In his State of the Nation address on 6 February 2025, President Cyril Ramaphosa outlined Government’s intentions to provide more housing in South Africa’s city centres, reclaim hijacked buildings and transform our cities into economic hubs.
Source: Supplied. Paul Jackson, CEO: TUHF.
As a leader in impact investment with an affordable housing outcome, Trust for Urban Housing Finance (TUHF) has been a vocal advocate for investing in affordable housing that promotes urban densification.
“Well-located housing in urban areas stimulates local economic growth, resulting in opportunities for businesses and ultimately creating jobs. Housing, as part of the real economy, is crucial to transforming our cities and stimulating the growth President Ramaphosa wants to achieve,” says Paul Jackson, chief executive officer of TUHF.
Housing as the foundation for economic growth
The Harvard plan to fix South Africa – released in November 2023 – points to tackling persistent spatial exclusion of the country’s most vulnerable as one of two key areas that can make a positive impact on South Africa’s persistent growth and equality challenges.
Affordable housing development in South Africa – the crucial component of addressing spacial exclusion – has followed a simple principle since 1994: build as many houses as possible, as affordably as possible, to accommodate as many people as possible in decent homes. This well-intentioned approach has led to housing developments being built on the periphery of cities, where land is affordable and building costs can be kept low.
However, it has also inadvertently resulted in uniquely extreme patterns of low density and fragmented city structures – or urban sprawl. “Cities are built the way they’re financed,” Jackson quotes Bertrand Renaud. “So, when housing investment focuses on achieving the lowest possible upfront cost in the annual budget without accounting for fiscal and economic impacts in the longer-term, urban sprawl is inevitable.
“It is ultimately the most expensive way to provide housing, and exacerbates social, economic and spatial exclusion of the poor, with negative impacts both on the economy overall, and on the fiscus,” Jackson explains. “TUHF’s own research and 21 years’ on-the-ground experience supports this view.
“Housing is part of the real economy. Spacial inclusion through properly located, affordable housing leads to local economic growth. And economic inclusion results from this economic growth as people start businesses or find jobs.”
While housing policy has long supported urban densification, housing development practice has not followed suit. This is what TUHF believes needs to change. Investing in broad-based research to understand what kind of housing is needed, where, and what the longer-term impacts of housing development will be – both on the economy and on the fiscus – is necessary to adapt private and public investment effectively.
Understanding fiscal impact
Reducing upfront spending on land and building costs may deliver excellent housing delivery results within the constraints of an annual budget but does not account for the additional investment required after the fact. For a housing development to be built on the outskirts of a city, new infrastructure – physical, social, and administrative – must follow, increasing the real costs that are not accounted for in the financial accounting model.
Furthermore, people living on the outskirts remain impoverished. They have little access to employment – whether formal or informal – and cannot pay for utilities consumption. This negative drain on Local Government coffers is a drain on the fiscus.
An economic cost/benefit analysis is needed
“Government cannot collect income from spatially excluded households, simply because of indigence. This means these costs must be carried by other parts of the tax base. Taking a medium-term view, investing in the delivery of housing on the periphery is the most expensive and unsustainable housing development. This public finance impact i.e. Local Government’s fiscal sustainability should be motivation enough to reconsider the approach to housing development,” Jackson points out. “But the overall role of housing in the real economy adds fuel to the fire.”
Jackson continues: “A certain level of densification is necessary to stimulate social and economic action. Distant, low-density residential areas simply cannot support social- and small-business opportunities that generate growth.
“In contrast, TUHF’s in-fill project approach to affordable housing development stimulates both social and economic activity around our buildings. Inclusive growth is a micro-economic concept that can only be achieved one building, one block and one community at a time.”
Government needs to invest in research into what affordable housing needs to look like and where it needs to be located to stimulate economic growth. As Jackson says: “If you don’t know where you’re going, any road will get you there.”
He advocates for a thorough economic analysis, an economic cost/benefit analysis together with a comprehensive medium-term fiscal analysis, to understand the role of urban densification in stimulating real economic growth, local Government and fiscal sustainability and a more inclusive South African society.
The research must include a demand analysis i.e. what people want and need. For example, public and private-sector developers assume that larger housing is preferred even if it is located far from economic hubs. But TUHFs experience suggests that people will happily live in smaller, quality accommodation if it provides access to economic opportunities – whether business opportunities, formal jobs, or self-employment.
“The continued growth of informal settlements – despite being unsafe and lacking access to services – also suggests that what people want and what is being provided may not align.
“Without government-led research, it is very difficult to fund housing developments in a way that stimulates positive fiscal outcomes and inclusive social and economic impacts. The research needs to examine the impact of different types of housing to inform city funding decisions and enable public and private investments that turn our cities into engines of growth.”
TUHF’s urban densification drive
TUHF has long been a champion of urban densification and its ability to uplift individuals and communities. This is why the company has expanded its areas of finance beyond the inner cities to include any urban area that can benefit from densification.
“We support entrepreneurs who want to invest in areas with multi-sector local or micro-economies, and where affordable housing would stimulate increased economic and social action,” Jackson explains. “We favour infill projects where existing land and buildings can be developed to densify existing urban areas.
“A national objective of 10,000 average 20-unit developments per annum for 10 years. These projects are also better aligned with environmental, social and governance guidelines because they reuse existing materials and leverage existing infrastructure.
“We welcome President Ramaphosa’s commitment to refocusing housing developments in urban areas along key development corridors. This commitment must be supported by directing funds not only towards building projects but also towards government research to guide public investment,” Jackson concludes.
“Affordable housing developments must support urban densification and spatial inclusion if they are to support inclusive economic growth.”
