A Cursory Assessment of Funding for Human Settlements
Submitted to the Financial and Fiscal Commission
Submitted by Yasmin Coovadia Development Consulting
31 October 2011
1 Introduction
1.1 The Role of Funding for Human Settlements in a Developmental State
1.2 The Global & Local Context
2 Key Reflections & Proposals
2.1 Dominance of Grant Funding
2.2 Demand (Need) & Supply (Delivery)
2.3 Drastically Increase Rate of Delivery / Performance to meet Demand
2.4 Allocation & Flow of Funding – Cities & Towns
2.5 Funding Choices - Grant Dependence or Effective Partnership
2.6 End-User Finance
2.7 Unsecured lending – Learn from performance of RHLF
2.8 Product Cost & Quality
2.9 Institutional Reform of DFI’s
2.10 More effective use of HSDG & Institutional Subsidy Programme
2.11 USDG & Changes in Public Finance
2.12 Human Settlements Programme and project Planning Process
2.13 Development Planning
2.14 Funding Rural Demand
3 Concluding
Concluding Comments
3.1 Implications for changes in Policy
3.2 Proposed Priority Interventions
1
1 Introduction
The information and thoughts of this Cursory Assessment has its origins in the
work that was done early in 2011 for the Department of Human Settlements as a
component of its’ Turnaround Strategy 2030 but has been reworked to reflect
the thoughts and beliefs of the author. Much of the factual information used in
this Cursory Assessment is based on interviews with the following people during
the duration of the development of the Turnaround Strategy:•
Departmental officials responsible for Grant/Fund Management (Funani
Matlatsi); Housing Equity (Sindisiwe Ngxongo); the Urban Settlement
Development Grant (USDG - Neville Chainee);
•
Representatives of the Development Finance Institutions (DFI’s) set up by
the Minister of Human Settlements, that is National Housing Finance
Corporation (NHFC – Samson Moraba, Lawrence Lehobe, Sidney Mutepe),
the National Urban Reconstruction and Housing Agency (NURCHA –
Morgan Pillay), and the Rural Housing Loan Fund (RHLF – Jabulani
Fakazi).
•
Other key people who have been consulted are the Acting CFO (Nyameko
Mbengo), Diet von Broembsen (Policy), Ahmedi Vawda (Office of the
Presidency), Zanele Mncwango (National Treasury – Provincial and Local
Infrastructure), and various officials from the NDHS that were part of the
USDG Work Group.
Furthermore the author was privileged to have access to the National
Department of Human Settlements’ “DFI Review” that had been initiated in late
2010 – this is work done by Shisaka Development Management Services that
was required to be incorporated into the Turnaround Strategy to avoid any
duplication of work.
The thoughts and beliefs, the assessment and proposals are a combination of
the work mentioned above as well as the experience of the author in the being a
development practitioner since 1991.
2
1.1 The Role of Funding in a Developmental State
“Funding” refers to the total amount of money required for the planning and
implementation of Human Settlements programmes generally referred to in the
sector as a mix of grants, household’s savings or investments, end-user finance
(mortgages and loans), public and municipal finance, construction finance, and
project finance. This is collectively referred to as development funding /
finance:1. Grant Funding – Human Settlement Development Grant (conditional grant
usually referred to as housing subsidy or currently the HSDG that is an
allocation from the national fiscus that is in terms of the Housing Act
transferred to Provinces who then transfer to municipalities).
The
department also administers the Rural Households Infrastructure Grant.
From April 2011 there is a new grant that will be administered by the
Department, the Urban Settlements Development Grant, also an allocation
from the national fiscus that is to be used by metropolitan municipalities to
supplement their capital funds for infrastructure development and land.
2. Other Development Finance – this covers end user finance, project and
construction finance, and is accessed through the Development Finance
Institutions (DFI’s) that get their mandate from the NDHS.
Funding is not to be confused with Financial Management which refers to
accounting methods, standards, etc.
The key policy imperative that underpinned this Cursory Assessment, Key
Reflections and resultant Proposals is that of a developmental state in relation to
government’s Outcome to create sustainable human settlements and improve
the quality of household life (Outcome 8).
An Outcomes-based approach,
Accreditation and Fiscal Reform collectively suggest that some conditionalities
of the Human Settlements Grants should be reviewed so as to allow for clear
accountability and responsibility for achieving outcomes.
The concept of a developmental state is premised on clearly identifying the
levels of state intervention needed to contribute to economic growth while at the
3
same time having a pro-poor bias to improve the quality of household life for the
poor who are generally excluded from current market forces. State funding
needs to be designed such that it triggers a shift from grant dependency to that
of leveraging the prudent participation of the financial sector to complement
savings
and
investments
from
households.
This
presumes
a
drastic
improvement in the earning power or affordability of housing from households,
or in other words the success of government’s priority on Job Creation of 5
million jobs by 2020. Job creation has to have the effect of getting more people
to earn a salary, and also getting more people to earn better salaries to trigger a
response from the financial sector to provide suitable end-user finance to
complement government grants for shelter and human settlements. It will also
provide the right context for changing the grant to an incentive.
1.2 The Global and Local Context
Urbanisation, Globalisation and De-Globalisation all point to increasing pressure
on large and smaller cities taking on a more significant role in economic
development (that sometimes far outstrips national economic growth) while at
the same time having to deal with poverty, that is the twin objectives of
sustaining economic growth and managing development including urban
poverty.
The “Urbanisation of Poverty” is a challenge that the National Department of
Human Settlements understands and is well aware of, but it needs to clearly
articulate how it will support both metropolitan municipalities and secondary
cities, while still addressing rural challenges within proportion. This would be in
line with Government’s directional trend of delegating and assigning greater
powers and functions to metros and secondary cities while still influencing
planning and policy processes to achieve outcomes. These local trends are
reflective of global trends on urbanisation and globalisation, as well as the
management of human settlements.
4
One resulting scenario of Urbanisation/Globalisation/De-globalisation could be
that SA being part of BRICS, that is part of the Emerging Markets, there will be a
need to decide on the level/s of state intervention for the vast majority of urban
poor who may see a result in improvement of employment (especially with SA
focus on job creation as an immediate priority) and purchasing power but still be
part of society and a system that has extremely high income disparities and thus
a new marginalisation of the urban poor, or more people being relatively poor.
Another resulting scenario of Urbanisation/Globalisation/De-globalisation could
be that there is insufficient formal employment created in the next 5-10 years,
and there is a growth in the informal job market – the informal economy still
caters for a larger proportion of basic needs of the majority of people in South
Africa.
It is more than likely that both of the above mentioned scenarios could exist
side-by-side as has been the case in the last 20-30 years - government could
continue to assume that people in the informal economy will have the financial
means to cross over in to the formal economy or begin to have different
strategies that will cater for the development of people in both economies.
The latter option requires a paradigm shift that accepts and embraces
informality at all levels (the economy, settlement types, house typology, etc) as
the basic survival strategy of the poor and vulnerable that are generally
excluded from the formal sector. Government support in this paradigm will be
“developmental” if it enables the poor and vulnerable the opportunities to meet
their basic livelihood needs while at the same time and make the cross over into
the formal sector when and if possible – urban poverty has to be addressed
head –on rather than denied. It is not the objective of this Cursory Assessment
to delve further into the justification of accepting urban poverty as a reality.
5
2 Key Reflections & Proposals in respect of Funding
2.1 Dominance of Grant Funding
There are 3 grants administered by the Department as depicted below:Grant Funding 2011 - 20141
2011/12
Human Settlements Development Grant
(HSDG)
14,941,516 15,599,437 16,457,407
Urban Settlements Development Grant
(USDG)
Rural Household Infrastructure Grant
Total (R’000)
2012/13
2013/14
6,418,617
7,557,551
8,282,787
231,500
479,500
517,250
21,591
21,591,
591,633 23,636
23,636,
636,488 25,257,
257,444
444
Division of Revenue Bill, 2011
The HSDG is the capital grant introduced in 1994 to redress the prohibition on
the ownership of property by the vast majority of people in our country, and in
this respect it has succeed in its intent, although with many unintended
consequences. The RHIG is relatively new and is used for basic water and
sanitation in rural municipalities. The USDG is the newest grant and has been
administered from 1 April 2011 – it is more reflective of the changed mandate of
the Department.
The Banking Sector has assessed its performance against its’ self-designed
Financial Sector Charter (the Community Re-investment Act and the Home Loan
Mortgage Disclosure Act have not succeeded) and provided loans to Social
Housing Institutions and individual home owners but sight a mismatch between
salaries and product price as a major obstacle to providing more housing
finance. As a result the GAP Market has grown and there are still many people
who will not qualify for housing finance.
1
Source: Grant Management Chief Directorate, National Department of Human Settlements, Feb 2011
6
Grant beneficiaries themselves have seldom made any equity contributions
whether in the form of money or labour, and many new homeowners claim that
they cannot afford rates and service charges.
Key Reflection: A high level finding to date is that Grant Funding has been
dominant in relation to development finance since 1994 – this is within the
context of 55% of the South African population earning less than R3500 pm or
85.4% of the population earning less than R15, 000.00 (see Table 1 on the next
page). The context within which financial instruments work or fail is as important
as the design of the instruments – jobless economic growth or minimal job
creation has had a major negative impact on the performance of the funding
instruments introduced in 1994.
Any Turnaround Strategy for the Department of Human Settlements needs to
acknowledge the un-sustainability of increasing reliance on grant funding
relative to private sector funding and own contributions; the high cost of the
current
inefficiencies
and
unintended
consequences
of
some
funding
instruments; and the flow of public funding relative to the new outcomes based
approach chosen by government.
Proposal: Grant Dominance is unsustainable. The demand for shelter within
human settlements is greater than the Grant Funding available in terms of the
national fiscal allocation, and while fiscal allocations have increased since 1994
greater quantum’s have been absorbed by escalation in prices for land, building
materials and cost of building of infrastructure. If we continue as we are doing
now (should unemployment not reduce significantly or the housing policy not
change, and should the dependence on the grants continue) the need for
government funding is unlikely to be made available by government since it is
unsustainable (would require other sector budgets to be cut to fund human
settlements).
7
8
2.2
2.2 Demand (Need) & Supply (Delivery)
Key reflection: The Housing Need / Demand is not clearly articulated at present,
and this leads to debates and disagreements about how to monitor and evaluate
the success or failure of various interventions.
The Housing Act uses the
terminology of “adequate or inadequate shelter” while the various Housing
Programmes to date may be measured on the outputs such as serviced sites
(without formal house), formal house on serviced site, rental units held by social
housing institution, units linked to mortgage finance for households from
different income bands, etc.
Proposal: It is better of there is consistency in the definition of the Demand for
Housing as it relates to the outputs and targets that will be used to measure
progress. It is thus recommended that the Demand for Housing Assistance is
articulated as follows:Demand = Backlog + Annual Growth
Backlog – the number of households that are inadequately housed at the start of
any fixed period of planning, and that require government intervention
Annual Growth - annual increase of households requiring assistance due to
annual population growth of the sectors that require government intervention
Given the current population and income distribution in relation to the demand
for adequate shelter and services there are different estimations of the
Demand:1.
2.
Estimates from the National Department of Human Settlements
Estimates from the Departmental DFI Review :- see on following
page for detail – extract from Shisaka Report, 2011
Estimates of Demand for Adequate Shelter, NDoHS Outcome 8
Low estimate for need for adequate shelter
High estimate for need for adequate shelter
2,100,000
2,195,000
9
10
Key reflection: There is a requirement to define indicators to measure
performance in relation to demand.. The estimates of Demand from the
Departmental DFI Review are a high estimate but a particularly useful one in
terms of linking it to strategic level products such as:1. Households needing services by level of services (basic vs full)
2. Households needing secure tenure, services and shelter
3. Households needing access to secondary market transactions
Proposal: The Department must decide on a definition of Demand and link it to
the products that will be offered so as to enable effective planning, monitoring
and evaluation and oversight. Fudging the definition of Demand leaves room for
misinterpretation and inappropriate planning and allocation of resources. Most
external
stakeholders
(non-government
stakeholders,
and
even
some
government stakeholders) suggest that Delivery / Implementation in any given
period (for a year or 3 year period, or 5 or 20 year period) should be the extent to
which the Need has been met. If the Need has grown it would indicate failure of
the chosen intervention. If the Need remains the same, then it would indicate
inadequate progress since the intervention caused a worsening of the situation
(some households were assisted but not enough to reduce the Need). If the
Need is substantially reduced and brought down to an acceptable level, say 2%
of total households, it would indicate success of the chosen intervention/s.
Need / Demand could be determined (adapted from Shisaka DMS) as the number
of households that require:1.
2.
3.
4.
Serviced sites (basic services + secure tenure)
Serviced sites (full services + secure tenure)
Rental accommodation
a. Medium and higher density new developments via social
housing institutions and the private sector
b. Individual owner-provided living facilities provided on site (to
increase current densities of existing residential areas)
c. Rooms for rental
Households that require mortgage finance
2.3 Drastically increase
increase the rate of delivery / performance to meet Demand
Demand
Key reflection:
There is a need to drastically increase rate of delivery /
performance to meet Demand. The current demand for shelter is approximately
11
between 2.1 or 2.2 million units (NDHS). Then there is annual growth of 350,000
households per annum, a portion of which will require government assistance
and thus increase the current demand proportionally - the proportion of the total
annual household growth that would depend on government assistance could
range from 25% up to 85% depending on the economic circumstances:Demand grows annually ….
25% of new households is 87,5000 households p/a
50% is 175,000 households p/a
55% is 192,500 households p/a
85% is 297,500 households p/a
If the Demand is more than 2.2. million households and delivery / performance to
date has been at best 220,00 housing opportunities2 per annum, performance
relative to demand over a 10 year period would have the effect of simply
addressing the Current Demand without addressing annual growth in demand.
This would have negative impacts on any Outcomes that may be achieved
unless performance can be drastically increased on an annual basis. This high
level calculation does not take into account the demand for different “products”
linked to particular Human Settlements Programmes e.g. Informal Settlements
Upgrading that will produce products such as secure tenure, basic services
and/or basic shelter; or a rental housing opportunity where the product is a unit
for rent (versus ownership) in a better located area at a medium to high density;
then there are market driven products for rental and ownership.
Proposal: The NDHS with its delivery agents need to be able to unblock delivery
constraints beyond “blocked projects” and “Priority Projects” to get delivery
(and spend) where it meets the demand for backlogs and annual growth that is
increase annual delivery from 220,000 to at least 300,000 opportunities per
annum. Then NDHS will have proved the capacity to deliver should they receive
an increased quantum of fiscal allocation. The improved rate of delivery will
A housing opportunity is the delivery of one of a range of products using one of the housing subsidies
and could be a serviced site or housing unit in terms of different tenure options (rental or ownership
including rent-to-buy).
2
12
need to be aligned to the need to have settlements that are well located and with
increased densities, etc. to improve urban efficiencies and thus contribute to
sustainable human settlements that improve the quality of household lives.
Some provincial housing departments have been playing the role of “developer”
and where this has worked successfully there should be further investigation on
how to use this to drastically increase the rate of delivery. Furthermore all
social housing institutions have development companies (in addition to holding
companies to manage the stock) and their development companies produce
good quality well priced housing units. NURCHA, NHFC and the SHI’s should
consider the more effective use of their development companies to drastically
increase the rate of delivery.
Finally the private sector, both commercial and “small landlord” driven, as well
as household driven development of stock needs to be incentivised.
There
should be research led by the metropolitan municipalities into the promotion of
the development of quality backyard dwellings for rental (lower income) in
established residential areas and RDP areas provides - this could contributes to
densification targets if it does not overburden infrastructure capacity while at
the same time providing (additional) income to property owners.
2.4 Allocation & Flow of Funding – Cities & Towns
Key Reflection: The allocation and flow of Funding should respond to Demand
and have a positive impact on addressing the urbanization of poverty. If 58% of
the total demand for Adequate Shelter is located in the 8 metropolitan
municipalities, with 5 out of 8 metropolitan municipalities accounting for 43% of
the total demand, it stand to reason that resources need to be focused in these
metropolitan municipalities in a way that supports improving the ate of delivery
while at the same time ensuring that outcomes are realized. This implies the
accreditation of metropolitan municipalities to Level 3 as soon as possible.
13
Estimates of Demand for Adequate Shelter 2008 (Metros)
Metro / City
HH without
access to formal
shelter 2004
(SACN)
136,623
246,845
200,177
213,465
124,662
HH without
access to
formal shelter
2008 (SACN)
NDoHS
Estimates of
Need for
Adequate
Shelter 2008*
225,000
200,000
160,000
160,000
160,000
Cape Town
265,000
Johannesburg
250,000
Ekurhuleni
200,177
eThekwini
250,000
Tshwane
124,662
Nelson Mandela
Bay
66,416
80,000
63,000
Buffalo City
60,006
60,006
50,500
Mangaung
19,314
26,000
38,000
Total Metro
1,067,508
1,255,845
1,056,500
Total SA
* NDoHS low estimate based on All Shacks + 30% share of Traditional dwellings
(national level model: SIMS)
The Need for Housing should be further articulated taking into reflection
geographic and municipal parameters:Type of Need
Backlog
Annual
Growth
Bulk Infrastructure
Development
Infrastructure
Rehabilitation
Serviced sites (basic
services + secure tenure)
Serviced sites (full
services + secure tenure)
Upgrading Basic Services
to Full Services
Rental : Medium and
higher density new
developments via social
housing institutions and
the private sector
Rental: Individual ownerprovided living facilities
provided on site (to
increase current densities
of existing residential
areas)
Households that require
mortgage finance
14
Total
Need
Need in
Cities &
Towns
Needs in
Rural areas
A further reflection is whether the income bands for households will remain as
they are – there is a Subsidy Reform (all subsidies, not just Housing Subsidies)
discussion in National Treasury that is considering a more area based
interventions in comparison to the current compliance to “means-based
testing.”
This would require a review of all eligibility criteria for accessing a
Housing Subsidy.
Proposal: Speed up Level 3 accreditation for the 8 metropolitan municipalities
and selected other Towns, and partner with National Treasury to be at the
forefront of discussions on subsidy reforms. This could, amongst other
interventions outlined elsewhere in this report, assist the department in moving
from the social cluster to the economic cluster – where housing is seen more as
an economic asset rather then a type of welfare assistance of a give-away
house.
2.5
2.5 Funding Choices
Choices – Grant Dependence or Effective Funding Partnership
Assuming that the rate of delivery / performance is suitable up-scaled does not
necessarily imply an automatic increase in grant funding.
In a developmental
state the answer would be no since an increase in grant funding alone is
unsustainable, and negates the “Funding Partnership” with the state taking up
the entire burden.
Key Reflection: The context within which financial instruments work or fail is as
important as the design of the instruments. The “Partnership” could work better
if Banks provided mortgage finance to people who earn lower salaries but are in
stable jobs and where affordability is carefully considered; and people
contributed Savings / Investments.
Furthermore the “Funding Partnership”
could work optimally if more people earned money and/or more people earned
more money (sustained economic development) and housing stock was
produced cost effectively.
Proposal:
Re-Design state interventions more appropriately to make the
Funding Partnership work better by linking the reform of the HSDG to the
15
government priority on Job Creation thus establishing incentives to complement
government funding with small building loans, savings and mortgage finance at
the individual HH level.
One such state intervention could be to partner National Treasury and possibly
the Reserve Bank by getting them to buy into the changes to be made and then
letting them influence the Banks – they do ultimately have the greatest influence
on Banks from within Government. Another intervention would be to address
the issues linked to the dysfunctioanlity of HLAMDA and place rectify the
situation immediately so that government has adequate reliable disclosure from
Banks to be a position to influence their lending for housing.
Yet another
example is more targeted public investment in previously disadvantaged areas
to leverage private sector funding into the built environment e.g. Soweto. It is
not about caving into all of the banks requirements blindly, but selecting
carefully what issues
government can be really tough on with banks and
succeed e.g. funding for the GAP market without unnecessarily drawing out the
Mortgage Insurance Programme longer than it should.
2.6 EndEnd-User Finance
Key reflection: Currently Development Finance instruments such as the Finance
Linked Subsidy Programme have not managed to bring the private financial
sector lower down the market (to service people who earn lower incomes and
would purchase cheaper properties) or to get people to significantly mobilise
their savings for housing, thus by default passing on the burden to the state
(greater reliance on grant funding). The Banks have continued to articulate
their concerns about the affordability of intended mortgage holders and Product
Value and Quality as reasons for not extending their products to a greater
number of people.
Proposal: The critical success factor is getting more people to earn a salary
(increase job creation substantially), and thus bring the banking sector further
down market.
16
Currently the Finance Linked Subsidy Programme (FLISP) has not managed to
get the private financial sector to provide mortgage finance to people earning
from R3,501-12,800. The unwillingness of Banks have by default passed on the
burden of housing the GAP market to the state, and the state has responded in
terms of Outcome 8 – R1bn Mortgage Default Insurance (NHFC). FLISP has a
better chance of working if it is administered by the NHFC since the current
arrangements have been an administrative burden on banks. In moving the
FLISP to the NHFC a redesign of the instrument could also be considered.
2.7 Unsecured lending - learn from performance of RHLF
The use of the Rural Housing Loan Fund (RHLF) instrument3 may be suitable for
use in incremental house building which would be an activity at the end of the
value chain of the Informal Settlement Upgrading Programme 4(that assumes
security of tenure and provision of basic services as a result of use of the USDG
and HSDG) that can begin to introduce a contribution by beneficiaries that is
affordable.
If the beneficiaries of the ISUP receive secure tenure and basic
services from grant funding, they could then incrementally build their house
using their own savings and/or use small unsecured loans such as that provided
by intermediaries that are funded by the RHLF (if extended to non-rural areas).
Key Reflection: the poorest of the poor should not be totally dependent on
government
grants
and
should
contribute
something
to
their
Shelter
requirements, even if it is a contribution in kind.
Proposal: Well managed unsecured lending, that is smaller loans, has worked in
other parts of the world in developing economies and within a developmental
paradigm – this aspect has been covered in the Shisaska Report and should be
part of further investigation. The relative success of the Rural Housing Loan
RHLF provides wholesale finance to lending intermediaries who provide small unsecured loans (on
average R4,500) for home construction/improvement in rural areas and on communal land.
3
Grant funding for the development of informal settlements which is intended to provide security of
tenure and basic services and move from “informality” towards greater “formality” and thus contribute to
sustainable human settlements.
4
17
Fund in South Africa in rural areas can be a source of valuable lessons to be
learnt in this respect.
2.8 Product Cost & Quality
Key reflection: Fiscal allocation (grants) has increased but so has building costs
of infrastructure and top structure as well as land.
Proposal: one example could be an intervention to decrease in the price of the
product by looking at procurement of building materials given that the
government projects far outnumber private residential development.
Other
examples of producing well priced stock at the required quality levels have
been covered in sub section 3.3. in this Report.
2.9 Institutional Reform of DFI’s
Key reflection: The DFI Review looked at institutional issues of the existing
DFI’s and the benefit cursoryf collapsing all 3 existing DFI’s (NURCHA, NHFC
and RHLF) into 1 Development Finance Institution. Dealing with one institution
for various development finance products for one project improves efficiencies
in funding.
Proposal: While the DFI Review is still work in progress, the PWC team has
provided specific input on this matter and concurs with the findings to collapse
all 3 DFI’s into one DFI.
Furthermore the rationale to not pursue the
establishment of a Housing Bank at this point in time is also supported due to
developments such as Post Bank.
2.10
.10 More effective use of HSDG Institutional Subsidy Programme
Key reflection: Banks are willing to provide a greater proportion of project
finance to Social Housing Institutions (SHI’s) but there has been no uptake by
18
the SHI’s since grant funding (Institutional Grants) is available. It is our opinion
and Proposal (as explored with the NHFC during our consultation) that the NDHS
and NHFC consider remodelling the Institutional Subsidy.
The remodelling
should acknowledge that the grant funding should rather be an incentive or a
soft loan so that SHI’s become totally financed from the private sector rather
than depending on grant finance from the state. The Banks are thus brought
further into the property market (by providing an increased percentage of
project finance rather than end user finance) for rental housing
Proposal: The NDHS should consider remodelling the use of the Institutional
Subsidy for use by Social Housing Institutions given that the NHFC confirms the
readiness of banks to totally fund these institutions. Freeing up this funding will
have the advantage of consolidating the important role of
socials housing
institutions in providing well located rental housing stock by getting the banks to
come further down market, and being able to allocate this public funding to
other use such as increasing the funding for informal settlement upgrading.
2.11
.11 Urban Settlements Development Grant & Changes in Public Finance
Development Finance instruments for the built environment have been
rationalised and consolidated since 2002 (e.g. rolling up 8 or more grants into
the Municipal Infrastructure Grant or MIG, and then the establishment of MIGCities in 2008, etc) but there are still a few infrastructure grants are sector
driven by national or provincial imperatives. Some infrastructure grants have
begun to follow a trend of being directly assigned as a function of metropolitan
government for effective and efficient delivery of services that contribute to the
improved functioning of the built environment and thus sustainable human
settlements.
From 1 April 2011, the NDHS will administer a new grant in addition to the
HSDG. This is called the USDG and it was previously MIG-Cities. The USDG is a
combination of the MIG Cities with a component of funding from the HSDG that
will flow directly to the 8 metros to be used for Bulk and Link Infrastructure and
19
securing and releasing land, both for addressing poverty and growth and to
contribute to the outcomes for sustainable built environments.
The policy
implications are that there will need to be clarity about the conditions of each
grant, that is alignment for achieving intended outcomes. Furthermore other
grant funding that contributes to the capital programmes of the built
environment will need to be aligned to the USDG and HSDG. Preparation for
administration of the USDG is in progress although there is insufficient time (due
to Cabinet decision in December 2010) for all stakeholders to effectively grapple
with the development of a new framework and set of indicators that links bulk
infrastructure investment to land release in suitable locations and to effectively
complement the use of other public funding instruments such as the HSDG.
Alignment of USDG & HSDG
Grant allocations over MTEF
HSDG: Human Settlements Development Grant (Housing)
USDG: Urban Settlements Development Grant (Infrastructure and Land)
HSDG
USDG
Total
2011/12
14,941,516
6,418,617
21,360,133
2012/13
15,599,437
7,557,551
23,156,988
NEW
2013/14
Total MTEF
46,998,360
22,258,955
24,740,194
69,257,315
16,457,407
8,282,787
USDG = (MIG-Cities baseline + 15% of total HSDG allocation)
From a pure BNG perspective USDG = funding the gap for land & infrastructure
in Cities and Towns; with HSDG funding Top Structure
From a NT Budget Reform perspective USDG = amount to supplement Capital
Programme of Cities and Towns to support city’s twin priorities for economic
development and poverty alleviation.
From a Human Settlements perspective USDG = ? ? Work in progress …..
The directional trend evident at the level of the Presidency and National
Treasury to improve the flow of funding to metropolitan municipalities with less
conditionality while retaining effective accountability is not one that has been
comfortably embraced by NDHS in respect of the HSDG (while it is grappi\ling
with the USDG). A differentiated approach to municipalities acknowledges that
metropolitan municipalities, secondary towns and some district municipalities
are key to contributing to national outcomes, especially that of the built
environment. The assignment of key built environment functions such as water
20
and sanitation, transport and housing to metropolitan municipalities, secondary
towns and some district municipalities will enable a greater coherence in urban
planning and implementation that should produce greater efficiency in the use
of public sector finance.
A detailed, systematic, structured and legalistic
approach such as the Accreditation process has its merits. In comparison the
National Treasury approach to Budget Reforms is another way of achieving the
same goal of producing greater efficiency in the use of public sector finance.
The work done by the NDHS to date on the accreditation of particular
municipalities has been a long and slow process and has its origins in the
arrangements entered into when the Housing Act was passed yet local
government was still in the process of being developed and established
(Negotiation and Interim Phases). The process has been slow because there
has been an ongoing debate between metropolitan governments, and the
relevant provincial and national departments about the required capacity at a
metropolitan level to successfully manage housing development. The current
flow of the HSDG is from NDHS to Provincial Departments if Human Settlements
and onward transfer to municipalities as have been done since 1994.
This
ignores the acknowledgment of a differentiated approach to municipalities and
the role of metropolitan municipalities in contributing to national outcomes,
especially that of the built environment.
The assignment of key built
environment functions such as water and sanitation, transport and housing to
metropolitan municipalities will enable a greater coheremce in urban planning
and implementation that should produce greater efficiency in the use of public
sector finance. While there is some level of acknowledgment of the role of
metropolitan municipalities and secondary cities, this is yet to show in term of
the re-allocation of resources (especially funding) and planning.
Key Reflection: The proposal and Proposals of the DFI Review should be taken
to a wider grouping for consultation and fine-tuning to be aligned to other
government subsidy reforms.
21
Proposal: The reform of the HSDG should be explored in relation to the findings
of the DFI Review; National Treasury’s Fiscal Reform agenda, as well as the
accreditation of selected municipalities..
2.12
.12 Human Settlements Programme & Project Planning Process
Key Reflection: The internal processes of the NDHS in relation to finalising
Provincial and National Business Plans have not worked optimally in the past
many years – the process is usually way behind schedule leaving little
opportunity for the NDHS to effectively plan with Provinces and selected
Municipalities to ensure that funding and other resources are directed to the
achievement of Outcome 8.
Proposal: The trend in the assignment of functions, or in other words
accreditation, is an ongoing process but one that has not yet impacted the
Programme and project Planning function, yet it should do so as urgently as
possible. Given the key role that Cities and Towns play in the development of
Human Settlements it is not desirable to always rely on the relevant provincial
department for matters pertaining to these municipalities - there should be s
direct line of communication for planning and other functions. This does not
mean the provinces have no role to play but rather that their role is redefined.
2.13
.13 Development Planning
Key Reflection: Delivery is not keeping up with growth of households and
generally perceived to failed at restructuring the “apartheid city” or adequately
manage the growing number of informal settlements
Proposal: There is growing imperative for human settlements development to
focus delivery that better targets public investment in the built environment
(address growth and poverty); to have better performing human settlements; to
increase levels of engagement of the built environment sector; to have active
citizenship in determining the functioning of human settlements. This requires
22
the establishment of a development planning function rather than the current
Programme and Project Planning functions that exist in the department.
2.14
.14 Funding Rural Demand
Key
Reflection:
The
Department
administers
the
Rural
Households
Infrastructure Grant, and also provides wholesale finance to intermediaries for
small unsecured lending to households on communal or traditional land. It is
unclear as to whether the performance of these programmes will contribute to
the intended outcomes.
Proposal: The Rural Households Infrastructure Grant has not been adequately
managed and requires urgent intervention. Furthermore there is possibly merit
in doing some research into having a more effective rural housing programme
aligned to the new focus on rural development
in the newly established
Department and Ministry for Rural Development.
3 Concluding Comments
Any Turnaround Strategy for the Department of Human Settlements needs to
acknowledge the un-sustainability of increasing reliance on grant funding
relative to private sector funding and own contributions. Furthermore it would
need to recognise the high cost of the current inefficiencies and unintended
consequences of some funding instruments. There is an urgent need to address
the flow of public funding relative to the new outcomes based approach chosen
by government to ensure this does not hamper the achievement of the
outcomes. A Strategy that spans 20 years will allow the DHS to plan realistically
rather than just throwing money at the problem and hoping for the best
outcome.
23
3.1 Implications for changes in Policy
Key Reflection & Proposal:
Changes to the current Housing Policy can
positively influence the current Funding constraints:a. Phase in responsibility / obligation of beneficiaries to make some kind
of contribution to complement government grants / funding – the
perfect programme to start with is the Upgrading of Informal
Settlements. The Housing Act requires own contributions from
beneficiaries, however Breaking New Ground in 2004 relaxed this
requirement since it hampered the implementation of projects when
beneficiaries could not make the contribution. If this is continued, it
enforces total dependency on government, and this is undesirable. The
re-introduction of own contributions will need to be practical.
b. Phase in the termination of the restrictive clause on the selling of
government funded property to enable people to move to where jobs
are
c. Allow government funded property to be used for purposes (home
based work i.e. spaza shop) rather than restricting it to residential as
long as a residential use remains. Land use management , zoning and
tax incentives linked to this are a municipal function that can be
influenced if by changes in national housing policy.
d. Look at special arrangements for direct flow of funding with less
onerous conditions to metropolitan and secondary cities.
3.2 Proposed Priority Interventions
There are a few proposed priority interventions that may be considered:•
The function of Funding, especially non-grant funding, needs to
have greater prominence in the Department and allocated more
resources with an aggressive strategy to get all the other funding
partners to support the Turnaround Strategy.
•
The Finance Linked Subsidy Programme should be considered for
administration by NHFC as soon as possible.
•
NHFC should urgently address the more effective use of the
Institutional Subsidy with a view to getting banks to take over the
greatest proportion of funding with the subsidy being transformed
into an incentive to build well priced wee located housing stock.
24