CHAPTER 6: HOUSING POLICY AND PRACTICE
6.6 The World Bank and housing
6.7.3 State intervention in housing
6.7.3.1 The housing subsidy scheme and incremental housing
The Housing subsidy scheme is qualified as the cornerstone of the NHP (Khan &
Thurman, 2001), designed to accommodate social demands, enormous existing and projected backlogs, fiscal constraints, and to minimise housing and financial sector market distortions. In South Africa the Housing Subsidy Scheme was implemented on the 1Sth March 1994 and replaced all previous government subsidy programmes. The scheme provides a subsidy to households earning up to R3S00 per month, to assist them to acquire secure tenure, basic services and a top structure. A range of subsidy mechanisms are provided, namely, the Individual Subsidy, the Project Linked Subsidy, the Consolidation Subsidy, the Institutional Subsidy, the Relocation Assistance Subsidy and the Rural Subsidy. In the link entitled subsidy programme, the South African Website of the Department of Housing outlines criteria for having been granted a housing subsidy (www.housing.gov.za).Accordingtothecriteriaofeligibility.itis stated that "a person qualifies for a housing subsidy only if, he or she is married or cohabits with any other person or is single and has proven financial dependants; he or she is lawfully resident of the Republic of South Africa; he or she is legally competent to contract, he or she is over 21 years of age, if not married. The gross monthly household income of his or her household does not exceed R3 SOO per month; the beneficiary or spouse has not received a subsidy from the Government to buy a house previously and he or she is a first time property owner".
In relation to the value of the subsidy granted, Table 6.3 below outlines the different types of existing subsidies and criteria, based on income, for being a beneficiary of the National housing subsidy. It appears from Table 6.3 that the National Government's financial intervention through housing subsidy lacks a global vision, since it includes all income groups but focuses only on the low-income households. This may endanger the creation of an integrated society, in separating low-income households from other income groups. In the first 10 years of housing delivery, middle income groups earning between R 3S00 and R 7S00 were merely overlooked. In fact they were neither eligible to be granted housing subsidy from the National Government programme or to obtain a loan from the financial institutions. There was no housing market for the middle-income group.
Although institutional subsidies may be utilised for rental and social housing, the small amount displayed in Table 6.3 reveals that housing policy gives priority to the ownership option and overlooks the rental option. In fact, in South Africa, there is a tie between urban and rural areas (Cox et ai, 2004) and Charlton (2004) argues that migration is one of the poor households' livelihood strategies. Neglecting rental option means that some poor people are denied the possibility to enhance their livelihood strategies, therefore, instead of helping poor people to improve their living conditions, the financial state's intervention in Housing contributes to low-income households' impoverishment. Indeed, Spiegel (1996) who emphasised the lack of diversity in the South African Housing Policy, pointed out that the housing needs of the migrants are not taken into account in the 1994 South African Housing Policy.
Besides, criteria related to income is based on the formal income obtained from the public sector or formal private sector, which does not reflect the overall income, including informal income that in reality is an individual's monthly income. Baumann (2003) has argued that most South Africans rely on the microeconomic sector to maintain their living standard. This means that an individual who earns a formal income up to R 3500 may be better off than, some of those earning between R 3500 and R7500. Although objective, criteria related to income does not illustrate what most South Africans really earn as a monthly income. This is why the definition of poverty, being a lack of income, held by the tenants of liberalism, presents some limits.
Baumann (2003) for instance understands poverty in terms of vulnerabilities or lack of assets, which can generate income.
Likewise, Table 6.3 displays many types of subsidies, which make the National financial intervention in housing very complex and sometimes difficult to manage. In fact "beginning with project-linked subsidies that required applicants to be members of the housing project, and then followed by the introduction of individuals subsidies, credit-linked subsidies, and institutional subsidies to support cooperative housing, the ANC's housing policy has grown in complexity" (Pottie, 2004, 607). Although individual and project linked subsidies aim at helping poor households, there are still a large number of South Africans, who are either badly housed or homeless (Olufemi, 2000 &
Pottie, 2004). Regarding the housing backlog, which continues to grow (2004) one may advocate that there is a need to rethink the housing subsidy mechanism, in order to make its access easier and to help those who are in desperate need of housing to benefit from it.
Table 6.3: The South African housing subsidy scheme quantum amounts for the period 1 April 2007 to 31 March 2008 in respect of a 40m2 house only
Individual and Project Linked Subsidies Top Structure Funding only Own Contribution Product Price
RO- R1500 R38 984,00 None R38 984,00
R1501 - R3 500 R36 505,00 R2 479,00 R38 984,00
Indigent, Aged, Disabled & Health Stricken R38 984,00 None R38 984,00 Institutional Subsidies
Institution must add At least R38
RO- R3 500 R36 505,00
Capital 984,00
Consolidation Subsidies
RO - R1 500 R38 984,00 None R46 484,00·
R1 501 - R3 500 R36 505,00 R2 479,00 R46 484,00·
Indigent: Aged, disabled & health stricken
RO - R3 500 R38 984,00 None R46 484,00·
Rural Subsidies
RO- R3 500 R38 984,00 None R38 984,00
Peoples Housing Process
RO- R3 500 R38 984,00 None R38 984,00
.
Product Pace - R38 984, 00 PLUS servIced stand prevIOusly acqUIred at R7 500, 00 = R46 484.Municipal engineering services are to be funded from other Government resources as a last resort but may also be funded from the annual housing funding allocations to Provinces.
Source: Website of the Department of Housing, 2007 (www.housing.gov.za)
According to the private sector (contractors) to which the Government confined the task to build RDP houses for the low-income people, the amount of individual subsidy which, in the first years of housing delivery should cover the purchase of land, the cost of services and top-structure was too low to produce quality houses in a good location (Tomlinson, 2006). The Department of housing which was not aware of the limited amount of housing subsidy to produce quality houses have discretionary powers in various provinces of the Republic of South Africa, regarding increase of subsidy to compensate for unexpected abnormal development costs arising from location, geotechnical or topographical conditions and in the case of a person with a disability. In addition, an increased amount can be awarded to a household, where a member is disabled.
Government has been regularly updating the amount of housing subsidy in order to improve the quality and location of low-cost housing. Therefore, houses delivered by the private sector should be improved in quality and location. In fact, Table 4.3 reveals that there is an increase in the amount of housing subsidy which currently is R38 984 (top structure funding only) compared to the previous individual subsidy of R 16 000 for top structure. However, whilst the continuous effort of the National government to increase the housing subsidy should be welcomed, the inflation or the increase in cost
of purchase of land in urban areas and of building materials, should also be taken into account.
The consolidation subsidy granted to the beneficiaries who have already accorded individual housing subsidy, reveals that the original intention of the National government was not to finance the delivery of a finished top structure. As Rust (2004) argues, according to the 1994 Housing Policy, RDP houses should be considered by its beneficiaries as a simple structure, which needs to be improved and developed according to their housing needs through an incremental process.
Incremental housing is one of the forms of Self-Help-Housing and directly involves housing beneficiaries. In South Africa, incremental housing or progressive housing delivery has been conceived to supplement the government's financial intervention in housing, which with the financial constraint imposed by the neo-Iiberal" policy through GEAR was unable to fully finance low-cost housing development before reaching the macroeconomic stability.
The main advantage of incremental housing is that the beneficiaries have the opportunities to catch up with their housing need in the way they would like them to be. The success of the incremental housing project is the function of the availability of funds, which makes it possible to undertake the improvement or development of the already existing houses. In South Africa, apart from the constraint of access to housing finance for the beneficiaries of RDP houses (Finmark Trust, 2006), the quality of the first housing product (RDP houses) needed repair to meet the beneficiaries' housing needs. This may involve additional funds that poor households may not always afford.
Another constraint to the development of incremental housing in South Africa is the rate of poverty and unemployment among poor households. These limit their housing choices as they have to make pressing choices such as bring food on the table and invest for their children's education.
Financial instability coupled with the difficult access to housing finance by poor households and the high cost of building material are the main causes impeding the smooth realisation of incremental housing in South Africa (Finmark, 2006).