We are of the view that there are three cost areas that, if
addressed appropriately, would reduce the affordability gap in the
housing ladder significantly. These are:
Cross-subsidisation between market segments within
a mixed-income housing development
Average developer profits differ substantially for the house type being
constructed. Generally speaking, subsidy (free) houses are loss leaders
within a mixed-income housing development and developers recover
these losses from bonded homes within such developments. This cross
subsidisation between house types exacerbates the affordability gap
for entry-level homes. Research undertaken at a few major developments indicates that developers are inflating the price of bonded units
by approximately R65 000 in order to recover their losses on subsidy
(free) houses. Should this forced cross subsidisation between subsidy
(free) homes and bonded homes be eliminated, the affordability gap
for starter homes would reduce accordingly.
Time frame for converting “raw” land to obtaining
permission to erect a home on a serviced site
Guidelines issued by the Department of Human Settlements in
2010 indicated that the process for an average size development
should take approximately 27-30 months. While the duration
varies, the developers’ experience is that this process takes about
48 months to complete. For developers, time equals cost and risk.
Such costs affect the on-going viability of developments and put
a developer’s business at risk. This also adds about 16% to the overall
cost of a unit.
Based on research undertaken into municipal development
processes, time saving of at least 50% can be achieved should
municipalities improve their process efficiencies, performancemeasure staff and use experienced staff to engage with developers.
There also needs to be a specific intervention for mega projects
(10 000 plus homes, with social and economic amenities) as the
development process for such projects takes well over five years
to complete.
Provision of municipal services
Separate research indicates that while the cost of a top structure
is generally only increasing in line with the CPI, the cost of providing basic services to a home is increasing way ahead of this
benchmark. The provision of basic services now constitutes over
a third of the overall cost of constructing a home. It is not uncommon for a serviced site to cost over R125 000. This cost
element must be addressed urgently. Further, should municipalities forfeit the services development cost of approximately R32 000, which they charge developers per site, to
which additional infrastructure costs are often added, for
all bonded units, including homes within the gap market
(this constitutes a double recovery as they recover this from
home owners through rates and taxes/utility accounts for
which they do not give such households a rebate), the overall
cost of a bonded starter home would be reduced by at least
a further 11%.
The implementation of these three interventions, namely:
• Removal of cross subsidisation between subsidy (free) homes
and bonded starter homes
• Improved municipal development process efficiencies and
• Reduced municipal development and infrastructure charges
will, we believe, reduce the affordability gap in the housing
ladder from households earning between R3 600 and R11 600 per
month to households earning between R3 600 and R7 800 per
month, and the price of a R300 000 starter home can be reduced
to approximately R156 000.
This