Transit Corridors and the Private Sector: Incentives, Regulations and the Property Market

Transit corridors and the private sector

4 Report 4 in the series Spatial Transformation through Transit‑Oriented Development in Johannesburg

TRANSIT CORRIDORS AND THE PRIVATE SECTOR: INCENTIVES, REGULATIONS AND THE PROPERTY MARKET Kirsten Harrison

A

Transit corridors & the private sector

Transit corridors & the private sector

B

Partners

Agence Française de Développement (AFD) City of Johannesburg (CoJ) South African Research Chair in Spatial Analysis and City Planning, University of the Witwatersrand (SA&CP, Wits)

Steering committee members

Alexandra Appelbaum (SA&CP) Camille Chastagnol (AFD) Arthur Germond (AFD) Prof. Philip Harrison (SA&CP) Prof. Paul Jenkins (Wits) Herman Pienaar (CoJ) Dr. Margot Rubin (SA&CP) Prof. Alison Todes (Wits) Martha Stein-Sochas (AFD) Liana Strydom (CoJ) Dylan Weakley (CoJ)

Editors

Prof. Philip Harrison, Dr. Margot Rubin and Alexandra Appelbaum

Project manager

Alexandra Appelbaum

Authors

Dr. Margot Rubin and Alexandra Appelbaum

Spatial Transformation through Transit‑Oriented Development: synthesis report

Dr. Margot Rubin

The City as a Laboratory: Experimentation, Observation and Theorisation from Urban Labs

Dr. Sylvia Croese

International case studies of Transit-Oriented Development-Corridor implementation

Dr. Kirsten Harrison

Transit Corridors and the Private Sector: Incentives, Regulations and the Property Market

Neil Klug

The more things change, the more they stay the same: a case study of Westbury, Coronationville and Slovo Park informal settlement

Dr. Tanya Zack

Platform to an Arrival City: Johannesburg’s Park Station and Surrounds

Alexandra Appelbaum

Contestation, transformation and competing visions: a study of Orange Grove and Norwood

Lindsay Howe

Constancy and Change: Marlboro South as an interstice of marginalisation and development in the Gauteng City-Region

Prof. Umakrishnan Kollamparambil

Multiple Words and Experiences: Conditions of Life and Work along the Corridors of Freedom

Research assistance

Emmanuel Ayifah Kwanda Lande Mamokete Matjomane Lucky Nkali Lyle Prim

Survey company

Outsourced Insight

Maps

Alexandra Appelbaum and Reitumetse Selepe

Photographs

Mark Lewis

Historical photographs

Museum Africa Collection

Copy editing

Kate Tissington and Alexandra Appelbaum

Design and layout

Louise Carmichael

I

Transit corridors & the private sector

At the time that these reports were researched and written, the City of Johannesburg was using the term Corridors of Freedom to refer to the Louis Botha, Empire Perth and Turffontein Strategic Area Frameworks. Although the name is currently under review we have used the original terminology throughout the reports.

All quantitative data referred to without an explicit reference is drawn from the survey conducted by Outsourced Insight as part of the Spatial Transformation through Transit-Oriented Development project. 1200 people (a mix of residents, business owners and users) were surveyed in the four case study areas of this report series. All mapped data was also drawn from this survey. © City of Johannesburg 2016 To access the original data please contact the South African Research Chair in Spatial Analysis and City Planning, University of the Witwatersrand. www.wits.ac.za/sacp

Referencing the report:

Harrison K (2016) “Transit Corridors and the Private Sector: Incentives, Regulations and the Property Market”. Report 4. Spatial Transformation through Transit-Oriented Development in Johannesburg Research Report Series. South African Research Chair in Spatial Analysis and City Planning. University of the Witwatersrand: Johannesburg.

Transit corridors & the private sector

II

Executive summary The Spatial Transformation through Transit-Oriented Development in Johannesburg report series is the product of a project undertaken between the Agence Française de Développement (AFD), the City of Johannesburg (CoJ) and the NRF South African Research Chair in Spatial Analysis and City Planning at the University of the Witwatersrand.

The project aimed to provide operational support to, and empirical evidence for, the City of Johannesburg’s Transit‑Oriented Development (TOD) programme – at the time known as the Corridors of Freedom (COF). It was a unique and important collaborative endeavour, in which the project proposal, research questions and final approach were co-produced by the three partners. The reports cover a range of topics, from an international comparison of TransitOriented Development Corridors, to an in-depth study of the regulatory, institutional and incentive environments in the COF, and the response from the private sector. It also included a survey of 1 200 residents, users and businesses and an indepth qualitative case study analysis of four nodes: Marlboro South; Park Station Precinct; Orange Grove and Norwood, and Westbury, Coronationville and Slovo Park. The case studies encompassed a wide range of the environments along Johannesburg’s corridors, including older suburbs, informal settlements, townships, public housing stock, industrial areas and transit nodes in the inner city. The team consisted of academics, officials, consultants and community members.

Methodologically, all reports relied on academic and media sources, with the majority consisting of an integrated analysis of survey findings and key stakeholder interviews.

The summary that follows looks at the key points from each report and offers a concise sense of the main findings.

Key findings: • The international experience supports the case for transit corridors, noting that they are useful and necessary planning instruments in urban regeneration – improving sustainability; increasing access for poorer communities, and improving rates bases in strategic areas.

• Transit corridors have been associated with an improved municipal fiscus that is able to provide denser urban environments with consequently higher efficiencies in the urban form.

• The current forms and institutional arrangements of TOD corridors in the CoJ demonstrate much promise and have some of the key features of successful corridors found elsewhere, i.e. a lead department with high levels of technical skill.

• However, there is a need for greater coherence at both the planning and implementation level, and a need for more buy-in from all departments in the CoJ. • The CoJ has set an ambitious approach to the development of the Corridors – attempting to create a ‘guided’ enabling environment for the private sector that incentivises and attracts investment into these sites, whilst balancing the needs of the public good, and the larger developmental agenda.

III

Transit corridors & the private sector

• There are some important locations that will potentially satisfy private sector interests of lowered risk and higher demand; these include affordable housing along Louis Botha Avenue and investment opportunities in the Knowledge Precinct.

• The TOD programme has a long-time horizon.

However, after just four years it has seen some successes, including the provision and use of the Bus Rapid Transit (BRT) by certain communities; significant public environment and infrastructure upgrades, and the construction of vital services, such as clinics in areas that were previously under-served.

• In order for the impact of TOD – which extends beyond just the BRT – to be maximised, the City must foster a multi-modal transport system, including the BRT, Gautrain, commuter rail, and minibus taxis.

• Across the Corridors it is clear that there is significant youthful energy directed towards micro-businesses, with many residents starting new enterprises. Louis Botha Avenue, Marlboro South and Park Station are already showing signs of being complex multi-use sites that attract people from all over South Africa and the continent.

• The transit corridors already have an important economic function in that they are attractive sites due to their accessibility and the ability of residents to save on transport costs. However, demand is forcing up the price of commercial and residential property, making these areas inaccessible for poorer households.

Nodal findings: Each node faces a set of specific conditions that require particular engagements and services.

• Westbury, as a site of older public housing stock, faces severe social pathologies, and very low rates of employment. Residents feel isolated and parochial – despite being quite close to the inner city in terms of physical distance – and there is a need to consider social infrastructure as a key future intervention.

• Slovo Park as an informal settlement requires better services and housing but also greater participation and engagement with residents about their future.

• Louis Botha Avenue (Orange Grove in particular) is mixed-use and mixed-income area and has important businesses varying in size. Here care needs to be taken to support the organic processes of informal and formal entrepreneurship and to avoid potential gentrification and displacement that could result from interventions. While

the Paterson Park housing project is a vital intervention, the governance dynamics in the area provide important lessons for the CoJ in its future interventions in middle-class areas.

• Marlboro South is an area of enormous potential, but has high rates of poverty and very poor living conditions. It is very well located and has a number of businesses, at a variety of scales, which would like to remain. This area requires housing interventions, service upgrades and consideration of the urban environment, especially safety and security.

• Park Station Precinct, as arguably the most important transit node in Johannesburg, suffers from a governance crisis and as a consequence has not been able to capitalise on its cosmopolitan and vibrant nature. There is a lack of support for the economic activities in the area; insufficient affordable accommodation; and the station requires better linkages into the fabric of the inner city.

Recommendations: • Currently, there is a ‘toolbox’ of incentives that is being developed to enhance partnerships with private sector developers, and there is evidence to suggest that this could be enhanced by considering questions of urban management; the release and development of state-owned land, and examining the development of demand – rather than supply-side investments.

• Safety and security, questions of urban management, and employment were themes that consistently appeared across the corridors.

The City needs to pay close attention to these concerns, as they are affecting all aspects of the Corridors, such as the quality of life for residents and the potential future investment from private developers.

• Public participation protocols require rethinking and possibly reconfiguration. In their current formulation they are not sufficiently able to include the voices of some of the poorest and most marginalised. They are also incorrectly conceptualised as information-sharing sessions, rather than real engagement or consultation.

• Furthermore, public participation needs to be seen as part of long term-relationships with communities and stakeholders that occur throughout the process rather than a once-off compliance-led activity.

• Given the need for cross-sectoral and interdepartmental co-ordination, area-based management models could be highly effective in addressing these issues and should be considered as a way of addressing the host of differentiated needs across the transit corridors.

• The current practice of having ‘point people’ – particularly within the Johannesburg Development Agency (JDA) – dedicated to specific nodes and corridors is excellent and should be continued.

• All processes in the corridors must be supported by up-to-date websites that are current with ease of access to all relevant information.

• The CoJ needs to promote and publicise its achievements, and let the general public and other departments know what it has accomplished.

• Exceptional care needs to be taken to ensure that built environment interventions do not worsen conditions in vulnerable communities, highlighting the need for better empirical evidence and consultation before implementation.

• Built environment interventions must be complemented with social development and engagement in order for the full potential of the transit corridors to be realised, in terms of addressing the social and economic aspects of marginalisation.

• Overall, there is much to be learned from the first few years of the programme that can improve the CoJ’s TOD initiatives going forward: better engagement and participation; clearer plans; better marketing and overall communication within and outside the CoJ, and careful consideration of the limits of built environment interventions.

In short, the research project revealed that transit corridors are an effective programmatic choice in restructuring the spatiality of the City of Johannesburg and dealing with some of the most intractable urban problems; there are a range of ways to improve Johannesburg’s TOD programme going forward. To realise the full value of the TOD vision, it is necessary for the CoJ to continue the programme with the vigour it has demonstrated thus far. The dedicated and skilled teams in the City have already been able to achieve some successes, and with the evidence base that this study now offers, interventions and plans can be more finely honed and refined to focus in on specific community needs, whilst addressing questions of a declining fiscus and the need to restructure and reinvigorate the City of Johannesburg. This project also included a series of urban labs – a number of engagements between City officials, academics, members of civil society and the private sector and other key stakeholders – on particular issues related to Johannesburg’s future. This report is also included in the series.

Transit corridors & the private sector

IV

Transit Corridors and the Private Sector: Incentives, Regulations and the Property Market 01

It is important to understand that the property market is comprised of multiple developers, investors and financiers. Each of these pursue their own development strategies. City planners need to understand the imperatives of each of them and how this applies to the Corridors of Freedom in all its diversity.

02

The effective and strategic use of municipal land is one of the most important mechanisms cities can use in order to secure transformation. The ability to purchase, hold and develop land provides municipalities with a lever to pursue its own interests but also to potentially shape the market.

City-owned land is an asset in its own right, can be endowed with appealing development rights and can be used to trade in development rights.

The ownership of urban land by governments also provides them with greater control over its final use. Rather than simply steering the market, governments can determine development outcomes. Having a proactive and detailed urban land strategy is key for shaping the market.

03

04

The CoJ is using location-based incentives as the primary instrument through which to attract investment. Yet international studies suggest that there are a multitude of factors that determine location choices and these differ for individual investors/firms. Understanding better the factors that determine location choices will assist in directing development to the COF. Developers unanimously agreed that the development application process was an obstacle in the development process. Developers argued for more efficient development applications.

05

Good urban management is a priority for developers and community members and the function should be strengthened. Building good neighbourhoods requires good urban management.

06

New developers were enthusiastic about the incentives being offered by the CoJ. More established developers were less trusting of the CoJ’s ability to manage the offerings.

V

Transit corridors & the private sector

07

The provision of appropriate social infrastructure must be a significant intervention in the COF. Specifically, educational facilities are a fundamental component of a good neighbourhood.

The City needs to engage more actively with Departments of Education to guarantee that there is the delivery of sufficient educational facilities to support the densities. It would be worth considering incentives to educational facilities prepared to locate to neighbourhoods in the COF. Social exclusion is often ignored in policy frameworks. Creating an inclusive city is the primary motivation for the COF and it is therefore imperative that direct action be taken to guarantee the provision of affordable and emergency housing and to ensure that exclusion is not an unintended consequence of the strategy.

08

The COF provides a real opportunity for the CoJ to begin a process of demanding more from property developers in the form of high quality inclusionary housing, affordable housing and the provision of community facilities. The regulatory framework could be strengthened both in terms of its abilities to halt unwanted developments but also in terms of clarifying in more detail obligations for developers benefiting from permissive development rights and incentives. There needs to be further thinking around property developer responsibilities.

09

Understanding the frustrations and constraints to development is fundamental to building effective relationships. A directed capacity building programme for CoJ officials is an opportunity to improve relationships.

10

An improved marketing approach by the City itself is important. Despite the research and analysis that has gone into the COF to date, many developers, city residents and City officials are not fully aware of what incentives are available or the social infrastructure promised.

11

The attractiveness of the COF for mixed-use and housing necessitates that the public environment is safe and accessible for all users. A lack of safety will undermine the positive urban design principles of permeability between the public and private space.

Currently too many neighbourhoods in the COF are characterized by poor urban design features that negatively affect safety including public lighting, signage and high quality public space.

Transit corridors & the private sector

VI

Table of Contents 01 INTRODUCTION 02 1.1.

Outline of Report

05

02 THE REGULATORY FRAMEWORK

08

03 BACKGROUND 12 3.1.

3.2.

3.3.

3.4.

3.5.

3.6.

3.7.

3.8.

3.9.

A Brief Overview of Johannesburg’s Property Market Overview of City Strategy and the Corridors of Freedom Overview of the Factors that Guide Property Development Market Sub-Sectors: Residential Shaping the Residential Market More Effectively Mixed Use in the Transit Corridors Access to Finance Municipal Land and Development Two Case Studies: Orange Grove and Milpark

12 14 16 19 22 23 26 26 27

3.9.1. Orange Grove 3.9.2. The Milpark Precinct

27 28

04 STRATEGIES TO STIMULATE THE MARKET IN THE CORRIDORS

30

4.1.

31

New Approaches to Cutting Development Costs

4.1.1.

4.1.2.

4.1.3.

4.1.4.

Bulk infrastructure 34 Faster development application process 34 Permissive development rights 36 Rates 36

05 REGULATING THE MARKET: STRENGTHENING THE CITY’S ROLE

37

5.1.

37

Building Developer Responsibility into New Developments

06 CAPACITY BUILDING AND NAVIGATING THE CITY

39

6.1.

6.2.

39 39

Creating and Managing Relationships Marketing the COF

07 GOVERNANCE AND URBAN MANAGMENT

42

7.1.

43

Specific Urban Management Interventions

7.1.1.

7.1.2.

7.1.3.

Place making 43 Partnerships 43 Public safety 45

08 CONCLUSION AND RECOMMENDATIONS

47

09 REFERENCES

49

List of Tables and Figures

VII

Transit corridors & the private sector

Table 1:

Types of interactions between policymakers and property developers (adapted from Adams et al 2012)

10

Figure 1:

Size of the South African property sector (Africa Property News 2016)

13

Transit corridors & the private sector

VIII

Abbreviations and Acronyms ABMF

Area-Based Management Framework

BRT

Bus Rapid Transit

CAHF

Centre for Affordable Housing Finance in Africa

CBO

Community-Based Organisation

CID

City Improvement District

COF

Corridors of Freedom

CoJ

City of Johannesburg

GMS

Growth Management Strategy

JDA

Johannesburg Development Agency

ICHIP

Inner City Housing Implementation Plan

PPP

Public-Private Partnership

REIT

Real Estate Investment Trust

SAF

Strategic Area Framework

SAPOA

South African Property Owners Association

SDF

Spatial Development Framework

SDZ

Special Development Zone

TOD

Transit-Oriented Development

1

INTRODUCTION Johannesburg’s Transit-Oriented Development (TOD) initiative serves as a stage for urban governance dynamics to play out between the public sector, private sector and civil society, as the city seeks to radically transform. The City of Johannesburg (CoJ) has committed itself to creating a ‘guided’ enabling environment for the private sector, as they attempt to direct investment into areas not part of existing mainstream investment trends. Striking the fine balance between maintaining the public good, pursuing a developmental agenda and encouraging private sector investment will be a test for the City administration. As officials and politicians strive to reconstitute the apartheid city spatially, they have accentuated the role the private property development sector will play in the transformation process.1 In pursuit of a new integrating vision, the CoJ must be clear of its own role. It must be more than just an enabler, and also a facilitator, regulator and developer in its own right (drawn from Barke and Clarke 2016: 163). The City needs to negotiate its role carefully and be circumspect in the control it is giving over in order to generate required results. Although the Corridors of Freedom (COF) project has been widely commended for its developmental imperatives; these imperatives must be maintained throughout negotiations to ensure that economic and social objectives are realised, and that the City does not become the mediator of developer interests to the detriment of other city residents.

In the broader context, TOD policies are being generated in a milieu in which the relationship between the property development sector and public sector can be uncertain and contested. Questions of trust go both ways, with historical animosity in some contexts. Property developers have played a role in perpetuating apartheid spatial patterns: trends in township applications see the spread outwards of settlements which are using up the limited open land in the city; there are new developments in the north which counter the strategic objectives of the City’s Spatial Development Framework (SDF) (Weakley 2016); and private enclaves are becoming a regular feature of the urban landscape. At the same time, the City has long frustrated developers with its inefficiencies. In the midst of these trends, the COF have emerged as an attempt to counter the historical spatial developments of Johannesburg. The TOD initiative thrusts the relationship between City

01

Transit corridors & the private sector

1 The critiques of CoJ urban development policies since the 2000s have highlighted the neoliberal policies followed by the City in pursuit of property development. See Mosselson (2016) for an overview of these critiques.

officials and private sector developers into full gaze as the CoJ acknowledges that it needs the private sector to invest in TOD to make it workable. Historically, the CoJ has had a limited impact on managing productive relationships with the property sector. The research done for the COF is attempting to shift this trend in preparation for the rollout of the Corridors.

An effective conversation between developers and City governments can be undermined by an unsophisticated binary explanation of their relationship. Developers are mostly construed as ‘bad’ and City governments as ‘ineffective’, thereby shutting down any discussion before it even begins.

Yet if one speaks directly to city planners and city developers there is often a willingness to engage and collaborate. Building this collaborative effort is crucial to realising the vision of the COF. As Zellner and Campbell argue: “fluid decisions made today solidify into the fixed built environment of tomorrow,which in turn shapes into a new generation of interactions” (2015: 458). Understanding the far-reaching impact of development decisions of today on the future urban form is fundamental to structuring the spatially efficient, equal and developmental Johannesburg of tomorrow. The City, developers and residents all have a role to play in shaping the city, with each integral to the city’s efficient functioning. While much of the academic literature argues that the CoJ has handed over power to the private sector, it is questionable if this is a universal truth. However it is a cautionary note that City planners need to contemplate when seeking partnerships.

Transit corridors & the private sector

02

This report therefore seeks to answer the following question: to what extent are the governance arrangements and regulatory instruments currently in place inhibiting or promoting the ambitions of the Corridors? This will be analysed through a review of regulatory mechanisms and the role of property developers, as well as governance and urban management. The interrelationship between urban management, the regulatory framework and property development is multifaceted. There are points of productive engagement and points of conflict. The end purpose should be creating an optimum interface to achieve a successful overall intervention; particularly since urban management is a critical issue for both property developers and communities. Yet the relationship between planning and property development is little researched and not well understood, and the City has long struggled with how to get the urban management model right (Coiacetto 2006: 423). The literature and analysis to date contends that city planners often do not think through the economic rationale for planning decisions, while property developers view planning frameworks as obstacles to developments.

The interface is cast into disarray by the flawed community participation processes undertaken by the City. Further, urban management solutions mostly discount the reality of Johannesburg as a city with a substantial informal sector. It is within the ambit of these categories that much work has been done by the City in order to create a feasible framework for the implementation of the COF. What is clear however is that TOD a long-term activity, which requires careful thought be given to achievable objectives in the short-, medium- and long-term. This discussion should not be limited to where we are building but also to what we are building (Rudlin and Falk 2009: 2). As Pieterse (2014: 3) contends:

involvement of the private sector, while at the same time emphasising the substantial role of public sector investment in social infrastructure. So what should the role of the market versus that of public intervention be to achieve a ‘spatially-just world class African city’? (Barke and Clarke 2016: 141).

This has yet to be resolved, and perhaps only will be once the COF begin to take shape more fully.

There can be little doubt that the Corridors of Freedom initiative of Joburg is one of the most important and thoughtful public interventions to systematically transform the spatial dynamics and trajectories of South African cities. It is based on a suite of long-term diagnostic and forecasting instruments that contributes to more astute planning and urban management.

• What are the economic cases for the three Corridors?

The CoJ has kick-started its TOD project with the Rea Vaya bus rapid transit (BRT) system. However, it cannot deliver all the elements required for successful TOD on its own. Therefore it is seeking to create an enabling environment for the

03

Transit corridors & the private sector

Through the recently passed SDF, the City has ‘thrown down the gauntlet’ and stated very clearly its expectations in terms of urban form. In its efforts to re-stitch the City and progressively break down the evils of apartheid planning, investment has been made in the idea and vision of TOD. At the heart of the concept is public transport, and the requirement for city residents to embrace a new urban form garnered through TOD. According to the CoJ: Corridors of Freedom are an urban revolution which seeks to build a new city along and around mass transit movement lines in selected areas of the City to create housing, jobs and social opportunities in proximity to each other.

The objectives of energy efficiency, climate change mitigation, economic growth and social inclusion are re-enforcing and can be simultaneously achieved by compact, connected and resilient communities centered around the transit nodes in the Corridors of Freedom. ,s of Freedom will be achieved through a variety of interventions, more permissive land use rights regime, investment in infrastructure, incentives to capture value and increase investment and will result in reorganised city space with increased overall economic efficiency and productivity.

This raises a number of questions that are yet to be conclusively answered:

• Who are the envisaged residents of the Corridors?

• Is the BRT a sufficiently compelling form of public transport to create demand?

• Are the City’s regulatory mechanisms persuasive enough to realise its spatial objectives?

• How will the COF ensure inclusivity?

There are two major trajectories that this report will discuss in relation to TOD and regulation

Transit corridors & the private sector

04

in Johannesburg: the existing property market and how it fits in to the vision of the COF, and regulatory instruments used by the City to realise the vision of the COF. The report examines points of alignment between the regulatory framework and the property sector, and reviews interventions underway by the CoJ to attract property developers to the Corridors. Where appropriate, the report makes suggestions for areas of greater research and consideration, while acknowledging that the CoJ currently has a limited impact on the market and needs to strengthen its regulatory function.

The report also reviews the COF and urban management interventions and, here too, the core discussion is around what is required by the City to facilitate good urban management and place making.

Given that the TOD project is still largely in the preparatory phase, the research for this project has predominantly made use of existing CoJ documentation as its desktop research. There is little academic literature that speaks to the issues around regulation, property development and urban management as it pertains to the Corridors.

The property development industry itself is diverse and segmented, which makes it tricky to make generalised statements (Ciaocetto 2006: 428).

The desktop research was supported by in-depth qualitative interviews held with 23 respondents, including:

1.1. Outline of Report Section 2 outlines the regulatory framework in the CoJ, focusing on the planning regime and its policies and, specifically, the regulatory instruments used by the City to realise the vision of the COF. Section 3 provides a background to the macroeconomy and its effect on the property market; introduces the various property market sub-sectors; and outlines constraints the City is experiencing in shaping market forces through public infrastructure investment and place making. It also includes case studies of development in two TOD nodes: Orange Grove and the Milpark Precinct. Section 4 details the incentives developed by the City to stimulate market interest in TOD, illustrating how the City is using costcutting techniques to attract property developers with a location-based incentive programme.

Section 5 evaluates policies and plans in place to regulate the market, while Section 6 highlights the importance of capacity building amongst City officials to work more effectively with the property sector and communities. Section 7 is focused on urban management, arguing that it requires attention from the City because of the impact it has on property developers and communities. Finally, Section 8 provides some concluding remarks and important recommendations to the CoJ.

• City of Johannesburg officials • Property developers working in the COF or its surrounds • Built environment professionals • Professionals working on urban management issues • Academic experts working in the field The respondents all gave willingly of their time and supplied critical information required. Some wished to remain anonymous while others were comfortable with being named for the study but did not wish specific comments to be attributed to them in the document. The documentation and interviews are the basis of the analysis but there remains scope for much more detailed research still to be done. Further, many conclusions are speculative as the policies have not as yet been rolled out fully and the analysis is therefore based on potential results.

05

Transit corridors & the private sector

Transit corridors & the private sector

06

2

THE REGULATORY FRAMEWORK This section on regulation is centred on the planning regime and its policies. In Johannesburg, the City’s planning policy is guided by a hierarchy that includes the Growth Management Strategy (GMS), Spatial Development Framework (SDF) and Strategic Area Frameworks (SAFs) that exemplify the COF vision. Regulation is a key part of the TOD project as it is the mechanism through which the CoJ can effect spatial change. There are regulations that actively seek to shape spatial form in general, as well as location-specific regulatory proposals. The COF is an active intervention strategy and the City has used its most significant regulatory tool – the SDF – to promote this vision.

Todes (2012: 162) explains that SDFs are a statutory requirement for cities to reflect their spatial visions and aligned implementation plans.2 Historically, SDFs in the CoJ were not effective tools for directing development, largely because of a lack of alignment between infrastructure investment and spatial targeting (Todes 2012: 163). City budgets were allocated without ensuring that infrastructure was directed to strategic areas. Through the GMS, which was developed in 2008, spatial planning is now linked to infrastructure investment. According to Todes, the GMS “was about achieving growth, but doing so in ways that were consistent with the intentions of the SDF and the GDS and that could be supported in terms of infrastructural development” (2015: 90). This is an enormously important tool for the TOD initiative because it allows the City to directly allocate investment funding in areas of spatial significance, such as the Corridors. This funding can then be tracked and assessed against the spatial development objectives.

• Developing Soweto into a city district; • Densification of existing transportation corridors, including the COF; • Rehabilitation and development of the Mining Belt; and • The development of the Randburg – OR Tambo transport corridor to create better linkages between the CoJ and Ekurhuleni Metropolitan Municipality.

• Exclusion and disconnection • Inefficient residential densities and land use patterns (poor mixing)

Although the Corridors are but one of the strategic

• Spatial inequalities and the job-housing mismatch • Increasing pressure on the natural environment • Urban sprawl and fragmentation

Transit corridors & the private sector

• Inner city and urban core development;

The SDF is very clear in its perspective on the spatial vision for the CoJ. The implementation of the framework is strengthened because of the way in which the City aligns its spatial strategies with an infrastructure budget. Although the principles of the SDF are given effect through a number of regulatory mechanisms and public infrastructure investment, Johannesburg does not exist in a vacuum and there are other important role-players influencing its spatial configuration. For example, the macro-economy is critical to the cycle of property development; other spheres of government are important players in the education and health sectors as well as custodians of important urban land; the Gauteng provincial government is pursuing its own spatial agenda, etc.

For the purposes of this report, the SDF is relevant because of how it frames the COF. The City’s current SDF seeks to address the following (Weakley 2016):

07

The South African Property Owners Association (SAPOA) identifies the following action areas in the City’s SDF as important partnership opportunities between the public and private sector (SAPOA 2016a):

2 More detailed spatial plans are also generated at a regional level, through Regional Spatial Development Frameworks (RSDFs), to give expression to actual projects.

Transit corridors & the private sector

08

objectives of the SDF, they have been given significant political support and an accompanying budget. Ahmad and Pienaar (2014: 115) argue that: The ability of the city to create the infrastructure for the development of high priority areas along the public transport corridors, economic nodes and marginalised areas remains key. To achieve this requires a capital investment approach that supports development objectives and prioritises projects that demonstrate delivery on growth targets and transformation.

The three SAFS developed by the City to direct the COF are detailed, location-specific plans that will guide City interventions. They have been developed within the framework of existing City plans, including the GMS and SDF.3 The City, understanding its role and influence, has assembled a set of instruments within its control to guide the development process in the Corridors. The instruments take four generic forms (based on Adams et al 2012: 2588): tools to shape market forces; mechanisms to encourage market support; instruments to prevent undesirable developments; and efforts to build relationships.

These instruments are being used to support the broader spatial objectives of building an efficient public transport system, the provision of bulk infrastructure, social infrastructure and potentially low-cost housing provision.

Discussions with City officials established that at the core of the CoJ’s TOD initiative is the pursuit of greater densities in order to realise a more compact Johannesburg. Compact cities are viewed globally as an effective approach to reducing urban sprawl and ensuring greater efficiencies in the use of land and infrastructure (Davison and Legacy 2014: 156).

The City understands its current urban form as limited in diversity with inefficient land patterns.

Ongoing spatial inequality and distortions have resulted in a lot of peripheral development in Johannesburg. It is largely residential on the one hand (a response to massive housing backlogs), while on the other, breaks up Johannesburg into decentralised nodes (Todes 2012: 159; Weakley 2016). Todes notes that the bulk of housing for the urban poor has been built on the periphery of the city far from economic opportunities (2012: 159).

The city is also low density with an over-reliance on private transportation, and the overall planning

09

Transit corridors & the private sector

response is therefore to encourage residential densification around existing cores. Indeed, the use of cheap and efficient public transport is a major initiative in the CoJ’s strategic planning. The role of the private sector in all these planning initiatives is important, as the City acknowledges it cannot deliver a compact city on its own.

Given its overall objectives, the City has made important strides in isolating the most effective areas of regulatory and policy intervention for the COF. These inform infrastructure investment, strategic planning and research. In these spaces there is an interplay of instruments to encourage market support, optimise public sector interventions and to realise the purpose of TOD. Each of the SAFs have a set of goals which highlight the priorities of the COF. These priorities have been directed into action plans to deliver the vision.

Although the SAFs differ per Corridor, it is possible to select a number of overlapping priorities. The Louis Botha SAF outlines key deliverables for realising the development vision of the COF: • Investing in bulk infrastructure to accommodate significant increases in development densities; • Releasing and developing municipal land to achieve the precinct development visions; • Expanding and improving public transit infrastructure and facilities; • Investing public funds in public environment upgrading and the provision of public amenities and community facilities to serve a significantly larger and denser population; • Fast-tracking development of privately owned properties to achieve higher densities, and more intensive mixed land uses; • Capturing the value generated through proximity to improved transit facilities by introducing relevant fiscal instruments, where appropriate; • Implementing place-making interventions to ensure that the precincts are activated; • Implementing economic strategies to support the growth of economic activities and create sustainable job opportunities (CoJ 2014a: 13).

3 It is important to emphasise that most of the programmes and policies reflected in the SAFs are still being refined, which makes it difficult to make generalisable statements. As such, many of the insights in this report are tentative and exploratory, with the analysis based on a review of strategic documents and detailed interviews with City officials.

The types of interventions mentioned above are fairly commonly utilised techniques by city governments to transform neighbourhoods. For the purposes of this report, it is important to review what role each of these interventions will play in ensuring the property sector performs an active role in the development process. A useful framework

Type of interaction Modes of operation

for review and analysis, developed by Adams et al (2012: 2588) on the basis of their research into the Scottish government, illustrates the points at which policymakers and property developers interact and simplifies the categorisation of the intervention strategies (see Table 1).

Main themes and relevance to TOD in Johannesburg

Market shaping

Influencing developer decision-making

This refers to the capacity of the planning system to influence developer outlook. In the COF this would pertain to instruments developed to encourage developers to invest in the Corridors rather than other areas.

Market stimulus

Impacting the financial considerations of developers

Subsidies are believed to be able to change developer behaviour by highlighting the opportunities for developers in the Corridors. The City is supporting investment in these strategic areas through, for example, providing a rates rebate and allowing less restrictive development rights.

Market regulation

Restricting developers’ freedom of choice

This refers to the controls or conditions placed on developers wishing to develop in specific locations. Such restrictions could include urban design requirements and inclusionary housing. In the SDF, inclusionary housing requirements are in place for developers.

Capacity-building

Supporting greater engagement of developers in the policy process through capacity-building.

Better communication between developers and planners will strengthen the public sector’s ability to engage with developers. The CoJ has begun to recognise the importance of development facilitation in the development process.

Through this approach it is building its own capacity to engage with all stakeholders.

Table 1. Types of interactions between policymakers and property developers (adapted from Adams et al 2012)

Table 1 summarises the principal regulatory and policy initiatives available to the CoJ, categorised as: • Attempts to shape the market • Actively influencing market stimulus • Preparations to regulate the market as far as possible • Prioritising capacity building processes In order to understand in greater detail the points of intersection, the above framework will be referred to throughout this report. This analysis will be done by focusing on COF plans and programmes in the

4 The City’s Development Planning Department is the custodian of the TOD programme and the regulatory approach is largely spatial. The economic study to support the COF has not as yet been completed, which is a significant missing piece of the strategy and hence cannot be reviewed (CoJ 2014: 21).

planning and implementation phase, with each of the instruments analysed separately.4 The following section argues that there are a multitude of factors that will determine how successful the City’s attempts to leverage private sector investment will be. Some of these factors are within the control of the City, while others are not. The City has a number of strengths but also potential weaknesses in its approach to pursuing private sector and community investment in the Corridors. These will be discussed further in the report in relation to the interventions currently being pursued by the City.

Transit corridors & the private sector

10

3

BACKGROUND 3.1. A Brief Overview of Johannesburg’s Property Market

According to a recent research project by the Property Sector Charter Council, the South African property market is valued at US$ 403 million (Africa Property News 2016), with the formal residential property market accounting for almost three quarters (see Figure 1).

According to the Centre for Affordable Housing Finance in Africa (CAHF) (2015: 1): Every year, as new houses or residential properties are built (whether by government or the private sector, and whether for ownership or for rent), as existing properties are traded, or as old properties are converted into new uses, the size and composition of the residential property market changes.

The property market is complex and segmented.

Certainly understanding Johannesburg’s property market requires more than a brushstroke approach.

This section suggests some broad themes that have emerged from the research undertaken for this project. However, these are neither cast as definitive nor comprehensive.

The property sector can be divided into a number of categories (Ball et al 1998: 43): • Commercial property (including retail, office, industrial and others); • Residential property (including the formal housing market); and • Public sector property (property that is owned and operated by the public sector).

In order to understand the property market one needs to understand the macro-economy. Broadly, the macro-economy and property market are intricately interlinked. Although the property market reflects trends in the macro-economy, these are usually expressed later in the property market (Keogh 1994: 60; Barras 1994: 186). As Hui and Zheng contend: “The volatility spillover effect between real estate markets and stock markets or overall economy has been well-documented in the economic literature” (2012: 85).

11

Transit corridors & the private sector

Property markets are segmented and this segmentation means that there are no uniform responses to the macro-economy amongst all property types. Brueggeman and Fisher argue that poor economic prospects for a specific property type does not necessarily extend to all other property sub-sectors (cited in Hui and Zeng 2012: 85). However Hui and Zheng caution that volatility and spillover effects between property types are not as yet fully explored, casting doubt as to the extent to which one property type is impermeable to a poor economy (2012: 86). The point is that even though general conclusions cannot easily be drawn on the state of the property market, the City needs to track this because of its potential impact on the City’s ability to realise its own strategic planning processes. City policy and interventions are happening within a wider context, which affects the ability of the City to effectively manage spatial change.

Current property trends have important implications for the viability of attracting commercial property to the Corridors. For example, SAPOA has conducted detailed analysis of commercial property trends in the first half of 2016, which the City should take into account when developing policy. SAPOA highlights the following office vacancy trends: • Office market trends suggest that the flat economic growth is a threat to a buoyant office market sector, although the office sector is in ‘recovery phase’.

• Business confidence is pessimistic which means that capital allocation is going to be very selective.

Transit corridors & the private sector

12

• An urbanising population and influx into Johannesburg is resulting in population growth.

• There is evidence of competition between commercial and residential uses as higher densities in the residential property market allows it to compete against the commercial property sector. This is indicative of not only residential values increasing, but also the declining value and uptake of commercial use. This feeds into the cycle of skewed neighbourhoods, including the inner city and those proximate to it.

• The growth of the affordable housing market and the demand for housing in this income bracket has meant that there are rising prices making housing less affordable (Viruly Consulting 2015: 7).

Figure 1. Size of the South African property sector (Africa Property News 2016)

• Inner city office vacancies are high and almost double that of decentralised nodes throughout South Africa. Johannesburg’s inner city vacancy rates at the end of the second quarter in 2016 were 20% (SAPOA 2016: 9).

• Office developments are primarily located within 10 nodes in Gauteng, the leading one being Sandton CBD with 41% (SAPOA 2016: 2, 12).

• There was vacancy rate recovery in some of the nodes, but these were determined by locality.

• SAPOA argues an improvement in office vacancies is contingent upon macroeconomic factors.

• There are new developments underway but these are largely those that are already prelet (SAPOA 2016: 11).

In addition, the retail sector appears to be outperforming other sectors of the property market at present. The latest Vukile Property Fund Annual Report showed that in their national portfolio retail properties have experienced greater growth and more stability than the industrial or office sectors (Vukile Property Fund 2016: 13). This cannot be generalised

to all property trends, but it does give an idea as to where some growth is being seen. Nodal analysis in industrial vacancy rates shows a variance depending on the node, with some showing significant growth and others being sluggish. Ahmad and Pienaar (2014: 107) confirm that the growth in industrial developments is largely within 500m of existing industrial areas, and that less than 2% of rezoning applications were for industrial use. SAPOA argues that the e-toll system in Gauteng has influenced the growth in certain nodes (SAPOA 2015: 9).

Viruly Consulting contends that on the basis of current trends, the property market should see some growth in 2015/2016. In their 2015 analysis of the property market in Johannesburg they argue that the conditions for the South African commercial property market are improving (some respondents in this study suggested that while retail was performing adequately, office rentals were in decline), and predict that the property market will continue to adjust after the over-supply which resulted from the 2004-2008 property boom (Viruly Consulting 2015: 6). The Viruly Consulting report further advises that the following factors are influencing the property market in the context of Balfour Park on the Louis Botha Corridor (but which can be extended in general terms to other areas):

It is not possible to provide a detailed analysis of the trends in all sectors of the property market in this report. The commercial sector and residential sector grow at different rates but both are contingent upon broader macro-economic trends. Commercial growth is directly correlated with the growth in companies and the need for more space or new space. As stated succinctly by Ball et al: “Growth in demand for commercial property must be related to growth in economic activity” (1998: 47). Further, the commercial market is shaped by the economy as “changes in the nature of production may result in more or less intensive use of space for a given level of output” (Ball et al 1998: 44). Ball et al also emphasise that commercial property location decisions always have a spatial component.

A review of Johannesburg suggests that aside from a few key nodes, the downturn in the macro-economy is shaping the office property sector. Sandton is one of the exceptions as it continues to see investment and growth. Residential property is considered to be less sensitive to macro-economic trends than other sectors. The affordable housing market appears to be experiencing growth,5 as does student accommodation.6 The CAHF study referenced earlier illustrates that between 2009 and 2013 the most rapid growth across South Africa could be seen in properties valued under R300 000, clear reference to the government’s subsidised housing programme (CAHF 2015: 2). Further, 62% of new residential property transfers were in this category of housing (CAHF 2015:

5). In Johannesburg’s inner city specifically, affordable rental housing has become an important investment opportunity. This analysis indicates that the Corridors are emerging in a constrained macro-economy where developers and investors are more cautious and risk averse. The opportunities appear to lie in affordable housing (with provisos for the need for associated employment and social facilities, as indicated above).

3.2. Overview of City Strategy and the Corridors of Freedom Within this constrained property market there is a question as to the extent to which the strategic intent articulated in the SDF or GMS will be realised.

This is because property development is guided largely by macro-economic factors, although there are both private- and publicly-driven methods through which the property market in individual neighbourhoods or nodes can be modified.

The BRT is the backbone of TOD in Johannesburg.

It has given structure to the location of area-based development interventions and the CoJ is investing in nodes along the Corridors in order to improve and densify neighbourhoods. The City has elected to intervene in spaces through the BRT and social infrastructure. This is its contribution to shifting spatial patterns. The efficacy of the BRT as the anchor of these efforts remains contentious for some. One built environment professional interviewed sees the BRT as a “scar” on the urban form, arguing that the positioning of the BRT stations in the middle of the road has separated neighbourhoods. For others the BRT stations provide important value capture opportunities.

The City sees the BRT as a positive intervention and the symbol of its commitment to spatial transformation. It extends the CoJ’s area-based development logic with an explicit focus on transport-led development. The focus on areabased development and its alignment with transport is based on the premise that transport planners have selected the right areas. However, the best area-based management interventions for the BRT are not necessarily the most optimal for city fabric in general.

The City has actively intervened in the public environment through the Johannesburg Development Agency (JDA). Since 2001, the JDA

5 A ffordable housing is understood comprise rental between R2 000 and R7 000 per month. There are however varying definitions.

13

Transit corridors & the private sector

6 F or instance Redefine Properties has bought into student accommodation Respublica, which has a presence in Doornfontein. See http://www.redefine.co.za/

Transit corridors & the private sector

14

has sought to catalyse private sector investment in ‘deprived’ areas through area-based interventions.

This has taken the form of capital investment in social infrastructure, as well as improvements in the public realm. The implementation of the BRT and associated public infrastructure projects is a continuation of this strategy. Although this is the City’s most consistent tool for shaping market forces, there is a lack of conclusive analysis done regarding the impact of these interventions. The City claims successes in certain spaces such as Braamfontein, where after public environment upgrades there have been declining rental vacancy levels (JDA 2009). Yet measuring success through economic indicators only suppresses concerns around exclusion and gentrification (Winkler 2009: 33). A detailed analysis of these factors has yet to be done.

There is the certainty that if the City demonstrates confidence in an area and invests in it, the private sector will follow. This approach is being replicated in the City’s TOD programme but it is supported by a sophisticated set of incentives. Even so, developers vacillate when asked whether they follow the cue of public investment or whether public investment follows their developments. In fact, many remain uninfluenced by CoJ policies and patterns of investment. Adams, Croudace and Tiesdall confirm that globally the public sector has extremely limited control over the power of the market (2012: 2578).

The tool for the implementation of components of the SDF – including the Corridors – is a capital investment programme which is located in the City’s Development Planning Department. Private and public sector development in the selected critical areas will ensure institutional support from the CoJ through incentives, public sector investment and capital interventions. The critical implementation question is therefore around who will do the development and within which parameters. It seems that it is anticipated that, aside from public infrastructure, the development will primarily be driven by the private sector. As with any City-driven capital investment programme that is reliant upon partners, the investment success and development required for TOD is influenced by the economy, developers and the property market. Despite CoJ investments or the public sector offerings and lead in COF, if there is no demand and hence no finance available for new developments, the property sector will remain cautious. Adams et al argue that “the

15

Transit corridors & the private sector

developer’s expertise often lie in knowing the local market (product), spotting opportunities (location) and resolving constraints to make things happen when required (timing)” (Adams et al 2012: 2582).

The City’s approach to wooing the property sector is based on the assumption that it is able to create the right opportunities developers will respond to.

Creating a pipeline of development in the Corridors is the simpler part of the cycle. The ability of the CoJ to demonstrate demand for developments will be the most effective tool through which to attract developers (insight from interview with Rob McGaffin, 28 July 2016). The less risky a development opportunity, the more likely it is to attract developers. The City needs greater clarity regarding who in the property sector would be likely to develop, as well as what kind of developments developers would respond to. However, creating a permissive planning regime comes with many hazards. Staying true to the development vision of the COF is important.

Public sector infrastructure interventions can play a role in encouraging the market if efficiently executed, but it is not clear exactly what public infrastructure is most valued. Further, there is uncertainty as to the point at which public infrastructure is a pull factor.

While the CoJ has done a comprehensive analysis of the densities required along the Corridors, it needs to be matched by a market research and viability study of the property market. Internationally, information pertaining to the property market is opaque and difficult to access (Keogh 1994: 60).

Yet even with the uneven information the starting economic analysis for realising the private sector involvement in the Corridors is supply and demand (interview with Rob McGaffin, 28 July 2016). Given current economic trends, the property sector is not in an optimum position to support the COF.

3.3. Overview of the Factors that Guide Property Development As discussed above, the macro-economy does not support large-scale and risky property development at present. The City’s public infrastructure investment and strategy would be optimised under favourable economic conditions. Given this reality, the ability of the City to shape market forces in the face of a multitude of other factors is uncertain.

However if the City had a more nuanced and better understanding as to what drives development

Transit corridors & the private sector

16

it would be better able to negotiate its marketshaping offerings.

One of the obvious considerations for property developers in determining whether there is a market for their product is: where does the demand lie? If they build, who will buy and who will lease?

Developers will go to those parts of the market where hurdles to development are the least onerous and profits are optimised. The Corridors are largely an artificial intervention in a market that has not been sought out, and the critical question is how to get developers interested in parts of the city where they may not have gone before. Focused efforts to channel developers into selected locations is premised on the belief that the planning system is sufficiently influential so as to shape the market.

Empirical evidence suggests this is not the case.

Rather, demonstrating demand, supply and yields are most likely to have the greatest influence on developers as well as investors. These variables are important within the context of a composite and segmented set of markets each of which have their own dynamics.

Although the City is using public infrastructure investment as its instrument to shape the market, its attempts to attract property developers to the Corridors will be frustrated by the reality that not only is there a strained macro-economy, but property developers tend to invest in their niche market which is often concentrated in geographical areas or sub-sectors. Adams et al (2012: 2581) summarise Beauregard’s argument pertaining to the structural characteristics of development markets: “that the strong commitment of both developers and investors to place, as well as sectors, limits their capacity to switch across either geographical areas or property sectors.” This was confirmed in many of the interviews conducted for the study.

Most developers of Grade A property will not make an appearance in the Corridors, nor will those who find value in their current markets. Rather, developers already investing in similar markets will be most likely to invest in the Corridors. That said, the Corridors themselves are highly differentiated and understanding the property sector within and across the Corridors should be an important part of the City’s learning.

There are several categories of developer and investor worth distinguishing when thinking through how to attract property development

17

Transit corridors & the private sector

to the TOD Corridors. Each of these developers require different incentives. Smaller developers, for instance, often need support from the City with development applications and other City processes (interview with Ahmed Banoo, 30 August 2016). A generic overview of developers include: • Small-scale developers (with a small portfolio of properties); • Larger developers (with a substantial portfolio of properties); • Institutional developers and investors who are unlisted companies; • Listed developers and investors categorised as Real Estate Investment Trusts (REITs); and • Public sector developers and investors.7 Each of these categories pursues their own development strategy. The COF documents highlight a number of categories of developer namely: • Investor developer (larger institutional investors); • Landowner developer (actively supported by the City in current neighbourhoods); and • Public sector initiated development (the CoJ itself).

Given the locational diversity of the Corridors, as well as general neighbourhood differentiation, it is viable that both small-scale and larger investors and developers will be interested. This is a matter of risk appetite; the size of the fund or developer; and access to finance. There were conflicting views expressed in the interviews as to which developers would be most interested in the Corridors. Some respondents suggested that the nature of the COF discounts the likelihood of large institutional investors participating. Larger institutional investors tend to favour a more established building stock in line with their overall strategic agenda. The limited erf size of many of the properties in the Louis Botha Corridor, for example, might discount institutional investors in the short term due to issues of scale. Other respondents were confident of an institutional presence on the basis of the trend in investment in low-income residential development over the past five years.

In discussions with City officials, there is clearly support for the landowner developer in existing

7 R efer to the Property Sector Charter Council diagram in Figure 1 above.

Transit corridors & the private sector

18

residential neighbourhoods to take advantage of densification opportunities. There is a hope that giving greater development rights will encourage small landowners to densify their own properties, but it remains to be seen whether this will transpire (interview with Linah Dube, 21 July 2016). Yet this could be an opportunity for the City to think through the best mechanisms for supporting these potential developers.

investment (interview with Carel de Wit, 26 August 2016). The CEO of Redefine Properties is quoted in an interview as saying:

There is a growing population and listed funds appreciate this. Many people are moving into SA and its major cities like Johannesburg to work. They need places to stay. We recognize that this is an opportunity for listed funds (Africa Property News 2015a).

3.4. Market Sub-Sectors: Residential The creation of mixed use neighbourhoods is the aspiration of TOD. To date, trends indicate that residential is the most viable sector of the market. Within this constrained economy, there is a growing demand for affordable rental housing in proximity to the inner city, given its strategic location and its growing financial returns. This provides an opportunity for the City which should it be optimised in the COF.

The same article indicates that property funds, including Arrowhead Properties8 and SA Corporate Real Estate Fund,9 are progressively more interested in investing in residential portfolios than before. A REIT such as Octodec Investments also has a large portfolio in inner city Johannesburg and Tshwane, and began investing in the Johannesburg inner city in 2003.10 The fund continues to develop and invest in the inner city.

The trend towards affordable housing is visible in a number of ways. For instance, South Africa listed its first residential housing REIT – Indluplace Properties, a subsidiary of Arrowhead Properties – in 2015.

According to Indluplace’s CEO Gerald Leissner:

Residential REITs, such as Indluplace, have expressed a willingness to invest in residential accommodation in a mix of geographies, income groups and built forms. The size of the building and historical balance sheet are important criteria for them (interview with Carel de Wit, 26 August 2016).11 This would discount many residential localities in the Corridors where the developments are not yet at a large scale. Other REITs maintain a strictly commercial focus and look at other variables when deciding on investment opportunities.

Indluplace, being the first listed focused residential property fund, provides a diversification opportunity for traditional property investors and should attract new investors to the listed property sector. South Africa has strong demand for affordable rental housing and this translates to low vacancies and consistent rental growth. The fund will aggressively acquire additional revenue enhancing properties to generate growing income returns for shareholders.

The fund has no debt on listing (Indluplace Properties 2015).

Trends seem to suggest that some segments of the property sector are increasingly willing to invest in areas where affordable rental housing dominates. Experience in the inner city affordable housing market has proven that residents pay their rents, vacancies are low and it is a low-risk

Having large institutional investors demonstrate confidence in the inner city affordable housing market is significant because it shows confidence in the stock and the investment. What remains to be seen is whether this belief can be expanded beyond the immediate perimeter of the inner city to include the Corridors. Most REITs, such as Indluplace, buy existing building stock but are currently not developers themselves. (However, this is not the case for all REITs – for example Octodec does redevelopments). Stevens argues in her article on pension fund investment in market rental housing in Newcastle in the United Kingdom (UK) that the reason institutional investors are not interested in market rental housing is on account

8 See the Arrowhead Properties website: www.arrowheadproperties.co.za 9 S A Corporate Real Estate Fund bought AFHCO to introduce an inner city residential segment to its portfolio (SA Corporate Real Estate Fund 2014: 58).

10 This information is available on the Octodec Investments website: www.octodec.co.za 11 Investors often wish to see a track record of income and rentals before purchasing new stock.

19

Transit corridors & the private sector

Transit corridors & the private sector

20

of the risk attached. However, these institutional investors are prepared to buy into the housing stock once developed (Stevens 2016: 113).12 The success of the affordable rental housing market in the inner city cannot be directly replicated in the Corridors because the economic case varies. There is anecdotal evidence, which conveys that in some quarters there is the view that the Corridors and their locations are sufficiently well placed so as to see a spillover of investment from the inner city into proximate sections of the Corridors. A detailed review of this would be of assistance to the City.

3.5. Shaping the Residential Market More Effectively Empirical research indicates that affordable housing is the most discussed in the COF.13 Analysts argue that effective real estate markets are those where there is a clear demand because this minimises the risk. The demand-model for the TOD programme is premised on the reality that city residents are currently forced to travel far distances from the periphery for work. By providing better accommodation and facilities in the Corridors, residents will move into better located neighbourhoods, thereby saving them time and transport costs. The 2016 State of the Cities Report published by the South African Cities Network (SACN) states that “67.4% of households live on less than R3 200 per month. A large percentage of poor household’s income goes towards transport” (SACN 2016: 2). By relocating to the Corridors, households will cut commuting costs and live closer to work and educational facilities (Ball et al 1998: 57).

This case makes sense in a spatially fragmented city such as Johannesburg, but there have been no demand-side studies undertaken as yet to detail the contention. If the City wishes to shape the market more effectively, it needs to be clearer as to which residents are most likely to take up new opportunities in the Corridors.

Affordability is an important issue in determining the point of maximum utility. The City is not clear as to what these residents would consider to be important to their quality of life. Further, no research has been done on how public goods are capitalised into housing prices. In Mosselson’s research on the inner city he reports that residents were attracted to the area due to “transport, economic opportunities

21

Transit corridors & the private sector

and social amenities that living in the Inner City affords them” (Mosselson 2016: 7). This would most likely extend into parts of the Corridors, but there is scope to do behavioural economics research which will assist in refining household location determination. The SAFs for the TOD project drew a number of conclusions regarding opportunities for housing: • The Milpark Precinct: a desirable space for student accommodation • Turffontein: family-oriented infrastructure • Orange Grove: combination of shared accommodation and long-term residents However detailed analysis as to where the gaps in the housing market will be, or at what point the City needs to step in to support or directly develop housing, has not been done (CoJ 2016). Whilst housing might well be the most important element of the Corridors, it cannot be pursued in isolation from additional economic and social initiatives. To date, the City does not have a blueprint of the kinds of developments required to balance neighbourhoods and nodes to ensure that some residents are not excluded on the basis of affordability. This lack of research remains an omission in the policy to date. Given the disquiet expressed by academics and activists around housing in the inner city, it is urgent that these concerns are tackled with as much vigour as the development incentives.

If housing is the anchor for Johannesburg’s TOD, further and more detailed analysis is required to determine who will provide affordable housing and at what cost. The median income in Johannesburg is R3 500 per month per household, with half of households earning less than R3 500 per month (Weakley 2016). The market with the greatest potential for growth is low-income housing (Weakley 2016). The cheapest formal residential accommodation available seems to be at a cost of R2 000 per month, or more for a single room in the inner city. One new Corridors developer indicated they would be delivering affordable housing at rentals of R1 950 per month for a 12 m2 studio (interview with Property Developer B, 1 August 2016).

The work presented in the City’s Inner City Housing and Implementation Plan (ICHIP) records that only a few social housing organisations are able to provide

12 R egardless of which group of developers are potentially interested in the Corridors, the City has a vital role to play in ensuring that the developments meet the criteria required for restructuring the city and creating liveable and usable neighbourhoods for all residents.

13 This is based on interviews done for this study specifically.

Transit corridors & the private sector

22

housing for under R1 000 per month in the inner city. Because affordability is an enormous issue in accessing good quality housing, many inner city residents reside in informal housing which can be hazardous. Further, in these housing arrangements there is often exploitation and overcrowding. But there are also segments of the informal housing market that are meeting the housing need in an innovative way (CoJ 2016a: 15). It is amongst those residents that can afford less than R1 000 per month for housing that the greatest housing need is exhibited (CoJ 2016a: 2).

The ICHIP programme argues that in the inner city “there needs to be a range of housing forms and affordability” (CoJ 2016a: 5). It identifies further that there have been 50 000 affordable housing units delivered in the inner city (CoJ 2016a: 2). Yet for many in the affordable housing market, the rents remain too high (CoJ 2016a: 2). As rentals increase, so poorer residents are pushed down the property ladder and once again out of the formal residential property market (CoJ 2016a: 13). Trends suggest that private developers will provide well-located housing at a cost of around R2 000 per month but not below that. This heightens the obligations of the City to provide and fund low-income housing with some urgency, and the ICHIP details how this can be done.

The ICHIP programme also raises an important point that there are existing properties which have informally changed use,including in neighbourhoods along the Corridors. The plan argues that existing planning regulations for changing use are so onerous that they may disincentivise formallyapproved densification (CoJ 2016a: 13). It could be strategic for the City to support densification efforts in those neighbourhoods that are already in a process of flux and are organically pursuing greater densities. Further, a detailed investigation into which stock has conversion potential would assist in determining locations for social housing.

There is no fixed trajectory of investment as yet in the housing market in the Corridors. Research from interviews tentatively concludes that small investors express greater enthusiasm at the opportunities in the Corridors. The appetite from institutional investors has not been conclusively recorded. The pressing question remains who will deliver housing at the lower levels of the market, and it seems this obligation must fall to the City itself.

23

Transit corridors & the private sector

3.6. Mixed Use in the Transit Corridors The Corridors are envisaged as mixed-used and mixed-income in nature but it is unclear as to the uptake of commercial, industrial or mixed use potential.14 Property expert Francois Viruly is quoted as saying the COF plan has a good chance of transforming the built environment, provided that new developments cater for both “mixed usage and mixed income” (Muller 2014). Again, it is unclear what the terminology around “mixed usage” and particularly “mixed income” means, as well as who will guarantee that good quality low-income housing is provided. The City is aware of these challenges and argues that the mixed-use model is not viable everywhere on the Corridors. Some areas will remain purely residential, however in designated areas around the transit stations there cannot be compromise on the mix (interview with Linah Dube, 21 July 2016). Discussions on residential housing are sophisticated, with detailed work done on housing typologies, finance and incomes.

All other areas – such as social, commercial and educational – are defined as ‘mixed use’, although each these has its own locational determination and dynamics and should be considered as such.

The commercial sector, for example, appears uncertain. Commercial office users demand more space in a growing economy when seeking to expand, agglomerate with similar businesses, or upgrade their space. Retail users service a particular market and tend to follow their market. Industrial users have their own dynamics with an emphasis on warehousing and access to the road networks (Ball et al 1998: 41-43).

Ball et al (1998: 52) contend that user demand for commercial property can be explained as follows: The value an occupier places on a property (and, hence, the price that the occupier is prepared to pay) depends on the bundle of attributes that relate to the building, the site, characteristics and the location of the parcel of land within the urban area.

They further argue that general accessibility can be a determinant for commercial property users, by which they mean that retail property requires a central location that maximises consumer footfall.

Offices also benefit from a central location (Ball et al 1998: 52) and access to public transport.

The decentralised nature of Johannesburg with its regional nodes means that determining a central location can be difficult.

14 T his could be due to a bias in respondents. The research targeted property developers undertaking new developments in the Corridors.

Transit corridors & the private sector

24

The Empire Perth SAF states that the rate of trade for commercial and industrial properties has remained unchanged since 2004, indicating lethargy in the market (CoJ 2014: 47). Shifting the commercial market would require the City to think through other forms of incentives and it might be viable to use the conventional model of rebates for firms relocating to the Corridors. Although these kinds of incentives are not within the ambit of local government competencies, there is a case to be made for opening a dialogue with National Treasury to explore tax incentives. Alternatively, exploring the benefits of agglomeration in select Corridor nodes might have the same effect.

However, any incentive offered needs to be able to demonstrate a cost-benefit effect. There is also the prospect that over time, as the residential densities grow, commercial developers will become more interested in development in the Corridors.

Alternatively, the City can take the view that it will support small businesses in the Corridors and grow the commercial property offering in this way.

Without a clear sense of who is generating demand in the Corridors and who will be creating the supply, it is speculation that is informing the City’s approach to shaping the commercial property market. There is no research into the demand for and viability of commercial developments as yet. As Viruly comments: “Their sheer size means they are not quick in-and-out projects so developers have to be in it for the long haul. In addition, not only do you have to get the mix for different usages right, you must also develop them in the right sequence�

(Muller 2014).

3.7. Access to Finance Finance is also a critical factor in determining who develops, often acting as the constraint for smaller developers. Access to finance plays a huge role in shaping the market. Traditional financiers are risk averse, including major South African banks (although Nedbank does have an Affordable Housing Development Finance section). The complexity of raising finance is exacerbated by the reality that many large financial institutions are not engaged with City planning processes or their strategic objectives. Hence, it is as important to understand who will finance developments, as it is to understand who will do the developments. It would be most likely that existing housing financiers would fund developments in the Corridors. For instance the

25

Transit corridors & the private sector

Trust for Urban Housing Finance (TUHF), which has financed inner city housing for 13 years, encourages and finances small entrepreneurs in the inner city. Other financiers operating in the affordable housing space are the National Housing Finance Corporation (NHFC) and the Gauteng Partnership Fund (Mosselson 2016: 6). However, more risk-taking investors and developers with larger portfolios are also needed to scale up developments.

This raises an interesting dilemma for the City: does it support the market in the development of affordable housing and wait for commercial activity to follow? It would be preferable if the City thought through how best to influence the commercial property market and incentivise mixed-use development directly.

3.8. Municipal Land and Development One of the major intervention strategies in pursuit of TOD is the release and development of municipal land to achieve precinct development visions. The effective and strategic use of municipal land is one of the most important mechanisms cities can use in order to secure transformation. The ability to purchase, hold and develop land provides municipalities with a lever to pursue its own interests but also to potentially shape the market.

City-owned land is an asset in its own right; can be endowed with appealing development rights; and can be used to trade in development rights (interview with David Savage, 2 August 2016). The ownership of urban land by governments also provides them with greater control over its final use. Rather than simply steering the market, governments can determine development outcomes.

Although the value of land in the development process should not be overstated, acquisition costs can run to 15 to 25% of development costs, which is substantial (interview with Rob McGaffin, 28 July 2016). Developers are attracted to cheap land prices to optimise their profit but it is unclear as to the role this plays in determining location choices.

The strategic use of land requires something of a paradigm shift, and municipalities should think about the ownership of land as an active instrument in the property market. While the City has embarked on a land acquisition process in the SDZs of Orange Grove, the Knowledge Precinct and Brixton (see section 3.9 below), its land strategy is locality-determined and in advance of specific developmental objectives. While the City has purchased land along the Corridors, and

Transit corridors & the private sector

26

although there is an intent to cluster ownership, some City officials argue that the method being followed by the CoJ is unclear. A willing buyer-willing seller approach has been used thus far and there are attempts at consolidation of the purchased sites. It is however not clear as to how these consolidated sites will be used. In order to make a significant impact, land needs to be built into a portfolio that is both traded in the development process and also utilised for public sector-led development (interview with Alan Dinnie, 29 July 2016). In the absence of an economic strategy or sufficient economic analysis and data, the land strategy is at a disadvantage. The theory as articulated in the TOD programme is to capture value in close proximity to transit centres but it remains unclear as to how the City intends to do this.

The approach to purchase land has also been controversial. The initial approach to purchase was undertaken post the announcement of the COF, but without sufficient transparency (as reported in the media). Although the City took this approach to prevent a spike in the property market, this meant that homeowners were uninformed about the project. The City was obliged to apologise due to the negative publicity (Cox 2014a).

There is a gap in the plan around the status and utility of state-owned land, be it provincially or nationally owned. The political clout of Johannesburg’s politicians can be utilised in order to garner some of this land and use it more efficiently to support broader developmental objectives (interview with Tanya Zack, 26 August 2016). For example, the Park Station Precinct cannot be activated without the cooperation of the Passenger Rail Agency of South Africa (PRASA). This is not the only example, and the City needs to proactively engage with other government landowners. Equally concerning is the push towards densification without a clear strategy in terms of educational facilities. The inner city, despite its growth in affordable housing options, clearly lacks sufficient educational opportunities for its residents. Indeed, the provision of appropriate social infrastructure could be a significant intervention to shape market demand. Educational facilities specifically are a fundamental component of a good neighbourhood. In order to support and promote densification, the City needs to engage more actively with the Gauteng Department of Education to guarantee that there is the delivery of sufficient educational facilities. It would be worth considering

27

Transit corridors & the private sector

incentives for educational facilities prepared to locate to neighbourhoods in the Corridors.

There is an opportunity for the City to use its land more effectively. If City-owned land is strategically located or sufficiently large, it could play an important role in providing the public goods that create demand and actively support neighbourhood development and transit hubs.

3.9. Two Case Studies: Orange Grove and Milpark The Corridors comprise multiple nodes, many of which are extremely diverse in terms of residents, urban form and development opportunities. The disparity in the nodes highlights the need for detailed analysis of the property market in each node, as well as interested developers, opportunities for commercial development and partnerships. This distinctiveness is evident in the cases of Orange Grove and the Milpark Precinct.

3.9.1. Orange Grove The neighbourhood of Orange Grove contains primarily low-density housing stock, which presents the opportunity for densification and the provision of affordable housing. It is also situated along a section of Louis Botha Corridor that accommodates small retail businesses and a mix of formal and informal businesses. Orange Grove is interesting in a real estate context for a number of reasons: • It was selected by the City as a Special Development Zone (SDZ) case study and pilot in the purchase of land.

• The dynamics around the purchase of properties in Orange Grove as part of the COF project has elicited strong objections by community members.

• The City is spearheading a large mixed-use housing project at Paterson Park in Orange Grove, which is one of the initial sites for the Corridors.

• The Louis Botha Corridor provides a distinct perspective on real estate and the private sector. It already has a diverse property market with important opportunities for inclusion. It is a critical route connecting Alexandra to the inner city, hence a strategic transport corridor.

However, the City’s initial steps into Orange

Grove have caused controversy and concern amongst the residents. The causes of the panic have been twofold: the City’s large-scale purchase of land in the area; and the proposed Paterson Park development, which is targeting a substantial number of social housing units.15 The initial scope of this research was to establish what new developments were underway in Orange Grove as a result of the implementation of the COF and the BRT. It was ascertained through the research process that a number of small new developments were underway but not at a scale that would allow for analysis. Some of the developments were in the vicinity of Orange Grove but not directly in the neighbourhood. Interviews undertaken suggest that there is an interest in the development of affordable housing, that the land market consists of largely small landowners with no real institutional presence, and that there is a growing trend of informal densification. This being the case, any large-scale development would require substantial land consolidation in order to achieve scale. Despite its good location, there has been a slow process of decline in parts of Orange Grove.

The land purchase process undertaken by the City has led to a rise in property prices. While there are long-term residents of Orange Grove who are reluctant to sell their properties, there have also been residents who are willing to move and felt that the City offered market-related prices.

3.9.2. The Milpark Precinct The Milpark Precinct on the Empire-Perth Corridor is a very different site, and has already transitioned into a transport corridor.This site offers opportunities for greater densification and is positioned for a diverse portfolio of private sector commercial investment. Milpark is well placed to test the viability of mixed-income housing developments and to monitor the spread of student accommodation. It is also a site of mixed-use developments. Currently, this precinct has multiple large landowners, including Milpark Hospital, Lancet Laboratories, the SABC, University of Johannesburg and University of the Witwatersrand. While there are smaller sites, there are limited options for smaller developers.

The latest development trends in the area are covered by the Milpark Urban Design Framework, compiled by Osmond Lange Architects (interview with Jonathan Manning, 12 August 2016). A review of their work and participant observation indicated that there were a number of new developments in the planning phase or underway. These included the change in ownership of 39 Stanley Avenue and plans for new residential accommodation. The Imperial site is also under site preparation and there is evidence of new student accommodation being constructed in Richmond.

15 F or more information on this, see Alexandra Appelbaum’s report, Contestation, Transformation and Competing Visions: a case study of Orange Grove and Norwood – report 7 in this series.

Transit corridors & the private sector

28

4

STRATEGIES TO STIMULATE THE MARKET IN THE CORRIDORS The previous section described the current status of the property sector in Johannesburg and the efforts of the City to shape the market, arguing that a better understanding of developers and property market sub-sectors is crucial to shaping market interventions. The City has also generated a number of incentives to attract the market to the Corridors.

Some of these incentives are pre-existing but there are also new and innovative approaches and these will be discussed in this section.16 The City has elected to use cost-cutting incentives to attract the market to invest in the Corridors. Cutting the costs of development is an instrument that could be successful in getting developers to invest and develop in City-selected areas, if the cuts are sufficiently compelling.17 According to Coleman et al (2013: 146) the most significant development costs are: • Construction • Infrastructure • Professional Fees • Finance • Marketing • Planning obligations The public sector can best influence cost in relation to the provision of infrastructure and planning obligations. The cost of professional fees is predetermined and construction costs are contingent upon building materials, costs of labour and the nature of the site. The cost of finance is also unaffected by the City and its policies, although the CoJ could influence the availability of finance through collaboration with the National Treasury, as detailed in Section 3.7. Development costs are also contingent upon the type of development undertaken.

There are two kinds of developments that will most likely be done in the Corridors, largely because there is a limited supply of vacant land: brownfield developments and conversions. Each of these entails different interactions and incentives. Property markets are serviced in distinct ways and respond differently to market conditions (as discussed in Section 3). The effective affordable housing market in the inner city, for example, has been fuelled by the purchase of cheap and accessible buildings which were converted into affordable housing units. The high demand for this kind of affordable, well-located rental housing has grown, and access to good quality inner city buildings is becoming more and more challenging. The conversion of office buildings into residential accommodation is a different dynamic to undertaking land assembly and brownfields redevelopment, which is needed in order to realise the densities required on the Corridors (especially in low-rise residential areas). Brownfield sites are more expensive than greenfields to develop. This is because brownfields are often owned by multiple landowners and require clearing prior to development (Davison and Legacy 2014: 157). For a brownfield site or redeveloped site to be profitable, the net present value of the scheme – including the value of the buildings created and the costs of demolition and construction – must exceed the net present value of the existing use (Leishman 2015).

Historically, the incentives and subsidies offered by the state – the area where cities have the greatest power – have cut development costs.18 McGaffin argues that often development incentives are all on the supply-side, instead of the demand-side (interview with Rob McGaffin, 28 July 2016). The demand-side pertains to having a ready market to occupy a new

16 T his section draws on important work in progress on the economic development strategy, referred to as the Commercialisation Strategy for the Corridors of Freedom, which highlights how the spatial incentives are guiding economic incentives in the policy process. To date the report is neither complete nor in the public domain.

17 T hese strategies are also providing the private sector with a generous subsidy. Yet the subsidy will most likely not translate into a saving for the end user.

18 This regulatory control however can also be used to safeguard the inclusive vision of the COF.

29

Transit corridors & the private sector

Transit corridors & the private sector

30

development, be it tenants or an investor-buyer; while supply-side refers to the actual construction of new developments. He contends that the supplyside incentives are a number of steps along in the development process. Trevilion confirms this, stating that: “In the end nothing changes unless someone is prepared to fund change whether it be the private or public sector – planners can plan all they want and developers have aspirations but the plans and aspirations need to be funded” (Trevilion 2015). The City has historically offered incentives largely at the end of the development process, once developments have been constructed. This includes incentives such as rates rebates. However, the COF process shows some shift in that approach, with incentives offered earlier on in the development cycle.

The City is using location-based incentives as the primary instrument through which to attract investment. Yet international studies suggest that there are a multitude of factors that determine location choices and these differ for individual investors and firms (Ball et al 1998). McGaffin lists some of the determinants for location in the commercial sector, including “technical, institutional, contextual, social and human behavioural reasons” (2015: 24). According to him: Technically, a company will usually take into account the nature of its production process, its ability to access the required factor inputs (labour, materials etc.) and its customers, as well as the availability of suitable space upon which to undertake its production. The suitability of the space will depend on factors such as the availability of infrastructure, quality of space, level of safety and cleanliness of the broader area (McGaffin 2015: 24).

Therefore, determining the efficacy of locationbased incentives is tricky. However if the location is desirable then it is easier to attract developers and investors. For instance, attracting a cluster of businesses and investors can support agglomeration economies as has been the case in Sandton. The City should review the optimum locations in the Corridors. Agglomeration appeal and generating an accurate analysis of location requirements will require a detailed study on the locational requirements for a number of commercial activities (McGaffin 2015: 25; Kenyon et al 2012: 9-11).

A review of the supply-side incentives indicates that there are a number of standard incentives that have been in place to date. The Urban Development Zone (UDZ) established by National Treasury is one such incentive, and there has been mention made in the SAFs of extending the UDZ. A more comprehensive and innovative set of incentives is being offered through the COF process. However these incentives are being offered in a context where many of the commitments made in the City’s 2007 Inner City Regeneration Charter (ICRC), for example, have not been fulfilled.19 This has led to frustration being experienced by developers in accessing incentives through City channels, leading to legitimate questions raised as to the likelihood of the efficacy and roll-out of the new incentives under consideration. Some developers have even raised scepticism that the incentives would materialise.

As recently as October 2016 private developers have called on the Executive Mayor to streamline development processes and unblock billing problems that inhibit inner city developments.

As with many strategies and policies, the implementation of the strategy is a more intricate layered phenomenon than the framework provided.

Further, location-based incentives such as the UDZ have historically not been considered critical to investment choices; rather they are a bonus for developers who had selected the area already (according to discussions with property developers undertaken in the study). The point was also made by developers that location and yields were paramount in making development decisions.

4.1. New Approaches to Cutting Development Costs The City has developed a number of new costcutting mechanisms to stimulate market interest in the Corridors. These are in addition to the incentives mentioned above. The new incentives include: • Bulk infrastructure provision • Faster development application process • More permissive development rights • Rates rebates Each of these mechanisms will be discussed in more detail below.

19 W inkler lists these incentives as: “public investments to stimulate new economic activities; tax rebates and tax increment financing schemes; reduced turnaround times on development and building plan applications; flexibility in building-control standards; and a more supportive land-use planning framework” (2013, citing CoJ 2007: 32-34, 51, 55).

31

Transit corridors & the private sector

Transit corridors & the private sector

32

4.1.1. Bulk infrastructure The availability of bulk infrastructure for new developments and redevelopments has been of considerable concern to property developers to date. Not being able to access sufficient bulk infrastructure, or having to wait a substantial period of time for bulk infrastructure, can be costly to businesses. In response to these concerns, the City is directly investing in bulk infrastructure in areas of significance in the Corridors to facilitate increased densities.

The City’s Land Use Management Department is responsible for the bulk infrastructure incentive that is being offered as part of Johannesburg’s TOD programme. According to the Director of Land Use Management Linah Dube, the City is putting in infrastructure in the Corridors and part of the cost of the infrastructure will be recouped through bulk contributions. She stresses that the City is working on a city-wide policy on development contributions, but that it is not currently available for review (interview, 29 August 2016). Although the policy on amended development contributions is not available, David Savage from National Treasury’s City Support Programme argues that restructuring development contributions can be problematic in the following ways: • Transferring benefits to private developers through permitting them to maximise their profits at the cost of ratepayers; • Failing to tap into a ready source of infrastructure finance, drawn from the property finance industry and home-owner creditworthiness rather than their own balance sheet • Implicitly reallocating resources away from other priorities such as pro-poor expenditures particularly over time as they will inevitably be forced to expand infrastructure networks at a later date to deal with congestion • Imposing a cost on the economy, in terms of both forcing an inappropriate allocation of capital away from the property sector in their areas where they do not provide infrastructure and through imposing economic costs associated with network congestion until they actually do invest (Savage 2009: 2).

33

Transit corridors & the private sector

The City is aware of these concerns and doing detailed work in order to ensure that this process is optimally managed.

4.1.2. Faster development application process The bulk infrastructure work is being done at the same time as the SDZ initiative is being undertaken to kick start the development process. As custodians of the regulatory framework, the department is leading the revisions in the development applications process, and consider themselves in a good position to innovate when necessary. Three SDZs have been selected in two of the corridors (Empire-Perth and Louis Botha), with the understanding that not all incentives and mechanisms will work the same way in each Corridor. The SDZs selected as pilot projects thus far are: • Brixton Precinct • Knowledge Precinct • Orange Grove Precinct The objective of the SDZ is to establish best practice for facilitating faster turnaround times for development applications in the Corridors. The Land Use Management Department is leading a process of generating development-ready sites, which are sites with all zoning and development rights pre-approved. The City has taken on a number of functions that would normally fall to the developer, including technical studies required for a normal rezoning process. These include: outline scheme reports, Environmental Impact Assessment (EIA) studies, and heritage studies.

These actions are premised upon the understanding that development is more likely in the Corridors if developers know the rights they can get, how much it will cost them, and what timeframes to expect.

The City will remove the risk and uncertainty associated with the planning process. Further, the City will run the community participation exercises and deal with objections in the rezoning processes (interview with Linah Dube, 21 July 2016). The intention of this incentive is to cut the cost of development by ensuring development times are shortened. By eliminating the time taken to conduct the studies, as well as the 60 day commenting time, developers will cut costs associated with holding the property and financing until the development is approved.

Transit corridors & the private sector

34

Developers interviewed for this study unanimously agreed that the development application process was an obstacle in the development process. Many articulated that, rather than responding to City policies, they would benefit more from an efficient building plan application process for instance (Nyoni 2016). There was an overall positive response to this new approach being taken, which appears to be a very compelling incentive.

Yet the point in the development cycle at which this will be implemented is fairly far along. It is unclear whether this would specifically attract developers to the Corridors or whether it would instead be considered a bonus for developers already interested in investing in the Corridors.

These incentives should be offered with clear attention paid to the long-term consequence of overly permissive development rights.

4.1.3. Permissive development rights As a supplementary practice to support faster development applications, the City has initiated a process to support densification by approving: • Additional dwelling units through changing non-residential uses into residential use • Subdivisions • Consolidation and redevelopment • Increased land rights • Higher density infill (CoJ 2014: 60-61) One of the main incentives for development in the Corridors is the process of rezoning. The rezoning of the Corridors means that developers are able to access higher density rights without going through the rezoning process. An exercise is underway in the Land Use Management Department to test the densities laid out in the frameworks, from a financial feasibility angle as well as a viability perspective (interview with Linah Dube, 21 July 2016). Savage argues that the City should use development rights strategically in order to boost its finances (through selling or auctioning the rights), and expresses caution at giving developers blanket rights for development (interview with David Savage, 2 August 2016). He explains that thinking through the leverage that development rights might yield could strengthen it as an instrument. For instance, setting development time limits could mitigate against developers banking

35

Transit corridors & the private sector

land for long periods of time without developing it. It would be equally worthwhile to determine the possibility of the City setting time limits on development rights to ensure these are exercised within a time frame.

Allowing greater densities has the potential to make development more attractive. The shortcomings of these incentives hinge upon the fact that much of the private sector does not follow City strategy and neither do financiers.

Amending density requirements and relaxing parking rights was favoured by new developers on the Corridors, who felt that lower parking ratios made their developments more viable (although it is unclear if this benefit will be passed on to the end user). Parking restrictions are also a critical part of ensuring that public transport is utilised and successful. Todes’ research in 2012 shows that the development bonuses granted at the time of the GMS were not taken up by developers. This was in part because there was no confidence in the City’s ability to meet infrastructure requirements associated with the densities (Todes 2012: 163).

Knowing that the City has provided sufficient bulk infrastructure to support densities in advance will address these concerns, but it is too soon to quantify the effects.

While the City incentivises higher densities, densification is prevalent in the informal housing market with the use of commercial buildings and even industrial buildings as residential buildings.

In some areas, the infrastructure will be unable to cope with the strain and this needs to be proactively addressed as an element of the TOD process.

Further, as the City grapples with informality this provides an opportunity for determining ways in which informal densification can be regularised to the benefit of existing residents.

4.1.4. Rates In addition to development rights, the City has also approved a rates policy which provides rates benefits to developers on the Corridors. The Land Use Management Department is charged with ensuring that the rebates are happening correctly, after receiving developers’ applications. Section 7(12) of the City of Johannesburg’s Rates Policy 2016/2017 states the following with regard to COF rebates:

(12) Corridors of Freedom Incentive The rebate will apply as follows: 12.1 During Construction Rebate

01 The rebate will apply to new building developments that would take place within the identified COF in line with the approved Strategic Area Frameworks, including Soweto TOD nodes (Jabulani, Orlando, Nancefield Station, Kliptown).

02 The property owner will pay 25% of the

rate as per the category of land for a period not exceeding two years during the construction phase.

12.2 Post Construction Rebate

The property owner will pay half the rate for the first year of operation as per the category of land.

01 The property owner will pay full rates

as per the category of property from the second year of operation onwards.

12.3 Requirements for the rebates

01 The detailed requirement criteria will

be determined by the Department of Development Planning in line with the policy for the Corridors of Freedom as approved by Council.

02 The development must be in line with

the development requirements set out by the City.

03 The proposed development must follow all planning by-laws

04 The developer must apply to the

Department of Development Planning for approval of the project.

05 Once the property is approved by the Department of Development Planning,

property unit will process the rebate in SAP. (CoJ 2016: 30-31)

Aside from the direct incentive provided though investment in the COF, there is also a rates rebate for densification. In terms of Section 5 of the Rates Policy pertaining to residential sectional title units, a rebate of 5% of current monthly rebates will apply if you have densities of 80 dwelling units per hectare and above (CoJ 2016: 25). In discussions with developers there was a mixed response to the efficacy of a rates rebate. While for smaller new property developers this was enthusiastically received, larger more established developers seemed more ambivalent and even resigned to never receiving the rebate.

This is a consequence of their experiences with the City in trying to access rebates, rather than any opposition to the subsidy benefit itself. Instead of a ‘one stop shop’ to assist investors enquiring about rebates, property developers are required to directly access the Rates Department in order to apply for the rebate (interview with Property Developer A, 19 July 2016). The lack of enthusiasm for the rates policy amongst established developers seems to be a consequence of a lack of faith in City processes. In an interview with a new developer in the Corridors, he expressed frustration in his lack of ability to access the promised rates rebate (interview with Property Developer A, 19 July 2016).

This is noteworthy because rates are a significant cost for developers and investors.A SAPOA report from 2016 highlights that the escalation in property rates over the past decade is a growing expense in the commercial property industry, with rates and taxes having grown at a higher rate than inflation (SAPOA 2016b: 4). The report states that rates currently comprise 20% of operating cost, while rates as a percentage of total costs were calculated as follows for December 2015: 20.7% (retail), 18.5% (office), and 20.1% (industrial) (SAPOA 2016b: 3, 6). SAPOA maintains that in the early 2000s property rates were in line with increases in property values but after the recession property rates have increased at a higher rate than capital values (SAPOA 2016b: 7). The Vukile Property Fund Annual Report also makes reference to the dramatic rise in utilities and property rates (2016: 40). This dynamic is also referred to in the ICHIP programme, where rising inner city property prices have exponentially increased property rates too.20 The success of the City’s rates initiative is therefore contingent on the ability of the City to follow through on its offering, and to build confidence amongst property developers that the institution will support the development.

20 I t is worth differentiating here between the price elasticity in residential properties and commercial properties by determining which sectors are able to best absorb the increases.

Transit corridors & the private sector

36

5

REGULATING THE MARKET: STRENGTHENING THE CITY’S ROLE 5.1. Building Developer Responsibility into New Developments

Even if the state cannot shape market forces, it can certainly exert influence through regulation. But effectively regulating the market requires a strong state and direct state intervention. The preceding section has briefly outlined the City’s underlying strategy of utilising location-based supply incentives in order to attract development in the Corridors.

Furthermore, the incentives on offer remove important regulatory barriers to development.

An important finding of this research is that there has been insufficient review of the implications of these development incentives for the longterm interests of the City. The City’s incentives to the private sector raise critical questions regarding whether the balance can be struck between social and economic development, and the will of the private sector to make a positive contribution to spatial transformation.

Campbell and Henneberry (2005: 37) state that planning impacts on the property market through its control over land supply. While the City seeks to attract developers to the Corridors, the question remains as to what the City is asking for in return for these rights? And further, how is the regulatory system working to mitigate against developments that are contrary to the SDF? In the research undertaken for this project there was no reference to the obligations of property developers. Even the ICHIP framework is silent on property developer obligations (for instance for the rehousing of evictees). What are property developers required to do in exchange for a permissive planning environment, fasttracked development applications and bulk infrastructure provision? There was some reference made to inclusionary housing as a form of developmental obligation. However if there is a business case for development in the Corridors, the private sector should be compelled to make a more directed contribution to building sustainable neighbourhoods.

International precedent demonstrates that planning gain has been abused in many contexts,

37

Transit corridors & the private sector

and has been manipulated by the real estate sector so that they do not in fact carry the costs. One such example is inclusionary housing. The UK planning system mandates each development to go through an economic viability process, and all developments are required to go through a process of determining the cost effectiveness of affordable housing in a development (Campbell et al 2005: 154). Yet, rather than mainstreaming inclusionary housing ratios, private developers have spent an enormous amount of time and energy proving the lack of the affordability of inclusionary housing ratios (see Wainright 2014 for more on this). In the United States context, Coiacetto articulates how the rise in land costs due to restrictive planning regulations is passed onto the consumer and multiplied four times (2006: 428). This alarming figure raises the necessity for the City to take a property economic lens to its decision-making on land release and to prioritise the public good in all land release decisions, whether this means reserving land for public uses or trading land for investment in public uses. The public benefit derived from land release must outweigh the land value.

It is not clear how much thought the City has given to addressing the need for broader social and developmental objectives. For instance, the environmental impact of new developments can be mitigated through an emphasis on good urban design practices. During interviews it was confirmed that an urban design committee would review development plans to ascertain that they are meeting the design requirements of the COF (interview with Linah Dube, 21 July 2016).

Yet there is scope to expand this function. It is

possible for the City to develop urban and street design policies, such as Scotland’s ‘Designing Streets’ and ‘Designing Places’ policies, which would compel developers and the public sector to begin restructuring public and private spaces for a better experience (Government of Scotland 2010). When interviewed, developers often expressed a willingness to play an active role in their neighbourhoods, if asked by the City. The constraint to these kinds of arrangements to date has been the lack of a framework for partnerships. It is important that these kinds of partnerships are well regulated to guard against policies that may result in exclusionary practices. The Corridors provides a real opportunity for the City to begin a process of demanding more from property developers in the form of high quality inclusionary housing, affordable housing and the provision of community facilities.

Gentrification and displacement could be very real side effects of the TOD project if not carefully managed. The question needs to be asked: what mechanisms has the City put in place or thought through to minimise the impact, and ensure that there is social inclusion in all neighbourhoods? There will be current residents who will be pushed out of their existing informal accommodation should development begin to happen at scale.

Unless the City thinks through these realities and determines how to balance the subsidies it is giving with social benefits and with private sector obligations, there could be very real displacement experienced.

Transit corridors & the private sector

38

6

Capacity building and navigating the city One of the major costs to development is navigating the City administration. With numerous departments and entities required for sign off on development applications, this is often an enormous and costly obstacle to smaller developers. For example, a new developer to the Corridors mentioned that it had taken three years to get building plans approved. Although there has been the intention to simplify the process, in practice this does not yet seem to be the case. International research on urban economics stresses the costs associated with the regulatory framework and the impact on land values and development costs (for example, Glaeser and Ward 2009 on Greater Boston). In the interviews undertaken for this study there was no mention made of the need to liberalise the regulatory framework, which is interesting in itself. Rather, the concern expressed pertained to the inefficiencies experienced in getting permissions to develop.

6.1. Creating and Managing Relationships Understanding the frustrations and constraints to development is fundamental to building effective relationships. A directed capacity-building programme for City officials is an opportunity to improve relationships, and has been recognised globally as an important step in building better cities. The Development Facilitation Unit based in the JDA is an attempt at building more effective relationships, and seems to have been well received by both City officials and developers.

There was particular reference made to the JDA team working on facilitation. The unit is comprised of limited staff members with a large portfolio; however despite the capacity constraints they have made an important contribution thus far to forging a link between private sector, public sector and civil society players. The unit can be approached by developers interested in the Corridors, with the unit then able to link them up with the relevant City officials to provide further assistance. Adams et al contend that “in short, the more planners see themselves involved in ‘place bargaining’ rather than development control, the more it matters precisely who is sitting on the opposite side of the table” (2012: 2582).

Development in the Corridors is largely unknown territory and establishing trust and meaningful

39

Transit corridors & the private sector

engagements is an important but slow-moving process. The inner city community of developers has learned, over a decade or more, how to engage with the City in an efficient manner to unlock growth (interview with Matt Jackson, 12 July 2016). This process is still underway in the Corridors and should be more actively supported, given that it appears to yield results. Creating relationships also provides an opportunity for the City to guarantee that developers are aware of the broader vision of the COF and to create developments accordingly. It is also an important function for communicating developments in the Corridors to communities and neighbourhoods so as to ensure that local initiatives are supported.

6.2. Marketing the COF A further element in navigating the institutional process is an improved marketing approach by the City itself. Despite the research and analysis that has gone into the COF to date, many developers, city residents and City officials are not fully aware of what incentives are available or the social infrastructure promised. As one developer commented “the CoJ is publishing incentives and when you ask, nobody has a clue” (interview with Property Developer B, 1 August 2016). Intensifying marketing is key. The City’s website is not easy to navigate nor is it accessible to everyone. The institutional knowledge also

needs to extend further to other entities to ensure that they play a productive role in the development process. While the Development Planning Department is the custodian of the COF and the repository of research and information, this does not seem to stretch to other entities. All entities are aware of the COF and prioritise them in their budgets, but they could be better at responding to and fasttracking Corridor applications.

This requires that all officials who have development responsibility along the Corridors be trained in the intention and tools of the strategy.

There is certainly a case to be made for establishing a ‘one stop shop’ or a dedicated individual to manage the development process along the Corridors.

Improved marketing should not only be to the benefit of property developers, but also communities affected by Corridor interventions and developments.

Transit corridors & the private sector

40

7

GOVERNANCE AND URBAN MANAGMENT The City’s urban management function has generated consternation over the years. The function has shifted around in the institution, most recently from Development Planning into its own unit, Citizen Relationship and Urban Management (CRUM), located in the City Manager’s office. Despite the prioritisation of urban management issues at the CoJ, the institution has largely failed to deliver good urban management across Johannesburg. The explanation for this is not clear, but numerous interventions have been launched to try and improve urban management. Certainly, in the inner city the discourse has swung from developing policies for managing the informal sector, to implementing business improvement districts (BIDs), to establishing task forces. However, none of these approaches has had the required outcomes.

The relationship between the Corridors and urban management are fairly clear – a policy that is built on more residents living, working and playing in shared space should guarantee good urban management. For property developers, good urban management is critical.

The TOD initiative provides an important opportunity to refine urban management methods and to think through approaches that are not limited to a policing function. The COF are a significant statement by the City about the importance of the public realm and public space, supporting the concept of ‘the public city’ by acknowledging the value of functional public space and amenities.21 Unlike the growing trend in private sector developments of masterplanned mega-developments in Johannesburg, the Corridors project is focused on integration, permeability between public and private spaces, and sustainable design. This is a key strength of the project and it has the potential to re-orientate the way in which the City functions as the custodian of urban management. The urban management function is central in three ways: • As an important aspect of creating liveable Corridors; • As an ongoing source of irritation and complaint by private developers and city residents; and • Because city residents deserve good urban management.

Winkler, writing on Hillbrow, argues against the City’s regeneration approach and in favour of better management. She contends: “the local state might consider directing its regeneration efforts

to the maintenance of public infrastructure and the provision of public services, since arguably all ‘global’ cities require port-of-entry neighbourhoods” (Winkler 2013: 322). This sentiment applies to many neighbourhoods in Johannesburg where there is frustration at the inability of the City to get ‘the basics right’.

There are a number of important areas of intervention in urban management in the City, including: • Approaches to informal trading and special trading zones around transit centres;22 • Policies and plans of municipal-owned entities (MOEs) such as Pikitup, Joburg Water, City Parks and Johannesburg Roads Agency (JRA); and • Arrangements with the private sector and communities to partner in urban management in the development areas.

The urban management methodology in the City is an area-based management framework (ABMF), which is reflective of the broader institutional structure. It is defined as follows: “The ABMF is the governance tool through which CRUM Region E will support management and maintenance of public assets and ensure safe quality service provision in the region” (CoJ 2016b: 1). An area-based management

21 M artin Murray uses the term “public city”, although not in reference to the Corridors (Murray 2015: 506).

41

Transit corridors & the private sector

22 I t was mentioned during the study that managed informal trading would be offered as part of any viable economic activity on the Corridors.

Transit corridors & the private sector

42

approach is fitting as neighbourhoods are different and require local interventions and plans. However, the success of the methodology is contingent upon effective institutional collaboration and integration.

The ABMF for the Louis Botha Corridor reveals a detailed and thorough approach to area-based management structured around the SAF priorities.

In particular, public safety, by-law enforcement and waste management are highlighted (CoJ 2016b: 6).

The success of the framework requires interaction between regional offices, City entities and concerned departments, as well as the active involvement of community stakeholders. The constraint to the workability is the scale of the framework. Each SAF is made up of neighbourhoods; however in order to tackle urban management issues thoroughly the focus needs to be at a micro-level. City officials need to know and be actively engaged in their neighbourhoods. Further, unless the City commits an operational budget to the ABMF where necessary, the activities and interventions will be constrained.

As Dunning asks: What is the relationship between capital investments in and the long-term use and benefits of open spaces? Well-intended expenditure on high quality design in our urban fabric has frequently provided short-term results, but has often failed to maintain their impact over time. These bright new spaces have a habit of fading over time sometimes into significant disrepair. (2016: 391) Thus, the first step in improving urban management is an engaged, accountable and functional urban management team.

7.1. Specific Urban Management Interventions 7.1.1. Place making A further innovation to the standard public infrastructure investment in the Corridors is the intention of the City to pursue a place making agenda to create precincts that are liveable spaces.

These liveable spaces are directly related to urban management interventions undertaken by the City.

This very positive new approach puts the emphasis on urban design; with urban design frameworks set with specifications as to how new developments should engage with the public realm. This includes limitations on the scale of developments so as

43

Transit corridors & the private sector

to keep areas permeable and mitigate against a gated community approach. There is a determined effort to manage urban design parameters in the Corridors, and each plan submitted will be assessed by an urban design team to ensure it meets the requirements (interview with Linah Dube, 21 July 2016). Attention to the area-wide design parameters and linkages is an important public sector function as it establishes the urban realm ahead of individual developments. However a requirement of developers to prove the environmental enhancement of their developments is equally valid (as discussed further below). In discussions held with private developers they appeared comfortable with place making interventions, however opinions differed depending on the scale and budget of the development in question.

7.1.2. Partnerships Creating local partnerships has been a wellreceived solution to urban management problems experienced throughout Johannesburg. To date there have been successful area-based urban management interventions where the City has partnered with the private sector or communitybased organisations (CBOs). The Ekhaya Neighbourhood in Hillbrow is an example of a functional partnership working to efficiently manage public spaces where the state is unable.

Didier, Peyroux and Morange argue that the private management of urban spaces is indicative of the growing influence of the private sector in urban matters (2012: 920). It has become acceptable, they argue, for the private sector to step into spaces that the state is unable to effectively manage. This is the case in the in Johannesburg, where increasingly developers and residents have begun to privatise urban management in their neighbourhoods. For developers and investors, the efficient management of the broader neighbourhood is an important factor for the protection of their assets. For some developers ‘getting the basics right’ appears to hold more influence over investor attitudes than a rates rebate or other development incentives.

In the context of Johannesburg, handing over the management of public space to the private sector is controversial. This is primarily because the creation of City Improvement Districts (CIDs) has led to exclusion – both social and economic.

Property developers, building owners and residents uniformly argue that the City should focus more on infrastructure provision and maintenance. City

Transit corridors & the private sector

44

councillors also expressed frustration at their inability to address the problem of poor urban management. In response to the ineffective City-led urban management function, the privatisation of urban management has become commonplace and is manifest through the CID model and a zero tolerance approach to the informal economy.

Both are contradictory to inclusive governance practices. Effective partnerships require the recognition that the public realm must be inclusive. As Rubin comments: “the support of only formal activities and the constant criminalization of informal activities has reinforced a mythical dualism between the two sectors and ensured that only one kind of activity is spatially legitimized” (2008: 22).

Given that partnerships can be an effective way of managing urban space, the urban management conversation would be more constructive if it included the necessary discussion on how to improve urban management without creating spaces of exclusion.

One of the most sustainable solutions to urban management issues in neighbourhoods is through generating a sense of community or building social cohesion from the bottom up. It is worth having a dialogue highlighting what would be required to build city streets, as envisaged by Jane Jacobs, where passive surveillance or ‘eyes on the street’ is provided by residents and building owners (see LloydJones 1998).

7.1.3. Public safety Safety and security measures must be in place to optimise the attractiveness of the Corridors (interview with Nazira Cachalia, 12 July 2016). The lack of safety in public spaces consistently undermines the likelihood of resident engagement in the public domain. Fear in the public realm is a major urban management issue (see Silverman and Zack 2007). The attractiveness of the Corridors for mixed use and housing necessitates that the public environment is safe and accessible for all users. A lack of safety will undermine the positive urban design principles of permeability between the public and private space. Currently too many neighbourhoods in the Corridors are characterised by poor urban design features that negatively affect safety (including public lighting, signage and high quality public space) The Milpark Precinct, for example, is fenced off, making the area pedestrian unfriendly. The Joburg City Safety Programme has done fantastic detailed “Crime Prevention through Environmental Design Safety Audits” in a number of areas on the Corridors. In these reports they outline in minute detail the types of interventions in the urban environment that could transform neighbourhoods. Unless operational funding is allocated to realise and manage some of these interventions, safety will remain a primary concern.

The lack of an operational budgetary allocation in the City budget, and limited thinking around partnerships, has led to a situation where non-existent post-construction after care for capital projects is commonplace. Attaching a budget to improved urban management interventions is a necessary practice and a potential space to measure social and economic benefits and impact.

45

Transit corridors & the private sector

Transit corridors & the private sector

46

8

CONCLUSION AND RECOMMENDATIONS This report has contained a review of COF policies and activities implemented to date. As much of the work is still in an exploratory phase, it has proven difficult to make conclusive statements and recommendations. As such, some of what is presented is tentative and investigative. However there are a number of findings that might be of use to the City as it continues to implement the strategy.

As with many other city governments, the CoJ has developed a number of strategies to attract property developers to the TOD initiative. These strategies include shaping, stimulating and regulating the market as well as building internal capacity for better and more fruitful interaction with the property sector. The success of these strategies is however tied in with factors beyond the control of City officials, such as the macro-economy. In order to better achieve the objectives of these strategies it is important that the City gathers a better understanding of the property market, developers and market sub-sectors. An important gap in the discussion on property developers is a detailed analysis of what motivates property investors to invest in particular localities and markets, and which developers would be most interested in investing in the Corridors. Understanding stakeholders and role-players greatly assists in targeting information in the right areas. This kind of investigation would require an area-based and sectoral analysis. As most developers and financiers operate beyond the realm of City policy, engaging more directly with these role-players could be of great value.

The CoJ also needs to make a distinction between residential and commercial property developers.

The investment motivation for development differs between property sectors. Thinking through the location-based incentives and their utility to commercial and residential developers and investors would assist in determining the viability of commercial uses in the Corridors and focus the points at which these can be optimised. There is also further research to be done in understanding the dynamics pertaining to location selection. As the overview of Orange Grove and the Milpark Precinct illustrates, there are different neighbourhoods in the Corridors and local area studies and incentives

47

Transit corridors & the private sector

that speak to different property developers and property sectors are necessary and important.

The development incentives offered by the City correlate well with concerns expressed by developers.They address issues around development rights, the development application process and bulk infrastructure to support densities. One of the City’s key incentives is speeding up development applications. Getting these basics right is an important part of building trust between developers, City officials and broader communities. While the City is stimulating market interest through costcutting approaches, it will be important to calculate the cost of these development incentives to the CoJ, and to determine if the cost is viable or whether the money could be better utilised elsewhere to the benefit of poor city residents. The regulatory framework could be strengthened both in terms of its ability to halt unwanted developments, but also in terms of clarifying in more detail obligations for developers benefiting from permissive development rights and incentives. There needs to be further thinking around property developer responsibilities, and what role developers have in ensuring a just and equitable Johannesburg.

Creating a clear framework for social infrastructure is also necessary, as it speaks not only to the construction or improvement of city assets, but is inclusive of socio-economic programmes to support the infrastructure. Building infrastructure cannot be seen to be the City’s only contribution to the Corridors but rather part of a broader strategy, which acknowledges residents who live and work in the Corridors. Social exclusion is often ignored in policy frameworks. Creating an inclusive city is the primary motivation for the COF and it is therefore imperative that direct action be taken to guarantee

the provision of affordable and emergency housing, and to ensure that exclusion is not an unintended consequence of the strategy. Developers are looking for affordable housing opportunities in the Corridors and this interest should be optimised and harnessed.

The City should use this as an opportunity to support affordable housing and to ascertain its role in housing provision in the Corridors.

Finally, capacity building and supporting an effective team to drive development in the Corridors would add impetus to the project, as would create a ‘one-stop shop’ for communities and developers to access all information pertaining to the Corridors. The importance of urban management for the success of the TOD vision cannot be over-emphasised. With the focus of COF falling to public transport and improved public infrastructure, it is vital that the City get urban management right. Urban management is crucial for developers, investors and communities themselves.

Shifting the emphasis from a purely capital budget to operational support could have an enormous impact in this regard.

Transit corridors & the private sector

48

REFERENCES Adams D, Croudace R and Tiesdall S (2012) “Exploring the ‘Notional Property Developer’ as a Policy Construct” Urban Studies 49(12), pp.

2577-2596.

Campbell H and Henneberry J (2003) “Planning Obligations, The Market Orientation of Planning and Planning Professionalism” Journal of Property Research 22(1), pp. 37-59.

Coleman C, Crosby N, McAllister P and Wyatt P (2013) “Development Appraisal in Practice: Some Evidence from the Planning System” Journal of Property Research 30(2), pp. 144-165.

Africa Property News (2016) “South African Property Market Worth $403” (12 July 2016). Available at http:// www.africapropertynews.com/ southern-africa/3239-south-africanproperty-market-worth-403-billion. html

Cartwright A and Marrengane N (2016) “Urban Governance and Turning African Cites Around: City of Johannesburg” PASGR Working Paper 017 (June 2016). Available at http://www.pasgr.org/wp-content/ uploads/2016/11/Urban-Governanceand-Turning-African-Cities-Around_ City-of-Johannesburg_.pdf

Cox A (2014) “Corridors of Freedom or Housing Nightmare?” The Star (1 July 2014). Available at http://www.iol. co.za/news/south-africa/gauteng/ corridor-of-freedom-or-housingnightmare-1712657

Africa Property News (2015) “SA’s Listed Property Sector Gains its First Residential REIT” (20 June 2015). Available at http://www. africapropertynews.com/southernafrica/3124-sa-listed-property-sectorgains-first-residential-reit.html Africa Property News (2015a) “Affordable Housing Comes to Sub-Saharan Africa” (23 September 2015). Available at http://www.africapropertynews.com/ investing/3158-affordable-housingcomes-to-sub-saharan-africa.html Ahmad P and Pienaar H (2013) “Tracking Changes in the Built Environment: An Emerging Perspective from The City of Johannesburg” in P Harrison, G Gotz, A Todes and C Wray (eds.) Changing Space, Changing City: Johannesburg After Apartheid. Johannesburg: Wits University Press.

Ball M, Lizieri C and MacGregor B (1998) The Economics of Commercial Property Markets. London: Routledge.

Barke M and Clarke J (2016) “Residential Growth in Newcastle upon Tyne’s City Centre: The Role of the Public and Private Sectors” Journal of Housing and the Built Environment 31(1), pp.

141-166.

Barras R (1994) “Property and the Economic Cycle: Building Cycles Revisited” Journal of Property Research 11(3), pp. 183-197.

Bramley G (1999) “Housing Market Adjustments and Housing Supply Constraints” Environment and Planning A 31(7), pp. 1169-1188.

49

CAHF (Centre for Affordable Housing Finance in Africa) (2015) “The South African Residential Property Market: An Overview” Prepared for the Estate Agency Affairs Board of South Africa. Available at http://www. housingfinanceafrica.org/wp-content/ uploads/2015/09/The-South-AfricanHousing-Market-Overview-2015.pdf CoJ (City of Johannesburg) (2007) Inner City Regeneration Charter.

CoJ (2014) Empire-Perth Development Corridor Strategic Area Framework.

CoJ (2014a) Louis Botha Avenue Development Corridor Strategic Area Framework.

CoJ (2016) City of Johannesburg Property Rates Policy 2016/2017.

CoJ (2016a) Johannesburg Inner City Housing Strategy and Implementation Plan 2014-2021. Submitted by Rebel Group to the CoJ and JDA (20 April 2016).

CoJ (2016b) Area Based Management Framework: Regions E’s Corridor of Freedom: Louis Botha Corridor of Freedom.

CoJ (2016c) “Hillbrow Tower Precinct: Area Based Management” Stakeholder workshop presentation by the City of Johannesburg.

Coiacetto E (2006) “Real Estate Development Industry Structure: Consequences for Urban Planning and Development” Planning Practice and Research 21(4), pp. 423-441.

Transit corridors & the private sector

Cox A (2014a) “Joburg Explains its Orange Grove Property Buying Spree” The Star.

Available at http://www.iolproperty. co.za/roller/news/entry/joburg_ explains_its_orange_grove Davison G and Legacy C (2014) “Positive Planning and Sustainable Brownfield Regeneration: The Role and Potential of Government Land Development Agencies” International Planning Studies 19(2), pp. 154–172.

De Magalhães C and Carmona M (2006) “Innovations in the Management of Public Space: Reshaping and Refocusing Governance” Planning Theory & Practice 7(3), pp. 289-303.

Didier S, Peyroux E and Morange M (2012) “The Spreading of City Improvement District Model in Johannesburg and Cape Town: Urban Regeneration and the Neoliberal Agenda in South Africa” International Journal of Urban and Regional Research 36(5), pp. 915-935.

Dunning R (2016) “Book Review of N Dempsey, H Smith and M Burton (eds.) Place-Keeping: Open Space Management in Practice” Journal of Housing and the Built Environment 31(2), pp. 391–392.

Glaeser E (2001) “The Economics of Location-based Tax Incentives” Harvard Institute of Economic Research Discussion Paper Number 1932.

Glaeser E and Ward B (2009) “The Causes and Consequences of Land Use Regulation: Evidence from Greater Boston” Journal of Urban Economics 65, pp. 265–278.

Government of Scotland (2010) Designing Streets: A Policy Statement for Scotland.

Available at http://www.gov.scot/ resource/doc/307126/0096540.pdf Hui E and Zheng X (2012) “Exploring the Dynamic Relationship Between the Housing and Retail Property Markets: An Empirical Study of Hong Kong” Journal of Property Research 29(2), pp.

85-102.

Indluplace Properties (2015) “Indluplace Lists as the JSE’s First Residential REIT” Press release (9 June 2015).

Available at http://indluplace.co.za/ downloads/2015/press/Indluplacepress-release-listing-19June2015.pdf JDA (Johannesburg Development Agency) (2009) “Analysis of the Impact of the JDA’s Area-Based Regeneration Projects on Private Sector Investment” Prepared by Rhizome Management Services (28 February 2009).

Kauko T (2012) “Recreating Residential Property Values in the Inner City – An Adapted ‘Old’ Institutional Approach” Journal of Property Research 29(2), pp.

153-176.

Kenyon D, Langley A and Paquin B (2012) “Rethinking Property Tax Incentives for Business” Policy Focus Report, Lincoln Institute of Land Policy (June 2012).

Keogh G (1994) “Use and Investment Markets in British Real Estate” Journal of Property Valuation and Investment 12(4) pp. 58-72.

Kok N, Monkkonen P and Quigley J (2014) “Land Use Regulations and the Value of Land and Housing: An Intrametropolitan Analysis” Journal of Urban Economics 81, pp. 136-148.

Leishman C (2015) “Course Notes” Heriot Watt University, Scotland.

Lloyd-Jones T (1998) “The Scope of Urban Design” in C Creed and M Roberts (eds.) Introducing Urban Design: Interventions and Reponses. London: Routledge.

McDonald J and McMillen D (2011) Urban Economics and Real Estate: Theory and Policy. (2nd edition). Hoboken, NJ: Wiley and Sons.

McGaffin R (2015) “The Relationship between the Economy and Real Estate” pp. 1-27.

Mosselson A (2016) “’Joburg Has its Own Momentum’: Towards a Vernacular Theorisation of Urban Change” Urban Studies (9 March 2016), pp. 1-17.

Muller J (2014) “Planning and Development: New Way to Work and Stay” Financial Mail (18 September 2014). Available at http://www.financialmail.co.za/ coverstory/2014/09/18/planningdevelopment-new-way-to-work-andstay Murray M (2015) “Waterfall City (Johannesburg): Privatized Urbanism in Extremis” Environment and Planning A 47, pp. 503-520.

Nyoni P (2016) “Input at the GCRO Workshop on Understanding the Role of Urban Developers” (Johannesburg, 26-27 July 2016).

Pieterse E (2014) “Johannesburg: Corridors of Freedom” LSE Cities (November 2014). Available at https://lsecities. net/media/objects/articles/ johannesburg-corridors-of-freedom/ en-gb/ Rubin M (2008) “Land Management and Democratic Governance in the City of Johannesburg: Synthesis Report” Planact and CUBES Study (February 2008). Available at http://www. urbanlandmark.org.za/downloads/1_ Land_Management_and_Democratic_ Governance_inCoJ_01.pdf Rudlin D and Falk N (eds.) (2009) Sustainable Urban Neighbourhood: Building the 21st Century Home. 2nd Edition. London: Architectural Press.

SA Commercial Prop News (2011) ‘Inner City Housing Finance Going Higher” (3 November 2011). Available at http:// www.sacommercialpropnews.co.za/ property-investment/3796-inner-cityhousing-finance-going-higher.html SA Commercial Prop News (2014) “Rates and Taxes a Burning Issue for South African Property Owners” (12 June 2014). Available at http:// www.sacommercialpropnews.co.za/ property-investment/6834-ratesand-taxes-a-burning-issue-for-southafrican-property-owners.html

SA Corporate Real Estate Fund (2014) “Annual Financial Statements 2014”. Available at http://www. sacorporatefund.co.za/wp-content/ uploads/2015/03/Annual-FinancialStatements-2014.pdf SAPOA (South African Property Owners Association) (2015) “Industrial Vacancy Report” (December 2015).

SAPOA (2016) “Research Office Vacancy Report: Q 2” (June 2016).

SAPOA (2016a) “Spatial Development Framework 2040 – Facts Sheet” (1 August 2016).

SAPOA (2016b) “The Role and Impact of the Commercial Property Sector” Prepared in partnership with City of Johannesburg and Gauteng Provincial Government.

Savage D (2009) “Evaluating the Performance of Development Charges in Financing Municipal Infrastructure Investment” Discussion paper prepared for the World Bank (23 March 2009).

Silverman M and Zack T (2007) “Land Management and Democratic Governance: Case Study in Hillbrow/ Berea, An Inner City Area of Johannesburg” Prepared for CUBES and Planact.

SACN (South African Cities Network) (2016) “City Profiles: City of Johannesburg” in State of the Cities Report 2016. Johannesburg: SACN. Available at http://www.socr.co.za/ wp-content/uploads/2016/06/ SoCR16-Main-Report-online.pdf Stevens B (2016) “Strategic Intervention for the Economically Active? Exploring the Role of Selected English Local Authorities in the Development of New Market Rental Housing with Pension Fund Investment” Journal of Housing and the Built Environment 31(1), pp. 107122.

Todes A (2012) “Urban Growth and Strategic Spatial Planning in Johannesburg, South Africa” Cities 29, pp. 158-165.

Transit corridors & the private sector

50

Todes A (2015) “The Impact of Policy and Strategic Spatial Planning” in P Harrison, G Gotz, A Todes and C Wray (eds.) Changing Space, Changing City: Johannesburg After Apartheid.

Johannesburg: Wits University Press.

Trevilion E (2015) “Course Notes on Real Estate Development” Heriot Watt University, Scotland.

Viruly Consulting (2015) “Socio-Economic Contextual Analysis of Balfour Park within the Context of the Louis Botha Corridor of Freedom” Prepared for the City of Johannesburg.

Vukile Property Fund (2016) “2016 Integrated Annual Report”. Available at http://www.vukile.co.za/cmsAdmin/ uploads/vukile_ar16.pdf Wainright O (2014) “The Truth about Property Developers: How They are Exploiting Planning Authorities and Ruining our Cities” The Guardian (17 September 2014). Available at https:// www.theguardian.com/cities/2014/ sep/17/truth-property-developersbuilders-exploit-planning-cities Weakley D (2016) “Input at the GCRO Workshop on Understanding the Role of Urban Developers” (Johannesburg, 26-27 July 2016).

Winkler T (2009) “Believing in Market Forces in Johannesburg” in L Porter and K Shaw (eds.) Whose Urban Renaissance? An International Comparison of Urban Regeneration Strategies. London: Routledge.

Winkler T (2013) “Why Won’t Downtown Johannesburg ‘Regenerate’? Reassessing Hillbrow as a Case Example” Urban Forum 24, pp. 309-324.

Zellner M and Campbell S (2015) “Planning for Deep Rooted Problems: What Can We Learn From Aligning Complex Systems and Wicked Problems?” Planning Theory and Practice 16(4), pp. 457-478.

Interviews Albonico, Monica. General Manager and Urban Designer, Albonico Sack Metacity Architects and Urban Designers. Interview with author (Johannesburg, 21 July 2016).

Banoo, Ahmed. Property developer on Empire Perth. Interview with author (Johannesburg, 30 August 2016).

Bethlehem, Lael. Investment Executive, Hosken Consolidated Investments.

Interview with author (Johannesburg, 20 July 2016).

Cachalia, Nazira. Programme Manager, Joburg City Safety Strategy, CoJ. Interview with author (Johannesburg, 12 July 2016).

City Official. Building Plan Department, CoJ. Interview with author (20 June 2016).

De Wit, Carel. CEO, Indluplace Properties.

Interview with author (26 August 2016).

Dinnie, Allan. Senior Manager: Property Development Implementation, Johannesburg Property Company (JPC).

Interview with author (Johannesburg, 12 May 2016 and 29 July 2016).

Dube, Linah. Director: Land Use Management Development, CoJ. Interview with author (21 July 2016 and 29 August 2016).

51

Jackson, Matt. Development Facilitation Manager, JDA. Interview with author (12 May 2016 and 12 July 2016).

Lewis, Sharon. Former Executive Manager: Planning and Strategy, JDA. Interview with author (Johannesburg, 12 July 2016).

Manning, Jonathan. Group Managing Director, Osmond Lange Architects.

Interview with author (12 August 2016).

McGaffin, Rob. Senior Lecturer, Department of Construction Economics and Management, University of Cape Town. Interview with author (Cape Town, 28 July 2016).

Ravid-Bloom, Marcelle. Former DA Councillor for Orange Grove. Interview with author (Johannesburg, 13 August 2016).

Savage, David. Cities Support Programme, National Treasury. Interview with author (Cape Town, 2 August 2016).

Steffny, Anne. Director, JHB Inner City Partnership. Interview with author (Johannesburg, 19 July 2016).

Strydom, Liana. Assistant Director: Development Planning and Facilitation, CoJ. Interview with author (10 May 2016).

Mitchell, Carollyn. Director, Intaprop.

Interview with author (14 July 2016).

Weakley, Dylan. Strategic Urban Planner, City Transformation and Spatial Planning, CoJ. Interview with author (10 May 2016).

Pingo, Nicolette. Development Facilitation Manager, JDA. Interview with author (12 July 2016).

Zack, Tanya. Urban planner and researcher. Interview with author (26 August 2016).

Plit, Renney. Director, Africa Housing Company. Interview with author (AFHCO) (11 July 2016).

Property Developer A. Small developer on Louis Botha Corridor. Interview with author (19 July 2016).

Property Developer B. Small developer on Louis Botha Corridor. Interview with author (1 August 2016).

Transit corridors & the private sector

Transit corridors & the private sector

52