Department’s Annual Report briefing: Programme 5 & Inclusionary Housing Policy

HOUSING PORTFOLIO COMITTEE
31 October 2007
DEPARTMENT’S ANNUAL REPORT BRIEFING: PROGRAMME 5 & INCLUSIONARY HOUSING POLICY

Chairperson: Ms Z Kota (ANC)

Documents handed out:
Draft framework for Inclusionary Housing Policy & Programme 5: Housing Development Fund Presentation
Draft framework for the Inclusionary Housing Policy

Not Recorded

SUMMARY
The Department of Housing presented the last of the Programme presentations on the Annual Report briefing. Programme 5 was intended to fund National Housing and Human Settlement Programmes in terms of the Housing Act (1997). The Social Housing programme had been introduced. Fund Management would issue the payments and the Integrated Housing and Human Settlement Development Grant (IHHSD) reflected the conditional grant allocation that was transferred to provinces. The private loans and interest payments on liabilities that were held by the National Housing Development Board and the South African Housing Trust were all transferred to National Treasury. The Programme accounted for the bulk of the Department’s expenditure as it channelled the funds for providing housing and integrated settlements. Overall the provinces had spent 95% of the funds allocated. The levels of rollovers. Forward planning on the housing projects was achieved, and the Department reminded the Committee that these were multi-year projects. As the grants increased the number of housing developments would also increase.

Members raised questions on the process of the units, on what was classed as work in progress, and whether allocations were still being given when there had been problems in spending. Members enquired how the Department monitored, whether the blocked projects were included in the figures, why extra funds were allocated in the adjustment budget, when spending had been poor. The discrepancy between the subsidies approved and the units completed was questioned, and the Members were worried that there seemed to be lack of correlation between the numbers of houses built, the number of projects, and the funding, as also whether funds would be transferred on approval, despite the fact that the project might not be started or completed in that year. The specific problems in the Eastern Cape were outlined and it was pointed out that capacity in the provinces needed to be addressed.

The Department of Housing then briefed the Committee on the draft framework for the Inclusionary Housing Policy (IHP). The context, a historical background and the reasons for the housing plan were set out. The drive would be toward a single and efficient formal housing sector. It aimed to achieve integration and provide accommodation opportunities closer to work. The key principles and implications were presented and the policy framework was discussed. Progress to date was outlined. Members asked questions on subsidised houses, density bonuses, when the legislation would be tabled in Parliament, and sought clarification on the percentages in the IHP. Further questions were raised about the pilot projects, and the process for those developers that wanted to include inclusionary housing in their projects. The minimum number of units, the income band, the identification of beneficiaries, and the minimum percentages were also raised. The Committee believed that there should be engagement with the Department of Trade and Industry. It would be advisable to have a workshop on the process so that the Committee could engage with the Department.

MINUTES
Annual Report 2006/07 Briefing of Department of Housing: Presentation on Programme 5
Mr Mziwonke Dlabantu, Deputy Director General, National Department of Housing (DOH), continued with the briefing to the Committee, starting with Programme 5. He explained that the purpose of Programme 5 was to fund National Housing and Human Settlement Programmes in terms of the Housing Act (1997). The objective was to ensure that expenditure by the provinces and municipalities, on integrated housing and human settlement development grants, achieved the National Policy Priorities and Annual Housing Delivery commitments, as defined in provincial strategic plans. It further ensured that there was compliance with the Public Finance Management Act (PFMA) and the Division of Revenue Act (DORA) requirements.

The Social Housing programme had been introduced. Fund Management would issue the payments and the Integrated Housing and Human Settlement Development Grant (IHHSD) reflected the conditional grant allocation that was transferred to provinces. The private loans and interest payments on liabilities that were held by the National Housing Development Board and the South African Housing Trust were all transferred to National Treasury.

The Housing Development Funding Programme accounted for the bulk of the Department’s expenditure as it channelled the funds for providing housing and integrated settlements. This resulted in the programme consisting exclusively of transfers, particularly through the IHHSD Grant sub-programme. A budget of R6,349 billion was allocated.

Overall the provinces had spent 95% of the funds allocated. The levels of rollovers were reduced from 375 to 119. The Eastern Cape spent 84% of their allocated funding and Western Cape spent 77% due to the timing of the floods in the area. Funds were withheld from the Eastern Cape and Mpumalanga.

Mr Dlabantu said that forward planning on the housing projects was achieved. 494 projects across the country from this year and 221 projects from the previous years were approved. 521 projects were approved since 1991. In some years many projects were approved but it must be remembered that the Department were multi-year projects. There would be a time lapse and the effect of the spending would probably only be three years from the allocation date. Those projects approved would be implemented over a three-year period. There was a substantial growth on the grant over the next two years so not many new projects would be approved.

The increase in housing developments had been on an upward sliding scale and as the grants increased the number of housing developments would also increase.

Discussion
The Chairperson stated that that was the last portion of the presentation of the previous week.

Mr D Mabena (ANC) asked if the housing units and those in process of completion included the slabs.

Mr Dlabantu replied that a project was recognised as in progress after the slabs have been laid. Some would include the incomplete and blocked projects that had had the slabs laid already. A lot of the blocked projects had not yet reached the stage of having slabs laid. A blocked project was categorised differently when it as recognised that there was a house in construction after the slab had been completed. A number of the historical projects were still stuck as blocked projects and were incomplete.

Mr Mabena asked about the total number of subsidies approved and whether the Department was approving subsidies on top of the output hiccups in the Eastern Cape (EC).

Mr Dlabantu replied that in order for the EC to improve on their spending, notwithstanding the quality issues, an assessment needed to be kept of what was there, especially in the cases where houses needed to be rectified or demolished. The right processes must be followed so that those who had caused the quality problems were held to account. the Department would continue to look forward in approvals, so that it did not fall behind in the process and then cause them to under perform.

Mr A Steyn (DA) asked whether provinces, on the measurable objectives, would inform the Department or if the Department did their own accounting, to ensure that it was measured.

Mr Dlabantu replied that in the past, and currently, the Department had not been tracking all the projects in the provinces. The Department was building up some of the monitoring capacity frameworks and the provinces had project managers and inspectors who did certification processes for progress made. Not all the provinces had been done but projects were inspected on a sample basis. Some results were good and some were bad. Some of the bad projects had been noted in the current year, and the DG had already issued instructions to have these demolished or rectified in line with the current processes.

Mr Steyn asked about the units completed and units in the process of completion in the total figure of R2,3 billion and whether the blocked projects were included in the figure or not.

Mr Dlabantu replied that the units that were accounted for were the number of planned units in which delivery was expected in the future, as the Department recognised part of the projects that had been approved. The Department would also account for the difference of what had been delivered as opposed to what was in the pipeline for delivery. There was a catch up of projects, and the increase in this was tied in with the blocked projects. The gap and the time lapse between approvals and actual delivery could create a problem.

Mr Steyn asked why R380 million was given to the Western Cape in the adjustment budget, when their spending had been so poor. If a Department motivated for additional money then it should have plans to spend that money. He asked why the additional funds in the Western Cape had not been spent.

Mr Dlabantu replied that the province did not transfer any money where the work was not done, but kept the money in the provincial accounts in order to ensure that the projects that had already been committed would be ready for transfer when the projects would take place. This was a cash issue rather than a commitment issue.

Mr Steyn asked about the discrepancy between the subsidies approved and the units completed. The Department had not given the Committee much information. If the figures were correct 266 000 were approved but only 217 000 were built. There were 100 000 houses that should have been built or were under construction, but these subsidies had not been approved as yet therefore the Department should have surplus houses.

Mr Dlabantu replied that at the time of allocation the provinces had started to deal with some of those issues. In respect of the N2 Gateway Housing project the Department had been working on the year projections and reviewing the projections with the projects as progress had been achieved. The Department had to recognise that contracts had to be signed and entered into. Once agreement had been reached with National Treasury, there had been an appropriation in November and the first funds came in December of that year. In addition the Director General was dealing with the issue of land agreements and other things that contributed to it.

Mr Steyn asked why there was no correlation between the numbers of houses built relative to the number of projects. It was understood that some projects had 50 houses and others 5 000 houses; however it appeared that there was no correlation between those numbers at all.

Mr Dlabantu replied that there was no correlation between approved projects and deliveries. There was a lag and this partly represented the future delivery and partly some of the blocked projects that were not counted into the statistics. Those that had not reached the stage according to the Department’s definition were not in the delivery figures. The Department would account for the figures and the increase would be more, as it would include the blocked projects.

Mr G Schneemann (ANC) asked about the projects approved in 2006/7, which were listed as 494. He asked who would track the project from the time it was approved until the time the money was transferred and then to the actual completion of the project.

Mr Dlabantu replied that the Department would keep tabs of the approvals made by the provinces, in line with the planning that the Department had put forward. If the province had approved of a project usually the actual delivery was not in the year in which the approval was made. The Department was working on tracking what the likely year of delivery would be after the project had been approved.

Mr Dlabantu added that in the EC there was a need for this province to improve the spending. There were also some quality issues and a need to keep stock of what was there, and in some cases the houses needed to be demolished or rectified. The correct process needed to be followed so that those who caused the quality problems would be held to account for them. The EC also needed to look forward to deliveries and not have a time lapse again and under performance.

Mr Schneemann asked if the 494 projects complied with the specifications as set out by the DG of Housing.

Ms N Ngele (ANC) stated that theorising did not help, and believed that the Committee should go and see. She was concerned that the Department was talking of the same issues at every meeting. There were many questions about monitoring and this was a serious thing. She said that there did not seem to be inspectors. Project managers may be there but the problem was that the projects were built in stages, and kept on being blocked and unblocked and blocked again. A site visit would show that no progress had occurred.

Mr Steyn was not satisfied and asked would the money be transferred on approval, irrespective of whether the project was to start in the current or the following year. He asked if the amount would come from this year’s budget. In the past the Department had been claiming 95-98% expenditure but the reality was that the Committee did not actually know the outcomes from the money that had been spent. He asked if the Department would follow up on the money, as there had been cases where the money had been dumped. It would be transferred from a National Department to a provincial department, and from there the province would transfer to a municipality without seeing the outcomes, so that at the end of day the report showed spending, but there was not necessarily a correlation to achievement.

Mr Steyn stated that 20 projects in the EC were approved in 2006/07 and three were approved the year before that. He wondered why, in a province with capacity problems, the Department would issue more projects. The capacity in the provinces needed to be addressed.

Mr Schneemann asked about the additional R110 million that was allocated for the implementation of the social housing policy, and asked if that money was used. This was related to the statement that there was a problem in the spending of funds, due to the timing of the medium term policy statement and the adjustment appropriation of last year.

Mr Schneemann asked also about the issue of monitoring and the fact that unless the Department was being constantly updated on the status of the projects, no amount of money would help. A schedule was needed that would tell the Committee where the projects were. On a quarterly basis, an updated list of the projects would be helpful.

Mr Schneemann asked about the Western Cape (WC), noting that some monies were not spent and yet more money was allocated.

Mr Dlabantu responded generally to these questions. Regarding the issue of under spending: he stated that two allocations were made in the adjustment estimates, largely for the Western Cape Province and North West Province. In the Western Cape the allocations related to the N2 Housing project and to emergency housing for those municipalities that had experienced floods.

He noted that the inspections were undertaken by the National Home Builders Registration Council (NHBRC) because it was in its interest to ensure that the quality was inspected at delivery, so that the Department could ensure that the warranty was not exposed to the obvious risk of loss. All projects that had been implemented in the current year have put a lot of pressure on them as they were forced to register the projects.

The Chairperson stated that there needed to be a joint effort on a National level in monitoring and co-ordinating. Alignment needed to be reached with the NHBRC and each province needed to ensure that the Department had the capacity for the monitoring.

Mr Dlabantu stated that interventions were being made in the provinces to include monitoring and to categorise the provinces. The EC was a priority area. A presentation was being done before Cabinet as the Department was equally concerned about the performance of provinces. There were three interventions. Project managers were to work with the provinces and deal with the blockages experienced. Auditors would check the issues that the members had raised, including those municipalities that had money in the trust accounts but where nothing had yet been done. There would also be examination of pre-2000 data and other data gathered, to clear the inconsistencies.

The Department was also increasing its capacity to monitor. The issues of capacity were critical for all institutions because the country was experiencing a boom in the building environment. The public and private sectors in the building industry were competing and this was also a challenge. There was a shortage of the hard skills that were required. Engineers were being lost to the private sector and there were many skills gaps. The Department was trying to ensure that the houses built were quality houses. There was work that was being done and the Department was willing to share the information on the blocked projects.

Presentation on the Draft Framework for an Inclusionary Housing Policy
Ms Julie Bayat, Acting Chief Director, National Department of Housing, stated that this presentation would provide information with regard to the draft framework for the Inclusionary Housing Policy (IHP).

The context of the IHP was presented, including past and present dispensations with regard to housing. Changing settlement patterns and trends had contributed to the need for a housing plan. The mandate was presented with regard to providing accelerated housing delivery. It was noted that the drive would be toward a single and efficient formal housing sector. International research on IHP was presented. The objectives for the SA IHP were to achieve integration and provide accommodation opportunities closer to work, for previously excluded areas and for the lower to middle income households. The key principles and implications were presented and the policy framework was discussed.

The qualification and subsidy mechanisms were set out in the documents and the essence of the draft policy was set out. The Voluntary Pro-Active Deal-driven Approach (VPADD) was outlined, and this included the Town Planning Compliant (TPC) approach that was discussed in more detail. The issues that were covered in the framework were discussed and this also included the architecture on both the National and Provincial levels.

The progress to date was outlined more fully in the presentation.

Discussion
Mr Schneemann asked for clarification on the subsidised houses from R60 000.

Ms Bayat replied that that the current subsidy was R39 000 and the value of the services was between R15 000 to R17 000. Together with the subsidy variation it would come to about R60 000 and this was how the figure was arrived at.

Mr Schneemann asked for clarification on density bonuses and what this would actually mean.

Ms Bayat replied that with regard to the density bonuses the private sector needed to assist the DOH to densify the cities, and that there would be better use of the infrastructure. Exactly how the bonuses would work still needed to be worked out, and implementation guidelines would be discussed, and the qualifications for a density bonus and allocations would also need to be worked out.

Mr Schneemann asked when the legislation regarding the IHP would be tabled in Parliament.

Mr Schneemann also asked for clarification on the percentages in the IHP.

Ms Bayat replied that with regard to the percentages, a range of 20%-60% of every project was set. That was discussed at MinMEC, which had been very clear that a bottom line and a maximum were needed for any new housing projects, and thus these figures were set. Appropriate land use must be taken into account on government land that was in a suitable area. Voluntary inclusion of the IHP principles in the new development would be particularly encouraged. A provision would be made for those people who would want to sub-divide their land, so that the government would specify inclusionary housing in the sub-division of the land.

Mr Schneemann asked whether the policies had been finalised and what role the Committee would be playing in that.

Ms Bayat replied that the process was already being put into place and that the principles around the policies needed to be in place first. The role players also needed to be comfortable with what had been put forward in the policies, and therefore the legislative process would be easier to follow through if it was based on established principles. The process was in place and the issues that had been coming out in the discussions with the various role-players were being incorporated. The current policy was not the final policy as it was still in a draft format.

Mr Schneemann asked about the pilot projects that were already being undertaken and asked where the Department was in this regard. If the policies were already in place, he asked how were the projects being undertaken.

Ms Bayat replied that there were pilot projects in Gauteng, KwaZulu Natal and Western Cape. Before the policy had been finalised the private sector had stated that the Department was looking to use projects of this nature.

Mr Schneemann asked how the Committee would guide people that were already wanting to action inclusionary housing into their projects.

Ms Bayat replied that in the absence of a final policy those people needed to engage with the Department to establish how to go forward in the right direction.

Mr Steyn asked about the number of units that the IHP would apply to, and why three units was the minimum when in the international arena five to ten units was the normal amount.

Ms Bayat replied that the number of minimum units was negotiated and agreed on with the relevant role-players. An example was given of a sub-divided lot. Some people would receive land, but the government should apply the rest of the benefit to inclusionary housing.

Mr Steyn asked about the income band of R3001-R7000. This had applied when the process started in 2005 and he asked if it was possible that this amount would be adjusted to a higher amount. He also asked about the subsidy to the units and asked if the subsidy value would vary according to the unit value.

Ms Bayat replied that the reason for retaining that income band was because it was also the income band in which households qualified for the link subsidy. There was a need to maintain consistency in the subsidies currently offered, along with the legislation that would soon be proposed. The lower the income of the household, the higher would be the subsidy would be higher and this would be paid towards the deposit on the mortgage bond and would assist the household.

Mr Steyn asked how the beneficiaries would be identified and if there would be a list drawn up.

Ms Bayat replied that there was no waiting list at present. The Financial Link Subsidy would work through the application being made to the financial institution, and it would be taken from there. The Department was discussing a communication strategy with the banks, to enable effective communication between the banks and the beneficiaries.

Mr Steyn asked about the minimum percentage for the Voluntary Pro-Active Deal Driven (VPADD) housing schemes as only a maximum amount was mentioned.

Ms Bayat replied that the percentages were the same as those of the 20% -60% housing schemes.

The Chairperson commented that the Department would also have to engage with the Department of Trade and Industry as it involved property, and that the rent market needed to be taken into account so that the Department would also buy into the IHP strategy.

Ms Bayat replied that the Department had as yet not engaged with the Department of Trade and Industry with regard to people in the rental sector. However, it had engaged very heavily with the South African Property Owners Association (SAPOA) and the social cluster.

Mr Steyn asked about the income band and affordability in the band, and wondered whether the housing would be affordable for those people that were trying to be included.

Mr Leshabane; Deputy Director General, Policy Issues, DOH, replied that the adjustment of the income bands would need to be explored as it had come up a number of times before. The approach to be taken would also need to be discussed, either from an affordability side or from the point of view that the lowest or highest figures of the income band might need to be adjusted.

Mr Schneemann asked for a definite time frame to be given for the legislation to be tabled to parliament.

Mr Leshabane replied that the Department was determined to have the legislative process concluded in the coming financial year. Until Cabinet had confirmed no definite time line could be given. There had been different practices on the town planning control front, and different cities have been managing the IHP in a different way. These differences needed to be aligned through legislative means so that there would be a common objective.

Mr Schneemann commented that the briefing was insufficient at this point and a more comprehensive briefing of the concept should be given to parliament fairly soon. Other international examples could be given and questions asked about the IHP.

The Chairperson replied that the DDG had not given the Committee a direct answer with regard to the legislation. This legislation was long overdue and the housing industry was ready for the change. However if the momentum was not used it would be lost. This needed to be regulated and it would be advisable to have a workshop on the process so that the Committee could engage with the Department.

Mr Dlabantu replied that the Department had just concluded a consultation with the Provinces on this issue as directed by MinMEC. The Department was working towards briefing the Social Cluster and Cabinet on the IHP in this month. Preliminary thoughts had already been done on the legislation, and the Department was anxious to have this piece of legislation approved early in 2009. Different angles had also been explored to legislate this change, but legislation itself seemed to be the best angle. The Department was working towards this government approving the legislation.

The Chairperson stated that it was all agreed that there would be a further briefing on the IHP, and the process would be taken between the Department and the Committee through the programme of parliament.

The meeting was adjourned.