1. New Understanding in Housing Markets
Leveraging Real Estate Value to Catalyze Urban (Re) Development
3 November 2014
Adelaide Steedley

2. Agenda overview Understanding markets Implementing the mission
Sustainable housing markets
Expanding the Housing Continuum
Applying the policy to the neighbourhood
Next steps, way forward

3. Housing Continuum All options, all prices Private sector Government
Informal
The gap
The housing continuum is really all the ranges and options of housing, from temporary shelter and informal housing, to the highest variety of housing ownership and occupancy models and prices. Whilst the government has done a great job of addressing the need for shelter, and the private sector has continued to provide a healthy range and supply to the top of the continuum, in what ways can the various sectors expand their participation in the housing continuum, to fill the gap left in the middle? This is where we work.

4. Understanding markets
Why is information important? Where would you invest?
Neighbourhood 1
Average home value, sales price and per capita income are one-third metro average
Almost half of the 11 000 households rent
Only 11% of houses have mortgage bonds
Over last five years, there have been very few new registrations
Neighbourhood 2
Outperformed the city in 4/6 key housing performance measures, indicating that the neighbourhood is growing faster than the city overall
5700 residential properties worth R2-billion
4 metro stations providing ready access to major CBD
R175-million total annual household income
R9-million in sales last year
So how is data important to understanding housing markets? What we have found is that methods to understand housing markets are often actually reinforcing old perceptions, rather than actively pursuing a new understanding. These two seemingly very different neighbourhoods are actually the same neighbourhood of Orlando West in Soweto, just southwest of Joburg’s CBD. Are we understanding market potential appropriately?
Reinforce perception or find opportunity?

5. Affordability How do you define affordability? Why is this important?
By Value
City A
48% of properties under R
City B
73% of properties under R
By Income
City A
Takes 1.7 times average income to afford average property
City B
Takes almost 4 times average income to afford average property
Another very important area requiring more specific understanding is affordability, which must take into account local income data. It is extremely important to informing how organizations and their partners actually accomplish their missions and meet investment goals. City A is Tshwane, City B is Mangaung. This has important implications for implementing appropriate housing solutions.
Why is this important?

6. Current Housing Environment
How are housing opportunities currently created?
Opportunistically
In isolation
Risk averse
How would we like (or need) them to be created?
Strategically, core driver of growth and planning
Common understanding aligned across the housing spectrum
Within a context of opportunity, not risk

7. Housing Market Reports
Purpose
To provide housing market information, with a specific focus on opportunity
To build common understanding across
the entire housing delivery chain
Methodology
Common data, indicators
Shared visual understanding
Cutting edge technology
In 2014, the Centre produced a series of housing market reports for each of the nine South African major metros: Buffalo City, Cape Town, Ekurhuleni, eThekwini, Johannesburg, Mangaung, Mzundusi, Nelson Mandela Bay, and Tshwane. These reports were intended to drive new understanding of the potential of affordable markets in the cities, and share that understanding, using a platform of common data (deeds registry and census data), create specific housing development indicators, and display the information on charts and maps. We used common leading cutting edge business intelligence technology to make the results accessible as possible.

8. Findings Active: activity outpaces overall market
Growing: appreciation outpaces overall market, percentage of market share is growing
Greater leverage: less lending, greater appreciation means more equity to leverage
Less risk: more equity invested, on par payment performance
Does this resonate with your experience?
Would partners be more likely to activate housing?
Understanding markets appropriately is important because we found several counter-intuitive aspects of affordable markets in South Africa. They are more active and growing faster than the housing market overall. Because of historical circumstances, lending in these markets offer greater leverage and less risk than anticipated.

9. Active: Housing Performance Index
Less growth
Less decline
More growth
How do affordable markets fare?
Housing Performance Index,
By Metro,
Housing Performance Index,
By Affordable Areas,
In seven of the top nine markets in the country, affordable markets (those houses worth less than R ) are growing more quickly than the metros in which they are located, as measured by six key housing indicators: price and value appreciation, sales, bonded sales, new registrations and churn.

10. Growth: Housing Index locally
Housing Performance Index
By suburb, Johannesburg, 2013
Homeownership markets are growing along corridors, areas targeted for growth
What has municipality done or is doing to encourage this growth?
What can cities do to leverage growth near its target areas?
The property values of affordable markets have outpaced the overall market in every year but one since Sales transactions of homes under R are also growing as a share of the overall market in many cities. In Buffalo City, market share went from 30% to 40% of all sales from 2011 to 2012.

11. Growth: Market share, appreciation
All Sales
By property segments
Property Value Appreciation
All metros and Affordable properties,
2008 – 2013
Affordable properties
All metros
The property values of affordable markets have outpaced the overall market in every year but one since Sales transactions of homes under R are also growing as a share of the overall market in many cities. In Buffalo City, market share went from 30% to 40% of all sales from 2011 to 2012.
Residential values of affordable properties are growing faster each year since 2008, except the 2009 dip
Market share is growing, keeping pace

12. Greater leverage: greater equity More accurate picture means more effective market solutions
Average equity = R
Reduces average sales price by about half
Mo payment = R34k to R20k
This is the most common way families move up the continuum
Most affordable properties, average equity of R
Saves R7k per month
Greater investment lowers risk
Who is investing in metro housing markets?

13. Lending: Sources Who is investing in metro’s residential growth?
As you expand view of market growth, expand view of partners.

14. Lending: bonded sales growth As markets grow, loan investment leverages that growth
While not the most sales, experiencing the most growth in sales and bonded sales
Cities can look closer at these dynamics – where are new sales?

15. Lending: new sales Where are all these new sales?
What can the city do to leverage its investment?
What is the city doing to ensure ongoing affordability?

16. Affordability: from Income to Price More accurate picture means more effective market solutions
Affordability is best measured as the relationship between local incomes and local sales prices. Tshwane’s above average incomes and below average sales prices makes it most affordable.

17. Affordability: from Income to Price More accurate picture means more effective market solutions
Metro’s percent affordable suburbs by income is half those considered affordable by value
By comparing the purchasing power of local average incomes to local sales prices, it is possible to better measure true affordability to the residents living there. While areas of Joburg like Soweto and Ebony and Ivory Park appear affordable by value, their relative affordability changes considerably when local incomes are taken into account.
How does it look at the neighbourhood level?

18. Affordability: Affordability Ratio More accurate picture means more effective market solutions
Suburbs Affordable By Price:
Average price is below R
Suburbs Affordable By Income:
Average price affordable by average income
Green and yellow dots : average value under R
Darker red: less affordability
By price, Ebony and Ivory Park are “affordable,” Randburg is not;
By income, many areas are affordable to those living there, many areas are not;
City can be clear when defining “affordable” - internally, and externally.

19. Expanding the Housing continuum
3 ways governments help close the gap:
Build it directly
Entice development through incentives
Legislation
Grants, subsidies
Land
Collaborate directly
Joint ventures, co-develop, share ownership
There are three ways to close the gap: build the solution directly, finance the construction and ownership, and collaborate with other partners to own and manage the various parts of the whole development. Program missions, business models and resources are usually aligned along this spectrum, which is appropriate because one size does not fit all. Yet how can we know where to best apply these range of solutions, when housing markets and models are so different? How can we align those desired conditions to local markets?

20. How Market Intelligence Helps
Match methods and solutions to neighbourhoods:
Which housing scenarios do we want (rental, homeownership, affordability), and where
The tipping point: the least govt investment to entice most private sector investment
Lead on strategies to expand continuum:
Designate sites – densities, zoning, access
Target markets – affordability, incomes, equity
Steer investment – subsidies, bulk, transit

21. Housing Target Index
Score it, map it, consider it

22. Does this reflect priority areas?
Test the methodology
Are these areas to prioritize rental (for example)?
Do they meet the organization and program mission? Can they attract private investment?
Turn methodology into program guidelines, ie:
“Affordable” means …
“[Program] serves areas x% area avg income”
“[Program] serves households % area avg income”
“Sustainable” means …
[Program] should prioritize dense areas as defined by..
[Program] targets high growth areas, as defined by …
Targets diverse market, % rental, % ownership

23. Applications Convey opportunities Test, establish program criteria
Accomplishments, investments, markets
Test, establish program criteria
Enticements, loan guarantee funds, interest rate subsidies, downpayment/closing cost/loan programs
Strategic planning, decision making
Site/resource allocation, timing
Measuring impact
Market expansion, returns on investment

24. New Understanding in Housing Markets
Thank you!
Adelaide Steedley