Appropriation Bill 2015: implications for Department of Human Settlements

Standing Committee on Appropriations

15 May 2015
Chairperson: Mr S Mashatile (ANC)
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Meeting Summary

The Department of Human Settlements (DHS) had been asked to give a presentation to the Committee on the effect of the 2015 Appropriation Bill and described its budget, programme structure, amounts budgeted, focus areas and challenges to the Committee. The Strategic Plan for 2014 to 2019 set out that the DHS must prioritise delivery of 1.46  million housing opportunities, and act as a catalyst for radical transformation in the country. The focus would be on mega projects of integrated housing mix for different income levels and needs, to target unemployment, inequality and poverty. This Department also was involved in Outcome 8 which aimed to improve the institutional capacity and co-ordination for better spatial targeting, and provide adequate housing. It was working with banks to try to unlock potential for housing funding. Its specific targets were to build 750 000 households in informal settlements, 563 000 individual units for the subsidy market, 110 000 loan houses and 27 000 social houses. 2 200 informal settlements would be assessed. The Department was also busy with trying to eliminate the backlog of 900 000 title deeds, and creating 5 000 housing units for military veterans. A specific target was that 30% of opportunities were to be delivered by women contractors. The cost of delivering 1.46 million houses was R130 billion, with an annual cost of R26 billion. The main challenge was that budget had been reduced. However, the Department was working hard on monitoring and evaluations, of both the public entities on a quarterly basis, and the performance in the provincial departments, also being assessed quarterly. All municipal plans had to be aligned with the relevant municipality's Integrated Development Plans. It was explained that the urban population was currently around 59.3% but would grow to 79.6% by 2030, which would place great strain on services and houses. The Department was involved in projects to try to revitalise inner cities, was in discussion with metropolitan mayors and was intending to convert unused buildings to social housing.

The Department had received an allocation for 2014/15 of R103 billion, but this had dropped in the current MTEF to R99 billion. The Housing Development Finance programme accounted for R97 billion, and grants of R92 billion were being assigned from this. The allocations for each of the grants was briefly outlined. The operational budget was 2% of capital allocation. The overall impact was a R2.1 billion reduction in grant allocation, R722 million reduction on transfer to other entities, R289 million reduction in operational budget, and a further R1.6 billion reduction due to the transfer of sanitation to the Department of Water and Sanitation. The DHS had been engaged in various cost-cutting exercises.

Members commended the efforts to achieve a mix of houses, but queried the actual costs of an RDP house, within what time frame it was able to be sold, questioned why many sites provided no recreational facilities, and noted that there were too many names on the housing waiting lists which the government could not provide for, so wanted to know what the DHS was doing to try to arrange affordable financing. Members wanted to know if the DHS could take away and reallocate budgets if provinces did not perform. They were concerned about ongoing use of consultants and asked for further clarity on assertions that they might be colluding with contractors, what savings might have been achieved by lessened reliance on them, and whether skills transfer was a requirement. Questions were asked about the upgrading of hostels into family units, and Members stressed the importance of a database to keep track of those who had government houses and were remaining in them for the requisite periods of time. Members also wanted to know why consultations with communities appeared to be limited to construction periods only, and raised the question of whether the Department was acting as price maker for contractors. Members asked for an explanation of the collusion and corruption referred to in the presentation, and suggested that inspections needed to be tightened. More clarity was requested on the categories of housing, and where the budget for title deeds was to be found, as well as the level of cooperation with other departments.
 

Meeting report

Appropriation Bill 2015: Implications for the Department of Human Settlements (DHS)
Mr Thabane Zulu, Director General, Department of Human Settlements, noted that he would comment on the implications of the 2015 appropriation bill and budget and brief the Committee on the Annual Performance Plan of the Department of Human Settlements (DHS or the Department).

He noted that the Strategic Plan for 2014 - 2019 called upon the Department to prioritise delivery of 1.460 million housing opportunities, which must act as a catalyst for radical transformation in the country. The focus would be on mega projects of integrated housing mix for different income levels and needs, to target unemployment, inequality and poverty. This Department was also part of the Outcome 8 Delivery Agreement which aimed to improve the institutional capacity and co-ordination for better spatial targeting and provide adequate housing. The Department was building a better working relationship with banks in order to unlock the potential of housing funds.

The targets consisted of 750 000 households in informal settlements, 563 000 individual units for the subsidy market, 110 000 loan houses and 27 000 social houses. 2 200 informal settlements would be assessed. The Department was putting steps in place to eliminate the 900 000 title deeds backlog. 50 catalytic projects would be implemented. He said that 563 000 title deeds will be issued to new homeowners. The DHS was also aiming to create 5 000 housing units for military veterans.  Another goal was that 30% of the housing opportunities were to be delivered by women contractors. The main challenge revolved around the budget, which had seen a reduction from National Treasury.

Mr Neville Chainee, Deputy Director General: Strategic Planning, DHS, stated that the total cost for the 1.460 million houses was R130 billion, with an annual cost of R26 billion, and an annual number of houses of 291 781. The Department had also targeted getting a clean audit certificate. He explained that the DHS was monitoring and evaluating projects by overseeing the  financial and non-financial performance of the public entities on a quarterly basis. The Department conducted administrative and project visits of public entities to discuss challenges and verify information.

The National and Provincial Human Settlement Grant Plans were aligned with the National Business Plans. The Department was holding quarterly performance reviews. All municipal plans were aligned with the Integrated Development Plans of the relevant municipality. There was also a monthly interrogation of the data, to ensure performance and compliance.

He explained that the new building regulations introduced in 2011 determined that houses had to be installed with ceilings and isolation material, inside walls were to be plastered and outside walls finished off smoothly, which increased the cost of the houses by R16 000.The subsidy quantum of R160 573 per house was to remain unchanged in 2015/2016.

He noted that South Africa’s urban population is currently calculated at 59.3% and will grow to 79.6% by 2030 or up to 7.8 million people. This will put a huge strain on services and houses. There were already a number of programmes aimed at providing sustainable livelihoods. The Department would implement a partnership process with various metros to revitalise inner cities, and the Minister of Human Settlements was in discussion with metropolitan mayors around this topic. Unused buildings would be expropriated and assigned for the purposes of social housing.

Mr Nyameko Mbengo, Acting Chief Financial Officer, Department of Human Settlements, stated that the Department’s baseline for 2014/2015 was R103 billion. After allocations, the revised baseline was R99 billion. The increases in allocation amounted to R711 million, but the reduction finally was R4.7 billion. The net impact was an overall reduction in the budget for the Department, of R4 billion. The highest allocation per programme went to Housing Development Finance programme, which took up R97 billion.  Within this category, grants of R92 billion were being assigned. Compensation for employees was assigned R1 billion. Gauteng and KZN would see the majority of the Human Settlement Development Grant (HSDG), which came to R21 billion overall. The Urban Settlements Development Grant (USDG) gets R10 billion and the Municipal Human Settlements Capacity Grant gets R100 million.

He repeated that the Department's budget allocation was negatively impacted upon by National Treasury due to the economic downturn. The total allocation to the Department for 2015/16 was R30.9 billion, a decrease of R1.9 billion from the previous baseline of R32.8 billion. The operational budget was 2% of the capital allocation. The Human Settlements Grant made up 93% of the allocation. The overall impact was a R2.1 billion reduction in grant allocation, R722 million reduction on transfer to other entities, R289 million reduction in operational budget, and a further R1.6 billion reduction due to the transfer of sanitation to the Department of Water and Sanitation.

He noted that the Department had engaged in cost-cutting exercises. Travel costs were being scrutinised so that officials travelled using bulk transport and co-ordinated lifts, and all requests for approval were being scrutinised by managers. The use of consultants had been limited. There had been a reduction in stationery costs through electronic communication, lights would be switched off between 6pm and 6am every day to save electricity, and advertising of posts below level 13 were being done in the free government circular.

Discussion
Mr A Shaik Emam (NFP) stated that he thought that the intention to achieve a mix of different income houses was commendable. He then queried what the actual cost of an RDP house was and asked what the Department had achieved so far. He commented that there were still too many names on the waiting list for houses, and the Government could not manage to build for everyone, so asked what the Department was doing to help people qualify for finance. He wondered what the requirements were to qualify for an RDP house. He also asked the Department to specify what the requirements were for a person to qualify to get an RDP house, and questioned why there were no recreational facilities at these sites. He questioned whether the country was "losing the battle on rural development". He wondered if the Department would be able to take away the budget for provinces if they did not achieve, or were not performing. He commented that consultants were often over-pricing their services and did not deliver and there were instances where they were colluding with contractors.

Ms R Nyalungu (ANC) asked what the Department was doing about RDP houses that were being sold rather than lived in. She also asked what management was being put in place in the provinces.

Mr N Gcwabaza (ANC) queried the upgrading of hostels into family units, and wanted to know if there was a special location for this project? He also questioned if there was any database keeping track of who had a government house? The allocation and record of houses needed to be kept, to prevent people from selling these houses on whilst the original owners would move to shacks again and then demand another house. He asked for clarity on why KwaZulu Natal and Gauteng were getting the majority of the funding for grants.

Mr M Figg (DA) asked about the allocation for houses, and asked whether the Department would look at whether the properties were situated next to high cost houses. He asked why consultation with communities was taking place only during the construction period. He asked for more detail on the R100 million redirection of funds. He noted concerns about the  "price-maker" for contractors.

Ms S Shope-Sithole (ANC) stated that although she appreciated the economic reasons behind having several Departmental officials travelling together, this could also raise concerns if they were involved in accidents and stressed the need for bulk transport to be arranged with qualified drivers.

Dr C Madlopha (ANC) asked what savings had been achieved by the Department no longer using so many consultants, and asked whether, when the Department did use consultants, there was a requirement for transfer of skills. She commented that instances of under-spending were due to vacancies, and this was not helpful for the high unemployment rate in the country. She also noted that another reason for under-spending was cited as invoices  not being submitted on time, but asked what the Department was doing to address this. She asked for an explanation on the difference between the "collusion" and "corruption" cited in the presentation. She also noted that the area of inspection of houses needed to be tightened.

Mr A McLoughlin (DA) queried what was meant by the upgrading of 750 000 houses, and also asked for an explanation of what was meant by social houses. He asked for an explanation of the acronym for the CRU. He asked where the money was budgeted for providing the title deeds, and wanted to know what monitoring was being done on this process. He asked what the Governor Mbeki awards were given for? Commenting that water and sanitation functions were being shifted to the Department of Water and Sanitation, he noted the potential for slowing the whole process down and wanted to know if there was proper synergy between the two departments. He asked what the real impact in number terms was of the cost-savings mentioned. He also asked if houses were being built to the right size specifications, and whether the Department had any inspectors checking that houses were the right size, and used the right numbers of bricks.

The Chairperson noted that the Committee faced time constraints and asked that the questions be responded to in writing if they could not be fully addressed in the meeting. He suggested that the Committee should support the request for an additional R100 million for capacity in monitoring and inspection.

Mr Zulu replied that the DHS was using a monitoring structure to make sure the provinces were meeting targets, and that he met with the Heads of Provincial Departments regularly to make sure the provinces were performing. The Department had a clause whereby it could step in if things were out of control. The DHS had also entered in contract arrangements with banks and it was monitoring the way banks allocated their housing finance. The Department was looking at improving rural areas. The issue of consultants was very tricky; whilst the DHS had managed to reduce its use of consultants, the fact remained that some assessments were very technical and short-term in nature, and it made more sense to ask consultants to deal with these issues. He noted the comments on the housing waiting list but said that it was held at municipal level. The Department provided guidance to the municipalities. The priority candidates were the elderly, disabled and sole-headed households. The Department had put in an effective monitoring system.

Mr Zulu commented that he would address the under spending and questions about the hostels in writing.

He commented that the key issue in all the questions asked came back to monitoring. The Department was getting involved in this heavily, by requesting greater capacity. Integration was also at the centre of everything the Department was doing, and he reiterated that it saw rural areas as a priority. He commented that an RDP house owner was permitted to sell the property after eight years but Government had the first right of refusal in buying back that house.

Mr Mbulelo Tshangana, Chief Operations Officer, Department of Human Settlements, stated that the actual house itself cost R110 000 to erect, but when all other services were included this brought the cost up to R160 000 per house. He knew that the Eastern Cape and KwaZulu Natal had achieved their housing targets for the year, but the rest of the numbers would be revealed in July. The Department always tried to densify the recreational facilities, and often supplied these facilities with the houses. For all new houses, there was a requirement that the toilet had to be inside the house. In addition, all houses must have services available before they were able to be handed over to people. It took 36 months to plan for a housing project. The Department was trying to be a price maker, not a taker, and was using a board of professional services. The economy was not performing, which was holding back the home loan process more than the banks.

Mr Chainee responded that the Department was looking to correct provinces rather than punish them. The issues in South Johannesburg had been looked at and addressed.

The meeting was adjourned. 

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