SA Affordable Housing March - April 2019 // Issue: 75 - Page 29

INDUSTRY MATTERS Figure 2. also vary as price is determined by several variant costs such as location, topography, municipal services required and characteristics of the house, such as a self-standing unit as opposed a medium density unit. The purple line in figure 2 indicates the potential purchase price of a home (includes FLISP subsidy and transfer fees) based on the average affordability levels of a household. The red area in figure 2 indicates the affordability gap between the average purchase price of an affordable house and household affordability. The blue area in the graph indicates surplus income in respect of purchasing an entry level home. Based on the graph in figure 2, a household earning between R3 501 and R13 701 is not able to afford an average entry level priced house. For example, a household with an income of R3 501 can only afford to purchase a home of R125 945, which is far below the price of a new build entry level home. It is only households earning upwards of R13 701 that can afford to purchase an entry level home. One can argue that households earning above the previous income threshold of R15 000 do not need to receive state support in the form of FLISP and that these funds should rather be used Figure 3. www.saaffordablehousing.co.za to increase FLISP amounts below this threshold, therefore decreasing the number of households below this level which will be able to afford an entry level home. The graphs below (figure 3) depict the increase in the cost of housing and inflation since 1994, for example, a home that cost R12 500 in 1994 would cost R67 390 in 2018, and a household that earned R3 500 in 1994, would need to earn R18 933 after considering inflation (purchase price parity). According to the above graph the cost to build an RDP home in 2018 should be R82 260, however the state pays R250 000 for each unit. This is indicative of product creep as the government provides a superior product to the basic incremental product that was provided in 1994. The sharp increase in cost severely impacts government’s ability to provide homes to the indigent and this largely accounts for the housing backlog doubling since 1994. The housing delivery statistics supports the view of government overspend on subsidised housing. During the 2005 / 2006 and 2006 / 2007 period, government delivered the greatest number of subsidies. Notably the 2005 / 2006 and 2006 / 2007 periods also coincide with government providing many incremental housing (serviced sites). This further reinforces that government is unable to keep up with demand as it provides a home which is unaffordable both from a fiscal and critical mass perspective. If, however, incremental housing was only provided to households, the majority (if not all) of the housing backlog would have been eliminated. As this is more fiscally affordable to the state and increased housing delivery would have been achieved. *To be continued in the next issue of SA Affordable Housing… MARCH - APRIL 2019 27