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An overview of South Africa's Inclusionary Housing Policy, aiming for more racially integrated and income inclusive residential environments. This policy includes both voluntary and compulsory approaches to achieve its objectives.
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Presentation to the Port Folio Committee An overview of the current Inclusionary Housing Policy and its development progress
POLICY INTENT To achieve a more balanced outcome of built environment creation in the direction of more racially integrated and income inclusive residential environments
Scope of the Policy • A cross-cutting initiative embracing a wide scope of activity. • A general shift in imagination in terms of which Housing practitioners in both the public and private sectors should consciously be striving to avoid racial and class exclusivity in all projects that they conceive and initiate. • Aiming for a socio-economic mix in all projects.
KEY CONTEXTUAL CONSIDERATIONS • Inclusionary housing in South Africa cannot be primarily about trying to leverage scale delivery of affordable housing as a by-product of the production of houses for middle and higher income sectors of the market by big developers. • The limited scale of delivery by private developers overall in responding to what is a relatively small (in proportional terms) market for middle income and up market housing. In the midst of a property boom South Africa has averaged 40 000 private sector per annum
KEY CONTEXTUAL CONSIDERATIONS • South Africa has levels of income inequality which are among the highest in the world. • Steep “income cliffs” can be expected between rich and poor and these cliffs are likely to be much steeper in the average inclusionary housing project in South Africa than in the USA or the UK. • It is harder to achieve inclusionary outcomes and retain project viability in South Africa than elsewhere.
KEY CONTEXTUAL CONSIDERATIONS • Processes of built environment creation in South Africa are still extremely segregated in race and class terms. • Spatial polarization has very negative practical implications for lower income households but also subverts the very important national process of building a single nation.
OBJECTIVES • To make a contribution towards achieving a better balance of race and class in new residential developments. • To provide accommodation opportunities for low income and lower middle income households in areas from which they might otherwise be excluded because of the dynamics of the land market. • To boost the supply of affordable housing (both for purchase and rental).
OBJECTIVES • To mobilise private sector delivery capacity for the provision of affordable housing. • To leverage new housing opportunities off the existing stock of sites at the same time contributing to the densification of South African cities. • To make better use of existing sustainable human settlements infrastructure.
PRINCIPLES • “Win-win” arrangements wherever possible • In principle there should be no mandatory inclusionary requirement unless this is supported by reasonably proportional incentives • Flexibility is essential to accommodate project specific circumstances
PRINCIPLES • Best place for decisions on the extent of the incentives to be provided and the proportional inclusionary requirements is at the local level. • Avoid fragmentation and confusion associated with different authorities taking different approaches – stick to the same principles.
PRINCIPLES • Existing development/use rights are protected by law and need to be treated with respect. • Due process will need to be followed in the pursuit of all objectives which potentially impinge on existing development/userights.
WHO WILL BE ASSISTED ? • Must be older than 18 years of age. • Must be lawfully resident in South Africa • Must not have benefited previously from access to an inclusionary housing unit.
THE ESSENCE OF THE POLICY • Two distinct but complementary strategies are proposed: • A voluntary Pro-Active component (VPA). • A compulsory but incentive-linked regulation-based component - referred to below as the Town Planning Compliant (TPC) approach.
VOLUNTARY APPROACH Municipalities: • Identify inclusionary housing projects that they wish to actively pursue with private sector partners. • Bring local government-owned land to the process as well as other incentives. • Require the provision of a proportion of the units as affordable stock which will vary depending on the extent of the incentives provided and what a mixed income project will tolerate to make it viable.
COMPULSORY APPROACH Key national inclusionary housing parameters: • Do not apply in low income areas and in projects supported by subsidies made available in terms of the programmes outlined in the National Housing Code. • Affordable units should be similar in style to the more up-market units, be integrated into middle and upper income developments and not located in separate areas.
COMPULSORY APPROACH • Rezoning or subdivision approval is made contingent on meeting specified inclusionary requirements in return for being awarded certain development rights. • “Win-win” opportunities: • Public investment in bulk and connector infrastructure as an incentive. • Density bonuses. • Allow for multi-story units and some commercial rights but may require that 30% of the units in the project must be affordable.
COMPULSORY APPROACH Key national inclusionary housing parameters: • Compulsory prescriptions will vary between10% and 30% of housing units developed. • Will apply to all private residential development projects of 2 or more units. • Maximum proportion of affordable / inclusionary units in any single project should not exceed 60% of all units.
COMPULSORY APPROACH • The compulsory approach is currently under evaluation against the recent Appeal Court ruling regarding the unconstitutionality of Chapters V and VI of the DFA • We may have to reconsider the programme and convert it to guidelines for incentive driven outcomes through the VPA option
On-selling • In the first 5 years the owner of an inclusionary housing unit can sell the unit at original price plus building inflation (except in the case of hardship that can be proven objectively in which case the unit can be sold at market price). • Improvements can be factored in at cost plus escalation • After 5 years the unit can be sold at market price
On-selling • If any unit is sold within 5 years the new owner must be eligible for inclusionary housing purchase and will be subject to the same restrictions for 5 years after date of purchase. • On-selling of sites only will be subject to the same provisions as those that apply to the sale of an inclusionary housing unit.
DEALING WITH STEEP INCOME AND PRICE CLIFFS • In projects where the average price per unit exceeds the top of the range for affordable housing as defined by the FSC + 40% x 3 (at present R1,050 million) the top of the affordable housing range can be increased to the current cut-off for the waiving of transfer costs on purchase (currently R500 000). • Local authorities can in such instances (and at their discretion) require that up to half of the inclusionary units be below the top of the affordable housing range +40% (currently R350 000).
DEALING WITH STEEP INCOME AND PRICE CLIFFS • In instances where the average price per unit exceeds the top of the range for affordable housing + 40% x 6 (at present R2,1 million) inclusionary requirement can: • Be met off-site, but only in another inclusionary housing project (where more inclusionary housing is provided than is required). • Be met on-site in terms of the current transfer fee waiver cut-off (R500 000) . • Be met by paying a fee in lieu of inclusionary provision
FEES IN LIEU OF MEETING INCLUSIONARY REQUIREMENT ON SITE • If a developer is required to provide 20 units to meet inclusionary requirements then the fee in lieu of will be equal to 20x (the top of the FSC range + 40%). • The amount to be paid per unit by the developer as each of the first 20 units is sold is: Total Fees in-lieu-of owed – 20% (paid up-front) 20
MINIMUM PHYSICAL SPECIFICATIONS • Minimum floor area of 40m². • Internal bathroom and kitchen area. • Building standards set by regulatory authorities. • May relax the above specifications provided in the opinion of the official the aims and objectives of inclusionary housing will be advanced by such relaxation.
INCLUSIONARY HOUSING CREDIT SCHEME • Under construction
INCENTIVES • Possible introduction of Tax Credit Scheme along the lines of similar schemes in the USA? • Energetic efforts will be made to mobilize, acquire and free-up State (include land owned by SOE’s), Provincial and Local Government Land for inclusionary housing purposes in suport of the voluntary process.
INCENTIVES • Fast-tracking of development approval processes will be an incentive which can generally only be offered in deal-driven initiatives. It should used sparingly since, in principle, all developers should be able to have their development proposals processed expeditiously?
INCENTIVES • Incentives are the basis of the Town Planning Compliant component of the IHP. Particularly important are density bonuses/allowances and in certain instances use rights. • Provision of bulk and link infrastructure could be a powerful incentive if linked to inclusionary housing provision.
INCENTIVES • A wide range of government subsidies will be available to support developers in fulfilling inclusionary housing requirements. These include but are not confined to Credit Linked Individual Subsidies and Social Housing Subsidies .
LEGISLATION REQUIRED New legislation will be created to operationalise the National Inclusionary Housing Policy if the compulsory option is retained. Such legislation will: • Require municipalities, as the main implementing arm of the TPC component, to draw up and implement local IHP Plans. • Require all spheres of government to apply IHP schemes in line with National Policy and parameters (and prescribe clearly where such parameters are articulated) • Specify reporting requirements and responsibilities.
Work in Progress • A recent workshop was conducted and the comments received are being assessed • Inclusionary housing legislation • Implementation guide-lines • Discussion with Treasury re. Tax issues and Inclusionary Housing Credits • Constitutionality of the TPC is being investigated
Summary of the feedback received • The 40sqm size norm should be reconsidered as smaller units are also feasible; • A major concern is that very few municipalities have the required capacity to administer this very complex programme; • The 5 year restriction on the sale of inclusionary units was both supported and apposed
Summary of the feedback received The envisaged impact of the Policy: • The uneven application of the policy may lead to withdrawal of developers from an area and focusing on another more favourable area; • It may bring the private sector housing development market to its knees; • Market forces should determine values and it should be flexible; • The incentives must be clearly defined and published; • The financing of bulk and connector services is a major concern; and • The policy may be unaffordable to the target group.
CHALLENGES • High amount of effort with limited potential impact. • Level of sophistication required to model viable projects and implement them successfully may not be readily available – Hence, may want to pilot the roll out. • Negative impact on residential development sector – risk of withdrawal of private sector – need further consultation and “buy-in”.
Conclusion • There is considerate concern regarding the impact of the policy on the private sector development market; • The capacity of municipalities to implement the policy is a major concern; • The Appeal Court Judgment on the DFA may have implications for the obligatory provision of the policy • Further consultation is required • Ministerial support for the programme is pending
