Disrupting the Housing Sector : A Social Enterprise Model by Communicare to Deliver Mixed-Income Housing

by Anthea Houston

Anthea Houston is Chief Executive of Communicare, the oldest non-profit provider of social housing in South Africa. With over eight decades of delivering social housing to those in need, Communicare now owns and manages over 3 300 rental units in the Western Cape.

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The housing crisis

Cape Town’s housing crisis continues to grow as the government struggles to deliver housing in the face of ongoing population growth and declining budgets. Households with incomes under R20 000 per month struggle to get a foothold in the Cape Town’s residential market.  This is because the average house now sells for well over R1 million requiring an income of at least R25 000 per month to raise a bond from a commercial bank.  Depending on the location within the Cape Town metro (e.g. in Rondebosch, University Estate, Tamboerskloof and Vredehoek) the average price is far higher.

The result is that thousands of households remain trapped in overcrowded housing, backyard shacks and informal settlements. With a mixed-income housing model, Communicare actively responds to this crisis in a sustainable way.

A well-known provider of discounted rental accommodation, Communicare owns and manages over 3,000 rental units and aims to deliver a further 2,000 such rental housing opportunities into the market by 2025.

The government’s Social Housing funding model has several regulatory requirements that place limitations on social housing providers.  These make the delivery of new Social Housing unsustainable in the long term because of the costly nature of both serviced land and construction, coupled with the need for capital maintenance as buildings age.  

Committed to the housing cause, many social housing providers sacrifice their long-term financial sustainability to develop new social rental stock.  Having operated for over 80 years Communicare has learned that these short term gains come at a hefty price down the line when properties need substantial reinvestment and the tenants’ affordability levels stagnate due to their lack of mobility.  The need for sustainable scalable model is as critical as ever.

The social enterprise as a response to the crisis

To deliver more social rental opportunities within an environment like this Communicare now uses a social enterprise business model. Traditionally, organisations like Communicare operated as charities providing discounted rental accommodation in South Africa.  This was possible in the past because of the availability of sizeable operating subsidies from the state and grant funding from the domestic or international development community.  Such grants and subsidies are effectively no longer available and organisations like Communicare must find sustainable ways to continue providing housing to under-served citizens.

Communicare is one of a growing number of social enterprises across South Africa that make (or expand their) social impact through business ventures. Social enterprises are either for-profit businesses oriented toward a chosen social impact or business oriented non-profit organisations pursuing a chosen social impact.  Our business models break the typical moulds for both business and non-profits.  

Communicare’s social enterprise model

As a non-profit organisation, Communicare does not distribute profits and all its surpluses are ploughed back into the organisation to achieve its core purpose. Our social enterprise model allows us to cross-subsidise the building of new social housing developments using the proceeds of our commercially-viable activities in the property market.  

 

 

The surpluses from the commercially-viable rentals and sales make the social rentals more financially sustainable. This is because it provides equity for the development of new stock as well as internal operating subsidies for renting some stock to households with very low affordability levels.

Such households include, for example, persons who are entirely dependent on the R1,600 monthly Old Age Pension Grant. This grant is grossly insufficient for such persons to live off let alone, afford a rental that is able to cover the actual cost of even a small one-bedroom rental unit with a shared bathroom and kitchen.  

Using the social enterprise model Communicare is therefore able to create and sustain a significant impact in the provision of affordable housing.  Our model allows us to scale up this impact over time through taking on debt or equity from commercial banks and investors.  This creates a unique capacity to respond to the housing need.

Given the great need for affordable housing in Cape Town, the over 3000 rental units provided by Communicare make a huge development impact. In addition, Communicare amplifies this impact by further subsidising rentals to some persons with very low incomes. In this year alone, Communicare estimates that it is subsidising over R40 million by setting rentals at more affordable levels. We also committed another R1 million in rental concessions to provide additional support to our most vulnerable tenants who are completely dependent on the Old Age Pension Grant or who experience unanticipated short-term temporary financial set-backs.

The 80:20, mixed-use mixed-income approach

Many refer to Communicare’s social enterprise model as a Robin Hood approach.  Communicare is bringing this same Robin Hood approach to its future developments. The organisation is adding 138 new rental units to its existing Musgrave Park rental complex situated in well-located Diep River.  These are four-storey blocks with modern finishes that we will rent at full market rates, upwards of R6500 per month.  

The addition of the new units will create a more diverse income mix in the complex and in Communicare’s rental portfolio.  This mix will make it possible to sustain the lower rent levels in Communicare’s social rental portfolio, currently the majority of the organisation’s rental properties.

Enhancing the sustainability does not stop at infill developments. Communicare is also packaging a number of new mixed-use developments.  Typically, these uses include residential and commercial (retail and office).  Along with this is a mix of incomes in the residential component which incorporates both social and market rentals. At the right scale, the mixed-use mixed-income model has a positive impact on the project cash flows and returns. Taking this approach, the organisation is able to use the limited state social housing capital grants (where available) while also raising the additional finance needed to implement the development on rates and terms that are financially sustainable for both the development and the long-term health of the organisation.

Economic mobility

Complementing this, Communicare offers a social development programme that creates an environment that supports the economic mobility of its social housing tenants.  This involves working with partners to offer tenants opportunities to develop job market skills, enhance their education levels and improve their life skills (especially their financial literacy).

Communicare, like other social enterprises, is disrupting the housing sector with an innovative response to the social needs facing our society.  Our legacy and the sense of duty to think ahead does not stop with our funding model and development plans. The organisation recognises its past and considers it an ongoing priority that we contribute to building a more inclusive Cape Town.

For more information visit www.communicare.co.za

To read more about our 8020 series:

How Changing Planning Policies Could Create Incentives for Building Mixed-Income Housing

Meeting Halfway: Lessons in Social Sustainability from the Lynedoch EcoVillage

 

All content and views expressed in this article remains the property of the author(s) and does not constitute an endorsement by Future Cape Town.