SA Affordable Housing March - April 2019 // Issue: 75 | Page 29

INDUSTRY MATTERS
Figure 2.
also vary as price is determined by several variant costs such
as location, topography, municipal services required and
characteristics of the house, such as a self-standing unit as
opposed a medium density unit.
The purple line in figure 2 indicates the potential
purchase price of a home (includes FLISP subsidy and
transfer fees) based on the average affordability levels of a
household.
The red area in figure 2 indicates the affordability gap
between the average purchase price of an affordable house
and household affordability.
The blue area in the graph indicates surplus income in
respect of purchasing an entry level home.
Based on the graph in figure 2, a household earning
between R3 501 and R13 701 is not able to afford an
average entry level priced house. For example, a household
with an income of R3 501 can only afford to purchase a
home of R125 945, which is far below the price of a new
build entry level home.
It is only households earning upwards of R13 701 that
can afford to purchase an entry level home. One can argue
that households earning above the previous income
threshold of R15 000 do not need to receive state support in
the form of FLISP and that these funds should rather be used
Figure 3.
www.saaffordablehousing.co.za
to increase FLISP amounts below this threshold, therefore
decreasing the number of households below this level which
will be able to afford an entry level home.
The graphs below (figure 3) depict the increase in the cost
of housing and inflation since 1994, for example, a home
that cost R12 500 in 1994 would cost R67 390 in 2018, and
a household that earned R3 500 in 1994, would need to earn
R18 933 after considering inflation (purchase price parity).
According to the above graph the cost to build an RDP
home in 2018 should be R82 260, however the state pays
R250 000 for each unit. This is indicative of product creep as
the government provides a superior product to the basic
incremental product that was provided in 1994. The sharp
increase in cost severely impacts government’s ability to
provide homes to the indigent and this largely accounts for
the housing backlog doubling since 1994.
The housing delivery statistics supports the view of
government overspend on subsidised housing. During the
2005 / 2006 and 2006 / 2007 period, government delivered
the greatest number of subsidies.
Notably the 2005 / 2006 and 2006 / 2007 periods also
coincide with government providing many incremental
housing (serviced sites). This further reinforces that
government is unable to keep up with demand as it provides
a home which is
unaffordable both from a
fiscal and critical mass
perspective. If, however,
incremental housing was
only provided to
households, the majority
(if not all) of the housing
backlog would have been
eliminated. As this is more
fiscally affordable to the
state and increased
housing delivery would
have been achieved.
*To be continued in the
next issue of
SA Affordable Housing…
MARCH - APRIL 2019
27