Social Housing Foundation
Major Research and Findings 2008-2009
Presentation to the Parliamentary
Portfolio Committee on Housing
26 August 2009
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.
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 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.
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?
COST BENEFIT ANALYSIS
Individual
Revenues
Project cost
Financial
Fiscal
analysis
CBA
Economy
Externalities
• Rates/utilities
• Bureaucratic costs
• Transportation costs
Economic
Efficiency pricing
CBA
Operating Costs
Sunk Cots
Intangibles
• Urban density
• Human factor
Policy
analysis
objectives
Multipliers
Social
CBA
LED
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.
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
Structure of the Study
Social & Distributional
input:
Financial input:
Economic input:
• Land acquisition
costs
• Capital expenditure
• Maintenance costs
• Infrastructure costs
• Cost of amenities
• …
• 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
• Results CBA
• Overview relevant
actors in SH market
Policy input:
• Results CBA
• Results distributional
effects analysis
• Analysis budgetary
impact to Treasury
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
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.
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.
Slide 13
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…
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…
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…
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 economyof-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