Dear Premier Zille,
As you are aware Cape Town has inherited an extremely segregated and dysfunctional urban form as a result of centuries of systematic apartheid and colonial era planning. This troubling history is compounded by exclusionary market trends which make it near‐ impossible for working class and poor residents to have access to housing (whether adequate housing or otherwise) in well located areas.
While there are several approaches to tackling the problem of skewed access to housing, one approach that is used by governments around the world is to use fiscal and regulatory incentives to encourage the supply‐ side through the private sector construction of additional well‐ located affordable housing units.
Unfortunately, as is discussed below, existing fiscal and regulatory incentives in South Africa have severely underperformed in terms of contributing to the construction of affordable housing units in or around Cape Town’s central city.
In light of the failure of these existing incentives to facilitate access to well‐ located affordable housing in Cape Town, the Western Cape Government is duty bound put in place reasonable legislative and other measures, within its available resources, to achieve the progressive realisation of the right of our citizens to have access to adequate housing. This right to have access to adequate housing includes an equitable spatial pattern and sustainable human settlements.
It is my personal view that selling well‐ located state‐ owned land without requiring purchasers to construct affordable housing units on these sites is a dereliction of this duty, and a dereliction of the Province’s duty to progressively take steps to realise a spatially just and inclusive city.
LEGISLATIVE INCENTIVES TO PROMOTE AFFORDABLE INNER-CITY HOUSING ARE NOT WORKING
Two primary legislative incentives enacted to promote private sector development of affordable inner‐ city housing stock – the Urban Development Zone (UDZ) tax incentive under the Income Tax Act and the social housing restructuring zones under the Social Housing Act – are failing to boost the supply of affordable inner‐ city housing.
Urban Development Zone (UDZ) tax incentive
The Minister of Finance introduced the UDZ incentive, which takes the form of an accelerated depreciation allowance, in 2003, to encourage investment in 16 designated inner cities. In Cape Town, the UDZ covers the CBD, Woodstock, Salt River, certain parts of Observatory, the Voortrekker Road corridor and the Klipfontein Road corridor. Portside, Cape Town’s tallest building, and 22 Bree Street, home to Bowman Gilfillan Africa Group, are two recent office developments that have made use of the incentive. However, there appears to be a comparative lack of take‐ up of the allowance for residential development. A recent enquiry with the City of Cape Town’s department responsible for the UDZ reveals that thus far there have been no low‐ cost housing developments within the Cape Town UDZ that have made use of the incentive, despite the fact that the UDZ incentive offers the greatest allowance to developers of low‐ cost residential units.
An amendment to the UDZ provision, introduced in 2008, provides for a deduction of 25% of the cost of erection or extension of, or addition to, a building in a UDZ in the year of assessment during which the building was brought into use, if such erection, extension or addition relates to a “ low‐ cost residential unit” . The fact that no housing developments within the Cape Town UDZ have made use of the incentive more than a decade after its enactment indicates that developers either have not been made aware of the incentive, or the incentive’s ability to promote low‐ cost units needs to be reconsidered.
The UDZ incentive appears to be very successful at protecting the investments of property owners (working hand in hand with other legislative tools like City Improvement Districts, or CIDs), but completely unsuccessful at promoting inner‐ city housing and therefore unsuccessful at contributing to spatial redress and transformation of Cape Town’s inner city areas.
Yet the need for such an incentive for low‐ cost residential units is clear. Although the city centre accounts for around 25% of Cape Town’s turnover, most of the city’s workforce commutes long distances into the CBD each day. This spatial mismatch between employment and housing locations is highly inefficient and has substantial economic and social costs.
We should be seeing a massive increase in the construction of affordable rental accommodation in the inner‐ city and the neighbourhoods immediately surrounding the inner city, including Sea Point, Green Point, Woodstock, Salt River and Observatory. These areas are close to job opportunities and are situated on an established public transit corridor – an ideal opportunity for increasing density.
Increasing the supply of low‐ cost rental accommodation in these areas will also help combat the displacement of existing low‐ income residents caused by the ongoing gentrification of these areas, as is being seen especially in Sea Point, Woodstock and Salt River.
A healthy supply of residential accommodation close to the economic opportunities of the inner city will keep prices affordable, create economies of scale in the use of public transport and utilities, and open up new business opportunities. It is for these reasons that government incentives such as the UDZ allowance need to be reviewed and a holistic policy strategy adopted to increase inner‐ city housing.
While the UDZ allowance has been praised for its contribution to growth in Cape Town office development in recent years, it is proving to be far less successful at attracting the level of private investment in residential development, especially affordable housing, that this city needs.
Social Housing Act grants
More specifically related to the provision of affordable housing in South Africa is the Social Housing Act of 2008. This Act provides for a restructuring capital subsidy made available to subsidise part of the capital cost of development within certain ‘restructuring zones’.
The restructuring zones under the Social Housing Act zones are intended to align with Urban Development Zones where applicable and to link to planning processes such as the national spatial development framework, Provincial Growth and Development strategies/Provincial spatial development plans, and most particularly local authorities’ integrated development plans.
Despite the potential benefits of the legislative framework under the Social Housing Act, the Act has failed to contribute to the production of affordable housing in the inner city areas of Cape Town. This is partly the result of a failure in the Act to offer greater incentives to development of social housing units in inner‐ city restructuring zones. Such a nuanced approach is needed to compensate for the dramatically increased cost of land close to the inner city, especially in Cape Town which has experienced a surge in inner city property prices over the last decade. In the absence of greater restructuring capital subsidies for inner city areas, the success of the Social Housing Act relies on the willingness of government to release well‐ located public land.
Other than a handful of sites (currently in early implementation phase), not a single development has been completed in or near the Cape Town inner city that makes use of the restructuring capital subsidy. This does not appear due to a lack of state‐ owned land in these areas as the City of Cape Town and Western Cape Government have both embarked on planned initiatives in recent years to dispose of their well‐ located land, rather than contribute these properties to the development of social housing units. Unless government is willing to make its inner city land available for social housing units, the effectiveness of the incentives under the Social Housing Act will continue to remain compromised.
Sean Dayton, LLB, BSc (Property Studies), corporate lawyer at law firm Bowman Gilfillan Africa Group (BGAG) with a specialisation in property finance, writing in his personal capacity.
Please see the following article by Sean adapted from an article on Future Cape Town’s website for more information.
The Cape Town central business district accounts for approximately 25% of the metropolitan region’s turnover. Most working class commuters, however, travel great distances to reach the central city to provide the labour that these neighbourhoods consume.
This “spatial mismatch” between location of employment and location of housing is highly inefficient, serves to further exacerbate access to employment opportunities and has substantial economic and social costs. In 2015 SA’s Statistician-General released a report revealing how households in the two lowest quintile income groups spend between a third and a half of their entire disposable income on transportation.
The City’s 5-year plan for human settlements directs that developments “must facilitate the spatial transformation of the City’s suburbs”, moving toward efficiency, inclusion and sustainability. According to the plan, the building of cohesive and caring communities, with improved access to economic and social opportunities, is “imperative”.
Despite this, the City of Cape Town (CoCT ) and the Western Cape Government (WCG ) have indicated that they favour an approach called “cross-subsidisation” – namely, the selling-off of relatively more valuable land in upmarket neighbourhoods in order to (ostensibly) use this money to purchase cheaper land in outer-lying areas for affordable housing. Using this argument, the PWCG Department of Transport and Public Works plans to sell the Tafelberg school site in Sea Point, along with three other central city sites namely: Somerset Hospital Precinct in Green Point, Government Garage Precinct in Gardens, and the Alfred Street Complex in de Waterkant.
Yet selling the Tafelberg site – at least without any conditions – will only make it more difficult to achieve the spatial transformation this City is looking for, due to a number of factors. The Western Cape Government should reconsider the sale of the Tafelberg site, and should use the site for appropriate mixed-income affordable housing, for the following reasons:
1. Apartheid forced removals have created a racially polarised city
South Africa’s Apartheid government systematically removed tens of thousands of non-whites from areas in and around the Cape Town central city, Atlantic Seaboard and beyond. Because of continued economic disadvantage coupled with inflated property prices, the racial makeup of these neighbourhoods has changed little since then. Non-whites continue to remain disadvantaged, and market forces alone will not resolve this.
Even though we’re more than 20 years into democracy, non-white neighbourhoods in Cape Town remain vastly unequal to those of whites. Non-whites continue to live among more disadvantaged neighbours, continue to have access to lower performing schools, and to be exposed to more violent crime.
By using well-located state-owned land, such as the Tafelberg site, for affordable housing, rather than selling it to private developers (with no strings attached), we can more quickly begin to start the long-term spatial (and therefore racial) transformation of our neighbourhoods and send a clear message that as a city, this transformation is important. The City’s 5-year plan for human settlements speaks to the same point when it discusses balancing quantity with quality:
“While the drive to accelerate the delivery of more housing opportunities (quantity) will continue, there is an equally important drive to pursue quality-of-life objectives relating to improved human settlements. These include…ensuring and promoting medium-density housing in well-located and appropriate areas within the urban core, along transport corridors and in economic nodes.”
2. Introducing affordable housing in Sea Point is not going to create a hotbed for crime
Unfortunately, a few vocal middle class residents might oppose plans to develop affordable housing in their neighbourhood. They will probably argue that poorer residents will contribute to ‘crime and grime’ or the depreciation of their property values. Sea Point’s problems with crime over a decade ago were not associated with affordable housing, but rather the lack of acoordinated management approach prior to the introduction of the Sea Point CID.
To be clear, giving nurses, supermarket cashiers, domestic workers, gardeners and security guards an opportunity to live close to where they work will not contribute to crime. And as far as depreciation of property values is concerned, Vancouver and New York City, two cities with some of the highest property values in the world, have over the last decade forced developers to include affordable housing components in affluent neighbourhoods with no noticeable effect on property values (other than that these values continue to increase year on year).
3. A mixed-income design can prevent concentrated urban poverty
A mixed-income mixed-use development proposal for the Tafelberg site could result in a more inclusive development and achieve a balanced development rather than the ‘island of poverty’ that many opponents believe such a housing project would entail. A development such as the Brickfields development in Johannesburg seems to have had some success as a mixed-use development that provides a number of housing types, from single units for students to bigger apartments for young couples with children.
4. Once the Tafelberg site has been sold it’s gone
At the crux of the issue is the fact that well-located state-owned land is a public good, a capital asset to be held onto. Government should not be in the business of getting rid of it, least of all with no strings attached. Once sold, this land will become too expensive to buy back when we need it.
In 2014, around the time that the Western Cape Government announced its plans to lease the Tafelberg site (rather than sell it outright as it is now in the process of doing), the MEC for Transport and Public Works highlighted the fact that that the decision to lease, rather than sell, was to ensure that “future generations will (in say 30 or 50 years’ time) again have an opportunity to decide how to utilise this most valuable, finite and irreplaceable resource, namely property.” If this was the government’s position in 2014, why has this position changed so much since then? And where is this shift in policy direction documented?
I hope that the Western Cape Government will reconsider the sale of the Tafelberg site for the reasons mentioned above and will start engaging with residents about what can be done to progressively correct the racial and spatial imbalance that we presently find in our central city and surrounding neighbourhoods.