Picture: FINANCIAL MAIL
Picture: FINANCIAL MAIL

IT’S A grand truism of SA’s housing market that, like so many other aspects of the economy, it runs on dual tracks — one operates in the stratosphere of relative efficiency and follows global trends, the other languishes in a muddled state of mixed improvement and dire need. It is seldom appreciated how interconnected these two markets are.

The easier of the two to measure is the formal housing market, as it can be described. This market is likely to show little growth this year. That’s a very mixed blessing.

SA’s house prices rose spectacularly between 2003 and 2008, in line with global trends. Nobody relishes the prospect of a fallout in SA’s housing market similar to those that happened in Europe and the US. A moderate rise in prices would go a long way towards underpinning stronger economic growth.

The bottom end of the housing market is also struggling, for many different reasons. However, there are important overlaps, and improving the top and bottom of the market can be mutually reinforcing.

The philosophy at the root of SA’s housing problem has been affected by the writings of Peruvian economist Hernando de Soto Polar — and arguably a misunderstanding of his thesis. His work focused on the informal economy, and the need to create a functional market economy, not only at the top but within the informal economy too. His notion of "dead capital" within the informal housing sector captured the imagination of housing experts in developing countries.

The publication of his work coincided with political change in SA, and provided the impetus to transfer township houses to private ownership to free this "dead capital". In addition, in a home-building programme of almost 20 years, about 3.2-million houses have been built.

Although a great programme, its shortcomings are obvious. Shack towns still exist in numbers; many of the houses are miles from work opportunities, never mind leisure activities. For those who have jobs, transport is pricey and unreliable.

The National Development Plan document expresses the shortcomings with vigour and accuracy. There is, says the document, "a growing recognition that the programme was a blunt instrument in response to the diverse housing needs of individuals and households. It was unable, for example, to respond to individuals who did not qualify for the subsidy and who were also unable to access the limited range of housing products available in the market. It failed to address the importance of rental accommodation in a context of household mobility and transience. Despite the intention to bring private sector finance into the lower end of the market, very little was achieved as investment risks remained high".

As legislation stands, about 60% of SA’s households qualify for house subsidies. That leaves about 25% of the population who also do not earn enough to qualify for a bond.

There is a structural dimension too, which the report calls "unnecessarily complicated".

Planning infrastructure that supports human settlements (water, sanitation, roads, parks and so on) is located at local level, the housing function is at provincial level, and water and electricity provision is split between those responsible for bulk services and reticulation.

In a way, these problems illustrate the shorthand understanding of De Soto’s argument. His argument was not, or at least not only, that "dead capital" could be solved by privatising houses. It was that poor people tend to lack the informational network and legal framework the rich use reflexively.

In SA, the shortcoming is becoming evident in the huge backlog in providing title deeds. It is estimated only half of the owners of the 3.2-million houses built have the title deeds to their homes. Being able to identify ownership and protect that ownership is critical — and that affects everybody from the top to the bottom of the housing market.