The development of a low-income housing finance sector in South Africa: Have we finally found a way forward?

Abstract

Since the 1994 democratic elections, the South African government has been intent on encouraging the country's financial sector to extend finance to low-income households as a means of delivering an acceptable standard of housing through its housing subsidy scheme. This paper examines the history of lending to low-income black households beginning in the late 1980s and describes the problems encountered by the banks from the early 1990s onward. It also demonstrates how intertwined the development of housing finance has been with the formulation of the country's housing policy. As a means of understanding the development of the sector, the following issues are considered: the effort to mobilize mortgage finance via the banks; the shift in focus toward the use of micro-finance for housing purposes via non-bank lenders; the competition that has arisen between the banks and non-bank lenders; the recent attempt by government to compel the banks to lend through community reinvestment-type legislation and the banks’ response through the establishment of a Financial Sector Charter negotiation process aimed at transforming the entire financial sector. The paper concludes by offering some judgments as to whether this recent attempt by government and the banks to break through the decade-old housing finance logjam will be successful.