National Housing Finance Corporation; Social Housing Foundation: briefing

Meeting report

HOUSING PORTFOLIO COMMITTEE
13 June 2001
NATIONAL HOUSING FINANCE CORPORATION; SOCIAL HOUSING FOUNDATION: BRIEFING

Chairperson: Ms N Hangana

Documents handed out
National Housing Finance Corporation presentation
Social Housing Foundation presentation (see Appendix 1)

Relevant press release:
Cosatu on the temporary closure of Gateway Home Loans – 18 June 2001 (see Appendix 2)

SUMMARY
The National Housing Finance Corporation and the Social Housing Foundation spoke on their mandate, mission, strategic plans and the challenges these organisations had encountered in delivering on their plans.

MINUTES
National Housing Finance Corporation
Mr S Moraba, NHFC Chief Executive Officer, stated that the NHFC was established by the government as a public company. It is mandated to form partnerships with other organizations to mobilize finance for housing from sources outside the state. The NHFC seeks to create housing opportunities for low and moderate-income families by:
- Funding intermediaries to promote broader access to housing
- Building adequate and sustainable capacity within the organizations it funds
- Partnering with other organization to pioneer new finance and housing delivery approaches.

The NHFC has carried out its mission in the following manner:
- It has allocated R1 083 million to provide credit facilities to retail lenders operating in the low income housing market both in urban and rural areas. These retail lenders included banks, micro finance lenders, building materials suppliers and development corporations.
- They had allocated an amount of R170 million for the Social Housing Sector through the NHFC’s Alternative Tenure Division to provide capacity to the new housing institutions and to fund housing projects of these institutions.

Lessons learnt in doing the above tasks
- Setting time for the formation of a viable housing institution would be 18 months
- Projects had to be scaled for a magnitude of 3000 units to make the institutions sustainable
- Grant funding was crucial for early stages of the projects
- VAT and Income Tax exemption made them sustainable
- Enabling the regulatory environment through the Rental Housing Act

NHFC had accredited banks such Absa, Nedcor, African Bank and Cash Bank. The main objective behind was for them to originate and service home loans that would be sold to Gateway Home Loans. Gateway would in turn issue debt paper/securities at the back of these loans to the Capital Markets to raise funding (a process called securitisation).

Challenges for NHFC
- Extend the housing finance market downstream to accommodate low income households
- Unlock private sector capital into the NHFC target market
- Ensure that there was increased competition in this sector of the market
- Improve on internal efficiencies

Discussion
Mr Durant (NNP) asked what was the original capital amount received by NHFC from government and how much of this capital had been transferred to housing units. How did NHFC plan to manage the risk involved in this market for joint ventures with the big banks.

Mr Moraba replied that the seed capital from Government was R800 million and that the NHFC, has to date, approved facilities worth R1,3 billion, of which R800 million had been disbursed resulting in 76 451 new housing units and 172 300 end user loans delivered. Regarding risk management, he said that the NHFC was willing to take the initial risk and the banks had to deal with the senior debt. Banks if not directly lending in this market, then should be willing to make their funding available to their low income housing market through wholesale institutions like the NHFC, for a reasonable return, who will, in turn, on-lend to retail intermediaries who are ready, willing and able to lend in this target market.

Mr Singh (DP) asked about NHFC’s approaches to big banks and insurance companies to form partnerships with NHFC.

Mr Moraba answered that they needed Home Loan and Mortgage Act (HLMDA) and the Community Re-Investment Act (CRA) as policy instruments to ensure maximum participation by the private sector, banks insurance institutions and other non-banking financial institutions in the low and moderate income housing market.

Mr Scheemann (ANC) commented that the problems experienced by government in partnering with private banks were global. He had had a meeting he had with overseas government institutions that confirmed the same experiences with banks in their respective countries.

Ms Hangana (ANC) asked if there was a need for government to regulate financial institutions.

Mr Moraba agreed that banks had to be constructively regulated, as described above (HLMDA and CRA) by government and that there is a need to educate them on the dynamics and potential of the low income housing sector. This would help to change the attitude of the banks towards this market.

Ms Hangana (ANC) asked if the NHFC had dealt with situations where children headed a household because their parents had died of Aids.

Mr Moraba replied that they were working with other NGOs to understand this situation and to find options that they could take in this regard.

Social Housing Foundation (SHF) presentation
Mr Moholo and Mr Higgs led the presentation. Mr Mohole indicated that National Housing Finance Corporation was instrumental in the formation of the SHF. Its mission was to:
- facilitate the capacitation of housing institutions that provides housing, rental or alternative tenure. Services had to be provided for those institutions that operated on longer terms and these institutions had to be covering the broader sector.
- provide housing to Aids orphans
- provide awareness programmes for housing institutions
- facilitate research for housing institutions, looking for options to deal with the new trends
- mobilize human resources and funding for housing institutions. This involved building up human capacity that would be able to manage institutions, writing strategic and business plans. SHF had been donated technical advisers who were working within the Foundation and some with housing institutions.
- To build models that could manage properties and finances on a sustainable basis

The Foundation had assisted different housing institutions in all provinces. Some of these institutions were not reflected in their presentation document, due to the period taken for the establishment of a well capacitated housing institution which was 18 months. The process of establishing these housing institutions had also been started in the Northern Province.

SHF Challenges
- To build the capacity of housing institutions to manage 2000 housing units (SHF Target for 2001/2 financial year)
- Cross subsidization was not a reality.
- The subsidy policy does not cover single women at the moment.

Mr Moholo said that the budget allocated to the Foundation was insufficient and asked the Committee support it on this issue.

Discussion
Ms Ramakaba-Lesiea (ANC) asked why single women were not covered by the subsidy policy.

Mr Higgs replied that the institutional subsidy did not cover single women without dependents, it could only be applied for by women with dependents.

Mr Durant (NNP) asked if SHF planned to turn the empty buildings in Central Business Districts into housing units.

Mr Mohole replied that they already had inner-city regeneration projects on the go such as the Greenfields housing project in Johannesburg and similar projects in Pietermariztburg, Durban, East London, Port Elizabeth and the hostel regeneration projects in Cape Town.

Mr Douglas (IFP) asked if SHF had made the residents of the Jabulani Flats of Kwazulu-Natal aware of the existing tenure options.

Mr Higgs replied that they did have workshops regarding tenure options in Jabulani Flats. He further promised that the workshop would be followed by education programmes.

Mr Durant (NNP) asked if a person who had bought a house five years ago, could still apply for the subsidy. And whether the subsidy could be applied for in different provinces?

Mr Higgs replied that people who already had houses were not eligible for the subsidy. The subsidy could be applied for only in one province. Hence migrant labourers chose to apply for the subsidy in their home provinces.

Ms Hangana commented that government was faced with the trend where some people sold their subsidy houses and went back to shack dwellings.

Ms Ramakaba-Lesiea (ANC) asked if a person could transfer the subsidy to another region.

Mr Higgs replied that it is possible to transfer subsidies; the rules are clear in this regard.

Ms Hangana asked if the NHFC and SHF were aware that some of the end products of the Alexandra projects were not satisfactory.

Mr Moholo replied that they were aware of these problems. They were caused by fact that housing institutions were not well capacitated to monitor the developers. SHF still has to capacitate these institutions for this task.

Appendix 1:
The Social Housing Foundation

Mandate
Established in 1997
"To facilitate the capacitation of housing institutions that provide housing on rental or alternative tenure"
Definition: legal, good quality, subsidised, regeneration, participation, tenure options

Mission
To provide strategic services towards a sustainable vibrant social housing sector in south Africa

Strategic Goals
To: Provide Social housing sector strategic information
- Mobilize resources for social housing sector development
- Facilitate capacitation of sectoral participants
- Promote the social housing sector
- Facilitate sectoral stakeholder alignment

Services
· Research, information dissemination & policy development
· Funding and human resource Mobilization
· Property & financial models
· Promotion of best Practice models
· Training and education Programmes
· Institutional development

Projects
Gauteng 3325 units
Western Cape 2762 units
Kwa-Zulu Natal 707 units
Eastern Cape 1306 units
North West 0
Northern Cape 0
Free State 520 units
Mpumalanga 501 units
Northern Province 0

Future Work
· Support Job Summit Projects 50 000 units
· Support urban renewal projects
· Establish 24 social housing institutions each 2000 units
· Assist in the transfer of local government housing stock
· Total challenge over 200 000 social housing units

Appendix 2:
Cosatu Press Release 18/6/2001
The Congress of South African Trade Unions (COSATU) which represents the majority of workers, including many of the working poor, notes with grave concern that Gateway, a subsidiary of the National Housing Finance Corporation, has been forced to shut down.

Gateway was the only hope for low-income earners earning between R1000-R6000 to access loan financing for housing. The housing market presently fails dismally to provide housing to low-income earners.

The "temporary closure of Gateway" is attributed to the banks' hesitancy to provide finance to the lower-end of the market, the government's failure to provide security of R300 million to cut the cost of lending; and disagreements on how Gateway is to be run.

Gateway's failure is a testimony not to the failure of the public sector but to the dominance of the private sector, assisted by state housing policy, which relies on the private sector. The private sector has failed to provide housing finance to the low- income earners.

COSATU believe that the temporary closure of Gateway provides an opportunity to re-look into the government's housing policy. In addition, we need to look at the money allocated to housing annually and the need to reprioritise national expenditure to meet people's needs.

COSATU has called for increased social spending including on housing to ensure adequate social protection for all South Africans.

It is absolutely important that a rescue plan is put in place to ensure that Gateway is financially viable. If Gateway were to collapse the country would have lost a vehicle to provide housing for low-income earners. This would then condemn the poor to the vagaries of the market resulting in a commodification of basic needs.