Mr Cas Coovadia, Managing Director of the Banking Association of South Africa,
Programme facilitator,

Delegates,
Ladies and gentlemen

Thank you for inviting me to participate at the Banking Summit 2014. This Summit comes at a time when we have just concluded our Human Settlements Indaba, that committed all our stakeholders to a Social Contract to assist us at Human Settlements to transform our living spaces and our landscapes. As always, the Banking Association of South Africa was at the forefront of committing its members to the Social Contract as one of the signatories.

Fundamental to achieving the outcomes of adequate housing for all is a functionally equitable property market. In turn access to affordable housing finance and the available affordable housing stock remains instrumental for unlocking the untapped potential of a vibrant housing market for the poor. Although South Africa has, over the years strived for a functionally equitable property market, this has arguable been achieved in certain parts of society but there are many limitations still to be addressed. In March 2005 a memorandum of understanding (MoU) was signed with the Banking Association of South Africa by the Minister of Housing. The MoU was in line with the commitment of the Financial Services Charter and the Comprehensive Plan for the Development of Sustainable Human Settlements to extend housing finance on a sustainable basis to low-income borrowers.

In 2005, the banking sector pledged that an amount of R42 billion would be released into the affordable housing market by 2008 and over R45 billion was spend to provide various products in the affordable housing market. This came a long way in addressing some of the challenges bedevilling affordable housing market as developments such as Olivenhoutbosch, Brickfields, N2 Gateway, Cosmo City, Glen Ridge and many others would never have happened in the manner they did without the commitments and contribution of the four major banks and BASA spearheading them through a partnership with the Department. On the other hand, more still remains to be done.

Despite remarkable achievements made in the provision of housing for poor households, the backlog has steadily increased. Population growth, rural to urban migration, coupled with smaller family sizes primarily accounts for inability to reduce housing backlogs. There are still about 2 million households in urban areas alone that live in sub-standard housing conditions.

Estimates for the number of households who earn too much to qualify for a fully subsidy housing unit but too little to afford an entry-level bonded home (the gap market) total approximately 3.5 million households or 24 percent of South Africa’s household population.

The European economy seems to be on the verge of a recession, growth forecasts for most developing countries (including South Africa) have been adjusted downwards and government resources are accordingly increasingly under pressure. This is not only true for government but also individual households, which are struggling with increasing costs of food and energy and large debt burdens (owing to excessive consumer spending).

On the other side of the scale the population is growing and demand for access to services, including housing is rising. Housing and infrastructure backlogs are increasing and often accompanied with rising community demands and instability, as many challenges (including those of governance at the various spheres) remain.

According to the UN Habitat Report on 'The State of African Citie, 2014'[1] access to drinking water for SA’s urban population has increased from 85 percent to 89 percent and for sanitation from 80 percent to 84 percent in 1990 and 2008 respectively. Improved access to services has been made possible largely through government’s investment in the housing subsidy programme. Rising building and service costs, and standards of the subsidy housing products is putting increasing pressure on the number of housing units that can be delivered from the existing human settlement budgets.

Having implemented and improved the housing subsidy scheme for twenty years many lessons have been learnt, one of which is that there is a need to “radically revise the housing finance regime”.

It also inter alia includes: Prioritising housing investment in inner city areas and transport hubs and development corridors.

    Shifting housing funding to support a wide variety of housing types with different tenure arrangements (including affordable rental and social housing).
    Promoting mixed use activities and land development.

South Africa today is experiencing a high demand for housing units and varying finance products in the affordable housing market with an estimated one million homes still needed. Currently only 20 000 units are developed annually, which means we continue to fall far short of meeting the required number of affordable housing stock. In future the demand will increase significantly as the latest census data informs us that about 60 percent of population of South Africa is under the age of 34. The census also informs us that the average household income is about R103 204.00 with Gauteng population earning above this average at R156 243.00 and Western Cape income average is at R143 460.00. This means that sharper and better targeting instruments should be developed particularly for the Metropolitan areas that are facing increased migration of people without the corresponding increase in various forms of affordable housing.

The increase in demand and short fall in the supply of available stock continue is driving up prices in the affordable housing market. According to the Bureau for Economic Research (BER), in 2013 the average building cost of a new house constructed was 10 percent higher than in 2012. This meant the cost of building increased to about R5 202/m2. The increase in construction cost translated to an increase in the house prices of new homes. In addition fewer numbers of houses are constructed.    

During 2013, the total number of home loans that were approved by the banks over the period is 354 291 with 162,800 loans to the affordable housing market. While the number of home loans for the affordable housing market is higher the number still falls short of what is required to meet the demand. Reasons given include indebtedness of the borrowers and availability of houses at the tight price.

In the next five years a target of 1.5 million housing opportunities has been set to address the housing needs of poor and middle income households. This target includes the development of new catalytic projects that are aimed at making a difference in the spatial form of this country. These projects would demonstrate spatial, social and economic integration taking into consideration lessons learnt from the plethora of projects initiated as a result of the Comprehensive Plan for the Development of Sustainable Human Settlements. Today a strategy is required not only to deal with the supply but the demand for affordable housing.

Access to housing and access to housing finance by low income earners is a critical in ensuring the development of any country. However income levels are such that the majority of households cannot afford to buy the least expensive house, even if mortgage finance were available. The major strategy is to ensure that there is enough housing stock at the right price in the right locations. It is therefore necessary for the summit to debate and develop innovative solutions to increase the supply of affordable housing stock.

The recommitments made through the social contract in October 2014 came at a time where a similar pledge made by banks back in 2005 is not only needed but essential.  In the recent indaba to discuss commitments between all social partners, the banks and BASA committed to:

•     Develop proposals to improve ongoing coordination between the National Department of Human Settlements and the Banking Association South Africa.
•     Develop proposals that promote sustainable human settlements in both urban and rural areas.
•     Increase and fast track the supply and delivery of affordable housing in well located land.
•     Increase the number of approved end user loans (both mortgage and non-mortgages) for affordable housing.
•     Actively monitor and provide semi-annual reports on objectives.

Specifically our renewed partnership should achieve the following:

•     Develop concrete steps to address affordability issues.
•     Diversify finance options for the gap market as traditional form of mortgage cannot be the only solution.

More telling of the mammoth task many countries including South Africa are facing is the recent (28 October 2014) statement by the Executive Director of UN-Habitat who stated that affordable housing should be put back at the centre of cities, both in terms of planning and policy, and geographical location. The reasoning for perpetuating this he states, is because access to decent, affordable housing is essential to the health and well-being of people and the better functioning of economies is imbedded in the United Nations Universal Declaration of Human Rights. Yet in developing and advanced economies alike, cities struggle with the dual challenges of housing their poorest citizens and providing housing at a reasonable cost for low- and middle-income populations.

The programmes that DHS has for affordable housing only addresses those that earn less than R3500/month while only the financed linked individual subsidy programme is targeted for individuals earning up to R16000/month. However the demand for both rental and homeownership in this category is increasing as nurses, teachers, police and many other professionals require affordable and decent places to live. It is unfortunate that the current programmes for the gap market do not adequately address the supply side of the housing value chain. Thus the department calls on our partners to develop together pioneering responses.

The current direct association with the banks is through Credit Linked Subsidies administered on behalf of the MEC by banks, financial institutions and other approved providers of credit (the lenders) – if we need to succeed in our objectives things cannot be allowed to continue in this fashion. The programme better known as Financed-Linked Individual Subsidy Programme (FLISP), was developed by the Department of Human Settlements to enable first time home-ownership opportunities to South Africans and legal permanent residents earning between R3 501 and R15 000 per month. These are people falling in the category known as the gap market because they either earn too little to qualify for a home loan or too high to qualify for a government full subsidy house. FLISP offers down payment assistance in the form of a grant to qualifying beneficiaries, who are in a financial position to secure a Home Loan (Mortgage Loan) from a Lender (Bank) to acquire a home. The objective of the programme is to reduce the initial mortgage loan amount to render the monthly loan repayment instalments affordable over the loan payment term. FLISP support qualifying beneficiaries who wish to obtain mortgage finance from a lender to:

•     Acquire ownership of an existing residential property.
•     Build a new house with the assistance of a homebuilder registered with the National Home Builders Registration Council (NHBRC), on a serviced residential stand, that is already owned by the beneficiary.

Depending on their income level, a qualifying beneficiary will receive a subsidy of between R10 500 to R87 000 towards financing a property that does not exceed a purchase price of R300 000. The programme although recently revised had limited success due to many challenges that includes restrictions regarding the maximum purchase price and the availability of the required housing stock.

The expectation of achieving a functional and single property market can only be realised through stronger partnerships with all the stakeholders in the value chain.

The National Development Plan mandates the human settlements sector to respond to the following:

•     Develop bolder measures to develop sustainable human settlements.
•     Radically revise the housing finance regime.
•     Revise the regulations and incentives for housing and land use management.

Government has thus geared itself in setting favourable conditions for the achievement of the 1.5 housing opportunities for poor and moderate income households. More importantly this will contribute towards realising the outcome of sustainable human settlements and improve household life.

I thank you.