Affordable Housing Institute : US

From South Africa, courtesy of the New York Times, comes a story illustrating how bankable frontiers advance:  

Sellers’ markets are nothing new in South Africa, where demand for real estate — and the rise in prices — has been more robust this decade than almost anywhere. But until now the boom was largely confined to middle- and upper-class homes.

 

Now there are hints that it is spreading to an unlikely venue: townships, the ready-made slums erected by South Africa’s former apartheid rulers to separate black and mixed-race citizens from whites.

 

Brief editorial complaint: to call townships ‘ready-made slums’ is actually a calumny; while there’s no doubt that the townships were ready-made ghettos — legally and physically segregated from the rest of South Africa — I believe they were not intended to be slums, as evidenced by photographs both past and present:

 

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Soweto, circa 1950, as built (from the Apartheid Museum)

 

Soweto today from above — notice the careful layout, reminiscent of Levittown and public housing.

 

As with American public housing, they were constructed, with the best of noblesse oblige intentions, to be an upgrade over their residents’ previous accommodations.

 

Let zem buy condoz!

 

Having been sited in isolation, and lacking any semblance of an urban residential ecosystem, they became slums, the faster as the South African population and economy both grew.  They were also starved of capital, by deliberate racist policies of the old apartheid government.  The result was a frozen market that trapped its aspirants:

 

In townships, where unemployment can reach into the middle double-digits, poor residents often find they cannot earn nearly enough selling their old homes to make the jump to the next real-estate bracket.

 

Whereas in developed nations zoning is destiny, anywhere in the urban world building configurations are a neighborhood’s skeleton.  With the dawning of true democracy in 1994, South Africa stands on the threshold of an economic boom, part of which must be the raising to wealth of its black middle and entrepreneurial classes:

 

Urban townships have something else in their favor: among the nation’s rising black middle class, they are becoming preferred places to live, especially as shopping and other services take root.  In short, they are becoming hip.

 

I wouldn’t go that far.  The South African townships I’ve visited typically showed four distinct levels of development:

 

Robertson, Western Cape, multiple types of property in submarket clusters 

Townships: levels of development

 

1.       All-but-formal.  A new construction professionally built home, sometimes of multiple stories, usually on a concrete slab, with nothing but its location to signal its township heritage, with power, water, and paved streets.  Always owned.  Winnie Mandela lives on such a street.

2.       Apartheid-plus.  Originally an apartheid-era small structure (often 40 m²), since modified and expanded.  Like Group 1 except smaller and older.  Usually owned.

3.       Self-built incremental.  A one- or two-room structure, self-built or self-improved, possibly a subdivision in a larger yard (often of an apartheid-plus home).  May have electricity, usually lacks running water.  Usually rented by a nearby (often on-site) landlord.

4.       Scavenged.  A self-built structure made from materials scavenged in the neighborhood; seldom more than one room, no facilities.

 

Group 1: new construction houses in a township outside Franschoek, Western Cape

 

In 1994, after South Africa shed apartheid rule, “the main goal was to get out of the townships,” [AHI’s Kecia Rust] said, “and the people who managed to do that found themselves in neighborhoods that functioned quite differently, and socially were difficult.  So they moved back. That could be what’s happening here.”

 

Group 2: apartheid-plus, matchbox house in Soweto

 

This is a common cycle of rebirth; when ghettos become incubators of urban entrepreneurs, the first stirrings of indigenous wealth creation are always found in residential neighborhoods:

 

A recent survey by FNB Bank of South Africa concluded that for every township home put up for sale, there are 7 potential buyers in Johannesburg, 8 in Cape Town and 16 in Durban. Few homes come to market. In most townships the idea of selling one’s home is still a novelty because most have traditionally been handed down to family members.

 

Group 3: rural self-build in KwaZulu Natal

 

The novelty is one part cultural, nine parts economic, as AHI’s Kecia Rust instructs the Times:

 

“The secondary market — the resale market in townships — is dysfunctional,” said Kecia Rust, an expert on housing for the FinMark Trust, an organization [and AHI client — Ed.] financed by the British government to help the poor gain access to financial services.

 

That said, Ms. Rust has been besieged by investors looking into the township real-estate market, partly, perhaps, because South Africa’s upper-crust market, where prices have risen as much as 35% a year since 2000, has begun to tail off.

 

That boom was fueled by South Africa’s dazzling beauty, stable economy and fire-sale prices. Now that those prices are reaching their potential, investors are seeking the next bargain.

 

The bankability frontier always moves slowly downward.

 

Bankers are always nervous descending the bankability pyramid.

 

Some find it at the other end of the income spectrum.

 

The ‘other end’?  Now, now, New York Times, this is still the top 10% of black South African incomes, the natural place for hesitant bank entry:

 

Spurred by government pressure — and the profit motive — South Africa’s four big banks are entering the low-income market in earnest, offering home-loan packages for poor households and financing malls and other retail ventures in long-ignored areas.

 

Are the banks entering the market?  On her AHI blog, Kecia herself is more skeptical.

The Banking Association has recently argued in the press and in presentations that a key reason for the low delivery of mortgage loans in the FSC target market is low levels of housing supply.  This is indeed a real problem (for a summary of the analysis, see the presentation Matthew Nell made recently at the FinMark Forum, or visit the BASA website for the full documents).  However, Illana Melzer’s paper shows that even if there were enough houses, at least 73% of households in the target market would not qualify for a mortgage – which begs the question, what is the target in the target market?

 

Hey, we’re trying!

 

Who is entering the market are the originators and realtors:

 

But not for long. In the last 18 months, two of South Africa’s biggest real-estate firms have moved into major townships, and it is not hard to see why.

 

Lowering the banking frontier is partly an exercise in perception.  The right brain emotionally sees only haphazard structures:

 

The Tafelsig neighborhood, home to the house at 21 Jonkerhoek St., is by comparison a bit dumpy: stark and grassless, it is distinguished mostly by ill-clad toddlers on plastic tricycles and a shantytown nearby. Gangs with names like $exy Boys rule some streets.

 

That’s easy for you to say!

 

The left brain computes a wealth possibility:

 

Its tattered state aside, Jonkerhoek is a quiet lane. Crime is low. “You can’t leave the property vacant, because you get these naughty guys who move in, take over,” Mr. Renquest, the agent for Jonkerhoek, said disapprovingly. “But you’ll have more people who want to buy in an area like this, because prices are better.”

 

An upmarket agency recently found a buyer for this tin-roofed fixer-upper near Cape Town for $21,000.

 

Perception applies multiply; not just the seller who lives there, but also the buyer who wants to move there, and the banker who lends the buyer its mortgage.  Nothing changes right brain minds like an observant stampeding herd:

 

MITCHELL’S PLAIN, South Africa, June 2 — 21 Jonkerhoek was just snapped up for 140,000 Rand, or about $21,000. “Ten or 15 people were interested in buying it,” said Glenn Renquest, the agent. “Even when the deal was done, people still called in.”

 

Where the market demand leads, the private sector follows. 

 

We’re following you!

 

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