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. 26 MARCH - APRIL 2019