SA Affordable Housing March - April 2019 // Issue: 75 | Page 28
INDUSTRY MATTERS
The unaffordable ‘affordable’
housing market – Part 1
South Africa has a housing crisis. There is an estimated
housing backlog of 2.1 million units, which is almost double the
housing backlog in 1994 when it was about 1.2 million units.
By Pierre Venter
S
outh Africa’s massive housing backlog increase can be
attributed to a combination of growing population,
smaller household sizes, the migration of economically
active people from rural to urban areas and high
unemployment levels which are acerbated by low growth
economic conditions.
While there have been numerous media reports detailing
these aspects of the crisis, what is often overlooked is the
income diversity of households that require housing, which
have different levels of income and affordability. Given high
unemployment levels and extreme socio-economic
disparities, most of the demand for housing is from
households earning below R3 500 per month. There is
however also a substantial amount of people who are in the
‘missing middle’.
These are households that do not qualify for a full
subsidised (free) home from government nor can they afford
to purchase an entry level home and repay this debt through
a long-term mortgage loan. Therefore, these households
need some financial support from government and those in
this predicament are referred to as the ‘gap’ market. The
number of South African households that find themselves in
the gap market is estimated at 25% of the overall housing
backlog, an increase from 2009 when the figure was 18%.
For the missing middle government offers a capital
subsidy termed the Finance Linked Individual Subsidy
Programme (FLISP). The purpose of the subsidy is to bridge
the affordability gap in order to provide access to entry level
housing within a family’s affordability constraints.
Previously, FLISP was only available for mortgages, however
the Department of Human Settlements is in the process of
broadening the scope of FLISP to include other forms of
housing finance. This is partly due to the poor uptake of
FLISP, as the table below indicates.
The purpose of FLISP is twofold, either to reduce the total
[home] loan amount (and therefore improve affordability) or
to provide a borrower with equity (a deposit), which is
sometimes required by lenders. The FLISP subsidy is
available to households earning between R3 501 and
R22 000 per month. The subsidy ranges from R121 626 (for
households earning R3 501) to R27 960 (for households
earning R22 000). As the extent of financial support (FLISP)
to bridge the affordability gap the capital subsidy amount is
highest for the lowest income earners and reduces as
household earnings increase (the subsidy decreases
consequently in R500 income tranches).
Ironically, the cost of homes in the affordable housing
market has increased to the point where affordable housing
is unaffordable for a large portion of the ‘missing middle’
market it is supposed to cater for, as an entry level new build
home of 40m² costs from R352 500 upwards (source: Centre
for Affordable Housing).
In 2018, government attempted to address the
affordability shortfall by adjusting the FLISP subsidy, both in
terms of target market (FLISP was expanded to include
households earning up to R22 000 and was previously
R15 000), as well as increasing the quantum of the subsidy
across all salary bands. However, there is still an affordability
gap as illustrated in figure 2, which examines the ability of a
household to afford an entry level home.
The black line in figure 2 indicates the average cost of an
affordable house. Prices of an affordable house can however
Figure 1: National uptake of FLISP in SA.
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MARCH - APRIL 2019
www.saaffordablehousing.co.za