Affordable Housing Institute : US

From South Africa, AHI’s Kecia Rust offers a pithy post loaded with facts that shows, with the clarity of inarguable statistics and incisive analysis, that South Africa’s economic and policy success has not solved its affordable housing problem:

 

Much has been made in the media of dramatic increases in the prices of houses countrywide. Fuelled by improved consumer sentiment on the back of 35-year low mortgage interest rates and sustained building cost inflation, the rapid increase in house prices has been described by some as the ‘normalising’ of the SA property market against its international comparators.  But while the media celebrates SA’s progress, the majority of South Africans have become increasingly disadvantaged.

 

 

Is this grounds for gloom?

 

With the demise of apartheid, and the cessation of economic ostracism, South Africa is reaping the huge macroeconomic benefits of declining real interest rates.  That’s great for the nation, great for national economic growth — and great for property owners.  So the gap between the owns and the own-nots widens, as does the affordable housing cost-value gap.  Kecia again:

 

The consequences of this are vast.  Families living in RDP houses [Government built — Ed.] are unlikely to ever climb the housing ladder into better housing because they won’t be able to afford to make the jump. 

 

Typical two-room RDP house, 30-40 square meters (330-440 square feet).

 

For instance, in Johannesburg’s Cosmo City, where RDP houses sit alongside bonded [Titled and privately financed with a mortgage. — Ed.] houses, the cheapest house you can buy with a bond is R210,000 [About $35,000 — Ed.]. 

 

Even if a family in an RDP house could sell their house for R35,000, they would still need a monthly income of at least R7,000 to pay the R1,747 [monthly] installment on their R175,000 bond (over 20 years at current interest rates of 10.5%).  But to be eligible for a housing subsidy, however, they will have had to earn less than R3,500 per month.  For the 75% of South African households that earn less than R3,500 per month, the next rung of the housing ladder is too far away.

 

No way to start climbing

 

The problem is that South Africa’s housing finance ecosystem is insufficiently diverse: South Africa is now discovering the limits of single-tenure (homeownership), single-resource-type (hard debt) housing policy.

 

Indeed, as the Housing Minister herself conceded, attention needs to be given to the whole housing market.  This means broadening the focus beyond subsidized housing [South Africa’s term for one-off cash grant — Ed.], and beyond new construction. 

 

Single resource type.  Hard debt alone will not a widening affordability gap.   Hard debt is a lever, but its seesaw works both ways: as interest rates fall (good for the economy!), home prices rise, without regard to changes in earning power.  Moreover, as the capital markets become more efficient, government credit enhancement becomes a blunted tool (since the value of compressing spread reduces).    The government factory must produce more than just laws, it must produce money: subsidy money, in the forms of soft debt, soft equity, or the fifth kind of money, income subsidy.

 

Scientists at AHI have determined that money is good for housing affordability.

 

Single tenure emphasized.  As far as I know (and as mentioned in Bob Bruegmann’s book), every people everywhere hungers for ownership of a single-family dwelling.  That’s wonderful — homeownership improves household behavior — but it’s impossible without government subsidy.  Very low income people can never afford market housing — so as the economy strengthens, affordable housing costs money, real money, because the affordability cost-value gap widens.  As I wrote a while back:

 

For reasons I have previously documented, sustainable affordable housing is not a creature of the pure market: slums are economically rational and an inevitable output of markets: not a market failure but a societal failure.

 

Like every African country, South Africa has informal settlements and slums; unlike most African countries, South Africa is determined to do something about it.  But the country has yet to grasp the economic nettle that this will cost substantial money. 

 

Economic prosperity means that affordability is a Red Queen’s Race.  The healthier your society gets, the more funding you must provide just to keep the affordability gap from widening.  Not only that, housing program design is hard; there are dozens of ways to waste the government money.

 

“It was rather difficult to get anything in the shape of a turkey.”

 

But there is no choice: economically, politically, or morally:

 

The problem of the missing middle is about more than just housing.  It is about the equitable distribution of South Africa’s economic success since its transition to democracy and the broad based economic empowerment of those who helped bring us to where we are.

 

I’ve been to South Africa several times, and to me it always seems among the world’s happiest countries, with a bright future there for the taking, if its leaders can be wise.  Part of that wisdom is, and must be, continuing to invest in housing supply, and housing affordability, across the entire population spectrum. 

 

Housing affordability is not a patch, it’s an ongoing commitment.  Paraphrasing Winston Churchill, at a different momentous hinge in history, for South Africa’s housing challenge:

 

Now this is not the end.  It is not even the beginning of the end.  But it is, perhaps, the end of the beginning.

 

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