Analysing the Economic Impact of South Africa's Subsidy Housing Instruments: Cost Benchmarking and Impact on the Economy

As part of our Housing and the Economy series, this paper uses CAHF’s housing cost benchmarking and housing economic value chain analysis frameworks to quantify the impact of South Africa’s housing subsidy system on the national economy.

Following on our housing economic value chain analysis for South Africa earlier this year, we now go one step further to examine the impact of government’s subsidised housing programme on the overall sector’s economic value chain. The analysis shows that delivery statistics for the main subsidised housing products have remained roughly static over the last four years at between 180 000 and 160 000 units per annum. At this rate of delivery, housing products to the value of R42.7 billion were delivered in the 2017/18 fiscal year – comprising R26.2 billion of intermediate inputs purchased from other sectors of the economy and R 16.5 billion of gross value added (GVA) during the construction process.  83 percent of intermediate inputs were sourced from secondary (mainly manufacturing) sectors, with 13 percent from tertiary (services) sectors and the remaining 4 percent from primary sectors of the economy, showing the powerful upstream impacts of government’s housing programme.

The analysis highlights the massive contribution of South Africa’s subsidised housing programme to the country’s economy, at the same time that it works to fulfil the constitutionally enshrined right of all South African households to progressively realise access to decent accommodation. Subsidised housing contributed an estimated 50 percent to the economic impact of South Africa’s entire housing construction output in 2017, playing an important role in stabilising a shrinking construction sector. Subsidised housing directly accounts for half a percent of GDP. The analysis thus provides evidence that the subsidised housing programme provides a relatively consistent investment into South Africa’s construction sector, and as a consequence provides a level of intermediate input stability to the country’s secondary and tertiary sectors too.

Notwithstanding this generally positive impact, the analysis goes further to identify a number of problem areas in South Africa’s subsidised housing system related to various anomalies and inefficiencies in the delivery system. An important constraint of the subsidy approach in South Africa is the high level of subsidy money in most of the housing products developed. The paper unpacks these inefficiencies and proposes areas for improvement. For example, a programme that facilitated greater amounts of private and household capital contributions would assist to improve the overall impact of the subsidy programme, both in terms of the scale of construction impact and the number of beneficiaries it could reach. Furthermore, a subsidy approach that allowed for larger numbers of smaller projects could ensure engagement of many more contractors and developers (including households themselves) in the development process, so spreading the impact from the subsidy value chain. The report therefore makes an important contribution to the analysis of housing subsidies broadly, and specifically to the debate around the design of South Africa’s housing policy.