The lack of appropriate housing stock in South Africa is a consequence of “market failure”, says Standard Bank MD for integrated residential developments (IRDev) Kevin Duncan.
“This failure is a result of the withdrawal of competent residential developers and contractors, who either moved more upmarket during the housing boom or branched out into general construction for the 2010 FIFA World Cup [or] emigrated owing to the general buoyancy of the international construction boom,” says Duncan.
He states that the withdrawal created a vacuum in the affordable-housing market, where government needed to be seen to be delivering. The banking sector was being pressured by government to lend in terms of the Financial Sector Charter (FSC), yet there was no mechanism for delivery. This is where the large banks, some to a greater or lesser degree than others, decided to become more involved in the delivery chain.
The target remains the eradication of all slums, or informal settlements, by 2014. For this to happen, some 500 000 new units a year must become available, according to the Department of Housing’s Strategic Plan 2008 to 2011.
The focus has also changed from building housing stock to the notion of integrated settlements, based on an acknowledgment that, while Reconstruction and Development Programme houses were the first step towards housing millions of South Africans who had been left without adequate shelter, the outcomes were flawed.
Recent estimates of the growth in the Standard Bank median house price have overstated the extent of the decline in South African residential property prices.
This has been the result of the National Credit Act-induced base effect that was established in the months leading up to the implementation of the Act last year.
Uncertainty regarding the possibility of more stringent credit-granting criteria led to an increase in the proportion of higher-valued houses in the underlying home loans sample from which the median house price is calculated.
Duncan says that Standard Bank took the view that, if not dealt with, the situation would result in an unstable society without a critical mass of people being able to own a home. It was then decided to no longer merely provide finance, but to do whatever was necessary to produce the housing units that were so desperately needed.
“This required some radical thinking in terms of a realignment and a total review of the bank’s credit policies, including a much deeper and increased appetite for risk,” he says.
Coupled with this, appropriate risk-mitigation interventions were developed. Standard Bank approached this challenge through the establishment of the specialised IRDev division, staffed by experienced practitioners.
Under the new mode, Standard Bank becomes the ‘development principal’, facilitating developments by partnering with developers, municipalities, provincial government or other implementing agencies, but acknowledging that no development can occur without the involvement of a developer.
He emphasises that a lack of funding is not the problem at present, with extensive research, both empirical and from discussions with industry players, indicating that the problem is one of unavailability of suitable housing stock.
Independent research for the Banking Association supports this view. With the introduction of the FSC, the banks, in general, are more willing to invest in the lower end of the housing market. They have targets to meet, which will become difficult to achieve without a significant intervention to speed up the delivery of houses.
To assist the municipalities and provinces, the bank supplements their capacity by identifying development options, packaging and assembling various development proposals and, where required, appropriate funding for bulk infrastructure is also arranged.
What the bank requires in return from its public-sector partners is to make the land available through land availability agreements. This has the benefit of reducing the holding costs significantly.