Relief for many— in South Africa, a couple of weeks ago, trade unions and government agreed to a public sector wage increase, preventing a threatened strike. One of the main disputes during the months of tense negotiations was the public servants’ housing allowance. Currently, workers receive an allowance of R900 (US$71) a month, up from R800 (US$63) in 2012. Unions asked for R1500 (US$120), but, in the end, an allowance of R1200 (US$95) a month was agreed upon.
The housing allowance may be seen to be part of a general increase in wages of public servants (after all, a larger housing allowance does free up money for other uses), but it also highlights the importance of housing as an expense for many households. According to Stats SA, housing averages 23.1% of household expenses in South Africa, though the percentage may be higher for lower-income households. And, even though household expenditure on housing is increasing at moderate rates (with actual rentals for housing increasing at 5.3% between April 2014 to April 2015, and owner’s equivalent rent 4.8% in the same period), housing inflation has consistently been higher than general consumer inflation.
What difference does an increase of R300 (US$24) more for housing a month make? Let’s say a household has only one person earning an income, and that they cannot afford to spend anything more than their housing allowance on housing each month. For this household, R900 a month allows for a mortgage worth around R90,000 (US$7,150), which would likely be enough for an RDP house on the resale market. For R1,200 a month, a mortgage worth R120,000 (US$9,500) would be accessible, probably only enough for a similar, though better, property. But with many public sector employees in the ‘gap’ market (the ‘gap’ market are those too rich to qualify for a completely subsidised house but too poor to easily afford a newly built house—in South Africa these are households earning between R3,500 (US$280) and R15,000 (US$1,200) a month), the extra R300 can make more houses available. Throughout the ‘gap’ market, an extra R300 a month should allow for an increase in mortgage size of around R25,000 (US$2,000) (according to our calculations). This could be the difference between being able to buy a house and not for many families.
Affordable housing is important not only in terms of the cost to households, but to the stability of a country—in this instance, the cost of a public sector strike would have been high, while in the rest of the world cost of living protests that concern housing have become increasingly ubiquitous. Because every household needs shelter, providing affordable housing is of the utmost importance for any country, particularly for lower-income households that struggle to access affordable housing. Improving the availability of data, making housing subsidies more effective, removing transfer duties for ‘gap’ market transactions, and increasing the supply of affordable housing all play an important role in managing the cost of housing.