There’s a lot to read, so in the interests of time, here’s a summary of the headline findings and recommendations:
1.There are 1,44 million government subsidised properties on the Deeds Registry. Government subsidised property comprises 24% of South Africa’s total property market. The 1,44m subsidised properties include those delivered in terms of the various subsidy mechanisms – the majority, however, are either those delivered through the project linked subsidy scheme, or the discount benefit scheme. It is hugely significant that the delivery of state subsidised housing comprises now one quarter of all registered residential properties in South Africa.
The significance of the government subsidised property sub-market within the large SA property market has not been recognized before. It is critical that we implement measures to better monitor, analyse and understand the performance of this sub-market. This is a national issue, critical to national level policy making, as well as a private sector issue, critical to better investment decisions. Currently there are neither adequate indicators nor adequate data to set baselines and monitor improvements in performance. This must be done. FinMark Trust’s Affordable Land + Housing Data Centre (www.alhdc.org.za) offers some steps in this direction.
1,44 million houses also represent a possible supply side through the resale market for gap market buyers: households too rich for a subsidy but too poor to afford a R250k new house, might have their housing needs satisfied if they could buy a government subsidised property offered for sale in the resale market, R200k or even lower. In this way, government’s RDP housing programme is over time filling in the rungs of the property ladder.
2. By September 2010, the NDHS reported that 2,94 million houses were completed or under construction. If we assume that the actual completed delivery figure was probably about 200 000 less than this, it implies that over one million subsidy houses have NOT been registered on the deeds registry – and possibly as many as 1,3 million. Since 2004, the number of subsidised houses registered as a proportion of those reported delivered has plummeted, reaching a low of 17% in 2007. This is a critical asset quality challenge. It appears that this decline is linked to a change in the progress payment regime: in 2004, the requirement that title be transferred before payment was removed. It is also possible that from the municipality’s side, that the urgency for title is reduced in the face of the 8-yr sale restriction, which was passed in 2001. (If these houses had been registered, the 2,94m houses would comprise about 39% of the entire residential property market.)
The backlog in title deeds, is an Asset Quality issue that deserves a national-level programme, similar to the Housing Quality efforts of the National Department. A title deeds backlog eradication programme is proposed along with other interventions. Urban LandMark has done a parallel piece of research into this, outlining the specific contributors to the backlog and recommending how each of these can be addressed.
3. Subsidised houses do appear to be effective as a social and economic asset. Households interviewed in our qualitative survey all expressed satisfaction with and appreciation of their homes. Those who ran businesses from their homes told of how they wouldn’t have been able to earn this income with out their subsidy home. Very many highlighted the importance of their home as a social asset that they would bequeath to their children.
Explicit attention should be given to support the use of housing as an economic asset. This will respond to job creation imperatives, will contribute to the sustainability of human settlements by diversifying land use, and in the case of backyard rental, will also further housing delivery imperatives. Backyard rental should be included as a key strategy within the ‘each-one-settle-one’ campaign that the Minister of Human Settlements recently launched. There has already been extensive work into the development of a backyard rental support strategy .
4. Subsidised houses are valued by their residents. In the settlements we surveyed, 80% of residents had made some investment in improving their home. In some, these investments were substantial, and in some cases even doubling the value of the house. 89% of all subsidy beneficiaries have remained in their government-subsidised home.
With the majority of households investing in their homes, the quality of this investment becomes important. Municipalities can do much to support building within codes and to facilitate residential investment. The relationship between public and private investment in residential space becomes the essence of a sustainable human settlement, and municipalities should explore ways to support quality investment that adheres with basic health and safety regulations.
Individual household investment also suggests that there is a level of housing affordability among at least a proportion of the subsidy target market to make at least some contribution towards meeting their own housing needs.
5. The financial asset value of the house does not appear to be significant, and very few households have sold their homes, or used their homes to gear mortgage finance.
- Only 90 858 (6%) of the 1,44m subsidised houses on the deeds registry were sold formally and of these, 50 000 sales were financed with a mortgage.
- Sales prices were generally low, and discount benefit scheme properties perform better, with more transactions for higher values, than project-linked subsidy houses. Project linked subsidy houses appear to sell at less than what it costs to build the houses.
- About 120 000 households took out mortgage finance to improve their homes – more loans were extended to Discount Benefit Scheme properties than Project Linked Subsidy properties. 92% of RDP properties have not been used to gear mortgage finance – this is substantial collateral that could be used to stimulate growth.
- Lending has not been insignificant however: Subsidy properties have been used to secure roughly R20 billion in mortgage finance – this includes the 120 000 mortgages not tied to a sale and just under 50 000 mortgages tied to the sale of the 90 858 properties. The level of Sales in Execution appears to be in line with the national process
Not every subsidy beneficiary will want to use their home to gear finance. That said, it is expected that the percentage of households to do so would be larger than what was found. A couple constraints to the performance of the financial asset are suggested:
- Perhaps the most significant barrier to the financial asset is the political and administrative messaging that it is illegal to sell an RDP house. The research shows substantial ambiguity and fear among beneficiaries as to the acceptability of using their home as a financial asset. This must be addressed.
- The backlog in title deeds must be addressed. Houses that currently lack title deeds cannot be used as security for a loan – this means that if the house is sold informally, it is likely to be for an even lower price than the formal sale price, because it cannot be accompanied with mortgage finance. Further, households without title deeds are unable to access mortgage finance. In the current environment, as larger microloans become the norm, these households will be forced to take microloans at higher interest rates than the security of their home should provide.
- Measures to facilitate property market functioning include:
- Remove the 8-year resale restriction
- Re-introduce the progress payment milestone that a title deed must be issued
- Rationalize the title registration process so that it is easier for people to record a transaction – this will require further research
- Improve access to housing finance specifically for the resale market – this could have a very positive impact on the gap market, and could also reduce the risk obligation of the government’s R1 billion guarantee scheme, as borrowers could feasibly down-scale into resale market properties.