The how, who, what and where of inclusionary housing

Private developments with inclusionary housing units are coming to the Western Cape. This is the result of a policy intervention that’s relatively new to the province and SA, and there may be a lot of questions about how it works, who will benefit, and where inclusionary housing developments will be. We encourage all to read the draft Western Cape Inclusionary Housing Policy Framework for more detail because we all need to be ready to embrace this innovative spatial justice tool.

A common misconception is that inclusionary housing is a state housing delivery tool. It is actually a planning and land use mechanism municipalities can implement to oblige private developers to provide affordable housing at below market rates in new residential or mixed-use developments. What is the difference? The government administers state-assisted housing programmes whereas inclusionary housing units will be in private developments. So the private sector has to shoulder a government obligation? No, not exactly.

A local municipality has the legal responsibility to manage zoning schemes for its area in a way that promotes social inclusion and spatial justice. This is not a shift in constitutional responsibility — from state to private sector — but rather the introduction of an innovative way to mitigate against an unhealthy pattern of exclusionary development that keeps or pushes working-class people out of well-located economic nodes. This is a lawful and justifiable management of land markets to achieve spatial justice. In any event, if you still think private property absolves owners from public interest regulation, then you are living in the dark ages. 

Who will benefit?

Once we all accept that spatial redistribution is necessary in our towns and cities, the next set of questions are practical. What is “affordable” housing? The inclusionary housing policy lays out that municipal inclusionary housing policies will aim to benefit households that earn between R3,500 and R22,000 monthly, although this may change depending on the specific demand and land market conditions in a municipality. Beneficiary households fall in the gap market — meaning they earn too much to qualify for state subsidies, but too little to afford a bond on the open market.

In Cape Town, gap households constitute 73% of the population, yet only 18% of residential properties fit into this segment. According to the inclusionary housing policy there is an oversupply of luxury, high-end and conventional homes, which together constitute 67% of the market (units valued at R600,000 — R1.2m and above). In this context it makes sense to introduce regulation to ensure that a portion of homes in high value areas are more accessible to a wider range of people. The gap market is also a significant area of demand for developers due to the high demand.

But it’s not just about income (class). Who benefits from the affordable homes that inclusionary housing will create is crucial. The racial and gender identity of beneficiaries also needs to be considered to ensure that marginalised groups have access to better opportunities. While the inclusionary housing policy provides some considerations for some diversity of people who will benefit, it fails to clearly articulate the need for inclusionary housing to be racially targeted to break down persistent apartheid segregation.

How will the ‘set aside requirement’ be calculated?

An inclusionary housing contribution can be calculated as a percentage of the additional land use rights sought in a mixed- use or residential planning application. The mechanics of this are as follows. Land use rights hold market value, which has little to do with an individual owner’s actions but rather collectively accrue due to other locational factors like proximity to schools, economic centres, transport networks, hospitals and good public urban infrastructure and state governance. Why should one developer benefit when the municipality grants approval for additional rights that unlocks market potential? A municipality can regulate land values in this sense because land has a social function that should serve the public interest.

This logic also has a spatial apartheid spin —  “Whites-only” areas during colonialism and apartheid benefited from favourable (racist) public investment and infrastructural development that continues to make these areas more valuable than areas on the outskirts of town reserved for black, coloured and Indian people. If the postapartheid pattern of land markets excludes and marginalises, the government should intervene to create social inclusion and ensure redress and spatial transformation.

The inclusionary housing policy also outlines how incentives for developers, such as increases in bulk, reduced parking rations and fast-tracking of applications, are an important tool to ensure that inclusionary housing is feasible and recommends that municipalities assess the options best suited to their context.

How will inclusionary housing be delivered?

Once the set-aside requirement is calculated, the inclusionary housing policy outlines three options for the form in which the developer delivers their contribution. They may choose to deliver on-site (as part of the same private development), off-site (on separate well-located land close to the original development — which could be privately secured or bought from the state), or as a fee in-lieu (a financial transfer to a ring-fenced municipal fund for affordable housing).

While these forms have pros and cons, the essential purpose of securing well-located affordable housing for households excluded from market-driven housing options must be borne in mind. For instance, land secured for the off-site option must be well located and developed simultaneously to the private development. The payment of fees must also benefit this purpose by, for example, upskilling municipal officials responsible for implementing the policy, or achieving deeper reach for lower income households to access existing social or affordable housing projects in well-located areas.

How will the management of these affordable homes work?

According to the inclusionary housing policy, the developer has some flexibility in terms of managing the inclusionary housing units. The units can either be retained by the developer and managed as rental homes or sold with a title deed condition restricting the resale to gap market households (those falling within the affordable housing bracket).

The inclusionary housing policy also recommends that a mix of sizes be used so a developer doesn’t just opt for micro-apartments. Ideally, these should benefit a range of family sizes with studio (25m²), one (35m²), two (48m²) and three (60m²) bedroom units on offer. Regardless of whether rented or sold, the inclusionary housing policy states affordability must be retained “over the long term” to prevent the units from being traded on the open market.

Whatever arrangement the developer opts for, the specifics of the inclusionary housing (number of units, income groups, and preservation in perpetuity) attach to the land. In legal parlance, these conditions are real rights, which means they bind successors in title, and can result in a penalty for non-compliance. 

In short, while the specifics of inclusionary housing are relatively new to SA, we all need to be ready for this innovative policy intervention. Inclusionary housing is one in a range of tools desperately needed to tackle our lingering legacy of apartheid cities and towns. In the next opinion piece, we explore some of the shortcomings of the policy and how it can be improved.

• Cogger is an attorney, and Park-Ross a researcher, at Ndifuna Ukwazi Law Centre. This is the second in a three-part series on inclusionary housing.