SA access to housing crisis drags on; Minister asleep at the wheel

Human Settlements Minister Mmamoloko Kubayi recently came under fire for her comments on “discriminatory practices” in the banking sector’s home loan application process.

“There’s a massive housing backlog in South Africa and yet the officials tasked with solving the problem are too busy race-baiting to do much about it,” says Renier Kriek, Managing Director of Sentinel Homes.

Much has been reported on how the Minister’s statistics, presented at the briefing, do not match her conclusions.

The Minister’s plan to change the law, forcing banks to explain why they rejected a loan to any previously disadvantaged person, sidesteps the real issues in both housing supply and demand, and therefore any meaningful solution.

Credit providers are profit-driven, not racially motivated
Banks are profit-seeking enterprises that make money from awarding credit, not denying it. Because home loans are a major source of their income, it makes sense that they are incentivised to grant as many as possible.

“It is not only implausible, but also downright ridiculous to believe that there is some racially motivated cabal operating from back rooms at banks and credit providers for ends that are inimical to the profit-seeking motive of those businesses,” says Kriek.

Since every application is a potential source of revenue, no credit provider will turn someone away who has a good credit record and disposable income, regardless of their race, gender or disability.

“Apartheid placed ideology before profit but in our democratic economy, any enterprise that turns down good money over prejudice will soon go out of business or be exposed by whistleblowers from inside,” says Kriek.

The National Credit Act compels banks to reject risky applications
The only reasons for banks to reject a home loan application are because it would be bad for business or they are compelled to do so by the National Credit Act or other regulations.

The NCA clearly prohibits awarding credit to an applicant who does not have the financial means to repay it, is already over indebted, or would become over indebted because of the loan. It also already compels banks to furnish the dominant reason for the rejection to an applicant who requests it. The Minister’s proposal for disclosure introduces nothing new and given her team’s apparent statistical illiteracy has little chance of making any impact.

Banks that recklessly award credit put themselves at risk because the loan contract could easily be overturned by a court.

Changing the Act will only sow confusion and accomplish nothing except add to an already immense regulatory burden. But, it might also expose the government’s lack of initiative in solving the affordable housing backlog in any realistic way.

“Does the government plan to levy penalties on banks who reject loan applications in compliance with the law or common business sense?” asks Kriek. “Because any such penalties or additional compliance costs will become part of the cost of doing business, passed on to customers, and exacerbate the affordability problem.”

Real solutions
Real steps toward clearing SA’s apparent housing backlog are multifaceted, but require politically expensive interventions on both the supply and demand side of the market.

On the supply side, the government has been relatively successful with the RDP programme, which has housed millions of South Africans since its inception. However, the so-called gap housing market, which comprises the 30% or so of households who do not qualify for an RDP house and are also not wealthy enough to be meaningful participants in the open market, is being left behind.

Many of these households in the gap market segment continue to live in shacks or other informal arrangements despite being middle income households and have little future likelihood of entering the formal market. Home loans to these households makeup no more than 10% of home loans granted, but should in fact be at around 50% if the market were functioning efficiently.

Foreclosure and legislation
According to Kriek, the most impactful solution to the housing crisis would be to remove the constraints placed on the holders of private capital in the residential property market, especially in terms of foreclosure and eviction. As President Ramaphosa has rightly put it, the private sector has money that can be deployed to meet the demands of our country and should therefore be enlisted through proper incentives.

After World War 2, he explains by way of example, Northern Europe faced a severe housing shortage because of infrastructure destruction, which was solved in most of those countries by relaxing consumer safeguards.

Because it was easy for banks and developers to protect their interests, and cheap to take a chance on some otherwise doubtful consumers, they invested heavily in the provision of housing. This quickly rehoused the population. And once the population was housed, the governments gradually started reintroducing consumer safeguards.

In South Africa, even though housing remains a problem, foreclosure restrictions and courts that unduly and unnecessarily favour defaulting homeowners or tenants deter banks, developers and landlords from making substantial investments in housing. This limits supply, as can be seen from market statistics.

“We need to urgently review our current foreclosure and eviction legislation and procedures because, in the long run, it would unleash massive investment into the property market, resulting in a jobs boom in the construction industry, and ample housing for all,” says Kriek.

“With a Government of National Unity touting that the private sector is key to the project of regeneration and economic growth, ministers should leave the race-baiting to the populists and work with the private sector interests to make a non-racial South Africa that works for its inhabitants a reality at last,” he concludes. “There is more than enough money available in the world, it is simply a question of harnessing it properly.”
 
ENDS
 
MEDIA CONTACT: Stephné du Toit,[email protected], 084587 9933, www.atthatpoint.co.za 
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Homes