Andrew Ardington

Dear Premier Helen Zille,

Given that the City of Cape Town’s current incentives for private sector led affordable housing have not yielded a single development in the city centre and surrounding suburbs we can safely assume that they do not work.  Add to this Cape Town’s rocketing land prices and it is obvious that the situation will not change until other options are pursued.

The 2015 State of Cape Town Central City Report details more than R8 billion of new investment to be made into Cape Town’s CBD within the next five years. Yet this massive influx of private investment which picks up off a decade long trend of urban regeneration and growth in the CBD has hitherto not been met with the provision of a single affordable housing unit in the area. Whether provided by the state or the incentive driven private sector.This is alarming.The current approach of the Local and Provincial Government only supports the accusation that the DA merely pays lip service to the concept of affordable housing and spatial transformation in Cape Town.

The problems

Social housing, which is a creature of The Social Housing Act is perhaps the only model of subsidised housing in South Africa that is specifically geared towards providing affordable housing in well-located areas where land is more expensive.  However, the Social Housing Act has failed to move with the times and is outdated to the degree where it has become a hindrance to development. Moreover, the reticence of the state, as in the case of Tafelberg, to release land below market value is the biggest obstacle to seeing this model contribute more meaningfully to urban restructuring.

With the high land prices and high demand for residential property in the City the private development model really only considers luxury developments and the incentives do not change this. The problem with the existing incentives is that they are ‘after the fact’ incentives which do little to reduce the risks associated with large scale property development and capital only follows a high risk path if the rewards are higher.

Private developers are pushed to maximise returns by risk – the risk of buying expensive land, the risk of sitting around and waiting for it to be given the permission you need to build a big enough, smart enough building to make enough money to make it worth your while, and of course the risk of not getting that permission.  The higher the risk the higher the return required to justify it.

At R135mil the cost of sitting on the Tafelberg land while applying for development permission and then building is R8mil per year (assuming only 6% opportunity cost).  Say the whole project takes 3 years you have to add R24mil to the land cost to break even.  Now say you don’t get the permission your business model required, or it takes twice as long to get.

Together all of this means that that no affordable housing development is going to happen without the Local and Provincial Government’s involvement.  Indeed it needs to be, and should be driven by Government.  Moreover as we now sit the only existing opportunities to get at least some affordable housing into the City lie with government land. Government’s land holdings offer the ideal opportunity to tap into private-sector capacity to provide affordable housing options.

An alternative

The alternative to the current models that is of a Public Private Partnership. The State does what it can do to mitigate the risks and the developers have to raise the capital, build and sell/lease.  By using state owned land and being proactively involved in making the development happen the City has the ability to remove almost all of the risk that private developers face.  Less risk means less reward and increased affordability.

How it works

The City comes up with a concept defining what the best use of the land is and then puts the concept out to tender (in the case of the Tafelberg site a mixed development of Social Housing, flats for sale on the open market and a school).  Any private developers considering bidding for the tender then only have to factor in the risks associated with building (cost changes, floods etc) and the selling of the private flats, significantly reducing the costs of development.

From the government’s side the only cost they have to incur is the opportunity cost of the land – they do not need to find the capital to make the project happen, they do not have to manage the building process and they do not have to get involved in any other capacity.

Gov Responsibilities

  • Provide land
  • Facilitate re-zoning (if required)
  • Facilitate building permission

Developer Responsibilities

  • Capital
  • x% of development to Social Housing
  • Building
  • Selling of private apartments

Province, and more specifically the Department of Transport and Public Works, has wide experience with public, private partnerships such as its current multi-million Rand procurement of new Provincial office accommodation in Dorp Street. This same approach must be applied to well-located state owned land to deliver much needed affordable housing in Cape Town. I believe that the Tafelberg site is well suited for this type of approach and that it should at least have been considered before the decision to sell Tafelberg outright with no conditions without conditions attached to meet broader and pressing socio-economic needs. As it stands Cape Town is already dangerously far behind the times in this regard.

Sincerely,

Andrew Ardington

 

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