Although the government and the banks have entered into an agreement to provide R42 billion in loans to low-income earners by 2008, it is clear that the wheels of low-cost and affordable housing delivery are moving very slowly.
Since the establishment of the financial sector charter in 2003, only 19 000 houses have been built a year, seven times less than the target of 132 000 houses a year for five years.
This leaves thousands of disgruntled working and homeless people without decent accommodation and they could be forgiven for taking the government's statements on housing as nothing but hot air.
One of the missions of the charter was to increase investment in low-cost and affordable housing.
Jopie van Honschooten, the financial service charter housing co-ordinator, says the shortage of low-cost and affordable housing in South Africa is "a daunting challenge especially considering other construction challenges".
Indeed so. About 2.6 million houses are needed in South Africa for people earning between R1 500 and R7 500 a month.
The housing backlog in seven metros across South Africa is more than 40 percent. About 55 000 new houses are needed for metros a year, but the current supply a year is 6 700.
Johannesburg has a shortage of 63 000 houses; Ekurhuleni and Cape Town 51 000 each; eThekwini 47 000; Tshwane 36 000; Rustenburg 16 000; Nelson Mandela 11 000; and Pietermaritzburg has a shortage of 8 000. The provincial breakdown shows that in Gauteng there is a shortage of 191 000 affordable houses; KwaZulu-Natal 128 000; the Eastern Cape 77 000; the Western Cape 73 000; and other provinces 192 000.
According to Statistics SA, building plans that were approved in the first six months of this year were for only 18 668 houses of less than 80m2. Stats SA also revealed that the number of plans passed for houses less than 80m2 had declined 9.9 percent compared with the second-quarter last year.
However, the number of houses completed in this category dropped by 16.4 percent year on year to 10 496.
It is not clear how the banks would fast-track the delivery with the money they have committed. Though the banks have now released about R6 billion for low-cost housing so far, there are snags to the delivery of low cost housing.
Lindiwe Sisulu, the minister of housing, has instructed the director-general to work with the banks to extend the commitment from R42 billion. This will certainly create some problems.
An increased financial commitment will not mean a speedy delivery as long as nothing is done to deal with problems that cause the supply shortages.
Earlier this year, Sisulu signed a memorandum of understanding with the banks that by March 2008, the banks would provide R42 billion in loans to low-income earners. The implementation is being monitored by the banking association.
The government and the association are trying to find ways to mitigate risks that banks face as they lend into a market with little or no experience of mortgage bonds.
The government has been resisting demands from the banks that it gives them guarantees against lending risks.
Van Honschooten says the supply constraints are fuelled by "serious delays" in land proclamation, which is a legal process that developers have to go through to make sure that land is made available for residential construction.
Proclaiming land to housing stands takes between 30 to 59 months when it used to take only 12 to 18 months, says Van Honschooten.
For stands to be proclaimed for housing used to take five months, but now it takes 19 months.
"Land is rapidly becoming too expensive for the finance sector charter target market," adds Van Honschooten.
According to the Absa house price index, a stand that cost R46 000 in 2003 went up to R93 000 in June this year. Building costs that stood at R86 500 in December 2003 rose to R102 600 in June this year. A second-hand affordable house that cost R102 500 in December 2003 had reached R151 500 in June this year.
Van Honschooten adds: "There is also lack of capacity in the municipalities. We need to have the right people in the right places. And we need to hold these people accountable for what they do."
He says that land, material and unit labour costs will not drop soon and high building costs have pushed house costs beyond the reach of the target market's ability to pay.
Pierre Fourie, the chief executive of the Master Builders Association SA, agrees that there is no sign that building costs will drop soon.
"This is because when companies and developers continue to tender more and more for new projects, these prices will continue to go up," says Fourie.
In the year to May 2006, building materials prices rose in excess of the inflation rate.
The construction and building sectors are experiencing an unprecedented boom, which means that prices will continue to increase faster than inflation.
Cement prices increased 7.2 percent, timber by 12.5 percent, aggregate crushed stone by 9.5 percent and basic forms of aluminium lifted 29.6 percent.
Glass dropped 2 percent because of an increase in imports of glass into the country.
Mittal Steel South Africa, a subsidiary of the world's largest steel producer, Mittal Steel, this year raised the steel prices by 4 percent and 8 percent, generating criticism from the majority of steel users in the country.
But Monwabisi Maclean, the chief director in the department of housing, says the cost of building has affected the low-cost and affordable housing.
"The government continues to engage material suppliers to ensure that we have affordable materials for affordable homes. We are seriously concerned with the price of material for low-income housing. We will continue to work with material suppliers and producers … These negotiations are proceeding well," says Maclean.
Van Honschooten says there is also no commitment from other stakeholders to the financial services charter. He particularly points a finger at the property developers and the construction sectors.
He says developers are leaving housing and moving to the construction of hotels and stadiums in anticipation of the benefits from the boom that will come with the 2010 soccer World Cup.
"These guys are leaving because of a slow process that takes place from tendering to the stage where they have to get their monies," says van Honschooten.
The financial services sector commitment looked at servicing households that did not have enough money and could not borrow from the financial services companies.
The plan has been to look at the underserved market, meaning households whose income ranges from between R1 500 and R7 500 a month.
In addition to the money that has been committed by the financial services sector for affordable housing, the government's expenditure has doubled from R4.2 billion in 2003 to R9.5 billion in the 2008/09 financial year. - Business Day - News Worth Knowing
Since the establishment of the financial sector charter in 2003, only 19 000 houses have been built a year, seven times less than the target of 132 000 houses a year for five years.
This leaves thousands of disgruntled working and homeless people without decent accommodation and they could be forgiven for taking the government's statements on housing as nothing but hot air.
One of the missions of the charter was to increase investment in low-cost and affordable housing.
Jopie van Honschooten, the financial service charter housing co-ordinator, says the shortage of low-cost and affordable housing in South Africa is "a daunting challenge especially considering other construction challenges".
Indeed so. About 2.6 million houses are needed in South Africa for people earning between R1 500 and R7 500 a month.
The housing backlog in seven metros across South Africa is more than 40 percent. About 55 000 new houses are needed for metros a year, but the current supply a year is 6 700.
Johannesburg has a shortage of 63 000 houses; Ekurhuleni and Cape Town 51 000 each; eThekwini 47 000; Tshwane 36 000; Rustenburg 16 000; Nelson Mandela 11 000; and Pietermaritzburg has a shortage of 8 000. The provincial breakdown shows that in Gauteng there is a shortage of 191 000 affordable houses; KwaZulu-Natal 128 000; the Eastern Cape 77 000; the Western Cape 73 000; and other provinces 192 000.
According to Statistics SA, building plans that were approved in the first six months of this year were for only 18 668 houses of less than 80m2. Stats SA also revealed that the number of plans passed for houses less than 80m2 had declined 9.9 percent compared with the second-quarter last year.
However, the number of houses completed in this category dropped by 16.4 percent year on year to 10 496.
It is not clear how the banks would fast-track the delivery with the money they have committed. Though the banks have now released about R6 billion for low-cost housing so far, there are snags to the delivery of low cost housing.
Lindiwe Sisulu, the minister of housing, has instructed the director-general to work with the banks to extend the commitment from R42 billion. This will certainly create some problems.
An increased financial commitment will not mean a speedy delivery as long as nothing is done to deal with problems that cause the supply shortages.
Earlier this year, Sisulu signed a memorandum of understanding with the banks that by March 2008, the banks would provide R42 billion in loans to low-income earners. The implementation is being monitored by the banking association.
The government and the association are trying to find ways to mitigate risks that banks face as they lend into a market with little or no experience of mortgage bonds.
The government has been resisting demands from the banks that it gives them guarantees against lending risks.
Van Honschooten says the supply constraints are fuelled by "serious delays" in land proclamation, which is a legal process that developers have to go through to make sure that land is made available for residential construction.
Proclaiming land to housing stands takes between 30 to 59 months when it used to take only 12 to 18 months, says Van Honschooten.
For stands to be proclaimed for housing used to take five months, but now it takes 19 months.
"Land is rapidly becoming too expensive for the finance sector charter target market," adds Van Honschooten.
According to the Absa house price index, a stand that cost R46 000 in 2003 went up to R93 000 in June this year. Building costs that stood at R86 500 in December 2003 rose to R102 600 in June this year. A second-hand affordable house that cost R102 500 in December 2003 had reached R151 500 in June this year.
Van Honschooten adds: "There is also lack of capacity in the municipalities. We need to have the right people in the right places. And we need to hold these people accountable for what they do."
He says that land, material and unit labour costs will not drop soon and high building costs have pushed house costs beyond the reach of the target market's ability to pay.
Pierre Fourie, the chief executive of the Master Builders Association SA, agrees that there is no sign that building costs will drop soon.
"This is because when companies and developers continue to tender more and more for new projects, these prices will continue to go up," says Fourie.
In the year to May 2006, building materials prices rose in excess of the inflation rate.
The construction and building sectors are experiencing an unprecedented boom, which means that prices will continue to increase faster than inflation.
Cement prices increased 7.2 percent, timber by 12.5 percent, aggregate crushed stone by 9.5 percent and basic forms of aluminium lifted 29.6 percent.
Glass dropped 2 percent because of an increase in imports of glass into the country.
Mittal Steel South Africa, a subsidiary of the world's largest steel producer, Mittal Steel, this year raised the steel prices by 4 percent and 8 percent, generating criticism from the majority of steel users in the country.
But Monwabisi Maclean, the chief director in the department of housing, says the cost of building has affected the low-cost and affordable housing.
"The government continues to engage material suppliers to ensure that we have affordable materials for affordable homes. We are seriously concerned with the price of material for low-income housing. We will continue to work with material suppliers and producers … These negotiations are proceeding well," says Maclean.
Van Honschooten says there is also no commitment from other stakeholders to the financial services charter. He particularly points a finger at the property developers and the construction sectors.
He says developers are leaving housing and moving to the construction of hotels and stadiums in anticipation of the benefits from the boom that will come with the 2010 soccer World Cup.
"These guys are leaving because of a slow process that takes place from tendering to the stage where they have to get their monies," says van Honschooten.
The financial services sector commitment looked at servicing households that did not have enough money and could not borrow from the financial services companies.
The plan has been to look at the underserved market, meaning households whose income ranges from between R1 500 and R7 500 a month.
In addition to the money that has been committed by the financial services sector for affordable housing, the government's expenditure has doubled from R4.2 billion in 2003 to R9.5 billion in the 2008/09 financial year. - Business Day - News Worth Knowing
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