Social Housing FoundationSocial Housing Foundation

Major Research and Findings 2008-2009Major Research and Findings 2008-2009

Presentation to the Parliamentary Presentation to the Parliamentary Portfolio Committee on Housing Portfolio Committee on Housing

26 August 200926 August 2009

Cost Benefit AnalysisCost Benefit Analysis RDP vs Social Rental HousingRDP 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.

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

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).

Motivation for the studyMotivation for the study In connection with a collaborative business case to In connection with a collaborative business case to

support the upscaling of delivery of rental housing support the upscaling of delivery of rental housing opportunities to meet the high level of demand.opportunities to meet the high level of demand.

The goal is the delivery of 100 000 rental units (Social The goal is the delivery of 100 000 rental units (Social Housing and CRU) over 5 years to maintain this Housing and CRU) over 5 years to maintain this momentum until the demand curve levels out to a more momentum until the demand curve levels out to a more consistent and manageable rate.consistent and manageable rate.

National Treasury have raised concerns with the National Treasury have raised concerns with the perceived higher cost of providing rental units as perceived higher cost of providing rental units as opposed to RDP units.opposed to RDP units.

Some officials at NT that as RDP units are less costly to Some officials at NT that as RDP units are less costly to develop, the budget would be better utilised producing develop, the budget would be better utilised producing more units overall, thereby satisfying more beneficiaries. more units overall, thereby satisfying more beneficiaries.

Critical questions for the Critical questions for the studystudy

What are the true medium and long term costs of What are the true medium and long term costs of implementing both models?implementing both models?

- Land acquisitionLand acquisition- Infrastructure development and adminInfrastructure development and admin- Range of “intangible” costs and benefits (inc socioeconomic secondary Range of “intangible” costs and benefits (inc socioeconomic secondary

effects)effects)

What are the key economic effects?What are the key economic effects?

What are the broader social and distributional effects? What are the broader social and distributional effects?

How do both models perform against this policy How do both models perform against this policy framework?framework?

Financial

CBA

Economic

CBA

Social

CBA

Individual RevenuesProject cost

Efficiency pricing

Operating Costs

Intangibles•Urban density•Human factor

Externalities•Rates/utilities•Bureaucratic costs•Transportation costs

Sunk Cots

Multipliers

Economy

Policy analysis

objectives

Fiscal analysis

LED

COST BENEFIT ANALYSIS

Project challengesProject challenges

Intangible elements hard to quantifyIntangible elements hard to quantify

Long term effects of rental largely untestedLong term effects of rental largely untested

Different forms of RDP & rental (what is a Different forms of RDP & rental (what is a true representative sample?)true representative sample?)

Very wide range of effects difficult to control Very wide range of effects difficult to control for.for.

Process/ProgressProcess/Progress

Consortium head by Rhizome selected out of 8 Consortium head by Rhizome selected out of 8 biddersbidders

Broad-based Steering Committee was developed and Broad-based Steering Committee was developed and active active

SHF Operations Team provided inputSHF Operations Team provided input

Numerous drafts, sub-committee inputs, active Numerous drafts, sub-committee inputs, active engagement, etcengagement, etc

Final report delivered in mid-2009Final report delivered in mid-2009

Structure of the Study Structure of the Study

• 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 Analysis2. Economic

Analysis3. Distributional

effects4. Policy

implications

Financial model CBA modelDistributional

effectsPolicy

recommendations

Financial input:Financial input: Economic input:Economic input: Social & Distributional input:

Social & Distributional input: Policy input:Policy input:

Case Studies & SurveyCase Studies & Survey

Six case studies were undertaken …Six case studies were undertaken …

Primary projects: Braamfischerville and RoodepoortPrimary projects: Braamfischerville and Roodepoort Supplementary projects: Potsdam, Amalinda, Mhluzi / Tokologo and Supplementary projects: Potsdam, Amalinda, Mhluzi / Tokologo and

Hope CityHope City

Projects selected on the following basis:Projects selected on the following basis:

Should represent a typical RDP or SRH projectShould represent a typical RDP or SRH project Should have been in existence / operational / occupied for at least a Should have been in existence / operational / occupied for at least a

yearyear Selection should offer a range of housing project examples with Selection should offer a range of housing project examples with

respect to location and city sizerespect to location and city size Selection should provide a pair (RDP and SRH projects) within the Selection should provide a pair (RDP and SRH projects) within the

same geographic area / municipal boundarysame geographic area / municipal boundary

Financial CBA FindingsFinancial CBA Findings

The per unit lifecycle The per unit lifecycle financial costsfinancial costs of SRH are of SRH are 2 to 2.5 times higher than RDP housing… 2 to 2.5 times higher than RDP housing…

Total financial costs to societyTotal financial costs to society

Costs over full lifecycle (40 years)Costs over full lifecycle (40 years)

Construction and operational / maintenance costsConstruction and operational / maintenance costs

Taking into account distortions, efficiency pricing, Taking into account distortions, efficiency pricing, ‘sunk’ costs, marginal costs, land values, service ‘sunk’ costs, marginal costs, land values, service leakages, etc.leakages, etc.

Slide Slide 1313

Economic CBA FindingsEconomic CBA Findings

When the financial lifecycle costs are combined When the financial lifecycle costs are combined with the wider economic costs and benefits on with the wider economic costs and benefits on society, in general SRH is a better investment society, in general SRH is a better investment for society than RDP housing… for society than RDP housing…

These results represent the difference between These results represent the difference between all costs and benefits to society and are all costs and benefits to society and are calculated by adding the value of economic calculated by adding the value of economic effects to the difference in financial costs of effects to the difference in financial costs of RDP and SRH. RDP and SRH.

CBA Outcomes 1/CBA Outcomes 1/The per unit lifecycle financial costs of SRH are The per unit lifecycle financial costs of SRH are

2.5 times higher than RDP housing…2.5 times higher than RDP housing…

The higher lifecycle financial costs of SRH compared to RDP housing The higher lifecycle financial costs of SRH compared to RDP housing comes from their more central location on more expensive land, higher comes from their more central location on more expensive land, higher building standards, better maintenance and servicing. RDP also has some building standards, better maintenance and servicing. RDP also has some economic scale efficiencies since the projects involve much higher economic scale efficiencies since the projects involve much higher numbers of units…numbers of units…

When the financial lifecycle costs are combined with the wider economic When the financial lifecycle costs are combined with the wider economic costs and benefits on society, then under certain conditions SRH is a costs and benefits on society, then under certain conditions SRH is a better investment for society than RDP housing…better investment for society than RDP housing…

The economic benefits of SRH compared to RDP appear to be mainly in 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 transport savings, and to a lesser extent in reduced crime levels, and marginally improved education and employment. Location appears to marginally improved education and employment. Location appears to play a strong role, with housing typology of less significance… play a strong role, with housing typology of less significance…

CBA Outcomes 2/CBA Outcomes 2/

Considering financial and economic costs, SRH is a significantly better Considering financial and economic costs, SRH is a significantly better investment than RDP when RDP housing is peripherally located. Where investment than RDP when RDP housing is peripherally located. Where SRH and RDP projects are situated in similar locations in the city, the 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 differences for society are less and the extra investment costs of SRH are not compensated by its advantages…not compensated by its advantages…

RDP housing creates a substantial lifecycle cost burden to municipalities, RDP housing creates a substantial lifecycle cost burden to municipalities, while SRH does not create a municipal financial burden and instead passes while SRH does not create a municipal financial burden and instead passes on costs effectively to residents…on costs effectively to residents…

RDP housing requires a greater total lifecycle subsidy of residents (smaller RDP housing requires a greater total lifecycle subsidy of residents (smaller initial direct subsidies than SRH, but larger lifecycle indirect subsidies) initial direct subsidies than SRH, but larger lifecycle indirect subsidies) than SRH. RDP is more redistributive, while SRH is more fiscally than SRH. RDP is more redistributive, while SRH is more fiscally sustainable…sustainable…

SRH requires sufficient incomes of residents to pay for lifecycle costs, SRH requires sufficient incomes of residents to pay for lifecycle costs, while RDP involves a much higher indirect lifecycle subsidy and therefore while RDP involves a much higher indirect lifecycle subsidy and therefore can cover also much lower income groups than SRH…can cover also much lower income groups than SRH…

Policy ImplicationsPolicy Implications The results do not justify exclusively choosing one housing form over The results do not justify exclusively choosing one housing form over

the other since RDP and SRH generally target different groups (income the other since RDP and SRH generally target different groups (income levels, tenure preference, mobility, etc.) and have different intended levels, tenure preference, mobility, etc.) and have different intended effects…effects…

From a policy design perspective, the financial-economic and fiscal From a policy design perspective, the financial-economic and fiscal consequences of SRH versus RDP are related to the incentive consequences of SRH versus RDP are related to the incentive structures created in each of the housing programmes…structures created in each of the housing programmes…

Projects can be optimized using the insights in the specific financial Projects can be optimized using the insights in the specific financial and economic costs and benefits caused by the project…and economic costs and benefits caused by the project…

With regard to lessons for housing policy optimization, choosing a With regard to lessons for housing policy optimization, choosing a favourable location for RDP and investing in security measures could favourable location for RDP and investing in security measures could minimize the difference in outcomes between SRH and RDP, thereby minimize the difference in outcomes between SRH and RDP, thereby combining a positive outcome for society as a whole with providing combining a positive outcome for society as a whole with providing housing for the poorest of the poor…housing for the poorest of the poor…

Further Research Four critical themes from the study have

been identified and policy/ discussion papers (“think pieces”) are being developed on these:

1) Location and Density

2) Public fiscal issues

3) Social indicators

4) Housing as a social/public assets

Location and Density The CBA indicates that the viability and quality

of outcomes of a housing intervention is largely dependent on

1) Its location in proximity to local infrastructure, access to services and economic opportunity; and

2) 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

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.

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

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