Abstract
In many parts of the world, housing is as an economic commodity, with the property acting as an asset that accumulates passive wealth for the owner. This trend stems from housing markets in the Global North, yet many formal housing markets in the Global South demonstrate similar characteristics. However, in the Global South, there is a prolific shortage of housing at every level; this has pushed many individuals to seek shelter in the informal housing sector. This situation has meant that the informal housing sector and any associated economic activities are lost to the official development agenda, and housing does not contribute fully to local economic development. This article explores the role of housing in development in South Africa and how a ‘developmental state’, with a housing-driven development strategy, can accelerate development at the local level.
Introduction
This article is primarily concerned with the role of the low-cost housing market in South Africa as a driver of socio-economic development. In contrast to the existing ideology in the country that under a free-market system, the housing sector will deliver an efficient supply, this article instead argues that government intervention in this market is needed to harness the capacity of housing to drive economic development (Brenner and Theodore 2012; Gruffydd Jones 2012; Marais et al. 2014; Rolnik 2013). It thus rejects the neoliberal dichotomy between the state and the economy and instead sees the housing market and state intervention in this market as institutional forms and mechanisms though which economic potential can materialise. This is a relationship between the state and economy that has social implications, namely this is the social capacity of housing to provide security and co-sovereignty, as well as drive local economic development. At present, however, the neoliberal housing market that exists in this sector does not adequately address the broader socio-economic issues that acquiring housing brings (Gunter and Scheepers, 2012). Neoliberal housing policies in South Africa do not advocate for an open housing market, and there is a regulatory policy environment that hinders housing development though over-regulation and complex restrictions. Terms put forward such as an ‘enabling environment’, ‘market-friendly state’ and the need for ‘a supportive government’ represent the role that the neoliberal system envisions the state playing (Lipman, 2008). The housing market and neoliberal policies that drive it in South Africa are a hegemonic space for capitalism that allow housing to be viewed solely as a fiscal asset that encourages private capital investment (Home and Lim, 2013). The formal housing market in the Global South is developing into a replica of the housing market in the Global North, which is a key driver of individual wealth accumulation for the privileged few who own property (Rohe et al., 2002). The economic structures of the formal housing market in South Africa have been inherited from the apartheid and colonial era and have subsequently developed into a wealth generating commodity within the modern economy (Home and Lim, 2013). Yet, the value in housing as a mechanism for local economic development (LED) lies beyond simply capital accumulation, as this limits the development to a small wealthy elite. The value lies in issues of entitlement and citizenship in a country still grappling with the legacies of colonialism and apartheid (Nene et al., 2014). This article seeks to explore the formal housing markets in South Africa to determine what contribution it can make towards local economic development.
Housing issues in South Africa
As with many countries in the Global South, there is a critical backlog of housing in South Africa, particularly at the low cost and affordable levels (Fox, 2014; Lemanski, 2011; Moola et al., 2011; Nel and Rogerson, 2012). Within the economic equation, this makes the housing market a critical and sought after environment for investment and development. With the population of many cities in the country experiencing some of the fastest growth rates in the world (averaging at 5%), the demand for formal housing is prolific (Libby, 2014; Massey, 2013). However, due to the dire poverty in the country, much of the new housing development is taking place in the informal sector, with either informal housing built on squatted on land or informal housing built on owner occupied land (Groenewald et al., 2013). This informal development is a hindrance to the growth of the formal property market in the country. There is a clear indication that these informal houses are not simply the preserve of the poor, but increasingly, the working class resides in informal dwellings as well (Sullivan and Ward, 2012). This state of affairs is labelled as ‘housing poverty’, a particular state where the occupiers could afford a formally developed house, however, due to the lack of housing development, are confined to the informal market (Ahmad, 2015; Shiping, 2014).
Housing poverty can develop from insufficient and unsophisticated housing financing models, to a lack of materials and the slow pace of housing development (Shiping, 2014). Due to weak land and housing policy and poor financial sector capacity, there is a shortage of formal, middle-class housing in South Africa. This has created an environment where housing simply becomes a state of shelter and contributes little to broader economic development or personal wealth growth of the occupier (Sullivan and Ward, 2012).
One of the most significant reasons for this shortage of housing is the lack of formal, planned and serviced land in urban areas (Groves, 2004). Land that is in the government’s deeds registry and is designated for mortgaged finance by financial institutions and commercial banks is often backlogged in the deeds office (Roux, 2013). Unlocking land for development is often a difficult task as land is either owned by individual government departments or is held as traditional or ‘custodian’ land by communities (Satterthwaite and Mitlin, 2013). Thus, the releasing of land, on a large scale, for the developing of new housing is difficult if not practically impossible, particularly for low-cost housing (Todes, 2012). This does not mean that new housing development does not take place; rather that housing development takes place in the informal sector and does not contribute to the development of the country as fully as it might (Groves, 2004). Within the informal housing development, housing takes on the role of shelter and does not significantly contribute to accumulation by the resident. This could even occur where the resident has ‘right to occupy’ from a traditional authority. The lack of official recognition of ownership limits the extent the property can be used as formal capital (Napier, 2007).
This situation is only exasperated by the legacies of apartheid and colonialism, where different nations were left with the legal and financial legacies of the past. The hybrid system, of colonial laws, post-colonial law and traditional custom dominates and complicates the ownership of land and housing is heavily influenced by this legacy (Joireman, 2008; Ocran, 2006; Wily, 2011). While colonial laws were often meant to provide an ideal of exclusive property ownership, some post-independence laws across the country have sought to redress some of the legacies of ownership and address the skewed ownership patterns of land during the colonial period. However, this does not remove the ownership of land from the hands of the political elite, and land ownership in South Africa is still concentrated in the hands of the descendants of the colonisers or the post-independence elite who have sought to legislate redress of ownership that benefits themselves (Bernstein, 2013; Taylor, 2014).
The condition of poor legislation has exacerbated the challenges of the inadequate state of land tenure and subsequently home ownership in the country. The majority of legislation concerning land redistribution and tenure is meant to redress property ownership in the rural areas, with the unintended implications having been felt within urban areas. The central tenant of the reforms to property ownership post-independence in South African countries has been the ownership of property as a market led supply system (Borras et al., 2013). This is a Western-orientated housing land management system that address housing not as a dwelling or a system for redress, but housing as property and a mode of accumulation and wealth creation. South Africa has adopted a neoliberal development strategy with the tacit involvement of state actors. Thus, the market land system places large amount of land ‘assets’ at the disposal of the state and its economic allies. However, the bureaucratic needs of managing a development state where land and ownership is governed and controlled by state actors is arduous, and South Africa does has not successfully managed this market-led system (Marais, 2011).
The prevailing economic and political environment has meant that the much of the urban population can be found in the informal housing market (Groenewald et al., 2013). The development of informal housing in the country is significantly more prolific than formal housing in the country, which leads to a number of potentially lost economic opportunities for the formal sector and the state. Housing development in the informal sector can be considerably varied, from very well designed and professionally built houses to rudimentary dwellings. All, however, are not formally planned or given state permission. What is most significant is that informal housing, regardless of the quality of construction, is unregistered and does not allow the owner secure tenure (possibly outside of traditional recognition). This excludes this property from use as a capital asset, despite the view from states that property is a tool for accumulation and wealth creation (Shiping, 2014). The varied and informal mechanisms of land ownership are an administrative hindrance to an efficient functioning land and property market in the country. This has made housing and property a poor mechanism for local economic development and meant that the majority of housing stock has made little contributing role to formal development in the country.
That is not to say (as put forward by De Soto and others) that the formalisation of informal housing will automatically lead to the immediate increase in wealth for the poor (De Soto, 2000; Gunter, 2013; Joireman, 2008; Kerekes and Williamson, 2008). However, without ownership, there is little likelihood that housing will be more than shelter. Housing has the potential to contribute to economic development, not only as a mechanism for capital accumulation but equally through community development (Turner,1967), urban planning (Njoh, 1999) and as a source of taxation (Bimonte and Stabile, 2015). By having vast amounts of housing in the informal sector, housing is given a less significant role in development and the GDP than is found in other countries of the word. For example, in Europe, housing contributes 29% to GDP per annum, while in South Africa, despite the huge demand for formal housing across all economic levels, housing contributes an insignificant 6.5%.
The economic significance of housing
Housing has the ability to have a significant role in development, this is particularly true in recovering economies; in post-war Japan and America, social housing development was used as an economic stimulant (Waswo, 2013). However, this has not just been the preserve of the Global North, in Thailand (Aziz and Shawket, 2011) and Singapore (Joo and Wong, 2008); housing has played a significant role in shaping and driving economic growth. More recently, in China, housing development has been the main driver for growth and development, at times possibly to its own detriment as housing supply has outpaced demand (Chen and Zhu, 2008; Wang and Murie, 2011; Wu, 2014). A significant advantage for using housing as a mechanism for development is that it is a domestic commodity and thus is not influenced by external demands and controls. In many newly industrialised countries in Asia, housing development has been prioritised as a mechanism that drives growth, creates employment, acts as an economic stabiliser and redistributes wealth (Tibaijuka, 2013). Housing for the majority has been the driving force for development in many of the ‘Asian tigers’ over the last decade. It has been argued that it is difficult to prove causality between housing development and economic growth (Forrest, 2008; Prasad, 2009); however, as seen in the newly industrialised countries of Asia, housing development plays a significant part in the development process and can contribute much to the overall development of a nation, and for this reason it must be seen as an important tool for development itself (Chen and Zhu, 2008). Housing in South Africa could play a significant role in rebuilding the post-apartheid economy. Yet, while there has been a huge national roll-out of social housing in the country, the geographical location and lack of amenities in large-scale housing projects have often meant that there is little accompanying local economic development (Nel, 2001).
Formal capital market development
In many cities in the Global South, housing and homes are not just sources of shelter or capital accumulation, they are often spaces of production (Smith, 2002). Rental of ‘back yard’ shacks, rooms and storage spaces are often an important source of regular income for people with access to housing (Turok and Borel-Saladin, 2015). While these activities are often small scale and individually do not account for much money, collectively, the income and economy of this informal practice is a vital source of income for the poor and a central component of the informal economy. While a boom in housing would have a negative impact on the informal renting, selling and building of shacks, creating access to housing thought, a housing development could potentially open up access to resources and services that could further stimulate the local economy, for example, access to electricity could improve small business productivity (Crush and Frayne, 2011). Housing in the informal economy has a more complex and vital link to the local economy than is often the case in more advanced economies. While housing shortages lead many of the poor to spend a disproportionate amount of their income on inadequate slum housing, social housing development can create a more stable and equitable environment for the informal economy (Arnott, 2008; Leonard, 2000).
Access to formal housing and the amenities associated with it can play a vital role in the survival of the poor (Crush and Frayne, 2011). The role of housing in development can be at a local and even a micro level, where development and specifically local economic development is achieved through access (Gunter and Scheepers, 2012). This is seen in empirical research as far back as McCallum and Stan (1985) who demonstrated that income generation in developing countries is intrinsically linked to services and resources obtainable in houses. The informal home-based economy has played a significant role in many countries, and many cities in the Global South have a significant share of their economic productivity taking place in the home. While this does not directly demonstrate that a formal housing boom will contribute to LED, it does demonstrate the importance of housing as a place for economic activity. The economic potential of having a stable, secure, dwelling for productive activity to be based in is vital in any informal economy and the instability. The unsuitability of slum and informal housing could be seen as an inhibiting factor for both informal economic activity and for the development of these informal economic activities to develop into formal businesses enterprise (Arnott, 2008; Leonard, 2000; Rogerson, 2016).
These points to the economic benefit of housing being more than simply an investment in an asset that leads to capital accumulation, housing is not simply a consumer item, and the house is equally a place for many urban residents as a space of production. The home then can be viewed as a space of production and reproduction for people living in the Global South (Leonard, 2000). Housing should to be viewed as a vital mechanism for improving the productivity and quality of life, creating a strong argument for state-driven housing development projects with the simple value of providing quality housing and capital accumulation; this outcome is further enhanced by the ability for housing to contribute to other sectors of the economy (Masutha and Rogerson, 2014).
Moving beyond the neoliberal in the housing market in South Africa
South Africa is often perceived to be the fringe of the global economy; it is striving to produce a coherent strategy for development with the country identifying the role of the state as a driver of economic development both at a national and a local level (Gumede, 2009). This relationship between the development state and the neoliberal market has often failed the country (Hurt, 2012). Much of the economic development in the country is driven by commodities and there is limited, broad-based development in other sectors (Büscher, 2012). However, there is the potential for a more directed infrastructure development that could lead to prosperity. There is much research that points to state intervention rather than the free market as a mechanism for rapid development (Bardhan, 1990; Bourlès and Cozarenco, 2014; Bremmer, 2010; Chang, 2002; Hochstetler and Montero, 2013; Zenawi, 2012). Yet, for South Africa, the housing market has been dominated by free market forces, and this has failed in providing sufficient housing for the population of the country (Tipple, 2004). The current housing market in the country is quite integrated into the neoliberal economy with its formal housing markets being dominated by ownership and investment in the country and by a limited number of large-scale construction firms and investors. This market is financed by a few major banks and construction companies (Bradlow, 2015). This formal market attracts investment from across the region; however, despite these large scale and often high-end developers, there is a huge shortage of housing across the country for both middle-income and low-income residence (Oldfield and Greyling, 2015).
This shortage is at odds with the free market principles where supply meets demand in any given situation. In fact, there is evidence to show that the shortage of supply has led to distortions in the market where state officials are corruptly benefiting from limiting the development of housing by commanding bribes for the release of land for development (Hall, 2011). Market forces in Southern Africa have not identified housing developments as an area for economic growth, and this has pushed much housing development into the informal sector. The informal economy in South Africa is a large and thriving sector; however, it has limitations and often is on the extreme of the market-based system, where capital systems function without the oversight of a state, leading to abuses and distortions (Rogerson, 2016). A strategic housing development policy by South Africa could have a profound effect on local economic development across the country.
What this implies is that an efficient, strong state intervention in the development of housing can have an impact on the market in the country that will enhance overall development. With market-driven development as a starting point, the state would be required to push for a large-scale housing development across the country, which will allow for the development of further economic activity in both the formal and informal sector. While it would be ideal if private capital would play a leading role in this development, it can be assumed that private capital would take a while to invest in this housing market (Jeng and Wells, 2000). This is seen in many housing developments globally, where private capital is slow to take-up in investing in property booms. However, the potential is that once the development gains traction, private investment will follow the development of housing. While it must be recognised that there have been some state interventions, these have often been half-hearted and even fizzled out (Newton and Schuermans, 2013).
Conclusion
Housing development has a significant potential to be a catalyst for other forms of economic development (De Soto, 2000). This is clearly seen when housing has been used as a growth mechanism in many economies in Asia (Prasad, 2009). While there is certainly the potential for property bubbles and economic problems, housing represents a clear, local solution to achieve increasing development. Housing has many potential benefits from increasing employments and spin-off industry to simulating the informal economy and building formal micro-enterprises. However, in South Africa, housing is not used or seen as a potential driver of local economic development. It is regarded as a tool for capital accumulation and a place for shelter and not much else (Gunter, 2013). This has often meant that housing is confined to the margins of development in the country and has limited local economic spin offs. Housing is also limited by poor administrative capacity and much housing development is found in the informal sector where the contribution it makes to the broader economy is limited. This is further exasperated by the limited institutional capacity of the country and the large amounts of land that is unregistered and in traditional custodianship. These limitations have reduced the scope that low cost housing can play in the development of the country (Napier, 2007). Yet, despite these limitations to the formal housing market, there is still a huge demand for housing across the economic spectrum. The massive population and relative economic growth in the country have meant that the demand for all housing types outstrips supply; the only sector of the market that seems to be able to keep pace is the informal housing sector. With this demand comes a need for more formal housing, not simply as accommodation but equally as a driver of development itself (Bremmer, 2010). By focusing on housing development, South Africa would be able to enhance local development without direct competition between individual industrial sectors. Housing thus has a very important role in local economic development and has the potential to be both a driving force and a mechanism for this development.
Footnotes
Conflict of interest
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
