Social Housing Foundation Major Research and Findings 20082009

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Social Housing FoundationMajor Research and
Findings 2008-2009

• Presentation to the Parliamentary Portfolio
  Committee on Housing
• 26 August 2009

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Cost Benefit Analysis RDP vs Social Rental
Housing

• There is a great deal of focus on the
  short-medium term budgetary or public fiscal
  costs of housing development
• But what are real long term costs to government
  and society when we consider the broader
  economic, social and distributional impact of
  investing in various housing modes?
• This study compared the full range of costs and
  benefits of public investment in social rental
  housing with those of RDP housing.

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Purpose/objectives of the CBA

• The primary purpose of this assignment was to
  assess
• the costs benefit comparison of social rental
  housing versus RDP housing
• the broader economic and fiscal implications of
  both delivery models
• The primary objective was to assess the most
  appropriate direction for government housing
  investment given scarce resources and the policy
  priorities, i.e. the best spend of the last
  Rand.
• As such the CBA focuses on the cost and benefits
  of the two housing delivery models to society as
  a whole rather than individual households.
• The secondary objectives of this assignment were
  to
• Determine and quantify (where possible) the key
  economic effects
• Understand the broader social and distributional
  effects and
• Assess the performance of the two housing
  delivery models against an agreed policy
  framework

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Definitions of RDP Social Rental

• RDP
• refers to housing built under the capital subsidy
  scheme, either individual or project-liked
  subsidies.
• is characterised by large scale housing delivery,
  typically of a free-standing nature on individual
  erven.
• Social Rental Housing
• refers to rental housing built under the
  institutional and new social restructuring grant
  subsidies.
• is typically medium to high density housing
  delivered on an institutional basis (i.e.
  institutional management, typically by a social
  housing institution - SHI).

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Motivation for the study

• In connection with a collaborative business case
  to support the upscaling of delivery of rental
  housing opportunities to meet the high level of
  demand.
• The goal is the delivery of 100 000 rental units
  (Social Housing and CRU) over 5 years to maintain
  this momentum until the demand curve levels out
  to a more consistent and manageable rate.
• National Treasury have raised concerns with the
  perceived higher cost of providing rental units
  as opposed to RDP units.
• Some officials at NT that as RDP units are less
  costly to develop, the budget would be better
  utilised producing more units overall, thereby
  satisfying more beneficiaries.

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Critical questions for the study

• What are the true medium and long term costs of
  implementing both models?
• Land acquisition
• Infrastructure development and admin
• Range of intangible costs and benefits (inc
  socioeconomic secondary effects)
• What are the key economic effects?
• What are the broader social and distributional
  effects?
• How do both models perform against this policy
  framework?

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COST BENEFIT ANALYSIS
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Project challenges

• Intangible elements hard to quantify
• Long term effects of rental largely untested
• Different forms of RDP rental (what is a true
  representative sample?)
• Very wide range of effects difficult to control
  for.

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Process/Progress

• Consortium head by Rhizome selected out of 8
  bidders
• Broad-based Steering Committee was developed and
  active
• SHF Operations Team provided input
• Numerous drafts, sub-committee inputs, active
  engagement, etc
• Final report delivered in mid-2009

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Structure of the Study
Financial input
Economic input
Social Distributional input
Policy input

• Land acquisition costs
• Capital expenditure
• Maintenance costs
• Infrastructure costs
• Cost of amenities

• Results CBA
• Results distributional effects analysis
• Analysis budgetary impact to Treasury

• Results CBA
• Overview relevant actors in SH market

• Analysis primary and secondary effects
• Analysis cause and effects project case
• Statistical data
• Economic data
• Review of opportunity transaction costs,
  externalities and transfer payments

1. Financial Analysis
2. Economic Analysis
3. Distributional effects
4. Policy implications
Financial model
CBA model
Distributional effects
Policy recommendations
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Case Studies Survey

• Six case studies were undertaken
• Primary projects Braamfischerville and
  Roodepoort
• Supplementary projects Potsdam, Amalinda, Mhluzi
  / Tokologo and Hope City
• Projects selected on the following basis
• Should represent a typical RDP or SRH project
• Should have been in existence / operational /
  occupied for at least a year
• Selection should offer a range of housing project
  examples with respect to location and city size
• Selection should provide a pair (RDP and SRH
  projects) within the same geographic area /
  municipal boundary

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Financial CBA Findings

• The per unit lifecycle financial costs of SRH are
  2 to 2.5 times higher than RDP housing
• Total financial costs to society
• Costs over full lifecycle (40 years)
• Construction and operational / maintenance costs
• Taking into account distortions, efficiency
  pricing, sunk costs, marginal costs, land
  values, service leakages, etc.

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Economic CBA Findings

• When the financial lifecycle costs are combined
  with the wider economic costs and benefits on
  society, in general SRH is a better investment
  for society than RDP housing
• These results represent the difference between
  all costs and benefits to society and are
  calculated by adding the value of economic
  effects to the difference in financial costs of
  RDP and SRH.

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CBA Outcomes 1/

• The per unit lifecycle financial costs of SRH are
  2.5 times higher than RDP housing
• The higher lifecycle financial costs of SRH
  compared to RDP housing comes from their more
  central location on more expensive land, higher
  building standards, better maintenance and
  servicing. RDP also has some economic scale
  efficiencies since the projects involve much
  higher numbers of units
• When the financial lifecycle costs are combined
  with the wider economic costs and benefits on
  society, then under certain conditions SRH is a
  better investment for society than RDP housing
• The economic benefits of SRH compared to RDP
  appear to be mainly in transport savings, and to
  a lesser extent in reduced crime levels, and
  marginally improved education and employment.
  Location appears to play a strong role, with
  housing typology of less significance

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CBA Outcomes 2/

• Considering financial and economic costs, SRH is
  a significantly better investment than RDP when
  RDP housing is peripherally located. Where SRH
  and RDP projects are situated in similar
  locations in the city, the differences for
  society are less and the extra investment costs
  of SRH are not compensated by its advantages
• RDP housing creates a substantial lifecycle cost
  burden to municipalities, while SRH does not
  create a municipal financial burden and instead
  passes on costs effectively to residents
• RDP housing requires a greater total lifecycle
  subsidy of residents (smaller initial direct
  subsidies than SRH, but larger lifecycle indirect
  subsidies) than SRH. RDP is more redistributive,
  while SRH is more fiscally sustainable
• SRH requires sufficient incomes of residents to
  pay for lifecycle costs, while RDP involves a
  much higher indirect lifecycle subsidy and
  therefore can cover also much lower income groups
  than SRH

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Policy Implications

• The results do not justify exclusively choosing
  one housing form over the other since RDP and SRH
  generally target different groups (income levels,
  tenure preference, mobility, etc.) and have
  different intended effects
• From a policy design perspective, the
  financial-economic and fiscal consequences of SRH
  versus RDP are related to the incentive
  structures created in each of the housing
  programmes
• Projects can be optimized using the insights in
  the specific financial and economic costs and
  benefits caused by the project
• With regard to lessons for housing policy
  optimization, choosing a favourable location for
  RDP and investing in security measures could
  minimize the difference in outcomes between SRH
  and RDP, thereby combining a positive outcome for
  society as a whole with providing housing for the
  poorest of the poor

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Further Research

• Four critical themes from the study have been
  identified and policy/ discussion papers (think
  pieces) are being developed on these
• Location and Density
• Public fiscal issues
• Social indicators
• Housing as a social/public assets

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Location and Density

• The CBA indicates that the viability and quality
  of outcomes of a housing intervention is largely
  dependent on
• Its location in proximity to local
  infrastructure, access to services and economic
  opportunity and
• The density of the housing in relation to
  economy-of-scale efficiencies
• This paper articulates issues of location and
  density per the CBA findings and density to help
  inform housing and urban development policy

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Public Fiscal Issues

• A critical CBA finding was that Local Government
  ends up carrying a long-term cost burden
  associated with RDP.
• This amounts to an unfunded mandated for
  municipalities for a product over which they have
  little control.
• This paper will address the key findings on
  public finance with particular emphasis on
  municipal finance.

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Developing Social Indicators for housing
research

• The CBA showed that outcomes in RDP and social
  rental were primarily related to location and
  household income rather than housing typology
• The question remains how do we develop
  appropriate social indicators (e.g. in relation
  to health, education, safety, etc) that help us
  measure the impacts of various housing
  interventions.
• This paper will address this issue in the South
  African context

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Housing as a Social/Public asset

• There is a sense that that investment in RDP may
  be preferable to investment in social rental
  because RDP transfers and asset to the poor
  while rental does not.
• The CBA casts doubt on this concept, because
  (inter alia)
• RDP houses are rarely treated as an asset
• The cost of maintaining the house is often very
  burdensome for the owner
• Most of the RDP stock does not really fall into
  the scope of the commercial rental housing
  market.
• This paper critically examines the concept of a
  social or public asset in housing