To improve the equity and efficiency of South Africa‘s cities, and undo the "geography of apartheid", South Africa needs to find ways to enable poor workers to gain access to land and housing closer to job opportunities in urban centers. In this paper, we explore the supply and the demand-sides of this argument.
On the supply side, we explore the impact on beneficiaries of the government‘s flagship housing program, the Reconstruction and Development Program (RDP). On the demand side, we investigate how the poor obtain access to land and housing in informal settlements or squatter camps. We argue that the government‘s supply of subsidized housing should be better aligned with demand expressed by beneficiaries. This will improve its impact on beneficiaries and create more efficient and equitable cities.
Informal settlements are now a permanent feature of South Africa‘s cities. Estimates from the General Household Survey by Statistics South Africa (STATSSA, 2005) show that over 26 percent of all households in the six metropolitan areas live in informal dwellings. Living in informal settlements – which include shacks, backyard dwellings, squatter settlements and mobile homes – reduces quality of life. Crime levels are high and public service delivery is poor (with some notable exceptions, such as the provision of water). The burden of the informality falls on the very poor households who have monthly expenditures of less than R 1,500 per month (or about US$200).
Between 1996 and 2007, the number of households and persons living in informal settlements increased from 1.5 million and 6.5 million to 1.8 million and 7 million respectively. This happened despite the delivery of 2.5 million free houses to the poor by the government since 1994. Mobility out of the informal sector is also very low: between 2000 and 20 05 only 2 percent of households moved from informal settlements to formal sector dwellings annually.
The Government‘s supply-side efforts have focused on provision of subsidized housing, first introduced as part of the Reconstruction and Development Program (RDP). Using the General Household Survey of StatsSA (2005), we explore the possible impact of the program on the poor, defined here as households qualifying for the RDP housing subsidy by earning less than R3000 per month. While expenditures on housing differ as expected (with RDP beneficiaries spending less on housing than non-beneficiaries), we do not observe any differences in household consumption expenditures on food, and transport etc between households who receive subsidized houses and those who do not.
Instead, there may be an impact of subsidized housing coming through an indirect channel – that of stimulating expenditures on education of children. This indirect effect of RDP housing is tested using a formal model (―revealed community equivalence scale model‖), and we find that households who receive a subsidized house re-allocate resources towards increasing education expenditures.
However, our analysis of RDP beneficiaries and non beneficiaries does not show that public housing provision has multiplier effects in terms of complementary private investments in housing maintenance or upgrading. Other survey data (the Township Residential Property Markets Survey) even suggest that the current value of most RDP houses is less than what it cost to build them. Together, these observations suggest that there is mismatch between what the government is supplying and what the poor are demanding.
What can explain the lack of complementary investment in RDP houses and their declining values?
The most common complaint heard is that households who receive RDP housing are not satisfied with their dwellings as these are often far from employment centers: the new houses were often built in the "old" apartheid locations (which were deliberately sited far from urban centers and white neighborhoods). In addition, households most often do not receive title deeds immediately, but are merely administratively allocated these houses, with the condition that they cannot be sold or rented for a period of 8 years, recently changed to 5 years.
And even if they do receive title, this condition is attached to the title. Furthermore, even after the 5 year period, the government has a pre-emptive right (the right of first refusal) on the sale of the property. In other words, poor location and lack of fully tradable property rights would be the most probable explanations for the limited impact of the RDP program.
What is happening on the demand side? How are poor residents accessing land and shelter themselves, unaided by the government? We carried out a small pilot survey in an informal settlement, as there are very few empirical studies in South Africa that investigate how much the poor actually pay for the land on which they have their dwellings, for access to the official waiting lists for land or houses, or their willingness and ability to pay for different quality of housing. The small survey of 100 households to provide initial insights on this issue was conducted in Greater Khayelitsha, Cape Town, because it is a well-known area, allowing many readers to have some idea of the type of settlement surveyed.
The survey revealed an active informal market for land and housing. Sixty-six percent of the respondents said that they had paid for, or were renting, the land on which they had built their dwelling. Respondents were paying R 350,000 equivalent per ha for land to put up wendy houses (backyard dwellings of about 5 square meters) and R 425,000 equivalent per ha for land to put up a single dwelling (25 square meters). On a per ha basis, these prices are of the same order of magnitude as can be found in the up-scale market for undeveloped land. Collectively, then, the very poor could compete with the high end of the property development market. However, land zoning regulations and sub division laws do not allow supply of such small plots.
In this paper, we therefore argue that poverty is not the main cause for the mushrooming of informal settlements in South Africa. Many households live in informal settlements not because of affordability, but because of the lack of suitable small plots of land in the formal market. While most of the residents have only part-time or informal sector employment, many have full-time jobs. By providing small plots of serviced land and secure property rights, the government could leverage the existing resources of the poor and assist in the creation of assets that would improve welfare of the poor.
In light of these findings, we make the following suggestions for policy innovations, which could be piloted and evaluated for impact.
First, to remedy the poor location of the RDP subsidized houses, we suggest allowing the grants to be used by eligible individuals and groups to buy land and build/ upgrade their own houses, or to buy already built houses.
Second, increase the flexibility of the housing grant structure in such a way that beneficiaries themselves are able to make a trade-off between location and value of the housing. Some households would opt for a location closer to work and spend less on the value of the house, while others would prefer more housing value in a location further away.
Third, in order to create more incentives to improve and invest in the housing asset, substantially reduce or eliminate the 8 (or 5) year ―no sale and no rental policy‖, and the right of first refusal.
Fourth, increase the supply of subsidized land and houses by making it easy for developers and commercial banks to provide ― sites and services - or fully built houses by using them as agents to manage and disburse the grants. However, this would only be allowed if they invest their own resources also into the project, i.e. by issuing a loan to the beneficiaries.
Fifth, experience, from other countries demonstrates that community participation in the selection and monitoring of beneficiaries and the financing of own contributions can be a very efficient substitute for administrative control. South African communities already organize themselves often into rotating savings and credit associations (stokvels) to instill savings discipline and allow individuals to save for a lumpy investment. These stokvels could be used to provide community participation into the government program in various ways, including as a means of screening, collecting own contributions and managing grants.
Sixth, remove the many existing land use and housing development regulations which most often still date from the apartheid era. These regulations had the explicit objective of barring blacks from well-located and land and preventing them from accumulating capital. These regulations should have been removed, but unfortunately, a number of them are still in the books, and continue to have the originally intended effect.
In conclusion, informal settlements are not going away. While, on the supply side, the subsidized low-income housing program has had an impressive roll-out in terms of numbers, its impact is disappointing. We argue that this is probably the result of a poor match with the demand side, where beneficiaries would be interested in having better located land, and would be willing to make the trade off against the value of the top structure. If allowed, the very poor could collectively compete with the high-end of the real estate market. However, current land market regulations and certain modalities of the existing government programs would need to be modified for this to happen.
- Executive summary: Shelter from the Storm – but Disconnected from Jobs: Lessons from urban South Africa on the importance of coordinating housing and transport policies; by Somik V. Lall, Rogier van den Brink, Basab Dasgupta, Kay Muir Leresche, World Bank Policy Research Working Paper 6173, August 2012. The 42 page report can be accessed here.