The key role of private players in providing access to affordable housing in South Africa

Access to sustainable and affordable housing is a major concern in South Africa. Urbanisation continues to gather pace, as rural dwellers migrate to urban centres in search of better job opportunities, access to quality education and health services. However, the infrastructure of these cities has struggled to keep pace with this influx of residents, leading to a severe shortage of housing. The national housing shortage is estimated at 3.7 million units and needs are increasing in line with population growth and higher rates of urbanisation. According to government data, almost 13% of South Africans live in shacks or informal settlements. Rural dwellers have migrated to urban centres in search of better job opportunities, access to quality education and health services. However, the infrastructure of these cities has struggled to keep pace with population growth. Social housing is a powerful vector for integrating divided cities by providing decent rental housing for working families on low or moderate incomes, as illustrated in a 2021 study published in AFD’s Research Papers collection.

FROM DOWNTOWN TO TOWNSHIPS, A GENERAL HOUSING CRISIS

“There is massive demand for housing that is not accessible to low-income households”, explains Paul Jackson, CEO of TUHF, a unique financial player in South Africa, to which Proparco granted a line of credit in local currency equivalent to €10 million in 2022. He points out that almost three decades after the abolition of the apartheid system, “land redistribution and economic inequalities have still not been resolved”. By supporting small property developers who invest in affordable rental housing, TUHF plays a key role in financing the supply of quality housing for low-income families, in phase with the national strategy to facilitate access to housing. This structure offers its customers both financial support, through long-term loans, and non-financial support, through customised training and mentoring programmes as well as through opportunities for networking with other investors. TUHF has developed an original business model that finances the renovation and conversion of derelict housing in city centres into affordable housing. The impact of this policy is visible on the ground. Since the structure was created in 2003, its teams have financed 46374 units, established 7 offices in 8 of South Africa’s metropoles and grown the loan book to ZAR7.1 billion (around €355 million). In 2016, TUHF also incorporated environmental requirements into its financ-ing assessments to promote energy efficiency standards wherever possible.

Soloman Ramalamula is one of TUHF’s longest standing customers. He is a former police officer who switched to property management 20 years ago thanks to a dedicated loan from TUHF to convert a derelict dwelling in the centre of Johannesburg into nine units of housing. “Traditional banks are reluctant to finance renovation in downtown districts because they consider them too risky, but this is not the case with TUHF, which also supports and trains us”, explains this entrepreneur, who has spearheaded a major renovation programme on a building in the Hollywood Drive district, costing ZAR30 million (around €1.5 million).

uMaStandi, a subsidiary of TUHF, operates mainly in the townships, the former ghettos reserved for non-whites, created on the outskirts of major cities during apartheid. Many townships have become active, promising economies since then, driving the demand for better quality affordable housing. Part of Proparco’s funding (€3 million out of the €10 million granted) has been earmarked for uMaStandi to expand this business model into these working-class neighbourhoods to offer quality housing solu-tions to these somewhat neglected populations. Lusanda Netshitenzhe, CEO of TUHF21 – the TUHF Group’s incubation arm that developed uMaStandi into a standalone solution –, explains that “for many years, affordable housing was provided in the townships, but usually consisted of informal structures with very basic amenities and shared sanitary facilities. The small developers that we support have integrated these issues into their projects in order to provide quality housing complete with independent facilities.” This is the case with Nomakhosi Makolota who has been able to develop a number of housing programmes in the country’s townships thanks to the support of uMaStandi. “Without the uMaStandi teams, I would never have been able to do business in these areas, which are of no interest to traditional developers”.

REDUCING SPATIAL AND SOCIO-ECONOMIC INEQUALITIES

But the situation requires urgency. As the French newspaper Le Monde noted in 2019, while the country certainly has infrastructure and industry that is as developed as in Europe, “in the townships [...], everything still remains to be done.” There is a need for electricity, drinking water, schools and hospitals, and “proper housing for millions of people crammed into temporary structures who have been kept in poverty for decades”.

Wikus Lategan, CEO of Calgro M3, a group specialising in building affordable housing in these priority urban areas, still shares this view. “We provide rental accommodation for the least well off households, whose monthly per capita income is less than 3,500 rand (around €180). We also offer subsidised flats for sale”. The group is South Africa’s number one affordable housing provider. It is also the country’s first private developer to design and build “integrated real estate projects” comprising residential units in all price ranges within the “low-income” sector, as well as integrated social amenities (including public gardens, crèches, schools and shops). The aim is to help create sustainable communities, promote integration and encourage social mobility. As Allistiar Langson, CEO of Calgro M3 Developments explains, “Calgro M3 primarily targets the very large number of families in less well-off neighbourhoods who live in informal housing without a roof or running water. We place these families in secure housing developments with running water, electricity, etc., which enhances their dignity.”

In 2017, Proparco granted Calgro M3 Developments a local currency loan equivalent to €25 million, which subsequently enabled the construction of almost 3,000 units of affordable housing benefiting nearly 6,000 people. In Jabulani, in Soweto township, Porscha is one of these new owners. In a well-appointed four-storey building just a stone’s throw from amenities and sports fields, this mother of four was able to buy “this little paradise”, a four-room apartment for 580,000 rand (less than 30,000 euros). “Everything is brand new and it’s also very quiet and perfectly safe”, she says with a smile. “The property market in this country is very complicated. Without this subsidised programme, I would never have been able to buy my own home.”

SOUTH AFRICAN STUDENTS: OTHER VICTIMS OF INADEQUATE HOUSING

Student accommodation is another supply-constrained sector. The South African student accommodation market is struggling to keep pace with the big increase in enrolments in higher education, which have more than doubled since the end of apartheid. Students from low-income households are especially heavily penalised by this shortfall.

Developing affordable student accommodation is therefore essential to providing broader access to quality higher education and this is the raison d’être of the Respublica group. With almost 10,500 beds spread over 9 campuses, it is one of South Africa’s leading student accommodation providers. Its residences are renowned for the quality of their buildings, their affordability (more than half of students housed there are on grants), and the range of additional services provided through the dedicated Res Life Program (comprising academic support, mentoring, mental wellness, enhancing employment prospects, sporting, community programs and cultural activities, etc.).

To partner its expansion, Proparco along with IFC and Bopa Moruo Private Equity – together with RMB Ventures via Bopa Ventures – completed a combined equity investment of 516 million rand (approximately USD 36 million) in 2022. This deal will enable Respublica to add almost 9,000 new beds on campuses across the country by 2028 (including 5,000 from 2025). The group will also benefit from the support of IFC’s EDGE initiative (Excellence in Design for Greater Efficiencies), a certification programme that enables environmentally-friendly structures to be built more efficiently.

As Craig McMurray, CEO of Respublica Group points out, “South Africa is home to 27 universities with approximately 900,000 students - not counting those enrolled in private institutions, who number around 200,000. Based on this total, there is a potential shortfall of over 300,000 beds, which the private sector is seeking to provide.” Most of the available supply is concentrated at the major universities in the country’s main cities, with Johannesburg, Pretoria and Cape Town out in front. “Secondary cities and campuses have been neglected. It is these under-serviced areas in particular that we are trying to focus on.” The Group’s aim is to develop sustainable, affordable housing, thereby promoting inclusive and equal access to higher education across the country. As Goitse Moerane, Head of the Res Life Programme puts it, “Our priority is to provide a supportive stable and stimulating environment for students, especially poorly-served students from low-income backgrounds.” Thanks to a number of support initiatives, the programme helps to “reduce the sense of isolation and marginalisation often experienced by this section of the student population, thereby improving their academic output and personal development.” 

Sitting in his flat in a Respublica residence in Pretoria, doctoral student Athenkosi Nzala bears this out: “I had been trying for a long time to get this quality accommodation. There’s a serious supply issue. A student from a low-income background can easily find themselves alone and isolated”. Ashe Naob, a 21-year-old educational science student living in the same residence, agrees: “As well as being affordable, Respublica residences offer a wide range of sporting and cultural activities. That’s a really precious resource.”

Since 1994, the South African government has invested massively in the low-cost housing sector through the Reconstruction and Development Programme (RDP), delivering over 2.8 million fully subsidised homes. But in spite of this colossal effort, the shortfall has actually grown, while the number of informal dwellings has grown exponentially. Involving the private sector, alongside central government efforts, is therefore essential. As well as helping to meet the demand for affordable housing, this also helps to redress territorial inequalities and issues of socio-spatial segregation.