Social Housing Bill 29 of 2007 Preliminary response Odette Crofton Acting Chief Director Social / Rental housing & PHP 12 September 2007

Outline Context Social housing policy Social housing Bill Chapters –Chapter 1 –Chapter 2 –Chapter 3 –Chapter 4 –Chapter 5

Context Socio-economic demographics Migration Patterns Rapid rate of urbanisation ⅓ of low-income renters in metro’s are in backyard shacks & informal settlements The poor struggle to access limited rental opportunities provided by formal market (especially in good locations) Province R0 – R800R801 – R3, 200R3, 201 – R6, 400 Eastern Cape 52.8%33.72%13.41% Free State 56.06%33.19%10.75% Gauteng 41.62%43.88%14.49% KwaZulu Natal 53.03%34.68%12.29% Limpopo 49.26%33.25%17.49% Mpumalanga 48.61%38.77%12.62% Northern Cape 42.22%40.86%16.92% North West 44.40%42.48%13.12% Western Cape 30.87%47.31%21.82% Total 45.12%40.27%14.61%

Context - Demand Demand for rental rising (7% p.a. for groups earning R1600- R3200/month) = affordable market need Additional pressure due to: –National Credit Act –21 – 18 as age for contracting –Property boom – no ceiling on rentals that can be charged

Context Basic Rental Formula TenantpaysRentto occupy a Unit Common Denominator Definition: An agreement between a landlord and a tenant that gives the tenant the right to use and occupy rental property for a period of time

Intervention required Public rental housing market Private rental housing market Access for lower & indigent income groups Gearing to scale

Context – Rental Strategy Public rental housing market Private rental housing market Access for lower & indigent income groups Gearing to scale CRU Social Housing Complementary initiatives

Proposed Rental strategy Community Residential Units Correcting historical problems with public housing & hostels Coherent framework for public housing & hostels Indigent & lower income groups (R3500 – R800) Stabilizing market & housing environ Addressing slum landlords Affordable formal accom for informal tenants Object subsidy Social housing Private sector for-profit & non-profit sectors mobilized Cross-subsidization Mobilizing private funders Restructuring objectives Lower and middle income groups (R7500 – R1500) Object subsidy

Social housing policy SH programme involves a mixture of gov grants, private sector funding and equity Focus on involvement of private sector Allowing for maximum cross subsidisation from higher/middle income to support lower income Targeted & focused programme, not mass delivery Restructuring objectives

Definition of social housing A rental or co-operative housing option for to low income persons at a level of scale and built form which requires institutionalised management and which is provided by accredited social housing institutions or in accredited social housing projects in designated restructuring zones

Delivery agents for Social housing Non-profit company Municipal owned entity Housing Co-operative For-profit company Public-private partnership Social Housing institutions

Social housing policy Introduces three groups of instruments: Legislative & regulatory Instruments Social housing Bill = framework legislation Social Housing Regulatory Authority (SHRA) Defined sector roles & players Financial instruments Restructuring capital grants for social housing Capacity building grants Tax incentives Risk mitigation measures Capacity building instruments Focus on capacity to run viable projects 1. Capacity to develop and implement projects 2. Effective internal functioning of SHIs 3. Support to gear up staff Resource pools like TRGs

Social Housing Bill, 29 of 1997 Social Housing Bill 29 of 1997 Chapter 1 Terminology & principles Chapter 2 Roles & Responsibilities Chapter 3 SHRA establishment Chapter 4 SHI functioning & Accreditation Chapter 5 Programme & Regulations

Chapter 1 Terminology & definitions ambiguity: Approved projects vs accredited projects Low & medium income groups Lease agreements Maladministration Social housing – not include rent-to-buy Principles – specific to SH, rather than all from housing act and SH policy

Chapter 2 Roles & responsibilities not duplicate roles & responsibilities in Housing Act Co-ordination & alignment as part of the process MFMA, PFMA alignment

Chapter 3 Council member appointment vs independence of the council “fit” & proper members on the council All delivery agents are monitored, but in different ways – SHIs (non-profits) vs For- profits Inspections & intervention

Chapter 3

The proposed functions of the SHRA are: –Regulation Accredit & Register SHI’s Recommend Restructuring Zones Set Principles of Compliance & Accreditation Regulate for Compliance Act on Non-Compliance Report on Compliance (Individual SHI and Sector-wide SHI / project performance) –Investment Assessment & support of prospective capital projects Authorisation top-up capital funding Compliance monitoring of project delivery Specification & funding of Institutional Investment Procurement of common SHI sector-wide support

Chapter 3 Phasing in of SHRA & Phasing out of SHF –Preparation phase – once Act is passed –Establishment phase –Operational phase

Chapter 4 Dealing with existing institutions – turnaround programme Data and information on the SHIs

Chapter 5 Regulations to the bill –Code of conduct –Investment criteria & qualifying criteria –SHRA & other delivery agents –SHRA & provinces –SHRA & NHFC –Administrative matter

Chapter 5 - Funding SH Sources of funding: Share capital Shareholders loan Senior bank debt NHFC debt Other debt SH Restructuring grant Staff gear-up grant Provincial top-up (inst subsidy) Application of funding: Project Costs –CAPEX –Overheads –Vat Financing costs –Interest during construction –Commitment fees –Underwriting fees

Financial model for SH Key project variables measured to ensure a viable project Project IRR pre-tax, post-grant (excludes residual value) Maximum Weighted Average Cost of Capital Initial yield on total capital cost Initial yield on capital cost less grant Initial yield on equity Return on equity (RoE) Minimum debt service cover ratio Maximum cost to income ratio Loan to value

Concluding comments Process of dealing with public comments Budget for social housing Dealing with Housing delivery process blockages (land, land release, EIA, township establishment, etc)

Urgency of the Bill –Stability, clarity and direction in the sector –Growth in the Industry –Harness bigger and more institutions into the sector –Entice and provide comfort for funders (local & international