Inclusionary Housing The regulatory prespective for

The regulatory perspective for a secondary market system

In the inclusionary housing discourse thus far, one aspect has not received adequate attention. As the City of Cape Town embarks on developing its inclusionary housing policy over the next 18 months, the aspect of the regulatory mechanism into which inclusionary housing units are taken up post-development needs deeper coverage. It is my aim that this article contributes in some way to that discourse

By Shaheen Adams

Much of the focus on this topic thus far has revolved around the impact of a proposed policy on project feasibilities, and a debate around where along the spectrum of mandatory to voluntary participation by developers the policy should be placed. The debate on whether inclusionary housing as a social good is required at all seems settled and is now a given. Government is mandated to implement the Spatial Planning and Land Use Management Act (SPLUMA, Act No. 16 of 2013), and the development community has accepted that the need for inclusionary housing is a reality.

Whether inclusionary housing is developed for sale or for rental, the units will form part of a secondary market. For the purpose of this article, I am defining a secondary market as one in which primary market pricing (whether for sale or rent) is discounted by the government through some means or restricted by regulation in some way. I am also differentiating it from an informal market, in which prices are set in accordance with demand and supply, but where trade occurs outside of formal market structures. Please note that these definitions do not purport one type of market to be greater or lesser than the other. Both the City of Johannesburg’s Inclusionary Housing Policy as well as the City of Cape Town’s Concept Note on Inclusionary Housing speak to inclusionary units remaining affordable in perpetuity. This requirement for perpetual affordability immediately necessitates for a functioning and regulated secondary market in which the management of the units can be monitored and controlled against the rules placed upon that secondary market. Secondary market systems Secondary markets for the renting of property are different from those for the buying or selling of property. Within the South African affordable housing context, the only fully regulated secondary market system at present is the social housing system. This covers the rental market exclusively.

The Social Housing Act was promulgated in 2008, with Regulations added in 2012. The entire secondary market of social housing is regulated by the Social Housing Regulatory Authority (SHRA). An established set of Social Housing Institutions (SHIs), and the build-up of expertise within those SHIs in the development and management of social housing, have resulted in the creation of a highly specialised sub-sector of the property market. Shaheen Adams, Managing Director at Wingapo Property Group M

With the exception of the Housing Act (Act No. 107 of 1997) as amended in 2001, which regulates the selling of RDP houses by beneficiaries, the work on broader affordable housing legislation to manage the buying and selling of property has not yet begun. Presuming the legislative process were to start tomorrow, it could conservatively be a wait of 10 years until full implementation of the legislation. Within the City of Johannesburg’s policy, there are thresholds of inclusionary units to be provided for both social housing units as well as for Finance Linked Individual Subsidy Programme recipients. However, in either case, there is no stated mechanism of how those inclusionary units would be managed in their respective institutional structures after development.

Over the years, there has been a growing informal trade in RDP housing that necessitated the need for the Housing Amendment Act of 2001. Even within the social housing system, with its strict regulations, units are at risk of illegally changing hands when there is insufficient control, often without the knowledge of the regulator or the SHI concerned. It cautions us that unless the measures for management, monitoring and control are strongly in place beforehand, a unit (and its inherent subsidy) runs the risk of becoming a tradeable good in the informal market.

What does an inclusionary housing policy need in support of it to make it sustainable? ● The SHRA and the SHIs as partners: The SHRA needs to create a mechanism of providing capital grants to SHIs in order to buy sectionalised units from developers, and for those units to be held in ownership by the SHI. At present, the SHRA’s system of capital grant disbursement is for new greenfield social housing developments. Invite the National Association of Social Housing and the SHRA to participate in the policy discussion and provide inputs. ● It needs to be focused. Don’t implement rental and sale inclusionary options at once, because each form needs its own system of governance. We are in the 12th year of rental market social housing governance. Build on to what is there. Start with a focus on social housing, with a later implementation date for sales of inclusionary housing units. ● It needs monitoring and control: An inclusionary unit, no matter the means of financing, is a form of subsidy. The subsidy is provided to a beneficiary, and usually only assessed at the point of allocation. Without a proper regulatory mechanism to manage the subsidy, the risk of fraud and illegal trading of the subsidy start undermining the intent of the programme. Monitoring and control of the subsidy afterwards is critical to ensure it is always benefiting the people it is meant to.

● Other rebates may be required to ensure total cost of living affordability, such as rates, water and other municipal costs, so relevant departments in the city (such as Finance and Water and Sanitation) need to determine to what extent beneficiaries of inclusionary housing would be entitled to rebates to ensure affordability. ● The municipal, provincial and national departments of Human Settlements must agree on a nationwide policy, setting out the principles to regulate the buying and selling of affordable subsidised accommodation. Preferable to a policy would be national legislation governing this process.

Conclusion Until such time that the regulatory framework for the management of units can enable the secondary market system, policy should be restricted to “fees in lieu of” for the municipality to deploy to its existing inclusionary housing programmes, such as the various sites in Woodstock and elsewhere in the Cape Town CBD.

Inclusionary housing implementation should not be rushed on account of either legal compliance or political expediency. If policy implementation is improved on account of having ensured the secondary market mechanism was securely in place first, then that would have been a worthwhile wait. Even so, all three spheres of government own substantial prime property assets across Cape Town – more than enough to drive the imperative of inclusionary housing in the interim, assuming the political will to do so is present.

We speak of the ideal as mixed income, socio-culturally diverse developments, that are tenure-blind and foster social cohesion and a sense of community. The institutional structures enabling the consistent management of those inclusionary units will be the bedrock we need to realise this ideal.

Shaheen Adams is the former Chief Director for Immovable Asset Management at Western Cape Government, as well as the former General Manager for Rental Property Management at Communicare NPC. He now consults privately in the fields of asset management, property management and property development.

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Shaheen Adams