/ 25 March 2008

Poorer households hit by building costs

Building costs for poor households have increased by 25% year-on-year, mainly due to the cost of serviced sites going up, the Banking Association of South Africa said on Tuesday.

”This increase is primarily due to the increase in the cost of serviced sites, and not because of increases in building materials or as a result of developers making excessive profits,” the association’s managing director Cas Coovadia said in a statement.

The increase related to low-income households targeted by the Financial Sector Charter, which aimed to increase poor households’ access to basic banking services such as loans.

The association believed that as much as 20% of the cost of building a home was due to the fact that it took up to three years to convert land into stands. This translated into higher operational risk and holding costs for developers.

”The critical issue here is to improve drastically the process management within municipalities to substantially decrease the ‘land to stands’ continuum,” Coovadia said.

A recent study by major banks in three municipalities proved that this time could be cut in half, reducing building costs ”substantially”.

Municipalities’ housing delivery had to triple to eliminate the current backlog in 10 years. This could only be achieved if more infrastructure was made available, development processes were improved and the regulatory framework was reviewed.

Many municipal housing developments were however being delayed or shelved because of a lack of bulk infrastructure — sewage, water, roads, electricity — needed for development.

”The Banking Association believes that this must be high on government’s agenda if it is to achieve its ambitious social welfare housing programmes, including its Millennium Development Goal commitments.”

The banking sector had aimed to provide housing finance loans worth R42-billion to poor households over the five-year period ending on December 31 2008. The Banking Association estimated that the target would be exceeded by R10-billion.

The association said that lenders had been able to circumvent the severe housing shortage, high interest rates and building costs that have outpaced inflation.

”[Lenders] have been able to … aggressively enter the home improvement, home extension and the rural housing markets by providing these families with non-mortgage loans which have been used for housing purposes,” said the association. – Sapa