Addressing the urgent need to combat SA's urban sprawl

Source: Supplied. Paul Jackson is the chief executive officer of TUHF.

Our simple thesis is this: investing in affordable housing within cities is key to stimulating economic growth and producing positive fiscal outcomes.

Our research shows a staggering backlog of 3.7 million affordable housing units across cities and townships. This challenge is exacerbated by urban sprawl, which hinders economic growth and strains fiscal resources.

Urban densification, especially through residential investment, drives local economies, enhances access to business opportunities, and facilitates job creation by leveraging existing physical, social, and administrative infrastructure.

This leads to an increase in property values and civil discipline in making service payments, which ultimately strengthens the local and national fiscus over time.

With a medium-term perspective, the state benefits from a stronger fiscal foundation, which enables further investment in infrastructure and housing development.

Investing in affordable housing in cities: A strategic imperative

Some municipalities may argue that constructing new developments on the outskirts is cost-effective, but in truth this only exacerbates urban sprawl and perpetuates cycles of economic exclusion and poverty.

Research consistently shows that individuals residing on the periphery are more likely to remain marginalised, unemployed, and economically disadvantaged.

Low-density housing far from city centres stifles opportunities for business development and job creation. Those who do find work often face exorbitant commuting costs, which limits their ability to pay essential expenses such as rates, taxes, and utility bills.

TUHF, therefore, stands by our conviction that affordable housing investment should not be relegated to the periphery of cities. While it may require higher upfront costs, the long-term benefits - such as stimulating local economic growth and positive fiscal impact - far outweigh the initial expense.

The disconnect between policy and practice

Urban densification is a stated policy priority at all levels of government. However, the gap between policy and practice remains wide.

Cities are built the way they are financed. Unfortunately, public-finance practices remain a significant barrier to well-located affordable housing.

Government budget allocations often operate in isolation, resulting in affordable housing developments - especially RDP housing - being pushed to the outskirts due to lower land costs. This perpetuates economic exclusion and places a long-term burden on the fiscus.

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Public-sector budgets must be realigned to prioritise infill and well-located housing projects. Though these investments may require higher initial allocations, the alternative exacerbates urban sprawl which necessitates new infrastructure and services. These are often not paid for due to indigence, adding to an already considerable fiscal burden.

By contrast, in-city housing developments yield long-term benefits, including increased property values, enhanced service payments, and broader economic growth. The cost of in-city development is more than justified when considering the medium-term fiscal and economic impacts.

The role of private investment

The challenge of affordable housing is not one that government can tackle alone. Private investment, particularly from micro- and medium-scale property developers, is essential. TUHF, with its 21-year track record, has demonstrated that it is possible to achieve significant scale in affordable rental housing.

We provide inclusive development finance to property entrepreneurs in cities and townships, supporting urban densification and the economic benefits that come with it.

TUHF and its subsidiaries stand out as one of the few institutions willing to provide inclusive development finance to property entrepreneurs in inner-cities, in-cities and townships, achieving significant scale in affordable rental housing.

Our model - if taken seriously as a national investment strategy aiming for 10,000 small-scale (average 20-unit) projects per year - is not only achievable but also crucial for addressing the affordable housing backlog.

We recognise that addressing urban sprawl requires tailored approaches, as each region presents distinct opportunities and challenges. Our 'feet-on-the-ground' strategy allows us to leverage local insights, ensuring our developments meet the unique needs of the communities we serve.

In-depth, local market knowledge is a critical factor we consider when assessing potential financing partners and enhances our specialised approach to risk.

We have found that local market knowledge and lived experience are often more reliable indicators of success for the entrepreneurs we finance, compared to traditional metrics. This hands-on approach increases our ability to make sound, well-informed business decisions.

Equally importantly, our focus on impact investment enables ordinary South Africans to enter the property market and stimulates inclusive, local economic growth. Job creation, small enterprise creation and access to opportunity are some of the micro-economic impacts we measure over and above our affordable housing outcomes.

Challenges in affordable housing investment

However, accessing finance for affordable rental housing is only the first hurdle. Rising operational costs – including rising property taxes and service charges which have outpaced inflation – create additional challenges for developers.

Corruption in many areas of local government, including the national and metro police services, issues surrounding cross-border trade and bribery, and the rise of "construction mafias", complicate the investment landscape. Some municipalities are beginning to address these challenges, but the problem persists.

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Additionally, non-payment in certain areas further complicates the fiscal landscape, as demonstrated by the way inner-city revenues are used to subsidise less financially stable regions. All these factors combine to have a negative impact on property investment and are leading to disinvestment.

A net positive for inclusive growth

Despite these obstacles, well-located affordable housing remains a fiscally prudent and economically inclusive investment. By refurbishing existing buildings in inner cities, developers can capitalise on existing infrastructure, reducing the costs associated with outlying developments. Quality, affordable housing boosts property values and stimulates economic activity, making urban densification a financially sound strategy.

Inclusive economic growth is fundamentally a micro-economic issue. The creation of small and medium enterprises and job opportunities happens at the neighbourhood level.

When safe, decent affordable housing is available in a neighbourhood, economic activity is stimulated by virtue of the fact that tenants can pay their rent, access goods and services from local small businesses and engage in the amenities available. Access to affordable housing is crucial for unlocking wealth-generating opportunities and fostering livelihoods.

TUHF’s partnership with The Jobs Fund is a testament to our commitment. Together, we have successfully delivered 125 affordable housing projects, creating nearly 3,000 units and over 1,900 jobs.

This collaboration demonstrates the transformative potential of well-located affordable housing for local economic development. Local economic development, in turn, stimulates the fiscus as people pay their rates, taxes (including Vat) and utilities.

Addressing urban sprawl requires a strategic, long-term approach that prioritises in-city affordable housing. By leveraging existing infrastructure and focusing on urban densification, we can create a scalable, replicable, and sustainable environment for inclusive economic growth.

And the net effect is fiscally positive. Affordable housing is not just a social need; it is an investment in the future of our cities and our country.