SA Affordable Housing May / June 2018 // Issue: 70 | Page 38

AFFORDABLE HOUSING MATTERS
Innovation – can it fix the GAP?
The affordable housing market, also known as the ‘gap market’,
represents the underserviced housing market where prospective
homeowners do not qualify for free subsidy houses, who also struggle
to access mortgages from commercial banks.
By Andrew Chimphondah, CEO of Housing Investment Partners | Photos by HiP Housing
OVERVIEW OF THE AFFORDABLE HOUSING
MARKET IN SA
The inability for South Africans to access finance for home
ownership is largely due to bad credit risk and a lack of
affordability.
As per the 2010 / 2011 Income and Expenditure Survey,
the GAP market makes up 46% of the household
population which amounts to 6.1 million households (with
a monthly income of between R3 500 and R30 000 a
month). Prospective home owners in this market can
ordinarily afford properties worth between R300 000 and
R600 000. The housing finance products servicing this
market include mortgage bonds, pension-backed housing
loans, housing micro-finance loans and building loans.
From the housing stock supply side, the primary stock
National Credit
Regulator Credit
Bureau Monitor:
December 2017.
market growth is lower when juxtaposed with the demand.
This is because developers do not produce enough quality
stock of affordable houses to fully address the housing
backlog. The property market in South Africa faces many
challenges from both the supply and demand sides.
Challenges in the gap housing market are discussed here
from my ontological perspective.
The Rhodes University based Public Service
Accountability Monitor (PSAM) puts the total housing
backlog nationwide at over three million low-cost housing
units. According to PSAM, the housing backlog in Gauteng
is over 600 000 while in North West and Limpopo is
237 000 and 157 420 respectively. Greater demand for
housing has been observed in the larger metros in Gauteng
because job seekers migrate from other provinces to
Gauteng in search of better paying jobs. This demand is
also exacerbated by rural urban migration patterns.
It is also evident that the rate of urbanisation far
outstrips the rate of production of primary stock. The
South African Government has intervened through the
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MAY - JUNE 2018
AFFORDABLE
SA HOUSING
provision of free housing to people earning below R3 500
a month through the Reconstruction and Development
Programme (RDP) and development grants for developers
to address the supply side. In addition, to address the
demand within the lower section of the market below
R15 000, Government has introduced subsidies such as the
Finance Linked Individual Subsidy Programs (FLISP). These
interventions are commendable and exemplary to other
African countries faced with the crisis of housing their
populace notwithstanding some of the implementation
challenges that have been experienced.
CHALLENGES FACING AFFORDABLE
HOUSING MARKET
The housing demand side faces affordability and bad credit
risk challenges. The large commercial banks have an
inherent preference for larger housing mortgage loans
when compared with smaller ones for commercial reasons.
The cost of processing a R100 000 loan is generally more
than the cost of processing a R1-million loan. The GAP
market loans require 100% physical verification of the
housing unit while the larger loans can be verified
electronically using a desk-top valuation premised on
comparable house sales information.
The beneficiaries of smaller loans generally require
more financial literacy training that is obligatory through
borrower education programmes which are additional
costs for the financial services provider. Historically, there
is an endemic perception that lower income earning
households h