Department Budget: public hearings

Meeting report

HOUSING PORTFOLIO COMMITTEE
13 April 2005
DEPARTMENT BUDGET: PUBLIC HEARINGS

Chairperson: Ms Z Kota (ANC)

Documents handed out:
People’s Housing Partnership Trust presentation
Rural Housing Loan Fund presentation
Ekurhuleni Metro Municipality presentation
KwaZulu-Natal presentation
KZN strategic plan presentation
KZN Budget spreadsheet
KZN Budget 2^nd spreadsheet
Social Housing Foundation presentation
National Housing Finance Corporation presentation
National Urban Reconstruction Housing Agency presentation

SUMMARY
The Hearings on the Budget allocated to the Department of Housing continued for a second day with input from more Housing Institutions, the Ekurhuleni Metro, the KwaZulu-Natal provincial government as well as the National Department itself. Each submission identified achievements, the challenges that they are facing and their strategic plans for the future.

The People’s Housing Partnership Trust explained that it aimed to capacitate and engage with government and civil society to support the People’s Housing Process in which the beneficiaries build houses themselves or organise the building of houses themselves. USAid funds would cover the 2005/6 period and the Department of Housing would be asked for assistance in 2006/7. PHPT would be running pilot projects in all nine provinces, four of which would be during 2005. In answer to queries, PHPT clarified the involvement of youth and women, the support of small businesses, its funding, its past work and its new focus. It confirmed that its projects were not limited to informal settlements.

The Rural Housing Loan Fund (RHLF) was a social venture capital fund which created opportunities for rural families to improve their housing and assisted those who could not access commercial finance. More clients were being targeted and the range of facilities was increasing. R68 million had been distributed in the past year and the target for the next period was R106 million, benefiting 20 000 borrowers. RHLF clarified that not all funds were used for housing but also for general improvement of household conditions. It was a retailer, charging 15. 4% interest to its client wholesalers, who were able to add a margin, but significant savings to borrowers had been achieved. No mortgages were registered and all loans were unsecured. RHLF asked the Committee to support its call for additional funding from the Department to achieve their goals.

The Ekurhuleni Metro Municipality stated that it was the fastest growing urban area, with 40% unemployment and a population of 2.4 million. The housing backlog was 122 000 families, plus an estimated number living in 112 informal settlements. It planned to achieve its targets through urban regeneration, locality housing, densification, and type and tenure options, and had a comprehensive approach to invasion. Actions taken to achieve targets were explained. A five-year delivery plan was tabled. In answer to questions, it clarified the size and type of houses and stands, the relocation of hostel residents, community participation schemes and housing backlogs.

The KwaZulu-Natal Local Government, Housing and Traditional Affairs Department submission gave an overview of the housing situation in KZN. Focus areas included its objectives, methodologies and challenges. The Committee raised concerns about the backlog of housing projects, rural housing challenges and budgetary constraints. Land ownership issues, the slow process of accreditation for municipalities and a general lack of capacity were identified as the hindrances to successful projects.

The Social Housing Foundation (SHF) submission outlined its role, the services it offered and its deliverables and key performance areas. The Committee noted the need to fast-track the Social Housing Bill and SHF confirmed its involvement in its drafting.

The National Housing Finance Corporation (NHFC) explained its mandate of facilitating the financing of homebuilding through banks and lending institutions. The NHFC wants to expand its role and would need recapitalisation to do so. Members questioned the cost and necessity of recapitalisation.

Minutes

People’s Housing Partnership Trust submission
Mr M Shabangu, ‘Caretaker CEO’, stated that PHPT’s mandate was to capacitate and engage with national, Provincial and local governments and civil society in order to support the People’s Housing Process, and become the leading national institution, Its long term objectives of communication, developing strategy to address housing problems, capacitating communities and designing training programmes in conjunction with the Department of Housing remained, but PHPT had recently realigned its focus to meet the new plans of the Department of Housing.

PHPT’s main focus was now on Letsema mobilisation (which would facilitate the private sector contribution); capacity building of municipalities; job creation; and building its own institutional capacity. The PHPT wished to promote awareness of the PHP option in all settlements that had been targeted for upgrading, and to assist municipalities to function efficiently as support organisations. Job and skills creation had become a priority, with particular emphasis on youth development to facilitate delivery. PHPT aimed to increase the number of functional support organisations, and further develop its partnerships with the Extended Public Works Programme (EPWP), National Youth Service Unit (NYSU) the Department of Labour and the private sector. PHPT was in the process of drawing guidelines for community involvement and working towards a fully functional PHP institutional framework. The key activities and time frames for each of these focus areas, and an illustration of the link to other institutions and partners, were detailed.

Mr Shabangu tabled the cost schedules and budgets for 2005/6 and 2006/7. R8 720 189,00 was budgeted for 2005/6 – the majority relating to programme activity. Infrastructure costs were not included since the PHPT shared with the Department of Housing in Pretoria. The projected total for 2006/7 was R10 154 696. He reported that although funding by the previous donors had not been renewed pending negotiation, some funds were still available in the USAid account, which would cover the 2005/6 period. In 2006/7 PHPT would be negotiating for funding with the Department of Housing.

Discussion
Mr G Schneemann (ANC) asked whether the money from USAid would meet the current and future budgets. He was concerned that although the mandate to PHPT was approved in 2000, there had until now been no clarity on their achievements, and he asked for further details on the work done since inception. He noted the emphasis on job creation but wondered how sustainable the jobs were in the long term.

Ms S Ntombela (ANC) asked what focus was placed on work opportunities and skills development for women.

Mr Shabangu responded that the funding from UNDP and the Department of Housing had been exhausted, but about R8.5 million of the original USAid funds was still available. PHPT believed this would be sufficient for the current year. Negotiations were in process for 2006/7. He would check the exact figures and fax them through to the Committee.

Mr Shabangu conceded that previous reports and annual reports might not have placed enough emphasis on the achievements of PHPT. He assured the Committee that PHPT had been engaged on work with all provinces since inception, but its main thrust had been advocacy and communication of the advantages of working through PHPT. The publicity campaign had been successful, and three provinces already had functional PHP units, whilst PHPT was involved in setting up directorships in another two provinces.

On the employment issue, Mr Shabangu agreed that there was difficulty in creating long-term jobs, and that was one of the reasons why PHPT had partnered with the youth service unit to try to work towards sustainable skills. Although many of the jobs were limited by the end-date of projects, those employed would acquire skills enabling them to look elsewhere in the market. References to "youth" meant young men and women. The National Youth Service Unit was headed by a very dynamic woman who would ensure greater representation of women.

Ms N Ngele (ANC) was not happy with this explanation and believed women should be identified as a separate group requiring skills-support. Mr Shabangu noted the point and reiterated that "skilled beneficiaries" would include women.

Ms B Dambuza (ANC) asked for further details on the challenges identified in regard to support organisations and the strategies developed to ensure success in future projects. She referred to the Letsema campaign’s focus on creating PHP awareness and participation in informal settlements, and stated that this scheme should ideally be taken to other areas not within the "informal settlement" limitation. She asked for a clear breakdown, by province, of municipalities who would be capacitated, so that the Committee could undertake follow up.

Mr Shabangu responded that implementation challenges had been faced in the past, but that in future PHPT would liase more closely with the provinces to ensure that all work was linked and aligned properly to objectives and delivery targets. He stated that there were 284 municipalities, but capacity and budget only allowed for implementation in 4 provinces at present, with one training session being held in each province. The remaining provinces and additional municipalities should be able to be addressed in the following years. Mr Shabangu conceded that the informal settlements should not be the only target areas and agreed that other urban and rural areas would benefit.

Ms N Ngele asked how PHPT would offer practical assistance to small businesses in building their capacity, since many people preferred to engage larger businesses. Mr Shabangu agreed that this was a problem, but with the prioritisation of job creation better focus would be brought to the issue and systems devised to improve this situation.

Mr A Steyn (DA) noted that PHPT had now been in existence for eight years, yet many of its objectives, (such as design and communication strategy, drawing guidelines, producing booklets) were those that should have been completed in the first few years of operation. He stated that PHPT had not featured once during his five-year term in the Gauteng legislature and had obviously not achieved the expected profile. He asked precisely what had been done to date. He also asked for the results of the study that was conducted in 2003/4 around the administration and challenges of PHPT.

Mr Shabangu emphasised that although the founding objectives of PHPT had not altered, and all mandates complied with those objectives, there had been a shift in emphasis requiring re-alignment, hence the need for implementation of new strategies, guidelines and publicity. In regard to lack of awareness of PHPT in Gauteng, he stated that the establishment of the public housing partnership process had been facilitated by PHPT, who had maintained a presence throughout. However, previous work had focused on PHP as a process, and not necessarily on PHPT as an institution. The study had related to the work of the institution and he would check whether his office had sent the report to Mr Steyn. PHPT was now addressing itself to meet the challenges identified.

Mr S Masango (DA) queried whether one meeting per province would be sufficient to cover all municipalities. He asked whether the municipalities capacitated would be able to be identified, so that the Committee could check how they were functioning. He queried whether there was close working with the provinces.

Mr Shabangu replied that although more meetings would be desirable, this target was considered attainable in view of budget and time constraints. Nine settlement areas had been targeted – one pilot area per province - and meetings were arranged in accordance with the targeted plan. Plans were agreed with provinces and it was finally intended to capacitate all municipalities in all provinces. They would be able to be identified.

Ms M Ramakabe Lesia (ANC) mentioned that the land issue was particularly important to older people many of whom were women, and she asked whether their needs were addressed. Mr Shabangu replied that although emphasis was placed on youth, in fact the projects would be benefiting older groups as well.

Mr L Modisenyane (ANC) asked how people were informed of the PHP as it seemed that only certain groups were being targeted. He stressed again that the Committee needed to know which municipalities were capacitated.

Mr T Dodovu (ANC) pointed out that PHPT still needed to undertake a great deal of work to capacitate support organisations, to ensure that the PHP philosophy was applied. He asked whether PHPT had a relationship with the SA Homeless Peoples Federation – catering specifically for women – and suggested that relationships such as these should be actively fostered.

The Chairperson said the presentation had correctly covered the intentions of the PHPT, in line with their strategy plan. However, the Committee would need a progress report in September, encompassing what had been done in the provinces, what groups had been identified and assisted, and what challenges had been faced.

Mr Shabangu suggested that, rather than trying to address the remainder of the questions at this point, he would compile full reports and give details in the September report. He wished to add that PHPT was fully aware of the need to take a proactive stance and initiate projects with municipalities and communities, rather than responding to their requests.

Rural Housing Loan Fund submission
Mr W van Emmenis, Managing Director, stated that the RHLF was a world class social venture capital fund, concentrating in the rural housing area, and creating new financial arrangements and opportunities for rural families to improve their housing, economic and living environments. Of the four million households in South Africa, only 2% were able to access commercial finance. 20 % had a regular income and were formally employed, 34% were informally employed or self-employed, and 44% earned less than R600 per month and were dependent on social welfare grants. RHLF were able to assist those who could not access commercial finance by establishing a credit history, by helping to create jobs within the housing finance value chain, by stimulating local economy and developing local skills, by enabling access to public amenities and by supporting the building materials supply industry. RHLF was positioned alongside other housing institutions and had strategic partners.

RHLF had responded to the new comprehensive housing strategy by job creation, by aiming to upgrade informal settlements and by increasing the household income limit for assistance to R7 500. RHLF contributed to three main programmes – the financial services market, incremental housing and the rural housing market. In the financial services market RHLF improved access to micro loans by levering additional funding from banks, and undertook borrower education. Surveys indicated that most owners wished to improve their house about 24 months after taking occupation. RHLF could continue to respond to their demands by providing more funding after the initial construction period to add on, or to upgrade informal settlements. 200 loans had been granted to subsidy beneficiaries with a monthly income of below R1 500. In the rural housing market, 200 loans had been granted to emerging farmers in Mpumulanga, and loans had been given for improvement of traditional housing and support of indigenous housing. These initiatives aimed to maximise the housing choice available to beneficiaries.

RHLF’s business strategy included funding profitable and adequately capitalised establishment entities, and utilising the venture capital as leverage from banks. RHLF maintained a small staff and, by adopting rigorous risk management and effective cost cutting, had been able to budget for a small surplus despite the crises in the financial services sector. In the past year R68 million had been distributed, benefiting 15 000 borrowers and 80 000 people in total. The target over the next period was R106 million, benefiting 20 000 borrowers. There was full commitment to black economic empowerment (BEE) and a good gender balance, with 55% of beneficiaries being female. The number of approved facilities was increasing, and more clients were being targeted.

69% of loans were used for development: 54% in housing, 14% in education and 1% as working capital for enterprises. 61% of end users were satisfied with their experience. There was direct correlation between educating end users and improving prompt repayment. 11% of end users lived in RDP housing and 3% used their loans to top up their subsidy when acquiring a house. About 7% of end users were informally employed.

RHLF had engaged with banks on the Financial Services Charter and were optimistic that banks were keen to assist with funding but did not necessarily have a distribution network. This was an area in which RHLF could assist. RHLF could share its experiences to assist in land and agriculture micro financing policy. It had made representations to the Reserve Bank on the debit order monopoly, in an attempt to reduce the end cost to the borrower, and supported the new National Credit Bill, which had the potential to grant larger loans with longer repayment periods.

Mr van Emmenis tabled a full budget, income statement and balance sheet for consideration by the Committee.

Discussion
Mr T Dodovu asked why RHLF loans were being used for education rather than for housing. He asked whether borrowers were able to approach RHLF directly, rather than using a secondary lender.

Mr van Emmenis replied that many of the recipients of funding had no access to other lenders, and so RHLF accepted that funding would be utilised for purposes other than housing. These purposes would improve the general condition of the household and thus did not fall outside the funding principles of the RHLF and the German government (who contributed to RHLF). He reported that RHLF was seen as a wholesaler, not retailer, and that this was the most cost-effective way of operating and keeping staff costs to a minimum. RHLF was represented in all nine provinces, through client-brokers, who were able to respond more effectively by using their local knowledge, and local infrastructure. RHLF had a limited budget of R130m and was only able to borrow from the Development Bank of SA, hence must tailor its operations to minimise its own costs

Mr A Steyn asked how RHLF had managed to turn around the past deficit to a surplus. He noted that the loans to farm workers were listed as R5m and asked for details of the average amount received. He further queried what percentage of loans granted was applied to upgrading of informal settlements. Mr J Fakazi (Business Relations Manager, RHLF) replied that 11% of loans were applied to post-occupancy upgrading, although this figure could change to meet needs.

Mr van Emmenis replied that the turnaround had been achieved through hard work and assistance from a very capable Board. In previous years, RHLF clients were forced to implement their own debit and collection mechanisms, and had incurred losses that had affected the RHLF financial position. Over the past two years, RHLF had been able to assist the merger and consolidation of some of their clients, particularly those operating in overlapping markets or products, and assist them to become profitable, with concomitant benefits to the RHLF position.

The R5 million figure for farm worker housing was a revolving facility, which would be utilised over a period of time. Each of the 200 farm workers had received R10 000. The beneficiaries were small-scale sugar cane farmers, who would repay annually as their crops were harvested, although the interest would be serviced monthly. It was a fairly high-risk venture, but RHLF believed that it must pursue an aggressive risk philosophy to test the new markets and products.

Mr G Schneemann asked whether higher interest rates were being charged to the borrower and whether the new National Credit Bill would have any impact on interest rates. He asked if RHLF was hoping to bring down the cost to the end-user.

Mr van Emmenis replied that an interest rate of 15.4% was charged to retailers. Although retailers were permitted to add a margin, it was capped. The new National Credit Bill gave power to the Minister of Trade and Industry to cap rates. RHLF believed that the Bill would have a positive effect in that larger loans could be offered over a longer term. Although short-term interest rates were comparatively high, RHLF hoped to be able to drive down the rates and reduce costs over time by amortising the loans.

Mr T Dodovu asked for clarity on the general trend of retailers lending to the end user. He asked what had been the general experience in amortising mortgage loans and in foreclosing.

Mr van Emmenis responded that all loans were unsecured, so that no mortgages were registered. RHLF’s clients offered lower rates than other commercial institutions, although comparatively speaking the rates appeared to be high because they were small amounts, averaging about R4 600. The total of all interest rates, charges and costs reached 65 to 75%. The external market’s rates were sometimes as high as 100 – 108%, and compulsory insurance products and other charges could increase the costs to 130%. RHLF tried to encourage the borrowers to repay their loans and end their commitment as early as possible. A comparative study on small loans had shown that a borrower taking out five small loans, at 40% interest, with a 24-month repayment period, would end up in a more favourable position than someone who had accessed a mortgage at the prime rate at the end of ten years. The former would have a nil balance whereas the mortgagee would have paid off only the interest.

The Chairperson asked if RHLF had links with the Mzantsi account. Mr van Emmenis replied that RHLF monitored it closely as there might be opportunities to reach a broader sector of borrowers and reduce costs.

Ms N Mjoli-Mncube, (Chairperson RHLF) requested an opportunity to address the Committee. She said that the RHLF was the only institution lending to low-income rural households. If it could not meet its targets, it would itself have to raise a loan. Application had been made to the Department of Housing for funding. She pointed out that there were currently discrepancies in terms of the national payments system, since it was more likely that the larger institutions would be paid out first. If the playing fields were levelled everyone would have the same access to the national payment system and the same opportunities. RHLF wished to engage with Treasury on this issue. RHLF was also involved in the committee drafting the charter to transform the construction industry. Housing and the construction industry were inter-dependent, so that RHLF was heavily affected by the impact of construction. A national workshop was planned for 20 and 21 April, and she requested Members to access the Construction Charter website and give input.

Mr Schneemann asked if RHLF had applied for a grant, and Ms Mjoli-Mncube replied that the application had been made not for a specific project, but to strengthen RHLF’s overall financial position. If RHLF did not receive funding, they would need to approach the corporate market as they required a capital injection in order to satisfy the demand in the marketplace.

Ekurhuleni Metro Municipality submission
Mr D Chainee, Executive Director of Housing, Ekurhuleni Metro Municipality (EMM) reported that EMM, an amalgamation of nine towns and cities covering an area of 1889 square kilometres, had been established in 2000. It currently had a population of 2.4 million, anticipated to rise to 3.2 million by 2010, and was currently the fastest growing urban area. Its population was divided into 744 000 households. The unemployment rate was 40%. Its total budget was R11.3 billion, and the housing allocation R420 million.

The backlog in housing amounted to 122 000 families on the waiting list, and there were 112 informal settlements. 120 000 stands had been identified for development and upgrading. EMM provided basic water and was in the process of running five sanitation projects to increase access.

EMM had seven priorities: an urban renewal strategy, poverty alleviation, and implementation of the targets from the 2002 World Summit on Sustainable Development; job creation through local economic development, safety and security building, establishment of social partnerships to fight AIDS, promotion of good governance, and support and enhancement of community participation.

It hoped to achieve the integrated and sustainable human development in four ways:
Urban regeneration would cover the entire metro, not just the city centres, and would address integrated development, maintaining a quality infrastructure, social amenities, a safe and secure environment, local economic development, higher density development and invasion control. Invasion or squatting was regarded by the public and media as out of control. EMM believed that the key to this was appropriate governance of the land and of the way integration was managed. Invasion should not be seen as a separate issue. It was not just a question of finding "bricks and mortar" but needed an integrated approach, with assistance from community development and informal settlement workers.

Locality housing used the "closer is better" principle to create sustainable communities within easy reach of facilities. These would focus on spatial directives and invasion control. Poorer communities needed to be integrated closer to the urban areas, which would involve expropriation of land.

Densification was the manipulation of space to ensure a better experience of the person and the environment. It would promote better land use and help to address some of the integration challenges. It would give better access to public transport, high quality design, diversity, safety, overcrowding issues and affordability, while maintaining property values. Mr Chainee cited experiences from the Walmer Project (in the Nelson Mandela Metro) and Weltevreden Valley Project. It involved a trade-off of "smaller site, bigger house, higher quality services". The sites would be between 80 and 150 m² . In EMM densification had allowed the Metro to use the land, to best advantage, to achieve sustainable settlements, and have a surplus of 30 000 stands. . Infill and integration would be used on stands over 4 000 m^2. . For every Council property sold a 10% densification levy was charged to supplement the money available nationally and from provinces. Many provinces and Departments still followed a compliance-based approach and it was a major challenge to turn around their thinking to foster a more developmental and progressive approach.

Typologies and tenure options would give better choice, using good urban design. EMM had redesigned 12 settlements and allowed for densification, using community builders programmes. 11 000 houses had been delivered and by June this should have risen to 14 000. It was hoped to eradicate the informal settlement backlog within eight years.

Mr Chainee outlined EMM’s action plans in each of these areas and indicated it intended to become ISO 9001 compliant by September 2005, and would be fully accredited by July 2006. Strict financial management reduced the possibility of fraud and gave better project control.

Mr Chainee presented the actions already taken by EMM to achieve its targets. Urban design guidelines had been drawn for smaller stands of between 80 and 150 m² for densification of municipal and provincial land. Upgrading of suitable sites had been done. The EMM was moving to the "one society" initiative. The land cost was to be separated from the subsidy. The hostels were to be made self-funding and would be regarded as transitional, or would be converted to rental and family units, and seven of the hostels would be demolished, with buy-in from residents. EMM wished to create a life cycle so that people would move on to better dwellings. The infrastructural backlogs were in the process of being identified and would be addressed.

Mr Chainee tabled a five-year delivery plan, which indicated that the budget was R587 million for the current year, rising to R801 million in 2009. The current allocation would not meet this budget but these figures were put forwards as optimum illustrations.

Discussion
Mr D Mabena (ANC) asked for details on the average size of high density, better quality housing, and asked would there not be tension among those who might be allocated a larger, but poorer-quality house? He also asked for the numbers of EMM’s hostels, and what making them "transitional" meant.

Mr A Steyn (DA) asked about the size of the houses in relation to the site size, and asked for clarification whether the involvement of community builders was through PHP. He queried where residents of hostels would live when the hostels were demolished.

Mr G Schneemannn (ANC) asked for confirmation that if the stands were to be limited in size, this would limit residents’ ability to extend their houses. He noted that the figures outlined in the five-year delivery plan were "optimum ask" figures, and asked what would be done if the funding could not be obtained, and what effect this would have upon the backlog.

Mr Chainee responded that the feedback in the Nelson Mandela Metro, in relation to smaller houses, had been positive. He reminded Members that not all houses were the same, so that people had the choice of different types and quality of houses. In regard to the size of stand, EMM wished to encourage movement and the creation of a secondary market, so that when a family had outgrown its house, the family would seek to purchase a larger house rather than add on –another benefit of offering choices of design. Not all the sites would be densified, and the densification projects would be limited to 400 houses per project.

Mr Chainee stated that EMM had 22 hostels at present. EMM recognised that there was always a need for single residences, and that some hostels would therefore be retained, but the majority of residents would live there in a transitory phase until they purchased their own property or had their own family. A comprehensive project plan was in place for the demolition, and this involved relocation of residents to subsidised housing, which had been identified and allocated in advance.

In relation to the community building programmes, Mr Chainee reported that community participation was sought to fast track the building, and had worked well.

In regard to the budget figures, Mr Chainee stated that if the Metro could prove that it had a comprehensive plan and was well administered, it could approach the MEC to try to obtain an increased allocation. EMM realised there would be competition for resources and therefore wished to state its position up front, to make the backlogs clear, and to be able to lobby for an increased allocation.

Mr T Dodovu (ANC) asked whether a framework existed for expropriation. He also asked what challenges had been faced in trying to ensure that housing development linked to the Integrated Development Plan (IDP). Mr Chainee replied that there was a framework, and the term "expropriation" was used where the only dispute related to the price or compensation. In regard to the IDP, he reported that fortunately EMM had an excellent relationship with the Provincial and National Departments and that planning had been undertaken in an integrated way.

The Chair asked for clarification on the figures, noting that a nil budget had been provided for some years for "emergency assistance and delivery". Mr Chainee clarified that figures had been inserted to cater for areas already identified as requiring emergency assistance, such as relocation in the dolomite areas. EMM’s sister Departments would be providing assistance and intervention in other areas where problems arose in future. Upgrading of informal settlements was covered under other portions of the budget.

Mr D Mabena (ANC) asked for clarification on the backlog. He asked if the 122 000 families on the waiting list included those in informal settlements. Mr Chainee responded that the 122 000 families were those formally identified and placed on a waiting list, and did not take account of the informal settlements – therefore the true backlog would be the 122 000 families, and additional families (estimated at 137 per settlement) in informal settlements. EMM had registered all the informal settlements but did not yet have an accurate figure of the numbers of families in each settlement. It was busy with, but had no figures on, the numbers living in backyard shacks. It was currently cross-referencing the available land and the needs of all. Mr Mabena pointed out that EMM had stated it was hoping to achieve more integrated housing, catering for both informal and formal backlogs, and he requested that exact numbers be sent to the Committee when available.

Mr G Schneemann asked for clarification whether the five-year delivery plan looked only at the waiting list numbers, and asked what steps had been taken to ensure that a comprehensive housing requirements list had been compiled.

Mr Chainee responded that the 112 informal settlements were not catered for on the waiting list, and that tensions and forceful occupancy by those in informal settlements created a problem for those who were on the waiting lists. Also, the figures for the provision of essential services related only to the 112 informal settlements and had not been extended to include services to the waiting-list applicants. This was one of the reasons why densification had been proposed, to attempt to address the discrepancies.

The Chairperson asked if units were allocated to subsidy beneficiaries and was advised that they were.

On request by the Chairperson, a delegate from the National Department gave a brief report on designs that had recently been produced by planners from Malaysia, following the Malaysian models. It was noted that EMM should be aware of this project, as national, provincial and municipal department would be investigating ways to create better and more cost-effective housing.

KwaZulu-Natal Local Government, Housing and Traditional Affairs Department submission
Ms Mathombi Zwane, Capacity Building Programme, focused on departmental objectives and key challenges. These included the completion of all blocked projects by 2007, extending the subsidy band for households from R3501 to R7000, the acceleration of housing development in rural areas and the provision of housing for vulnerable groups such as those affected by HIV/AIDS.

It aimed to develop a framework to reserve funding for municipalities and a multi-year provincial housing development plan. Achieving its goals would be facilitated by the creation of a database containing municipal information, housing demand, informal settlement data and medium density housing demand. The department emphasised that the lack of capacity at the municipal level was a concern that needed attention. Current estimates indicate that 60% of municipalities lack capacity.

Further challenges included:
- the smooth transition from the 2002/2003 department structure to the new 2005 departmental structure
- rolling out the Municipal Housing Plans
- expanding the accreditation of municipalities.

Its achievements included the formulation of a Black Developers Programme, the successful recruitment of internal monitors from universities (40 full-time) and the fact that it had managed expenditure of R66 million out of a budget of 67 million. As a general concluding comment the Department emphasised the importance of Suitable Land Identification which is crucial for sustainable housing development.

Discussion
Ms Z Kota (ANC) asked more about the projects that were blocked. Ms Zwane responded that the unblocking of projects was at the discretion of the provinces.

Mr A Steyn (DA) asked about the relatively large size of the maintenance budget for Rental Housing. He also queried the asset stock figure and what the returns were on this stock.

Ms Zwane responded that the structuring of the maintenance payments needed attention. The problem reflected the debate about whether there should be provincial maintenance as opposed to municipal maintenance.

Ms B Dambuza (ANC) asked about the challenges of rural housing and what the plans were for this sector. Was there progress on the appointment of community development workers. She noted the slow delivery of houses in small towns.

Ms Zwane responded that a large proportion of projects in rural areas had been approved. However these projects had been hampered by a lack of capacity. Developing rural housing guidelines took time and there was resistance against the Section 21 procedure. It was only recently that progress was made due to structural changes within the Department that contributed to better co-ordination.

Mr G D Schneemann (ANC) queried the current backlog and asked if there was a year by year strategy. The issue of accrediting municipalities was also raised. This related to plans for other councils, especially ones that are rural in nature.

Ms Zwane replied that the current statistics on the backlog figure was incorrect. The current figure of 300 000 households was said to suffer from sample problems and that the actual figure was in fact much lower. Budgetary problems were a hindrance and the current demand by the eThekwini municipality of 70% of the total budget was unfeasible in light of these budgetary constraints.

She noted that the accreditation of municipalities had a number of problems. These included whether or not to follow the agency route, staff transfers, labour issues, capacity building through Information Technology and budgetary concerns. Rural municipalities had a long way to go in the accreditation process and they needed to prove that their capacity issues were resolved. The eThekwini pilot project would need to be assessed before further decisions were taken.

Social Housing Foundation (SHF) submission
Mr Brian Moholo, Managing Director, described the role of the organisation as ‘niche capacity building’. This encompassed the building of the field's knowledge base, building capability and capacity and ensuring that organisations are aligned to the strategic intent of the sector. He noted that their approach would move away from an emphasis on training and education towards a more long-term, strategic outlook. Services offered by the SHF include product development, process consultation, advice, research and information provision and the strengthening of networks. Its key focus was on Social Medium Density Housing which included social housing, rental housing, hostels, communal land and co-operatives, public rental housing and transitional housing.

Key deliverables were broken down into six key performance areas:
- influence national housing policy;
- develop the capacity of the social housing sector;
- inform and support sector stakeholders;
- broaden funding base;
- strengthen networks among all social housing role players, and
- achieve business excellence.

The presentation concluded with a summary of the SHF 2005/06 budget which totalled R22.6 million. Most of this was provided by the National Department while R1.63 million was derived from internal cash resources.

Discussion
Mr S Masango (DA) asked for the identity of the stakeholders in its key performance area of facilitating links to funding resources for research and capacity building.

Mr Moholo answered that this involved the creation of network connections between stakeholders and potential sources of funds. The resources were not deemed to be substantial.

Mr T Dodovu (ANC) stated that there was a need to fast-track the Social Housing Bill which needed to be ready by February 2006. He queried the involvement of the SHF in the formulation of the Bill.

Mr Moholo responded that the Act was in draft format and that the SHF had played a facilitative role in this process.

In response to Mr Schneemann asking about SHF's general financial situation, Mr Moholo said that the SHF would benefit from increased funding but that the focus was on increasing efficiency within the current budgetary guidelines. He confirmed that the budget included staff costs.

National Urban Reconstruction Housing Agency (NURCHA) submission
Mr S Mase, Executive Director, and Mr S De Beer, CEO, represented NURCHA which is a joint venture between the government and the Open Society Institute in New York. During its first five years it had only guaranteed loans that were issued from banks to contractors and developers. It had decided that it had the capacity to manage risk equally as well as banks and began to issue loans to builders and contractors directly. NURCHA had received no funding from government and had been self-sustaining. It had to budget responsibly to stay in existence as there had been no safety net in the form of government support.

The Housing Minister had challenged NURCHA to find creative ways to do more to fund homebuilding in South Africa. NURCHA had developed proposals which led to a memorandum of understanding between government and the Open Society Institute in February this year. The memorandum stated that NURCHA would finance 190 000 houses worth R2.4 billion over the next three years. There would be an emphasis on sustainable development along with homebuilding so it would support 400 complementary infrastructure projects. The Open Society Institute would donate $10 million over the next three years if the government agreed to match the funds. NURCHA has been negotiating that agreement with government officials and a formal agreement was expected by end of April 2005.

NURCHA has had a strong presence in the Limpopo and Free State and it had set the goal of being the chief financier of housing in at least five provinces by the end of the year. Its projected budget outputs were based on a presumed increase in housing delivery and an increase in credit-linked housing over the next fiscal year. The majority of houses completed in the next year would be subsidised housing. NURCHA expected housing delivery to increase dramatically in the coming year and it wanted to help new contractors grow by supporting their projects.

Discussion
Mr Schneemann (ANC) said that the housing budget showed that NURCHA had received funding in the last year and it was expected to receive further funding in subsequent years. NURCHA has said that it will request funding in the next year but there is no indication of that in the MTEF. It may have expected that the Department would find the money to provide that funding since it has not been calculated into the budget. The necessity for this requested funding was still unclear. Its financial statements did not fully indicate NURCHA’s income, expenditures and balance from the previous year.

Mr De Beer explained that the R2479 beneficiary contribution undermined NURCHA’s savings programme and confused its role. It had found that in many cases, the beneficiary contribution was unnecessary. It had informed the Housing Department that collecting beneficiary contribution would be the responsibility of another institution or agency. It does not guarantee bank loans anymore and it is not a mortgage lender. The Minister had wanted to establish a bank for construction companies and contractors and NURCHA would be it. It needed R800 million to reach that level and would require assistance from government to reach that mark. It had met with the Department to discuss provision of those funds.

National Housing Finance Corporation (NHFC) submission
Mr S Moraba, CEO, explained the NHFC’s mandate was to support engagement of the banking sector. NHFC financed homebuilding directly and indirectly and facilitated lending through lending institutions. It acted as a government agent to accelerate home delivery and provided technical assistance. The NHFC was also intended to build capacity at the retail level and assess prices, monitor, and manage the risk of homebuilding. As there had been a lack of proper financiers of home building and the level of financing in South Africa was inadequate, NHFC had assumed the role of risk mitigator. NHFC has been the sole financier of social housing, such as hostels, for the last seven years although banks have started to assist in such financing. One future prospect would be for government to recapitalise NHFC to make it an AAA-rated financial institution. The NHFC continued to face challenges. Delivery had been slow in KwaZulu-Natal and Gauteng. Disbursement of money for homebuilding had lagged far behind the number of approved projects. The recent boom in the housing market only affected the higher end of the market and did not reach the level of low-income housing.

Discussion
Mr G Schneemann (ANC) asked what the cost would be to government for NHFC to be recapitalised.

Mr Moraba answered that an institution that facilitated with banks the way the NHFC would like to would require capital of about R2 billion. Recapitalisation was necessary for the NHFC to fulfil its mandate. All major development financing institutions that have been in existence for more than 10 years had capital of around R10 to 15 billion. The Housing Minister’s charge to the NHFC to accelerate the delivery of housing would require a similar amount of capital. The NHFC had the advantage of a healthy balance sheet and being an AA-rated organisation. It would need to be recapitalised so it could become AAA-rated. Once it was AAA-rated, it could borrow money and would not needed to get all its funding from government. Recapitalising and becoming AAA-rated would save the government money in the long term. The options were for government to give NHFC the funding to facilitate the banks or for NHFC to become a bank itself. Both options would require recapitalisation.

Mr Schneemann asked how government would be able to afford that recapitalisation at a cost of R2 billion.

Mr Moraba answered that he was happy that the Housing Minister had encouraged institutions to propose bold plans. Government should want to put money where it knows that it will get the best returns. Even if government had established a different institution to facilitate with banks it would have cost at least R2 billion and some research has shown that it would have cost more. The banks want government to set up a guarantee mechanism and to give them insurance for their losses. The guarantee alone would cost R2 billion. For every loan lost, the government would have to pay loss mitigation insurance. One institution would be able to handle both these responsibilities for government but that institution would require capital.

Mr T Dodovu (ANC) wondered if addressing problems of capacity was not a more pertinent issue than recapitalisation. For example, the NHFC had been unable to support those institutions that are financing the building of social housing. The NHFC needed to accelerate ownership of housing. The explanation of the need for recapitalisation was not fully understood.

Ms S Sengane (Head: Corporate Strategy) said that NHFC had looked at its future and decided that it needed to play an expanded role with an expanded mandate and a social focus. There would be an acknowledgement that NHFC would do certain things. If the proposals were accepted, there would need to be recapitalisation.

Mr Moraba agreed to Mr Schneemann's request that before the budget vote NHFC supply the Committee with a document clearly explaining the need for recapitalisation.

The Chairperson, Ms Kota, announced the conclusion of the public hearings on the Housing Budget and thanked all the presenters and members for a productive two days of hearings.

The meeting was adjourned.