Cape Town de-risks affordable housing to attract private investment

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JEREMY MAGGS: This interview is brought to you by the City of Cape Town. I think it’s fair to say that Cape Town, like many other centres, does have a housing problem. But the city says government cannot build its way out of it alone.

It’s now making a more direct pitch to developers, to banks and investors to help turn city-owned land into affordable housing at scale.

Through its Housing Investment Connect, the city says it can de-risk land, lower development barriers and use public investment to make projects more attractive to private capital.

I’m going to talk now to Carl Pophaim, who is the City of Cape Town’s mayoral committee member for human settlements. Carl, welcome to you. Let’s get straight to it, why should private investors put their money into affordable housing in the city?

CARL POPHAIM: Thanks so much, Jeremy, and that’s an important question.

The reality is that over the last five years, the City of Cape Town administration has done more than in the preceding 15 years to accelerate access to affordable housing.

You’ve mentioned some of it, but it’s quite important, making sure we take to market and package de-risked ready-to-develop parcels of well-located land in order to make sure we not only redress apartheid spatial planning, but grow the Cape Town economy.

So we’ve released, since the inception of the Mayoral Priority Programme, just over R7 billion worth of city-owned land to the market, equating to a conservative 24 000 housing opportunities.

Of those, 9 000 are currently on their way to council [and] 4 000 are ready to be developed.

So the opportunity is great not just for us to have a social impact on Cape Town residents, but for developers and financiers to come and invest within this programme. We believe that, yes, it’s profitable, but more important, it’s going to make sure that Cape Town benefits at the end of the day.

JEREMY MAGGS: Let me push you a little bit on de-risking city-owned land.

Carl, what risk is the city actually taking off the shoulders of developers?

CARL POPHAIM: Absolutely. So all the processes around land use that are required for developments in terms of the zoning and so on – making sure that the viability of the property is studied, making sure that we take away any of the approvals required, [including at] environmental level – all of that is done before we take the site to market.

Essentially, what a developer simply needs to do is create a site development plan and submit building plans.

I think that takes at least 24 months out of a development period, and significant cost to professional service providers.

And we’ve borne those costs ourselves as city, through a dedicated affordable housing unit in the administration.

JEREMY MAGGS: Carl, tell me, how much land are we actually talking about here? And is there a genuine investment pipeline ready to go, or are you still trying to establish investor appetite?

CARL POPHAIM: Well, I was so proud of the Housing Investment Connect that we’re hosting.

We were able to attract R10 billion in capital within that venue, within that engagement, [with] FNB [First National Bank] already coming to the party to say that we are able to commit R4 billion.

So we are finalising negotiations to take that pledge to our pipeline and to our developers that have already been awarded. So I’m quite proud of that.

More importantly, as I’ve said earlier, our pipeline consists of 4 500 units that are already in the market, ready to develop, but a further 17 000 are on their way to council for approval.

So we are quite adamant that we cannot wait for national government or any other entity to come to the party with subsidies.

So in our innovative approach that we have undertaken with releasing our land at 90% discount, quite a critical point as well in terms of making sure there’s financial viability, we are now saying, how do we mitigate the risk of not getting subsidies or getting it on time, but bringing capital to this attractive programme.

JEREMY MAGGS: Carl, I think it would be useful to define the word affordable because it’s a term, and you’ll agree with me, that gets used very loosely sometimes. Affordable to whom, and at what monthly income? Have you worked out those numbers?

CARL POPHAIM: Oh, absolutely, and I think particularly in the space where there are so many different government subsidised housing programmes, there’s a bit of confusion around what is an affordable housing development.

So, quite simply, Jeremy, we’ve defined affordable housing as accessibility for individuals, particularly in Cape Town, earning a monthly income anywhere between R1 800 and R34 000.

So that allows us to scale rentals within these developments, typically at about a third of your monthly income. So in our affordable housing developments, we anticipate rentals up to R10 500 and below.

So that obviously considers Cape Town as a whole, next to other metros in South Africa, our existing economy, our existing affordability, as well as our employment figures. So that’s currently the model that the City of Cape Town works on.

JEREMY MAGGS: Carl, you’ll agree with me that private investors need a return. The public wants cheaper housing. As I talk to you, I wonder to myself if those two objectives are not fundamentally intentional.

CARL POPHAIM: As a city, we’ve shown that while it’s difficult within the country, historically it hasn’t been successfully achieved, it actually is possible.

It requires a metropolitan government to be intentional about what it wants to achieve.

It requires a metropolitan government to be thoughtful about committing resources and human capital to achieving it.

So through, one, the policy approval of council to discount land up to 90% state-owned municipal-owned land and, two, putting together a team of officials who can be dedicated to the de-risking of these sites to make it easier to develop.

But more importantly, thirdly, allocating our existing budget and grant funding to assist with bulk infrastructure, to assist with the development of social amenities.

That has certainly made sure that developers can profit from investing within our programme. But most importantly, the moral obligation of our city can be achieved to ensure access to affordable housing while growing the economy and getting jobs in every home within our city.

JEREMY MAGGS: Carl Pophaim is the City of Cape Town’s mayoral committee member for human settlements.

Brought to you by the City of Cape Town.

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