Listening to private developers of affordable housing in South Africa
What are the experiences and challenges of private affordable housing developers in working with local governments, and what can be done to improve collaboration?
Introduction
In the context of a tight national fiscus and proposed amendments to the municipal public-private partnership framework, the need to leverage the contribution and energies of the private sector in the delivery of sustainable human settlements is increasingly emphasised in the sector. South Africa faces a substantial backlog in adequate housing which will require a new approach to housing delivery than that which we have pursued in the past. As the draft White Paper for Human Settlements unpacks the directional changes required in the sectoral approach, public-private sector engagement is identified as a key component of the way forward. There are many instances of successful collaboration on land release projects for human settlements at local level, however challenges remain, related to bureaucratic inefficiencies, funding constraints, land availability, infrastructure provision, and planning application processes—amongst other issues.
CAHF, SALGA and the Cities Support Programme, amongst others, are working to foster direct dialogue between local government and private developers in the property development sector, including but not limited to affordable housing, on the means to facilitate and fast-track the delivery of integrated human settlements. Most developers are more than willing to assist where they can and engage local government to address the bottlenecks and gaps, while others have instead devised methods to proceed on their own with minimal local government engagement. At the same time, some private housing developers express concern surrounding local government’s willingness to meet the private sector halfway, their capacity to carry out their mandate, and their implementation of policy and legislation. While some private sector players operate informally with little or no engagement with the state, private sector, in the main, cannot go it alone and the state too cannot deliver housing by itself – at least at the scale required to meet the demand.
To this end, CAHF spoke to a number of private sector players, including affordable housing developers, housing practitioners, and planners, with the intention of listening to their views on the challenges in affordable housing delivery and their experiences working with local government. This is part of a larger effort by SALGA, the Cities Support Programme, and other, to better engage with the private sector in the delivery of integrated and sustainable human settlements. By their nature, these interviews told one side of the story, but they are valuable as the first step in a critical dialogue aimed at improved collaboration. A total of 15 private developers, planners and practitioners were included—some interviewees preferred to remain anonymous while others were comfortable with their views being shared.
The conversations raised a number of key themes, which we unpack below. Those include: land acquisition and cost, land development applications, infrastructure and service delivery, policy and legislation, and community participation. It is hoped that listening to these views and experiences are part of a productive dialogue that increases alignment and impact.
LAND ACQUISITION AND COST
Availability of land
All 15 developers and planners interviewed highlighted land availability as the primary issue they are faced with working in major cities. Within densely built-up urban areas such as Johannesburg, Pretoria and Cape Town, well-located land for residential development is very scarce. In instances where pockets of well-located land are indeed available in the major cities, they are often not ideal for residential development in terms of either size and/or the shape of the plot. This particularly puts a strain on greenfield developments within the well-located and central areas of the major cities, especially the metros. As a consequence, some developers are opting for brownfield developments and multiple smaller new developments in different but good locations as a result.
Other developers in the large cities have resorted to building further out in the city where land is available – this however adds to the sprawl of the city. An interviewee from Central Developments cited their development in Centurion, The Atlanta @ Amberfield City, as an example. She indicated that it would be ideal for them if built within inner Johannesburg and inner Pretoria but there is just not enough space for their typology of developments. Joel Bauer, CEO of Citra Developments, described how they develop wherever opportunities arise within the Western Cape, and are somewhat driven by land availability and cost.
Within smaller towns, land availability is not as cumbersome an issue as it is in the larger towns. In the main, large tracts of land are available relatively close to places of opportunity and amenities because the smaller towns are not built as densely. Developers operating in these smaller municipalities can identify well-located land for new developments. It is also critical to note that in many of the smaller municipalities, self-build and smaller developments are the leading means through which households attain their properties (Landman and Napier, 2009).
Cost of land
Within the larger municipalities, when good and well-located land is available, it is often exorbitantly priced. A prime example is Cape Town, where land prices surpass other metros. As one moves further out from the city, the cost of land becomes more affordable to the developers. Here it is important to note that this was the issue that pushed government-subsidised housing developments to the outskirts of cities in the past, prompting concerns that government housing delivery was entrenching apartheid-era spatial patterns. Yet this issue, taken up in the Breaking New Ground policy, remains a problem for private and public sector alike.
Larger developers have the financial capacity to purchase prime land at high costs. However the cost is either passed on to the customers in the form of expensive housing units or the developer erects a dense development (usually sectional title), and the additional cost of the land is split among the many residents residing on the same plot of land. Given the Western Cape’s land prices, Citra’s 2 bed (52 sqm) freehold house on a 140 sqm plot costs R900 000 while a 1 bed 38 sqm flat would cost R525 000. However, Joel makes the point that delivering a unit for under R600 000 is difficult without innovation and government intervention.
LAND DEVELOPMENT APPLICATIONS
Bureaucracies of development approvals
Another common issue discussed by all the participants is the difficulty faced in obtaining the requisite permits and building approvals in a timely fashion, if obtained at all. The development applications required by the regulatory framework—such as rezoning, township establishments and building permits—can prove to be a cumbersome hurdle for developers because of the complexities of the application processes and the time it takes to receive said approvals. This is true in South Africa as in much of the world.
Some of the interviewees delved deeper into the issue of delayed applications. In their experience and with local insight from their respective municipalities, the first issue that appears to cut across many of the municipalities are the silos among the different departments. For most applications, different departments must make assessments and pass their judgement. Very often, the process gets stuck in one or more departments as it seems each department undertakes its own independent appraisal of the application, thus significantly stretching the turnaround time for feedback. Some municipalities are better able to surmount this issue than others; DevPlan’s Elouise Naude speaks highly of the City of Johannesburg’s legal department as being efficient.
For some of the municipalities, the synergy and policy alignment between departments is lacking, such that feedback provided to developers may be contradictory. It is important to note that a major frustration among developers and planners alike is that across the different departments of local government and the many articles that ought to be satisfied, if one requirement is not met, it vetoes the entire application.
Another critical issue is that, in some cases, if there is a requirement not met at the outset of the application document, the application is immediately denied without the reviewer looking at the rest of the application document to provide comprehensive feedback. Joel realised this was the case when Citra fixed a few inconsistencies cited at the beginning of their application when they first received feedback. They resubmitted the amended application only to receive more feedback on details that were further down the application document but had not been highlighted in the prior round of feedback. This results in multiple back-and-forth engagements between the developer and city officials coupled with lengthy waiting periods between each piece of feedback being provided.
According to Deon van Zyl, Chair of the Western Cape Property Development Forum (WCPDF), the preparation phase typically takes (on average) 80% of the total project time (URERU and WCPDF, 2017). The Urban Real Estate Research Unit at the University of Cape Town and WCPDF have jointly produced a Property Development Process Model for Cape Town that investigates the exceptionally long development timeframes (and resultant costs) for all stakeholders in the property development industry. Deon noted that, “The private sector is more efficient and their willingness to deliver projects is quite strong. However, the counter performance from government is still missing.” This has proven to be a major inconvenience and frustration for many developers because in private sector developments “government has very little skin in the game, but they influence the time spent on the development.”
Developers appreciate shovel-ready projects, but with continued delays, some developers are tempted to build informally. The concern is that this leads to buildings erected without proper approvals and similar ‘invisible’ units (Landman and Napier, 2009; May, 2024). In June 2024, as an example, the City of Cape Town levied a R1 million fine for an apartment building in Belleville that did not have the required zoning and planning approvals.
Cumbersome approval processes for housing developments are not a problem that is unique to South Africa, but it is valuable to see that some practical adaptations to the internal processes and procedures—in order to combat silos especially—would likely reap important benefits for private developers without necessarily compromising compliance.
INFRASTRUCTURE AND SERVICE DELIVERY
Another barrier that affects developers across the board, not just in South Africa, but globally, is investment in infrastructure. In South Africa, bulk and last mile infrastructure is the responsibility of local government per the Housing Act that mandates municipalities to ensure that residents within their jurisdiction have adequate housing and related infrastructure (Housing Act, 1997). However, government’s underinvestment in infrastructure seems to be a concern for most developers in South Africa. For new developments, especially those on the fringes of the cities and towns, quite often infrastructure is not provided—however this would be consistent with planning objectives around densification and the avoidance of urban sprawl. Some of the larger developers who have the financial capacity to do so will provide their own infrastructure, but the additional cost is typically passed on to the end user when purchasing the unit. One interviewee cited the state not “pulling their weight” with infrastructure and services as one of their biggest challenges faced in the sector.
The effect of local government not providing infrastructure is not only felt financially, but in instances where the development takes place with inadequate water, sanitation, electric and transportation infrastructure, the end user is left with insufficient basic services thus impacting their quality of life.
Again, the ongoing theme of coordination between government departments and spheres persists. The lack of coordination can lead to delays and inefficiencies in connecting new developments to essential services such as electricity and sewage systems. Uncoordinated service delivery can significantly extend project timelines and lead to additional costs for the developers (and the municipality). Joel from Citra estimated that they spend approximately R300 000 per unit on government-related costs.
Apart from the installation of infrastructure, service delivery was another issue identified. Some of the developers, especially those with operations in small municipalities, sympathised with local government, and attributed the service delivery issues to capacity constraints on the side of local government, particularly the lack of financial resources and technical expertise. Many municipalities struggle with cost recovery which significantly hampers a municipality’s financial capacity to provide services and roll out new infrastructure. Poor tariffing that does not reflect the true cost of services and illegal electricity connections were also mentioned as issues undercutting effective delivery. In addition, some respondents spoke of difficulties or delays obtaining occupancy certificates, which then creates project delays, and perhaps more critically, it is a frustration for buyers too who are unable to move in and occupy the units.
POLICY AND LEGISLATION
Countless policies and legislation to be adhered to
Given the myriad of planning laws and regulations from different spheres of government, private developers struggle to stay on top of all the steps and processes to meet local and provincial government requirements before proceeding to build. A lack of clarity on policy and processes of the state can contribute to this challenge (Huchzemeyer, 2001).
One urban planner from Lerwa Prop Consulting in Gauteng and Mafikeng in the Northwest Province cited the Spatial Planning and Land Use Management Act (SPLUMA) and its related provincial legislation, the National Housing Act, the Constitution, the National Environmental Management Act (NEMA) and municipal bylaws (among a number of others) as core legislation developers in the business of housing provision must comply with. In addition, developers must consider relevant policies and guidelines, such as the National Development Plan (NDP), municipal Integrated Development Plans (IDP) and Spatial Development Frameworks (SDF). Municipalities also have their own policies such as Johannesburg’s Inclusionary Housing Policy that pushes developers to reserve a portion of their housing developments earmarked for affordable housing. Developers and planners alike usually have a difficult time ensuring that their developments comply with all policies and legislation from all three spheres of government.
Policy uncertainty
Some of the developers gave off a note of nervousness around policy and legislation. The nervousness seemingly stems from the uncertainty that surrounds policy changes and changes in government developmental mandates. One urban planner spoke of his uncertainty around government mandates and policy changes as a result of politics and local elections. He told a story of how he was a ‘firm believer’ of the Corridors of Freedom in Johannesburg which had, through the Rea Vaya bus service, ‘connected the city quite well’. This was a project in Johannesburg aimed at connecting people from across the city, even the fringes, to places of opportunity and amenities by way of an efficient and affordable bus rapid transit system and intensification of land uses through transit-oriented-development along the routes. The Corridors of Freedom was conceived by an ANC-led local government and championed by the Parks Tau during his tenure as Mayor of Johannesburg. ‘The project showed great promise’ during its initial roll-out in 2013 and got many developers and planners in the city very excited. “We even started making long term plans around the BRT and TOD,” he said. To the dismay of urban practitioners who were looking forward to the continued development of the Corridors of Freedom, the project was discontinued due to a change in local government administration.
COMMUNITY ENGAGEMENT
In South Africa, as in other countries, municipalities and built environment practitioners are paying increasing attention to the role of community participation and civil society in housing delivery. Providing the mandate and framework for community participation, the Municipal Systems Act (2000) describes local government as a partnership between municipalities and the local community. Several other pieces of legislation and policy mandate and support public participation and active citizenry, including SPLUMA. As per the legislative and regulatory framework, developers and planners alike must engage the local community during the conceptual phases of their developments. However, community engagements have proven to be a cumbersome challenge for some developers as, according to them, it is difficult to appease the whole community of interested and affected parties around a proposed development. Consensus-building sometimes delays a development and, in some cases, failure to reach consensus has completely halted projects.
While community engagement may be perceived as a burden by some developers, there also seems to be a second camp that appreciates the need for community participation. This camp acknowledges that for their developments to be accepted by the communities in which they will be erected, the communities themselves ought to be involved in the planning phase. Beyond merely placating the public, they would rather work with the communities and ensure genuine consultation.
One of the developers emphasised the importance of involving the local community—including residents and local businesses—when planning a development, especially a large-scale project. She referred back to a previous project she had been involved in in Johannesburg that was held up because the feeling from the residents in the area was that the project would not benefit the community through job creation, supporting small businesses and general community upliftment. Similarly, Citra, who builds ecofriendly homes in the Western Cape using non-traditional methods, highlighted the importance of involving the community in the planning phase as part of their research and development. This serves to encourage acceptance of the building methods and to ascertain buy-in among people of the area and potential buyers.
MARKET RISK, DEMAND AND OFFTAKE
Developers are seeking some sort of guarantee that what they build, they can sell. In addition to community acceptance, developers need surety that their projects will sell and the best way to do this is through an offtake arrangement put in place prior to construction or presales. This gives the developer certainty that all or a significant proportion of the development will be sold off upon completion, and at times, some sales are made during construction. Without offtake arrangements, the development could be exposed to substantial market risks which could potentially affect the sales and cashflows of the project.
The failure to achieve the desired sales is not uncommon. Comprehensive market studies, research and extensive marketing and communication work ought to be undertaken before and during construction to bolster sales upon completion. This is especially true for those instances where there is no offtake arrangement as a safety net. Yet, at times, market forces beyond the control of the developer may affect the project. For example, a general economic downturn can negatively impact buyers’ ability to purchase homes.
In addition, developers emphasised the need to clearly and accurately understand demand for housing—typology and price—as a fundamental ingredient in project planning. There seems to be a consensus among the developers providing medium to high-end housing that their market is not in the smaller municipalities, but rather in the larger municipalities and the metros. Some of them have done a few projects in the smaller municipalities and beachfront towns but these developments were at a smaller scale than their primary projects in the metros. They attribute this to the greater demand for housing in general in the larger municipalities, and secondly a great demand for high-end properties in the same large municipalities. Generally, the developers we spoke to felt that affordability was higher in the larger municipalities. This has left many of the small municipalities crippled with weak local economic development and outward migration.
AFFORDABLE HOUSING WILL
Defining affordable
Definitions of the ‘gap market’ and affordable housing vary in the sector. The Banking Association South Africa (BASA) has set the upper household income limit at R32 000/month for 2024, which allows a household to qualify for a bond of approximately R835 000 at current interest rates.* Government’s First Home Finance (FHF) programme, which provides subsidies to the ‘gap’ market, has an upper eligibility threshold of R22 000/month, which would enable a household to qualify for a bond of approximately R600 000. For some of the developers we spoke to, their understanding of affordable housing was a unit price of R1 000 000 and less while others could define it as a low as R700 000. However, from their perspective, the figures they provided are floor figures; they say cannot deliver at prices below their given figures without any government intervention.
The will to undertake affordable housing
Developers expressed a willingness to do affordable housing but the margins are so narrow that they deter developers from affordable housing. A general belief among the developers, especially those that are not already reaching downmarket, is that achieving affordable housing ought to be a partnership between themselves and the state. The general view was that, in order to reach down market, the processes to get developments off the ground and completed ought to be streamlined, and the costs of land and construction must be significantly reduced. To make this possible, government must play a significant role through land release, servicing of land, and fast-tracked land development applications and building approvals.
While this appears to be a widely-accepted idea among most sector players, it is not as widely implemented. The feedback coming from developers that have been frustrated by government’s progress, is that the political will to make it happen is missing. These developers all had the same reasoning, in that the political optics of fully-funded government projects to deliver housing and handing homes over to the public are better than the optics of government investing time and funds to enable the private sector to get it done. The direct impact of government-delivered projects is more apparent than the behind-the-scenes government interventions which create a better enabling environment for the private sector. While this may be a more cynical view of municipal intentions, the reality is that local politics are the inevitable context for property development.
RECOMMENDATIONS AND IDEAS
Having discussed the challenges faced working in the different municipalities, our interviewees were asked to share what they believed would make their work significantly easier, and what they would do differently had they been working for the local municipalities or provincial government.
At a high level, most of the developers interviewed were quite critical of the state’s primary model of subsidised houses—the single house on a single plot—and its legacy. They encouraged the development of higher-density housing developments in areas with good infrastructure to optimise land use and create more affordable housing units closer to economic opportunities and amenities. Densification, particularly in the inner city, saves costs, cuts on land coverage, and maximises the use of infrastructure.
Without exception, respondents identified the need for the streamlining of land development applications to improve the turn-around-times and efficiency of the decision-making process within municipalities. This could be done by implementing online application systems, which would make it easier to establish clear timelines for approvals, eliminate the silos between different departments, allow the applicant to track their application and ultimately reduce delays.
In order to keep each party in the know and foster trust and collaboration, respondents also emphasised the need for regular communication between developers and local government officials, along with clear explanations for decisions and timelines.
To help eliminate the silos that exist within government, Deon van Zyl, along with several other respondents, highlighted the need for an integrated approval department within local government to review property development applications. Moreover, he added that the integration ought to be among the spheres as well, given that local government’s powers and functions are limited.
In metros, the Urban Settlements Development Grant (USDG) facilitates development by enabling municipalities to bring essential services such as water and electricity to the edges of developments, at which point a Requests for Proposals (RFPs) can be issued for private developers to erect the top structures and internal services. The Integrated Urban Development Grant (IUDG) was intended to give financially stable and administratively capable intermediate municipalities the funds to also provide the infrastructure for affordable housing. However, many of the smaller municipalities have not fully grasped the potential of the IUDG and instead approach it as a top-up or replacement to the Municipal Infrastructure Grant (MIG). Johan Rademeyer, an experienced housing practitioner in the Western Cape, suggested that municipalities that qualify for the IUDG should change their financial policy to dedicate a fraction of their IUDG to promote urban development, similar to how metros use the USDG. This approach can unlock new economic opportunities in these areas.
Not surprisingly, strong views were expressed in opposition to Development Charges (DCs) in the context of affordable housing projects. It was argued that the application of DCs to affordable housing projects essentially penalises the very people who need affordable housing the most, because the additional cost is always passed onto them. In the case of affordable housing projects, DCs should be waived, some respondents felt.
Local authorities have large areas of vacant, well-located land that could be developed, yet these areas remain unused because councils are hesitant to offer this land for free in public-private partnerships (PPPs) with developers. Johan Rademeyer expressed the opinion that this is the first step to unlock the economic potential of these vacant properties; “Remember, you can’t expect a return on investment if you don’t invest in the first place.” The view is that, should public-private partnerships (PPPs) for affordable housing be more widely accepted and pursued (whereby government provides the land and waives the DCs), the quality and size of houses could significantly improve. He estimates that at current construction costs, the savings from free land and waived DCs could be between R160 000 to R180 000 per unit, which could then translate to 25 to 30 square meters of additional living space per house. At the current tax rates, with potential yearly increases as well, municipalities would recover their land investment and waived DCs within a 5-7 year period. This would happen through property taxes and the sale of services to these new developments.
Finally, to improve the affordability of living in government-subsidised homes for households, municipalities can also consider phasing in property rates on these new homes over three years, as allowed by the Property Rates Act (2004). Another option is for the municipality to designate these developments as Special Economic Zones (SEZs) to attract private investment. By offering tax breaks to private developers and companies involved in the construction of affordable housing, more funding could be attracted.
While the set of interviews undertaken by CAHF is limited in scope and does not represent all developers, it does credibly point to many of the key issues which are the main concerns of practitioners in the affordable housing space who work with local government on a daily basis to implement projects on the ground. These ideas are thus a useful starting point for further dialogue between private affordable housing developers–big and small–and municipalities, in order to improve collaboration and ultimately increase affordable housing supply.
* Assuming 30% premium to income ratio, 10% deposit, 20-year bond, and prime interest rate 11.75%.
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