Housing: Standing in the GAP. A report from the Urban and Housing Development Conference

Carel Kleynhans recently attended the Urban and Housing Development Conference in Cape Town on behalf of Future Cape Town.

Over the course of three days at the Urban and Housing Development Conference in Cape Town, it was interesting to see how the main challenges facing urban development in Africa were summarized in a few major themes – as reflected in most of the presentations by both industry professionals and policymakers alike.

A lot of emphasis was placed on the implementation of policies that facilitate both economic growth and sustainable urban development, and several speakers touched on the importance of sensible infrastructure development for urban transformation. Most speakers, at some stage, referred to the impacts and concerns of rapid urbanization in Africa, and a large emphasis was also placed on green building solutions, their importance and costs.


Sarah Rushmere of the Green Building Council of South Africa pushed the idea of short run gains in the fight against global warming by focusing on the built environment. She also explained how the GBCSA is developing a set of tools for rating South African green buildings.

Norah Walker, one of the driver’s of the City of Cape Town’s Metropolitan Spatial Development Framework, commented that it had taken Cape Town 30 years to update its planning framework. They currently focus on 4 key approaches in Cape Town’s development strategies: inclusive and integrated development; knowledge is power, wisdom is using it to develop the right places; manage sustainable growth; and create great places.

The last major theme, and perhaps the most prominent at the conference, was that of affordable housing finance. It is no secret that most African countries face annual housing deficits of hundreds of thousands of units, and that traditional approaches to affordable housing are clearly not working. South Africa currently has the worlds largest subsidised housing program (as % of GDP), yet the housing market is still unable to meet the demand for affordable units. A related, and equally serious problem is that of the so called “gap market” – households who earn above R3 500 per month, and therefore do not qualify for RDP housing, but less than R7 000 per month, which is the approximate minimum income needed to purchase an entry level unit with a traditional mortgage.

In South Africa, traditional microfinance providers currently extend significant amounts of credit to low income earners, but loan amounts are too small and interest rates too high for these products to be directed to housing. Sean O’Sullivan of Select Africa, a housing microfinance (HMF) provider operating in several African countries, believes that less than 1% of the African population currently have access to mortgage finance. Pierre Venter corroborated this statistic while explaining the crucial importance of affordable credit for building up a personal asset base. Venter, of the Banking Association of SA, argues that private sector participation in the (currently underserved) HMF market is a key form of delivery in accelerating home ownership for the urban poor (and particularly the gap market).

O’Sullivan presented three guidelines for HMF lending in markets where traditional banks will not lend:

1. Lenders should be flexible to forms of land tenure other than formal title.

Alternative forms of credit enhancement can be achieved by, for example, using payroll deductions and ensuring that the loan is appropriately priced for the risk borne.

2. Facilitate the building and improvement process to ensure a quality end product.

A higher quality end product increases the credit quality of the loan in case of default. By offering basic advice on the building process, HMF providers can significantly reduce their risk.

3. Offer affordable credit (with innovative products).

By demonstrating to clients that incremental building reduces cost of carry substantially, HMF products can be supplied at much lower total cost. The installment associated with a traditional mortgage loan at 25% interest is still 55% greaterthan that of an incremental HMF Loan at 50% interest.

Housing microfinance, although a proven model in rural Africa, still faces many hurdles in urban South Africa. Venter calls for increased support from government in creating a capital market and source of long term funds for HMF lenders – as well as a review of regulatory frameworks and greater government efficiency aimed at creating certainty in the market.

The conference presented some of the leading thoughts on addressing the challenges surrounding the current affordable urban housing ecosystems in Africa. Although speakers differed in their chosen approach, everyone agreed on one thing: we need to be much more creative and progressive in our thinking if we want to see this problem being even remotely solved.