Conceptual framework

In order to discuss the matter on home ownership and rentals exhaustively, two
conceptual frameworks were adopted. This frameworks were adopted since when it
comes to housing in South Africa, a person can either be renting or owning the house
as suggested by Mostafa et al (2003) who postulate that the issues of access and
affordability are critical when one is either purchasing or renting a house.

Conceptual framework on home ownership

The main components of the framework are centred on state and market, housing
provisions and housing affordability. In order to achieve this, government should
provide affordable housing schemes at low prices for the resident whose incomes are
low. As such this models hinges more on the intervention of the state to cushion low
income earners as high income earners can afford anything in the market and this will
create unfavourable scenario for low income earners. It put more emphasis on social
life and link with the community that they live in (Mostafa et al, 2003).

Conceptual framework on rentals

This framework model suggest that those who earn more and can afford luxurious and
their choice of accommodation should be left to the competitive market to determining
the pricing of the housing. However, those who there are those who cannot own a
house due to various reasons such as not being able to purchase but can only rent,
should be assisted by government through subsidy policies for low income and middle
income groups towards provision of affordable residents.

Housing History in South Africa

All over the world, there is are characteristics of growing society that have been moving
from the previous status core into urbanisation. The scenario is reminiscence within
South Africa. However, what makes South Africa more unique to the rest of the world
is the role played by apartheid in shaping the inequality that are even existing up to
this day with regards to housing allocation. Of note is that that the country is divided
in racial ground with blacks and white confined to certain areas and other minority
groups such as Indians being confined in Durban, whilst coloured people are basically
confined within Cape-Town. Despite occupying the majority of the land in South Africa,
the whites are a minority race within South Africa compared to black people. The
situation is only made worse by the local authorities failure to manage an ever,
increasing population in providing housing.

The shortage of housing has been made worse through economic migration that has
affected South Africa to a great extent. It is estimated that at least 3 million Zimbabwe
reside in South Africa alone. (IOM, 2015). This view is supported by the White paper
on Housing (1994) which postulates that the increase of migrating Africans in South
Africa in search of jobs has resulted in the increase of land invasions in urban areas,
poor access to services delivery, overcrowding and rapid expansion of informal
settlements. This has also contributed to increase of crime particularly in
Johannesburg and other major town that are of economic importance within the
country. The housing crisis has also been made worse by the unsecure tenure of lease
agreements that are given to tenets (White house paper, 1994).

The existence of inequalities in housing circumstances between rural and urban cities
is an open secret. Due to lack of financial muscle for many residents within
Johannesburg.

13

challenges. These challenges can consequently give

rise to over-indebtedness and the

deficiency of credit risk and affordability procedu

res can lead to reckless lending.

Therefore, it is important to identify the challeng

es of housing affordability and housing

finance experienced by other developed and emerging

economies and also recognise

the similarity in the challenges experienced in Sou

th Africa. A brief overview of housing

affordability and housing finance internationally i

s presented below.

2.4

HOUSING AFFORDABILITY IN OTHER COUNTRIES

China

China has got the largest population in the world according to Lin (2011). As is often
the case in many countries the world over, the gap between the rich and the world in
widening as in china it’s no exception. As a result many people in chin cannot afford
their own houses. It has become a challenge for the poor to access houses as the
prices and conditions of obtaining one is becoming even hard by each passing year
as the population also increases. According to Chen et al., (2010) there is need to
urgently address housing issues for low income earners in China and the progress
made more far within that regard has been encouraging. As the housing market grows
in china mechanisms have been put ti accommodate low income earners. However,
due to the large population in China there is very little movement and a lot still needs
to be done to address the issue of housing in China (Yao, 2011).

Australia
The housing issue in Australia is a major crisis and the government has done very little
to address this predicament (Fu,2007). This view is shared by Sliogeris et al., (2008)
who state that the low and middle income earners in Australia has been far hit by the
housing crisis as rentals are high and nothing has been done to cushion them against
the prices. The escalating housing prices on both purchase and rental has affected
affordability in Australia and the interest rate charged by the banks have not made the
matter any easy for the local people (Berry,2006). Fu(2007) weighs in and stated that
there is need for the government and policy makers to look into this matter as a matter
of urgent before it goes out of hand and becomes unmanageable.

United States

The recession in 2007-2008 heavily affected the mortgage market in the United states.
As such there is strong calls for the reassessment of the affordability of housing within
the country (Jewkes and Delgadillo, 2010). Housing affordability has remained a cause
for concern as very few people are able to afford it amongst the low and middle income
earners.

. According to Jewkes (2008:1), housing affordability in the United States remains as

a great concern (Friedman, 1992) due to the sluggish increase in incomes over the
past decade compared to extremely inflated housing costs. Wirtz (2005:6) indicated
that housing affordability is greatly affected by increasing housing prices and that
American households should not spend more than 30% of their gross income on
housing. If household spending exceeds 30% of gross income, then housing becomes
unaffordable. Jewkes and Delgadillo (2010:51) suggested that the affordability crisis
in the United States requires further research as the problem of housing affordability
remains unresolved.

THE NATIONAL CREDIT ACT No. 34 of 2005

According to Van Heerden (2008:28), the National Cr
edit Act (NCA) of 2005 is a unique
piece of legislation in that it is represented as a
legally binding document, allowing for all
credit transactions to be administered and regulate
d by a single Act. The NCA was
introduced to protect consumers and principally add
ress consumer credit problems. The
Act benefited consumers by providing the necessary
knowledge to assist consumers in
managing their debt and understanding the consequen
ces of payment defaults, prior to
entering into a credit agreement. In addition to t
he benefits, the Act makes certain that
all related transactions are transparent, fair and
simple to understand and provides the
consumer the right to enquire and obtain further cl
arity of information as required (Pillay,
2009: 2).

The NCA further protects consumers from exploitatio

n by financial institutions and
prevents consumers from getting into credit agreeme
nts that are not in their best
interests. It intends to ensure that credit provide
rs do not take advantage of consumers
The implementation of the NCA has affected the Sout
h African property industry. Most
importantly, the Act has altered the way in which c
redit providers conduct their
business. Credit providers are to by comply with th
e regulation when granting home
loans and utilise an appropriate method of determin
ing the housing affordability of a
consumer applying for a home loan. Stemming from th
e National Credit Act 2005 is an
Amendment bill, known as National Credit Amendment
Bill (NCAB), which was
introduced in May 2014. The Amendment Bill redefine
s concepts, in an attempt
eliminate ambiguity and provide more clarity and tr
ansparency. The Bill also
restructures and repeals other sections within the
NCA and reference will be made
accordingly to those sections that are related to t
his study. According to Pieterse
(2009:2), the NCA is the government’s way to help S
outh Africans to take charge of

their overall indebtedness and create a fair, clear

, controlled, non-discriminatory,
accessible and responsible credit market place.

Conceptualizing The Term Affordability

The term affordability is quite a broad concept to
define. There are many diverse
essential aspects that must be considered when dete
rmining affordability. In relation to
home loans, a borrower’s housing affordability can
be explained as credit providers
measuring the relationship between a borrower’s hou
sehold income to the borrower’s
basic household expenditure (Milligan
et al
., 2007:26). Many financial institutions are
governed by policies which restrict the granting of
home loans that exceeds 30% of the
borrower’s gross income (Gabriel
et al.,
2005:6).
Mulliner, Maliene and Smallbone (2012:270) argue th
at the concept of housing
affordability is much broader than simply offsettin
g household income to household debt
and that there are many drivers of affordability wh
ich should include social and
environmental sustainability and the welfare of hou
seholds by taking into consideration
factors other than financial cost such as location-
related attributes, proximity to
employment opportunity, public safety and access to
services, etc.

Drivers Of Affordability
The various drivers of affordability must be consid
ered collectively when addressing the
term affordability. On a much broader scale careful
consideration must be given to the
key drivers of affordability that are influential i
n determining the affordability of a home
loan.

34
Figure 2.2 Drivers of Affordability
Source: AHURI Report (2007)
Figure 2.2 illustrates the different components tha
t lead to the affordability of a home
loan. The demographic factors play a vital role in
affordability, coupled with the demand
and supply of housing. A steady increase in demand
for housing will affect housing
prices (increased prices) (Vogel, 2012:14), which w
ill inevitably affect two other inherent
elements, namely, interest rates and household inco
me. One of the key drivers of
affordability, i.e., house prices, has a huge influ
ence on affordability and is discussed
below in detail.
2.8.7 House Prices
Supply and demand shifts in housing can either incr
ease or decrease house prices
(Vogel, 2012:14). In a case of an increase in deman
d, there would be a natural flow of
increment in house prices, which means a consumer’s
household income would have to
increase in order to be able to afford a house that
is of a much higher price. House

AN OVERALL ANALYSIS ON THE FINDINGS OF THIS STUDY

For this study a mixed methods approach was utilised to gather information on the
impact of the NCA on the affordability of home loans in Pinetown. The findings of this
study revealed that majority of respondents strongly agreed that credit providers are
complying with the NCA in conducting proper affordability and credit assessments on
potential home loan borrowers prior to the granting of credit. As a result, credit providers
have reduced the risk of reckless lending and have also prevented consumers from
becoming over-indebted by allowing consumers credit that is within their affordability.
According to Van Vuuren (2011:18) it is mandatory for credit providers to conduct
affordability and credit assessments as it will aid in maintaining a decline in consumer
credit risk. It must be noted that there is a small portion of respondents who disagreed
that credit providers did conduct affordability and credit risk assessments. As a result
their debt increased and they have become over-indebted since acquiring their home
loans. Zhao (2003:11) indicated that credit providers provide credit to only creditworthy

borrowers who are assessed against a set of criteria that credit providers utilise to
assess a home loan borrower’s creditworthiness. Most respondents agreed that credit
providers did provide adequate explanations to them regarding the process of acquiring
their home loan. In other words, most home loan borrowers were well informed by credit
providers, thereby enforcing new improved rights for home loan borrowers. With regards
to new improved rights for home loan borrowers’, respondents indicated that there was
regular communication, confidentiality was maintained at all times and that all applicable
costs relating to their home loan were explained to them. Van Heerden (2008:30)
explained that the NCA benefits credit consumers in that it creates new and improved
rights for all credit consumers.
Findings

Another finding is centred on the aspect that implementation which has been a huge
challenge for the local authorities within the city of Johannesburg. It seems there is a
huge gap between the policy in existence and the actual practice on the ground.
Corrupt allocation of land to individuals who already have much has been sighted as
one aspect hindering local authorities in providing proper housing to the people living
in Johannesburg. It was further identified that has also fuelled price increases by
property owners who become greedy and find it fit to charge exorbitant prices to
tenants for their properties. Issues to do with poor funding for housing subsidised
schemes. Although there exist a policy to spear head provision of houses to the poor
and disadvantaged people of Johannesburg, there is much being done in this regard.
Government should take the lead and be provided with information on how the housing
schemes are being carried out in Johannesburg in order for houses to go to the
deserving individual.

Recommendations

There is need to heavily involve the private sector in order to come up with solutions
to reduce the cost of owning or putting a roof on top of one’s head. One aspect that
can assist within this regard is that of reducing the cost of debt funding for social
housing developments. Other countries specifically, in Europe have successfully used
this strategy of to unlock cheap and reasonable loans at an international level in order
to give people adequate and affordable housing. The use of Private-Public partnership
will help to relieve on Johannesburg local authority in handling of pressure in handling
the housing challenge.

There is need to stimulate rental subsidies and utilities, cash rebates for investors and
tax breaks in order to stimulate interests from private organisation for investments and
partnerships with local municipality.

It is also the view of the researcher that there is need to grow investor confidence
within the country in order to get funding for low income households through non-
governmental organisations as well as private investments. As long as the returns
involved are appetising, private players will not hesitate to fund such initiatives.
However, the city of Johannesburg has to show a certain level of commitment in
providing other players within the industry to be more willing to come in and invest in
providing affordable accommodation to residents of the Johannesburg.

Another recommendation is centred on the aspect that in order to build their assets
base and enhance its capacity to leverage debt finance on housing, the city of
Johannesburg is mandated to negotiate a transfer of all their managed housing units
to private, however, it should be on a not for profit, sector at a reduced rates. This
should be in a position to immediately alleviate them from the ever increasing housing
backlog as well as expensive lodging charged by private property owners. A decrease
in housing demand will in return impact on the pricing of housing in a positive way for
those still in need of houses in the city of Johannesburg.

According to the findings of the research, a ver

y small number of low and middle
income groups have had access to credit. Therefore,
the government needs to
create a formal accessible credit market for these
income groupings to allow an
110
even spread of accessibility of credit. This will a
id the enhancement of consumer
rights.
2.
Credit consumers should ensure that they are wel
l informed prior to signing
home loan credit agreements and repayments should b
e made timeously, as this
will initiate a good credit record allowing the con
sumer better accessibility to
credit in the future. This will help to develop and
improve consumer rights and will
be of benefit to consumers in the long-term. Credit
providers should ensure all
information is appropriately disclosed to home loan
s borrowers prior to approving
and granting home loans.
Limitation of research
 In order to successfully conduct the research, the author was in need of certain
information from private owned properties, government owned as well as social
housing schemes provided within Johannesburg. However, obtaining such
information proved to be a nightmare for the researcher, as it was deemed as
company secrets and critical aspect on their operations especially within the
private sector. Limited data was provided within this regard.