Blanket inclusionary housing policy ‘unworkable’

The City of Joburg’s proposal to compel private developers of residential complexes to reserve 20% of developments with more than ten units for “inclusionary housing” could deter the private sector from developing residential units, the South African Property Association (Sapoa) says.

Sapoa represents the biggest property developers in the country, most of them operating in Johannesburg.

The organisation issued a statement about the proposed city policy which would cap the rental income from such units. Sapoa will also formally submit its comments before the deadline on April 30.

Moneyweb earlier reported that property expert Erwin Rode also warned against the unintended consequences of the scheme.

According to Sapoa CEO Neil Gopal the draft policy does not address the complex matters associated with affordable housing and inclusionary housing, including residential market realities, or what the financial and social consequences may be for introducing such a policy.

In terms of the draft policy the inclusionary units should provide rental accommodation for households with a total income of R7 000 or less per month if privately managed or should fit into published social housing bands.

Sapoa says if implemented, the scheme may impact the feasibility of residential developments and is potentially burdensome to private developers experiencing declining returns and profit margins.

An inclusionary housing obligation that does not take into account the prevalent economic conditions and health of the residential property market could negatively impact on housing delivery, Sapoa says.

“Affordability requirements thus influence the feasibility of inclusionary projects from a developer’s viewpoint,” the organisation says.

“In addition, the city is proposing an income range (monthly household income of R7 000 and less) that is fixed for the entire city, which, according to Sapoa, does not consider the spatial fluctuations in land costs. With the implementation of inclusionary housing, this fixed affordability income threshold may open private developers in certain areas to revenue loss and risk.

“The draft policy states that any residential development of ten or more units is subject to inclusionary housing requirements. However, research suggests that the scale of developments substantially influences the feasibility of including affordable rental units. Based on the decreased feasibility of inclusionary housing provision and management of units in smaller residential developments, the addition of developments consisting of ten or more units in the framework of inclusionary housing may prove challenging to successfully implement.

“In terms of potential social impacts, the proposed inclusionary housing policy may isolate low-income households in high-income, market-related developments, with inadequate access to affordable social facilities. This is in addition to the challenges related to cross-subsidisation among housing consumers. The capacity of the City of Johannesburg to monitor mandatory compliance of private developers in this regard (including rent control and tenants suitable to delineated income thresholds) is an additional concern in determining the success of the envisioned inclusionary housing policy.

Sapoa criticises the fact that incentives are limited to the inclusionary units and says this has little cost-reduction effect for the developer. “To incentivise the developer, one would expect the inclusionary units to be entirely or largely free from any contributions,” Sapoa says.

The organisation makes the following recommendations:

• A negotiated rather than mandatory blanket approach to the provision for inclusionary housing as well as incentives;
• The obligation should be limited to selected, larger developments where the scale supports the inclusion of units for low-income households in a feasible manner;
• The requirements should be flexible, taking into account economic and residential market conditions;
• The affordability threshold should be flexible according to location and cater for a wider income range to ensure smaller income differences between market and affordable units, to mitigate potential loss to the developer.

Sapoa says it “does not believe that the draft policy is a workable solution and may, in its current form, possibly deter the private sector from developing residential units.”

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