The Banking Association of
HOUSING
DEVELOPMENT AGENCY BILL PUBLISHED AS PER GOVERNMENT GAZETTE NUMBER 30346 DATED
26 OCTOBER 2007
1.
Introduction
The Banking Association would like
to thank you for giving us the opportunity to comment on the proposed
legislation that will govern the Housing Development Agency (HDA).
The
banking industry is in principle fully supportive of the need for government to
release well located land which is suitable for residential development as
stock shortages within the subsidy, gap, affordable and inclusionary housing
market segments are of concern. The initiative shown by the Department of
Housing to establish a HDA is therefore welcomed.
Challenges
always manifest themselves in the implementation of good ideas, and within the
context of the HDA, the creation of a functional operational framework for the
HDA that will promote accelerated housing delivery is such a challenge.
In
formulating our concerns and suggestions in respect of the role that the HDA
should play, we highlight some of the obstacles that lenders have experienced
in respect of housing delivery as well as providing some ‘principles’
suggestions.
2.
Some shortcomings within housing delivery
a) National
Scenario
We are concerned that the HDA is to be introduced
into a ‘vacuum’ and that due to infrastructural constraints (physical, social
and economical), that it will be ineffectual and that the Department of
Housing’s strategic intervention will yield limited results unless at least the
physical infrastructural constraints are removed as a pre cursor to formulating
such an Agency.
Given this ‘vacuum’, we believe that the HDA should
be the ‘champion’ for promoting sustainable human settlements including their
acting as the facilitator for the release of suitable residential development
land. We further suggest that it should focus on macro planning only. Our
experiences are that this is where the major obstacle in the market exists. By
macro planning we mean that the HDA should focus on:
Ø
Assembling land on behalf of second and third tier
government entities for sale to the private sector. This would include
identifying suitable land and/or consolidating disjointed pieces of land
through either purchase or facilitated expropriation through the department of Land
Affairs (see comments below).
Ø
Whilst second and third tier government are responsible for
formulating Integrated Development Plans (IDPs), we have found that these tend
to be superficial and disjointed and that in particular there is a lack of
creativity and vision in respect of formulating regional Strategic Development
Plans (SDPs). By bringing together SDPs/IDPs and land, we believe that the HDA
would fill a vital gap.
Ø
Assisting second and third tier government in formulating
proposals for the provision of bulk infrastructure to such developments, as an
increase in the supply of land without the necessary support of bulk
infrastructure to these developments will severely limit the ability of
developers to actually develop these housing projects.
Ø
Over the past few years, based on input from member banks
that provide residential development loans to developers and/or who act as
developers in their own right, it has become clear to us that the provision of
physical infrastructure by local authorities is a major impediment to the
delivery of housing. Increasingly they advise that for residential housing
development to take place a dependency is the need for bulk infrastructure to
be upgraded or new installations to take place and that this is restricting development.
Unconfirmed media reports indicate that there is a 75-80% mismatch between
existing infrastructure and required infrastructure to support housing
development. We would be prepared to commission credible research to validate
the position. Further, whilst Provinces and Municipalities are promoting
densification through creating an ‘urban residential housing edge’, member
banks also report that developers are increasingly finding that the physical
infrastructure within these ‘urban edges’ (electricity, water, sewerage and
roads) is unable to cope with such densification. Further, member banks advise
that at a ‘metro level’ there is still some capacity for local authorities to
borrow additional funds to support the provision of new/additional bulk infrastructure
for new development/ densification projects and that they also possess the
necessary in-house skills to deliver upon both infrastructure and housing. However it is below this level that
they observe that local authorities don’t have sufficient revenues to even
maintain their existing infrastructure, let alone find themselves in a position
to fund new/additional bulk infrastructure. Media reports over the past few
months allude to this position with articles being written concerning the
difficult position Government finds themselves in as regards electricity,
water, sewerage and road infrastructure, a shortage of in house skills being
mooted for much of the problem.
(b) Capacity
to Implement
It is ironical to note that the Department of
Treasury, the Development Bank and commercial banks all have under utilised
budgets for the provision of infrastructure, despite the above shortcomings.
This supports the media view that there is a shortage of skills within both
second and third tier government in respect of being able to formulate
proposals, which shortcoming we believe should be filled by the HDA.
Ø
Given the multi departmental impact of such a suggestion, if
Government does not see its way to providing this mandate to the Department of
Housing, at the very least we believe that this needs to be addressed
proactively by allocating this responsibility to another gazetted entity
(perhaps an entity situated within the Presidents Office could be such an
alternative).
Ø
Assisting second and third tier government in respect of
procurement. The PFMA is a complex piece of legislation which places both
second and third tier government departments in difficult positions. The HDA
could play an important role in navigating compliance with and efficiency
Ø
In land acquisition/sales and/or project
planning/outsourcing.
Ø
Facilitating third tier funding for bulk infrastructure
and/or the acquisition of land either through purchase or expropriation.
Ø
Assisting with the up skilling of municipal resources.
Ø
Multiple department initiatives are required to coordinate
budgets for the simultaneous release of economic, social and physical
infrastructure within such developments. The HDA could therefore play a
critical coordination role in this respect. This could include setting up teams
of skilled resources (both from internal and private sector specialists) to
fast track the coordination and provision of holistic infrastructure.
This
implies that the HDA would consist of a lean nucleus of professionals such as
town planners, engineers and project managers.
(c) Rural
versus Urban Areas
As you are aware, the dynamics within rural areas are
very different to that of urbania. Given the lack of densification within the
rural environment, in most instances the provision of infrastructure and
housing cannot be undertaken on a commercially viable basis. The role of an HDA
to facilitate holistic integrated development (includes
economic/social/physical/environmental infrastructure) within these areas,
which would involve support from numerous government departments, should we
believe be a distinct focus area of the HDA, failing which we will continue
to experience a population migration
from these areas to the urbania.
(d) Sustainable human settlement
inadequacies
The Breaking New Ground policy entrenches the need
for holistic development in order to create sustainable human settlements,
which includes the provision of physical, economic, social and environmental
infrastructure. Given the lack of capacity, funding and other priorities within
the various departments within local and provincial authorities to provide such
support, the effectiveness of unsupported public sector land being released
into the market will have the potential to promote:
Ø
Increased levels of market distortion and increasing gaps in
the ‘housing ladder’ if developers are required to fund the provision of
additional/new bulk services
Ø
Cross-subsidisation between market segments within
developments to provide free serviced sites to Subsidy beneficiaries (a further
market distortion based on the cost of land and link services). This will
exacerbate gaps in the ‘housing ladder’
Ø
Increased development delays (land to serviced stand)
Ø
Inadequate economic (employment opportunities) and social
(schools, crèches, clinics etc) infrastructure support for low to medium income
communities at such developments
Ø
Further weaken many already weak local authorities in
respect of either their solvency levels and/or housing/infrastructure
development capacity
We
accordingly suggest that should the Department of Housing establish a HDA
without the necessary support of physical, economic and social infrastructure,
that this will undermine/dilute the value of what is an extremely important
public sector initiative. The support of the Departments of Provincial and
Local Government (DPLG), Public Works and Trade and Industry can play pivotal
facilitation roles in promoting the establishment of holistic infrastructure
within such development areas.
3.
Comments on the content of the HDA Bill
(a) “The Agency may not acquire any land which, at the
commencement of this Act, is registered in the name of the province,
municipality or a provincial public entity or provincial commercial enterprise
or municipal entity”
Whilst we understand the rationale for the HDA not
taking ownership of such land, we are concerned at the missed opportunity given
that government is the largest land
owner and more especially so in respect of well located infill sites.
Initially, the intention of the Department was for the HDA to “identify and
facilitate the purchase of unutilised state land that is within the amenities
that people were seeking, and develop units that range from low and middle
income houses” (Xolile Bengu – spokesman within the Department of Housing).
Whilst there may be Constitutional issues which prevent this from happening
directly, we raise the following concerns:
Ø
In excess of 80% of housing demand presides within the top
20 municipalities. As these municipalities can all expect to receive housing
accreditation status (making them independent of both national and provincial
Departments of Housing), we can expect them to want to operate independently of
the HDA. Further, given their need to maximise profits from the sale of the
municipal land, we expect them to release their land for upmarket developments.
Even if they do so under the guise of demanding an element of inclusionary
housing within each development, based on existing housing delivery levels
within the middle/upper income market, inclusionary housing levels will not
exceed approximately 9 000 units per annum which will not remotely ‘dent’
housing backlogs within the subsidy/ affordable housing market segments.
Further, we moot that municipalities/parastatals should not be able to sell
identified sites without the HDA having first right of refusal to bid against
other interested parties (private sector).
Ø If the only
source of suitable land that could be identified for acquisition is privately
owned land, there will be the need for Government to manage private sector
perceptions around what was touted as “a land acquisition programme for
housing.” This could become a
particularly emotive issue if the market perceives private land being acquired
through expropriation at below market value prices.
Ø The mandate for
government to expropriate land currently vests with the Department of Land
Affairs. To grant this authority to a second Department is we believe
inappropriate as it essentially duplicates this already defined role, as well
as increasing the possibility of lack of integration and even conflict between
these two Departments concerning ownership of this function given the Municipal
Rates Act which places all property ownership (rural and urban) within the
jurisdiction of Local Authorities. Our view is that the HDA should simply
facilitate the expropriation of land through the Department of Land Affairs.
We accordingly recommend that this clause be reviewed to include the
HDAs ability to acquire land from these entities.
Further, if the HDA is restricted to purely acquiring private sector
land there is the very real danger that:
Ø
The above entities will not accelerate the release
of suitable residential land in support of Breaking New Ground and that as the
largest landowner of well located land these entities may squander a scarce resource in preference to
more upmarket developments (increased revenue trail from such sales)
Ø
The well documented skills scarcity within many of
these entities will continue to create inefficiencies which will prolong the
current backlogs in housing
Ø
It is well known that second and third tier
government entities are increasingly seeking to act independently and so will
be reluctant to seek the assistance of the HDA
Ø
There is the possibility the municipalities may, if
they are backed by a HDA discard a “realistic” process to identifying suitable
land in their SDPs/IDPs and adopt a more speculative approach which will be
funded by the HDA. This could lead to “crowding out” of the private sector
developers and/or the establishment of unhealthy patronage ties with the HDA
which could include conflict of interest (planning and implementation of new
developments) at municipal level.
Ø
Within the HDA Bill there is no mention of the Department of
Trade and Industry. It is our understanding that this department oversees
entities such as Transnet and Escom, both of which are substantive owners of
well located unutilised land which could be suitable for residential housing
development. Our suggestion is that these entities should be required to
provide the HDA with ‘first right of refusal’ to purchase their surplus
land.
Given
the above we fear that for at least the medium term the HDA may not be able to
significantly facilitate an increase in the supply of land for residential development
unless it harnesses the support of other departments such as the DPLG, Public
Works, Treasury, Trade and Industry and the Development Bank. We were pleased
to note that a representative from both DPLG and Public Works are envisaged as being represented on the Board
of the HDA. We suggest that this be expanded to also include the other entities
as listed above, as this will enable the HDA to harness the support of other
critical departments to release land as well as to provide support to provinces
and municipalities to proactively address holistic infrastructure and to
develop these based on a long term view which aims to meet projected demand
within a town/region and to align budgets accordingly (both cost and revenue).
In
order to obviate the wasteful sale of land outside of targeted residential
housing and to promote ‘sustainable human settlements’, we suggest that at
provincial/national Department of Housing level:
Ø
A holistic infrastructure development scorecard is compiled
and collated by municipalities/provinces so that the department is able to
monitor and facilitate the redress and closure of trend gaps in the provision
of holistic infrastructure development.
Ø
Provincial, municipal, DFI and quasi government landowners
continue to commit themselves not to release land outside of the target housing
market without the prior sanction of provincial Departments of Housing.
The
release of well located land has the potential to create significant market
distortions and so a carefully crafted policy will need to be implemented which
minimizes the possibility of such distortions. A possible solution to this
potential problem is for:
Ø
Unserviced state land to be released at a reasonable cost
with restrictions being placed on the type of development as well as
development densities (to be increased) to either the private sector or for
development by the Municipality itself so that it facilitates the development
of integrated mixed income communities.
Ø
Government to selectively provide affordability support in
the form/s of subsidies, tax credits etc. We stress though that the recovery of
such support should be at either national, provincial or municipal level as
attempts to recover this at development level distorts perceived product
(house) value due to micro level cross subsidization.
(b) Other
Ø
High level policy comments: the
ambit which this Bill aims to address is a technical, specialist one, which we
believe requires detailed technical commentary for an effective operating plan
to be created by working committees once the HDA is established. We would gladly be prepared to assemble a
core technical team from banks so as to engage with representatives from the
Department in order to add a further technical component to this plan.
Ø
Targets/Financial Viability of the HDA: We
are concerned that if the HDA becomes purely target driven that much of the
strategic intent behind the establishment of the HDA would be lost. There is
therefore a need to create a balanced scorecard against which the HDA would be
evaluated. Given that its role is also a facilitation and strategic one, should
financial measurements be the sole determinant of its success, this would
underplay the social and strategic imperatives of Government. The
aforementioned RIA provided a mixed and unconvincing business case as in our
view its focus was too narrow in that it failed to holistically include
possible civil instability which a housing backlog can induce or to quantify
the overall housing delivery impediments which the HDA could play a pivotal
role in addressing, including promoting governments social imperatives.
Ø Mixed use developments: Given the need for BNG developments to not only be mixed income
residential developments, but rather that they should be of a mixed use nature
too (also see holistic infrastructure comments above), we believe that the HDA
Notice should include commentary to this effect and that the roles and
responsibilities of the various resources envisaged within the HDA should
reflect this complexity (requires higher levels of skill sets to facilitate
mixed use developments).
Ø Page 12, point 2 (d): It is our understanding that the creation of an asset register within
the HDA is in respect of its operations.
Can we suggest that in addition to this, that there is a need for the
Department of Land Affairs to create a detailed repository of all state or
quasi state owned land including that envisaged by the HDA and that this be
added to this paragraph as a dependency, as without such a comprehensive
database we do not believe that the HDA can operate effectively.
Ø Page 13, uppermost
paragraph: We suggest that the Bill should highlight that
the provisions of the PFMA, which will require the Department of Housing to
obtain the permission of the Department of National Treasury should it wish the
HDA to be able to provide guarantees, borrow monies etc should be highlighted.
4.
HDA Operating Model
The
proposal currently before us suggests that the HDA should be a hybrid entity
which will also be required to act as both a contractor and a developer, which
we do not believe is feasible as it:
Ø
Places the HDA in direct competition with the private
sector, which sector we believe to be more operationally efficient than the
public sector. Further, it contradicts government’s macro strategy of
leveraging off the private sector where possible in achieving its goals.
Ø
Both international and local best practices suggest that an
entity be it either public or private sector should not engage on both the
supply and demand side of housing, as this creates unrealistic consumer
expectations and demands. Some years ago government established the South
African Housing Trust to acquire land and build houses. This entity was
eventually closed with substantive losses for government. Within the private sector
much of the demise of Saambou Bank can be attributed to it being involved on
both the supply and demand side of housing, the bank incurring substantive
losses from their housing developments. A more recent example which is proving
challenging to government is the N2 Gateway development where the involvement
of Thubelisha (acting as project manager but perceived by the community as
building homes) has created unrealistic expectations from the effected
communities. We mention that the operating model of the development companies
which lenders have established in order to increase the supply of stock within
the Financial Sector Charter target market is based on their acting merely as
facilitators (macro planners) and that they utilise outsourced professionals to
undertake project feasibility studies, obtain planning approvals and to install
link services. These serviced sites are then sold to developers/contractors for
building purposes.
Ø
By promoting that the HDA acts as a developer/contractor
this duplicates existing structures i.e. Thubelisha, which entity we believe
should operate totally independently of the HDA.
Ø
Based on the mooted Bill the HDA will acquire land, act as a
developer, repair poorly constructed/incomplete subsidy homes and upgrade
informal settlements. The magnitude of the task which the Department of Housing
intends placing on this Agency is in our view not workable. To try place such
diverse and challenging responsibilities into a single entity will we believe
simply create increasing ‘bottleneck’ levels. At present
5.
Financial Viability
of the HDA
During
the period of policy making at the National Housing Accord (1993), extensive
research was undertaken in respect of setting up a ‘Land Bank’ in South Africa,
the role of which would be to acquire, hold and sell strategic residential land
for development. The research proved conclusively that this was not financially
viable as the cost of acquiring land at market value, holding costs and
thereafter the cost of conferring ownership for development was not financially
viable, which is precisely what the department envisages the role for the HDA
(the Department should already be in possession of such research).
The
Regulatory Impact Assessment study undertaken by the Department of Treasury a
few months ago in respect of the HDA alluded to this fact in its findings.
Should the Department attempt to continue to promote the role of the HDA as per
this Bill, we are of the opinion that it will continue to face opposition from
both private sector bodies as well as other government departments as they will
hold the opinion that the HDA in its current envisaged role will be an
unfocussed hybrid entity which will be a financial drain on government’s scarce
monetary resources and that it achievements will be limited.
6.
Conclusion
We
believe intuitively that the HDA can play a meaningful and vital role in
increasing housing delivery, despite the Regulatory Impact Assessment findings
being unable to substantiate that the creation of such an Agency will either
increase the delivery of housing and/or provide improved benefits to
communities in respect of the location of such developments. However, given the
viability uncertainty in respect of what functions it should fulfil, would it
be naïve to suggest that a “trial run” of the various options be pursued prior
to establishing and resourcing the entity? Perhaps as a minimum a theoretical
scenario play workshop which includes the various stakeholders would inform the
formation of an appropriate mandate and necessary targets, especially as the
targets which are to be set for the HDA will determine its tone and
behaviour.
In
conclusion, we believe that the HDA could play a critical facilitation role in
supporting the provision of “sustainable human settlements” provided its role
is altered and narrowed as suggested.
Cas Coovadia
MANAGING DIRECTOR