7.3 Delivery of Subsidized Housing Has Been Declining in South Africa

FIGURE 7.3 Delivery of Subsidized Housing Has Been Declining in South Africa

Number of houses or units and serviced sites 300,000

200,000

100,000

0 1994/951995/961996/971997/981998/991999/20002000/012001/022002/032003/042004/052005/062006/072007/082008/092009/102010/112011/122012/132013/14

Houses or units Serviced sites

Sources: South Africa, Department of Human Settlements 2017; AfricaCheck 2015.

national statistics and illustrates the steep decline since 2006/07. A recent review suggests that it is unlikely to meet future demand because the needed expansion in fully subsidized housing would be fiscally unsustainable (Gardner 2018). Other countries such as Angola, Ethiopia, and Thailand have been far less successful at massive housing development. Their programs have often struggled to build more than tens of thousands of new housing units.

Other, less ambitious, policies may act only on the demand side by offering subsidies for house buyers or borrowers or only on the supply side by, for instance, building public housing directly or offering fiscal incentives for housing investments. An important question in the evaluation of new housing units is their location. At one extreme, some urban expansion is occurring through new housing built on greenfield suburban developments. At the other, urban expansion is happening by rebuilding or upgrading existing housing stock in already developed areas. Various forms of infilling construction can occur between these extremes.

The Social Value of Increasing Housing Supply at Scale For most developing countries, urban expansion will be needed to allow cities to grow and keep costs in check. Consider the typical case of cities that grow in population by 2 percent per year and where households are willing to increase their housing expenditure by 2 percent per year.16 To prevent prices from increasing, this 4 percent annual increase in demand implies a doubling in the amount of developed floor-space of housing every 18 years. Recent work by Lall, Lebrand, and Soppelsa (2021) on more than 9,000 cities worldwide covering 1990–2015 shows the elasticity of a built-up area to the combination of population and income to be 0.45. That means that if the city’s

population and income both double, its built-up area increases by 45 percent. Most built-up growth in developing countries is taking the form of expansion. Hence, despite its lack of popularity among planners, urban expansion will need to be a big part of accommodating increasing demand for housing.

For many large-scale housing projects, however, the need to deliver housing units at scale has led to the development of sites completely disconnected from the existing urban area, often without access to transport and other utilities. In South Africa, to achieve delivery at scale, large subsidized housing projects were constructed in undeveloped greenfield areas at the city’s outer edges. For example, a 5,000-unit development with an average property size of 200 square meters requires a site of 100 hectares for residential stand-alones, or closer to 140 hectares including roads and nonresidential uses. This creates a perverse incentive of poor location. For such large parcels of land to be affordable, there are strong incentives to build megaprojects far from the centers of economic activity, and hence far from access to jobs (Gardner 2018).

Brazil’s large-scale MCMV program also suffers from suboptimal location, with housing located at the urban periphery, far from transportation and jobs. The choice of peripheral locations is driven by the amount and nature of subsidies, providing developers with incentives to minimize land costs to increase profits (Marulanda and Acolin 2015). In Mexico, the National Housing Commission (CONAVI) introduced location criteria in the government’s Housing and Urban Policy in 2013 to discourage low-density and spatially disconnected urban expansion. While the Mexican program had historically been successful in incentivizing housing production, most of the new units were built in the outskirts of cities with minimal urban services and infrastructure, leading to low-density, leapfrog urban expansion. This model of urban expansion increased transportation expenditures for low-income households and raised costs of infrastructure provision for government. Municipalities with the lowest density spent nearly 1.5 times as much on public works and infrastructure per capita in 2010.

CONAVI incorporated location into the criteria for allocating subsidies as an attempt to curtail the trend toward urban expansion. The revised rules differentiated the direct support by location according to different zones (contornos), with higher support for “well-located” housing. Well-located housing refers to housing units in urban areas with high employment density and with access to basic services. CONAVI also made units located more than 900 meters from an existing infrastructure network ineligible for support from the program (World Bank 2013).

Valuing Increases in the Consumption of Housing Many housing policies, especially on the demand side (such as direct subsidies), are often questioned given that housing is a private good whose consumption is both rival and excludable. There may be considerable deadweight loss when residents may prefer to consume other goods but their consumption choices are tied to housing. However, policies