Housing IV _HOUS402

Lecture 04: Housing finance and Subsidies

Name: Lawrence Ogunsanya

Email : lawrencesanya@yahoo.com

State Subsidy Delivery

The National Housing Subsidy Scheme provides

grants to qualifying individuals according to their

household income. The government offers housing
subsidies to enable low income individuals access
decent affordable housing.

Allocations, made on an annual basis from the

national budget, are channeled to the nine Provincial

Housing Boards and disbursed to various approved
projects.

The amount allocated to grants for the poor in 2010/11

totalled R15 billion, rising to R17,9 billion in 2013/14.

(www.info.gov.za)

What is a Housing Subsidy?

A Government Housing Subsidy is a grant by

Government to qualifying beneficiaries for housing

purposes.
The grant is not paid in cash to beneficiaries. It is paid

to a seller of a house; or in new developments, the

grant is used to build a house that complies with the
minimum technical and environmental norms and
standards, which is then transferred to the qualifying
beneficiary.

Who qualifies for a Housing

Subsidy?

The individual must be a South African citizen

Competent to contract i.e. Must be 18 years of age
Not yet benefited from government funding
First time property owner; Never owned a property
before
Must be married or living together with a dependant
Must monthly household income not exceeding
R3500.00
Single Military veterans
Persons classified as aged
Persons classified as disabled

Modifications to Qualification
Requirements
You must have been on the municipal housing demand

database for a minimum period of 10 years. (Proof of

registration required.)
Priority will be given to applicants over the age of 40
years and / or with special needs.
You are a South African citizen or you have a
permanent resident's permit.
You are over 18 years of age or if under 18, married or
divorced with others who rely on your income.
You and your family will live on the property bought
with the subsidy.

Forms of Housing Subsidy

Individual Subsidy
An individual subsidy provides qualifying
beneficiaries with access to housing subsidies to
acquire ownership of residential properties (house)

or to acquire a house building contract which is not

part of approved housing subsidy projects.
The latter option is only available to beneficiaries
who will access housing credit.

Forms of Housing Subsidy

Consolidation Subsidy
This is for people who have previously received a
subsidy, live on a serviced site and want to build a better
house such as building a top structure. This money can
only be used for building as services have already been
provided on the site.
In 2006 households with an income under R1 500 per
month are eligible for a subsidy of R18 792. Households
with an income between R1 501 and R 3500 per month
are eligible for a subsidy of R16 313 and must pay a
contribution of R2 479.

Forms of Housing Subsidy

Integrated residential development

programme subsidy

The integrated residential Development

Programme replaced the project linked

Subsidy Programme.
The programme provides for planning and
development of integrated housing projects.
Projects can be planned and developed in
phases and provides for holistic development
orientation.

Forms of Housing Subsidy

Finance-linked Individual Subsidy
This is the so-called gap market where people have been

struggling to get housing they can afford.

Implemented in April 2012
A household earning between R3501-R15000 per month
needs to find a newly built house for sale at a price of
R300 000 or less, and then apply to a bank for a mortgage
to buy that house.
In the short term, the subsidy will only apply to newly
built houses that cost less than R300 000.
This means that the buyer cannot simply find any house
on the market they need to find a new one, in a new
project that is underway.

Forms of Housing Subsidy

Institutional Subsidy
The Institutional Subsidy is available to qualifying

institutions (Non Profit Organisations) to enable them

create affordable housing stock for persons who qualify
for housing subsidies.
This mechanism provides capital for the construction of
social housing units in respect of qualifying
beneficiaries who do not earn more than R3 500.
It is called an institutional subsidy because it goes to the
institution who can rent out the housing to different
families

Forms of Housing Subsidy

Rural Subsidies
This subsidy is available to people who dont have formal

tenure rights to the land on which they live. (Such land is

owned by the government and tenure granted in terms of
traditional laws and customs).
The subsidies are only available on a project basis and

beneficiaries are supported by implementing agents.

Beneficiaries also have the right to decide on how to use
their subsidies either for provision of services, building of
houses or a combination thereof.

Forms of Housing Subsidy

Enhanced Peoples Housing process
These are special subsidies that are available to communities,

or organised groups of households to enhance their housing

subsidy by building or organising the building of their own
homes themselves.
By using their own labour rather than paying someone else,
these households can make their housing subsidy and
personal contribution go further by building better quality
and/or larger houses for less money. In addition, the Peoples
Housing Process can also include the following support:
access to land that can be serviced,
training opportunities, and
technical assistance.

How much subsidy do I qualify for?

Current subsidy amount R154 000 (national) - R160 573 (western cape)

Governments Housing Delivery Partners

The National Housing Finance Corporation
(NHFC) was established in 1996 as a development
finance institution to mobilize, raise and deploy housing
finance from sources outside the public sector. The
NHFC has disbursed more than R2,4 billion in funding
and delivered more than 264 130 housing opportunities
since 1996.
The Social Housing Foundation (SHF), a not-forprofit company, aims to build capacity for socialhousing institutions. It is expected that the SHF will be
consolidated under the new Social Housing Regulatory
Authority, as envisaged by the new Social Housing Bill.

Governments Housing Delivery Partners

The Rural Housing Loan Fund was established in
1996 by the national Department of Housing, South
Africa as a wholesale lending institution, is to enable
low income earners access small loans that they could
afford to repay. Borrowers use these loans to
incrementally improve their housing conditions.
As a wholesale finance institution, RHLF facilitates
housing microloans through intermediary or retail
housing finance lenders. These partners borrow funds
from RHLF and on-lend to individual borrowers
throughout the rural areas of South Africa, including
small towns and secondary cities.

Governments Housing Delivery Partners

National Urban Reconstruction and Housing
Agency (NURCHA) provides construction finance and
support for contractors and developers who cannot
easily access finance from conventional financial
institutions.
Peoples Housing Partnership Trust (PHPT) grants
and other support.

Housing Institutions Development Fund (HIDF)

loans

Challenges of Housing Subsidy

Insufficient and uneven flow of funding
- In 1994, the National Housing Goal was set to increase
expenditure on housing from 2% of government
expenditure at the time, to 5%.
-In spite of this, funding available for housing has been
uneven from year to year with Provincial Housing
Development Boards (PHDBs) often running out of
funds and freezing approval of new projects, sometimes
for years at a time.
-Therefore, delivery rate of housing has been highly
irregular.

Challenges of Housing Subsidy

Insufficient and uneven flow of funding
-Lack of capacity of many provincial housing
departments to spend, within allotted time frames, the
housing funds allocated to them. For example, there is a
widespread lack of capacity to effectively support the
initiation and packaging of suitable housing projects.
-Many subsidies have been approved for proposed
projects that were not ready for implementation or were
unimplementable.

Challenges of Housing Subsidy

Poorly coordinated and inequitable subsidization
- Confusing multiplicity of subsidies for housing from a
variety of sources.
- Little coordination between subsidies from different
sources, resulting in huge inequities in the amount of
funding received by similar beneficiaries in similar
projects in different areas.
Value of subsidy not keeping pace with inflation
- The value of housing subsidy has been steadily eroded
by inflation.

Challenges of Housing Subsidy

Complicated subsidy approval and payout
mechanisms
- In general, the approval and disbursement processes
in provincial housing are cumbersome
Problems with targeting
It is uncertain to what extent the subsidy is being
accurately targeted. Income is not a good measure of
poverty, as the most deprived are not necessarily only
those with the lowest incomes. The R1500 p.m. income
limit for the maximum project-linked subsidy and the
consolidation subsidy has proved particularly
problematic.

Challenges of Housing Subsidy

Inability to afford ongoing costs of housing
- Many households receiving subsidized housing are
unable to pay rates, water charges or electricity charges,
and risk being disconnected from services or even losing
their properties.
It was found that 56% of households in Cape Towns
subsidized housing were unable to afford the typical
minimum monthly rates and service charges of R100 to
R150 per month .

Challenges of Housing Subsidy

Inappropriateness of formal finance
- There seems to be a lack of mortgage lending in South
Africa. Mortgage loans form approximately 30% of the
housing market in township areas, compared to
mortgage loans forming an average of 10-20% of the
housing market in developing countries
- Mortgage loans available from formal financial
institutions are not aptly suited to low-income
households. Thus, those who would normally be
beneficiaries of housing subsidies (low-income
borrowers) cannot avail themselves of formal finance.

Challenges of Housing Subsidy

Integrated development
The financing of the development of new housing areas
is not linked to the financing of schools, provision of
community facilities, greening of public areas, and so on
(apart from the Presidential Projects for Urban
Renewal).
There is usually little co-ordination between housing
funding and funding for other components of an
integrated urban environment. The subsidy system
usually results in sterile peripheral suburbs with single
houses on individual plots, which does little to improve
the life of beneficiaries and does not contribute to
restructuring apartheid spatial patterns

Recommended Solutions
Housing finance policy should have two key objectives:
To ensure that those who cannot afford to buy or rent
housing produced by the private sector are adequately
housed.
To improve the efficiency of the market by removing
obstacles that prevent the private sector from increasing
the supply of affordable housing or the public from
buying or renting housing units produced by the private
sector.

Recommended Solutions
Mechanisms for subsidy approval and disbursement
must be more streamlined and flexible
Information: Many households living in inadequate or
substandard housing continue to have little or no
knowledge of the Housing Subsidy Scheme or other
ways of accessing adequate housing. Information must
be simplified and made more available.
Facilitating the provision of housing credit to the poor
by supporting the creation of community-based
financial institutions

Recommended Solutions
Stimulating rental housing: International experience
demonstrates that rental housing tends to offer better
location, services and infrastructure than self-help
housing and assists in labour mobility, which is an
important survival strategy of low-income households.
Integrated development: A subsidy to assist local
authorities to provide multi-purpose community
facilities such as parks, playgrounds, sports fields is
required. Therefore improving the image of the
community and adding value to the properties

Questions