Consumer Information

Author: Maryna Botha
Director – STBB Cape Town
11 November 2020

DEVELOPMENT LAW UPDATE | ISSUE 02 – 2020 (PART 1)

INCLUSIONARY HOUSING POLICIES: DOES THE SWORD CUT TWO WAYS?
The purpose of an inclusionary housing programme is to increase the number of units built for low-income purchasers and to achieve the integration of socio-economic classes, simultaneously. No easy feat. In response, municipal planning and development opinion no longer question whether inclusionary housing is a viable option to achieve these outcomes; the emphasis now is on creating practical frameworks within which to achieve this. It is nothing new. In the USA, more than 500 municipal jurisdictions in 27 states have implemented inclusionary housing policies, some as long ago as 1974 in Maryland.The need has been made more pressing because, despite the many initiatives introduced by successive post-apartheid governments to improve the housing situation in South Africa, not much of a dent has been made in the enormous housing backlog. Affordable housing, being one of the strategic mechanisms used by the government for housing delivery is laden with challenges, among which include land use policies, planning and building regulations, administrative bottlenecks, pithy budgets and more. Thus private sector participation in the form of inclusionary housing has been advocated to be best positioned to assist. The result? An urgency for a practical regulatory framework in respect of inclusionary housing in South Africa in which developers will have return on investment, whilst delivering low and lower cost housing that meets the prescribed quality standards.

How are our large municipalities faring?

The City of Johannesburg
The City of Johannesburg municipality was the first to adopt a formal policy with regards to inclusionary housing. The phrase “inclusionary housing” is defined in its 2019 Inclusionary Housing Incentives, Regulations and Mechanisms policy document as: “Inclusionary Housing: A housing programme that, through conditions attached to land use rights approvals, requires private developers to dedicate a certain percentage of new housing developments to low income and low middle income households, or to households that may not otherwise afford to live in those developments.”Inclusionary Housing in this framework is seen as a mechanism that would facilitate a move towards a more inclusive, efficient and effective City. Through its spatial policies, the City emphasises that inclusionary housing should be part of all new developments and is a key priority to ensure that the City’s residents are housed adequately, near job opportunities, public transport and social amenities. It therefore aims to:
Contribute towards achieving a better balance of income groups in new residential and mixed-use developments and redevelopments;
Provide accommodation opportunities for low-income and lower middle income households in well-located areas, which they might otherwise be excluded from;
Improve the supply of affordable housing opportunities for low income households (ownership and rental); and
Mobilise the private sector to provide lasting solutions in the delivery of affordable housing opportunities across all income groups in the City.
While a mandatory inclusionary housing approach that obligates developers to include affordable units within market related developments is presented, the ground level approach of the City and its representatives is generally based on adoption by developers of inclusionary housing objectives and with inclusionary obligations limited to larger housing developments. Role-player engagement is achieved by:
Currently limiting the requirements to selected large housing developments, the scale of which supports the feasible inclusion of housing units for low-income households. In this way, inclusionary requirements are obligated as a condition to attaining higher development rights;
Developing incentives to offset the increased cost to developers and thereby increasing the feasibility of such projects for developers; and
Negotiating with private developers for the provision of low-income units in exchange for cost reducing incentives, on a project-by-project basis, with inclusionary requirements and availed incentives influenced by an individual project’s feasibility and profitability forecasts.

The City of Cape is in the teething stage
The City of Cape Town has indicated an intention to follow suit, but has not yet done so. Its cunctation culminated in housing activists taking up arms against development projects that have been approved by the City of late. In November 2020, after months of legal skirmishes, the City agreed to include affordable housing in all future private housing developments. A formal framework and policy for developers must still be finalised.
The above outcome ran side by side to objections levelled against the high-end Harbour Arch development that was approved for construction on the Cape Town Foreshore. Amdec Group, the developer, came out strong and set a powerful precedent for the development industry by advising the activists that it would offer affordable housing as part of the development, despite not being legally obliged to do so. Affordable housing rentals at Harbour Arch will not be greater than 50% of market-related rentals. They anticipate that affordable accommodation at Harbour Arch would be suited to people who are employed within the CBD, like civil servants and municipal workers, as well as people employed at Harbour Arch, like critical service workers, duty managers, security personnel and the like. The company says this inclusionary housing contribution represents a reservation of 100 out of the 980 residential units, roughly 10%, as affordable units.

Point to ponder
While the envisioned approach from the City of Cape Town and that of the City of Johannesburg is of a voluntary, negotiation-based nature, the successful implementation of inclusionary housing, will ultimately hinge on the financial feasibility thereof for private sector developers. A mandatory approach may stimulate maximum supply of affordable units; but the inclination at both in the City of Johannesburg and the City of Cape Town weighs in favour of an incentive, negotiation-based approach. This should mitigate some of the potential negative effects on developer returns. In addition, a programme to make inclusionary housing compulsory, may have unintended consequences, such as increased reluctance from residential developers to ply their trade. They may consider that the inclusion will stifle sales and the development becomes unviable.

The original article can be viewed here: