Social HousingIntroductionThe need to provide greater access to rental accommodation in South

Africa’s cities has long been recognised as a national priority. This is needed

to address the needs of people who do not wish (or cannot afford) to own

property in areas in which they work and for people who are looking for

work away from home. Such housing would generally be denser, more

compact, multi-storey stock, located near employment opportunities. In

practice, however, housing policy has emphasised the public provision and

subsidisation of detached housing stock, much of it poorly located with

regard to residents’ employment prospects. An exception to this has been

programmes for rental stock or social housing.

Social housing is rental or co-operative housing for low- to medium-income

households requiring institutionalised management to maintain the stock

and public areas within it. Social housing is provided through a complex

institutional architecture, to ensure that public funds are channelled to

appropriate projects.

Expenditure and performanceIn principal, social housing projects are supposed to be financially sustainable, with rental income covering the costs of providing the infrastructure as well as maintaining it. Subsidies are provided because, in their absence, capital outlays for projects would mean that rentals would be unaffordable for the target market as these would have to cover the costs of servicing the debt and equity needed to fund the entire project. In practice, however, there are significant concerns about the extent to which current practices generate financially viable projects.

Between 1994 and 2005, some 34,000 units were provided through the institutional subsidy, a figure considerably lower than the estimated 2 million RDP units delivered over that period. Since 2006, more emphasis has been placed on delivering social housing units, with a considerable ramp up of spending in the sector, with allocations rising from about R108.4 million in 20014/5 to R1.04 billion in 2013/14. Social housing spend includes

Restructuring Capital Grants (RCG) as well as Housing Institutions support and funding for the Social Housing Foundation. Some 85% of this spend is the RCG.

The ramp up of spending on subsidies has led to significantly faster delivery of social housing units. Nevertheless, the pace of delivery remains relatively low, with around 2,600 units approved each year between 2007/08 and 2013/14. One reason for this may be that the increased spending on subsidies has not translated into a significantly larger flow of debt or equity into social housing. In fact, apart from a large injection of equity by a public entity into a single housing project in Gauteng in 2013/14, the social housing programme has never achieved its target of 10% equity funding per project. In addition, debt financing, which accounts for 26% of spending overall, is almost exclusively sourced from development finance institutions.

09:30 Welcome: Andrew Donaldson

09:45 Overview and context: Ronette Engela

10:00 Sharing of insights from international experience in

modernising Public Finance Management (PFM) and

Governance (Facilitator: Antony Altbeker)

• Budget reform success and failure: Allen Schick (Governance fellow, Brookings Institution)

• Political economy of PFM reform: Anand Rajaram (Governance Practice Leader, World bank)

• Politics of spending review: Joanne Kelly (Associate Professor, University of Sydney )

11:30 Tea break

12:00 • Problem-Driven Iterative Adaption approach to development:Matt Andrews (Associate Professor of Public Policy, Harvard)

• OECD spending review practices: Ronnie Downes (Deputy Head Budgeting & Public Expenditure, OECD)

13:00 Lunch

14:00: Parallel sessions in two rooms

Room 1: The Urban Space (Facilitator: Ahmedi Vawda)

• Public transport:Roland Hunter (PER focus: Predictive model)

• Housing:Karen Hague (PER focus: Expenditure analysis)

• Social Housing:Andreas Bertoldi (PER focus: Policy implications)

Room 2: The Rural Space (Facilitator: Duncan Pieterse)

• Nutrition and Food Security for Children:Carmen Abdoll (PER focus: Predictive model)

• Land Restitution: Joel Barnor (PER focus: Expenditure analysis)

• MAFISA:Conrad Barberton (PER focus: Policy implications)

15:30 Tea break

16:00 Responses and discussion, in two groups

17:30 Conclusion to the agenda

PERFORMANCE AND EXPENDITURE REVIEW

(PER) COLLOQUIUMT h u r s d a y 9 a n d F r i d a y 1 0 J u l y 2 0 1 5

Budget Council Room | 40 Church Square | Pretoria

DAY ONE 9 JULY

DAY TWO 10 JULY08:30 Recap of day 1: Antony Altbeker

09:00 Education & training (Facilitator: Jeffrey Mbelebele)

• Artisan training: Richard Jewison (PER focus: Policy implications)

• National Skills Fund:Matthew Stern (PER focus: Expenditure analysis)

• Technical and Vocational Education and Training:Amanda Jitsing (PER focus: Performance information & log-frame)

10:30 Responses and discussion

11:30 Tea

12:00 Remuneration analysis and modelling:

• Preliminary viewNicholas Crisp

13:00 Lunch

14:00 Emerging PER mid-term review observations

(Facilitator: Anthony Altbeker)

• International and local technical advisory team:Marc Robinson, Tania Ajam and Michael DiFrancesco

15:30 Wrap up and thank you: Ronette Engela

UCT Graduate School of Development Policy and PracticeStrategic Leadership for Africa’s Public Sector

09:30 Welcome: Andrew Donaldson

09:45 Overview and context: Ronette Engela

10:00 Sharing of insights from international experience in

modernising Public Finance Management (PFM) and

Governance (Facilitator: Antony Altbeker)

• Budget reform success and failure: Allen Schick (Governance fellow, Brookings Institution)

• Political economy of PFM reform: Anand Rajaram (Governance Practice Leader, World bank)

• Politics of spending review: Joanne Kelly (Associate Professor, University of Sydney )

11:30 Tea break

12:00 • Problem-Driven Iterative Adaption approach to development:Matt Andrews (Associate Professor of Public Policy, Harvard)

• OECD spending review practices: Ronnie Downes (Deputy Head Budgeting & Public Expenditure, OECD)

13:00 Lunch

14:00: Parallel sessions in two rooms

Room 1: The Urban Space (Facilitator: Ahmedi Vawda)

• Public transport:Roland Hunter (PER focus: Predictive model)

• Housing:Karen Hague (PER focus: Expenditure analysis)

• Social Housing:Andreas Bertoldi (PER focus: Policy implications)

Room 2: The Rural Space (Facilitator: Duncan Pieterse)

• Nutrition and Food Security for Children:Carmen Abdoll (PER focus: Predictive model)

• Land Restitution: Joel Barnor (PER focus: Expenditure analysis)

• MAFISA:Conrad Barberton (PER focus: Policy implications)

15:30 Tea break

16:00 Responses and discussion, in two groups

17:30 Conclusion to the agenda

PERFORMANCE AND EXPENDITURE REVIEW

(PER) COLLOQUIUMT h u r s d a y 9 a n d F r i d a y 1 0 J u l y 2 0 1 5

Budget Council Room | 40 Church Square | Pretoria

DAY ONE 9 JULY

DAY TWO 10 JULY08:30 Recap of day 1: Antony Altbeker

09:00 Education & training (Facilitator: Jeffrey Mbelebele)

• Artisan training: Richard Jewison (PER focus: Policy implications)

• National Skills Fund:Matthew Stern (PER focus: Expenditure analysis)

• Technical and Vocational Education and Training:Amanda Jitsing (PER focus: Performance information & log-frame)

10:30 Responses and discussion

11:30 Tea

12:00 Remuneration analysis and modelling:

• Preliminary viewNicholas Crisp

13:00 Lunch

14:00 Emerging PER mid-term review observations

(Facilitator: Anthony Altbeker)

• International and local technical advisory team:Marc Robinson, Tania Ajam and Michael DiFrancesco

15:30 Wrap up and thank you: Ronette Engela

UCT Graduate School of Development Policy and PracticeStrategic Leadership for Africa’s Public Sector

100

90

80

70

60

50

40

30

20

10

0

6 000

5 000

4 000

3 000

2 000

1 000

02007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015

Sources of funding for Social Housing (2007/2008 to 2013/2014)

SOUR

CE O

F FUN

DING

(%)

NUM

BER O

F UNI

TS AP

PROV

ED

Debt Equity Institutional Subsidy

RCG Subsidy In-kind support Units approved

PERFORMANCE AND EXPENDITURE REVIEW

ConclusionAddressing institutional constraints would go some way to improving the viability of social housing projects. In addition, simplifying and consolidating the institutional architecture and policy framework would help improve efficiency. Unless and until this is done, private sector participation in social housing is likely to remain very limited. In addition, it is likely that this sector will remain reliant on public funding and special financing arrangements through DFI’s for the foreseeable future. Until greater regulatory certainty is achieved, risk-averse investors will likely continue to see social housing as an overly risky investment.

240 Madiba Street, Pretoria, 0002 T 012 315 5111 F 012 315 5126

info@gtac.gov.za

The fact that the ramp up of subsidies available for social housing has not

attracted more debt and equity financing suggests that there are concerns

about the extent to which the present model generates projects that are

sufficiently commercially viable. Key concerns relate to:

n The failure of one of the key subsidies – the Restructuring Capital Grant

– to keep pace with inflation, resulting in real decreases in effective

levels of subsidy;

n The failure to index the income bands that define the target market

for social housing, resulting in projects having to accommodate

households with incomes too low for reasonable rent,

n Concerns about the legal and political capacity of lenders to repossess

social housing stock in the event of non-repayment of loans.