Saturday, August 18

Developer incentives must be ‘adequate’ to mitigate risk

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Inclusionary housing policies are usually either obligatory or voluntary

Inclusionary housing policies are usually either obligatory or voluntary, and with each type, adequate incentives are needed to offset the cost to the developer, says Rode & Associate’s Erwin Rode

The lack of such incentives, especially if the programme is compulsory, as proposed by the City of Johannesburg, could inhibit the development of all classes of housing, which would eventually push up prices of existing housing stock.

Rode says some examples of incentives are: 
* Density bonuses (conditional rezoning to allow more height and more bulk).
* Reduced parking requirements.
* Rebate on contribution to the cost of engineering services.
* Rebate on assessment rates payable to the municipality.
* Fee waivers.
* Expedited planning approvals.

“These are incentives a municipality can offer without incurring serious costs to itself.”

Rode says fee waivers and expedited planning approvals are “nice gestures”, but would not improve the viability of a development by much, if at all. A programme that enforces inclusionary housing, as the City of Johannesburg’s proposal aims to do, is risky as no one knows what the unintended consequences will be the most obvious being a strike by residential developers. 

Deon van Zyl, of the Western Cape Property Development Forum, says Rode’s concern about scaring the development industry away presents a logical argument. If the business model does not make sense for a developer, why would they engage in it?

In scenarios where local municipalities trade what they have with developers for what they want, he says a local authority’s stock in trade is that it can grant development rights and provide infrastructure capacity. Basically, it can provide a better or worse management service which, from a developer’s perspective, relates to the certainty of outcome, turnaround time in decision making, and pro-active infrastructure investment by local authorities. 

“A local authority may also own surplus land which may or may not be attractive to the open market.”

A developer brings a different offering, Van Zyl says: “The developer aspires to understand market conditions, brings capital or access to capital, and is required to implement with speed. The most important stock in trade is the willingness to take risk in lieu of profit. All decisions on whether to engage are underpinned by clarity and certainty of risk. If policy and commercial reality do not speak to each other, there will be no delivery.”

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