MUNICIPAL RENTAL HOUSING

Transcription

1 MUNICIPAL RENTAL HOUSING Third Edition Toolkit for the Development of a Municipal Policy Information Framework Cases Golden Principles

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3 Team: Mr. F. Burgers Ms. M. Essink Ms. C. Flores Mr. E. Hoofs Mr. M. Kolisa Ms. M. Westervelt The toolkit you find in front of you is a third and extended edition, developed within a programme by SALGA (South African Local Government Association) and VNG International (International Cooperation Agency of the Association of Netherlands Municipalities), which is a component of a Memorandum of Agreement on Social Housing between the South African National Department of Human Settlements and the Dutch Ministry of the Interior and Kingdom Relations. Donors: This toolkit has been developed with the utmost care to make it as comprehensive as possible. As the rental housing sector is very dynamic and complex, it would be impossible and beyond the scope of this toolkit to give a complete overview of the sector. For specific questions and problems, you are referred to several institutions and organizations, mentioned throughout the document. This toolkit should be seen as a guiding tool for the development of a municipal rental housing policy, not as a blueprint. Copyright SALGA. First Edition October Second Edition June Third Edition December 2012.

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5 Foreword by the CEO of SALGA As part of SALGA s mandate to represent, support, and advise local government, we are proud to present you with the third edition of the SALGA Rental Housing Toolkit. Whilst the disquieting size of the housing backlog continues to be one of the main concerns in our country, municipalities are increasingly taking on the responsibility of facilitating accessible and affordable housing for all South Africans. Thereby, SALGA recognises its responsibility to guide and capacitate municipalities throughout the several stages of rental housing facilitation. The Toolkit has been designed to guide South African municipalities in understanding the available rental housing programmes, to aid in identifying a need for rental housing within their area of jurisdiction, and to encourage municipalities to commit to a rental housing programme according to their municipal needs and specific context. We trust that the Toolkit will inspire the formulation of municipal rental housing policies, an initiative that SALGA considers to an important first step towards reducing the existing national housing backlog.

6 List of abbreviations and acronyms BNG CEO CRU DHS HDA IDP LUMS MEC MFMA MoU MSA NASHO NHFC NSHP PFMA PMU PPP RDP RZ SALGA SDF SHI SHRA VNG International Breaking New Ground Chief Executive Officer Community Residential Units Department of Human Settlements Housing Development Agency Integrated Development Plan Land Use Management System Member of the Executive Committee Municipal Finance Management Act Memorandum of Understanding Municipal Systems Act National Association of Social Housing Organisations National Housing Finance Corporation National Social Housing Policy Public Finance Management Act Programme Management Unit Public Private Partnership Reconstruction and Development Programme Restructuring Zone South African Local Government Association Spatial Development Framework Social Housing Institution Social Housing Regulatory Authority International Cooperation Agency of the Association of Netherlands Municipalities

7 Table of Contents Chapter I: Introduction... 1 Chapter II: Municipalities and Rental Housing... 5 Part one: Rental Housing... 5 Part two: The Community Residential Units Programme Part three: The Institutional Subsidy Part four: The Social Housing Programme Chapter III: Getting started Chapter IV: Generic Framework Part one: What to do? Part two: How to do it? Chapter V: The MFMA and Rental Housing Delivery Part one: The MFMA Part two: Delivery agents of rental housing Part Three: Frequently Asked Questions Chapter VI: Performance Agreements Part one: Introduction Part two: Generic Framework for a Performance Agreement Appendices Appendix 1: Overview of the Rental Housing Sector Appendix 2: Roles and Responsibilities of the Actors Involved in Social Housing 101 Appendix 3: Municipal Accreditation Appendix 4: SHI Accreditation Appendix 5: Rules for the establishment of a municipal entity Appendix 6: Guiding Principles of the National Social Housing Policy Relevant literature and websites

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9 Chapter I: Introduction Chapter I: Introduction 1. What is the aim and target group of this toolkit? We hereby present you with the third version of the SALGA Municipal Social Housing Toolkit, now additionally covering a range of rental housing options next to the option of social housing. This new edition, known as the SALGA Municipal Rental Housing Toolkit, serves as an updated version of the previous toolkits, and aims to expand its scope by explaining the three subsidized rental housing programmes, these being the Community Residential Units (CRU) programme, the Institutional Subsidy, and Social Housing programme. The issues related to defining a rental housing policy are discussed in the light of these three programmes, and additionally an outline and step-by-step guide for formulating a policy is provided in this toolkit. The aim of this toolkit is therefore to inform all municipalities on the options of rental housing, and will be particularly useful for those municipalities that are currently considering the development of a rental housing policy in order to reduce their housing backlog. The toolkit can therefore be considered a handbook on rental housing, and can be used as a guiding instrument in the formulation and writing process of a municipal rental housing policy. Box 1: Purpose of the toolkit This toolkit is primarily an instrument for the development of a municipal rental housing policy. It provides thorough information on rental housing, accompanied by a framework for formulating a rental housing policy and a corresponding performance agreement. Although the toolkit centers on rental housing, the framework is generic and can therefore be used to develop a housing policy as desired by your municipality, whether more general or more specific than the framework we provide you with. 1

10 Chapter I: Introduction 2. Why do we as a municipality need to develop a municipal rental housing policy? The provision of subsidised rental housing has been identified as one of the key ways in which to deal with the nation-wide housing shortage, thereby aiming to ensure that South African citizens gain access to affordable and quality dwellings. If a municipality intends to commit to rental housing facilitation, it will need to develop and implement a strategy, making the development of a municipal rental housing policy a crucial first step in the planning process for rental housing. This strategy must take the current and future demand for rental housing into account, and will rely on such factors as spatial planning and the available municipal budget. Furthermore, these plans will have to be aligned with other departments within the municipality, and must also complement existing municipal, provincial, and national policies and legislation. Therefore, considering the range of factors that need to be taken into account for the formulation of a rental housing strategy, this toolkit has been developed in order to identify and translate the key points into one coherent document. Only then can housing backlogs be effectively reduced at a national level, by planning and implementing rental housing at a municipal level. Box 2: Municipality s responsibility to plan and act Although municipalities have a legislative requirement to support housing, the rental housing policy should not merely be considered a mandatory task demanded by other spheres of government. Regardless of what may happen or change at the national or provincial level, the municipality will always need to have its own strategy for rental housing, in response to its local circumstances and demand. It is therefore the responsibility of the municipality to take initiative in planning and to take the necessary measures for the implementation of rental housing. Hence, remember that the initiative for rental housing lies with your municipality, and that you must plan and act for rental housing. 2

11 Chapter I: Introduction 3. Why is a municipal rental housing policy especially important at this moment in time? The housing sector is currently undergoing many changes in South Africa, where the provision of rental housing is becoming an increased priority on the national agenda. In the past few years, the sustainability of human settlements has become a matter of precedence, in which the delivery of rental housing has been identified as an opportunity to contribute to sustainability. Rental housing is believed to be a sustainable housing option, as it guarantees the affordability of housing, whilst ensuring access to basic services and making efficient use of land. Meanwhile, the delivery of rental housing is becoming an increasingly pressing issue as South Africa continues to experience rural-to-urban migration, and demand for housing continues to grow in urban areas. Therefore, although rental housing may not yet be necessary or applicable in all municipalities, it may become so in the near future, and it is therefore advisable to have a thorough understanding of rental housing. For this reason, each municipality must familiarise themselves with the rental housing programmes, and explore its applicability and potential contribution to reducing the nation-wide housing backlog. 4. How to use this toolkit? The present toolkit discusses the concept and types of rental housing, explains the issues related to rental housing, and serves as an instruction manual for the formulation and implementation of a municipal rental housing policy. The toolkit is structured as follows: The first chapter offers a brief introduction to the purpose of this toolkit. The second chapter provides information on rental housing and on the legal framework for rental housing. This chapter furthermore discusses the three different types of subsidised rental housing programmes in detail, these being the Community Residential Units programme, the Institutional Subsidy, and the Social Housing programme. Chapter three explains the basic conditions which need to be in place before considering the development of a rental housing policy, thereby reflecting on the applicability of rental housing in your municipality. 3

12 Chapter I: Introduction The fourth chapter is the heart of this toolkit, as it has been equipped with a generic framework serving as a step-by-step guide for writing your municipal rental housing policy. The chapter has additionally been supplemented with a range of real-life and fictional municipal examples, which may serve as inspiration for your municipal rental housing policy. Chapter five gives an explanation on the implications of the Municipal Finance Management Act (MFMA) on your rental housing policy, and explains a range of uncertainties regarding the municipal relationship with the rental housing delivery agents. Lastly, chapter six explains the importance of signing performance agreements with delivery agents, and also includes a generic framework for the development of these agreements. 4

13 Chapter II: Municipalities and Rental Housing Chapter II: Municipalities and Rental Housing Part one: Rental Housing 1. What is rental housing? Rental housing forms an important part of the housing market. It is an alternative option for households who cannot afford to buy a house (yet) or for those who are looking for temporary housing. The principle of renting is that a tenant pays rent to a landlord to occupy a unit. The following picture shows the concept of rental housing: + = Tenant pays Rent to occupy a Unit Within rental housing, a differentiation can be made between subsidised rental housing and non-subsidised rental housing. Non-subsidised rental housing is mostly provided by the private sector, which means that the level of rent depends on supply and demand. To enable people with a lower income to gain access to affordable housing, the government has introduced subsidised rental housing, which aims to provide affordable housing for the low to middle income group. There are three different subsidised rental housing programmes, which are: The Community Residential Units (CRU) programme The Institutional Subsidy The Social Housing programme 5

14 Chapter II: Municipalities and Rental Housing These three programmes will be thoroughly discussed throughout this Toolkit. Keep in mind that when referring to rental housing in this toolkit, subsidised rental housing is meant. 2. What is the legal and policy framework for rental housing? There are a number of policies and legislation that influence the rental housing sector. Some of these are applicable to the entire housing sector, while others are specifically applicable to the rental housing sector. The most important legislation and policies for rental housing will be described below. Thereafter, the specific legislation and policies for the three different rental housing programmes will be discussed. Legislation and policy The Constitution of the Republic of South Africa (1996) as the supreme law of the country, states that, everyone has the right to have access to adequate housing. In order to fulfil this right, the South African government has introduced several policies, strategies and legislation over the years. The Housing Act (1997) and its amendments facilitates the sustainable housing development process by defining the general principles and functions (including roles and responsibilities) of national, provincial and local government with respect to housing development. The Rental Housing Act (1999) and its amendments state the responsibilities of government in the rental housing sector, as well as the rights and responsibilities of tenants and landlords. Furthermore, the Social Housing Act (2008) establishes a sustainable social housing environment and defines the functions of all spheres of government with respect to social housing. This Act also provides for the establishment of the Social Housing Regulatory Authority (SHRA). The Prevention of Illegal Eviction and Unlawful Occupation of Land Act (PIE, 1998) is relevant legislation for rental housing, as it provides for the prohibition of unlawful eviction and describes procedures for the eviction of unlawful occupiers. This is especially important for municipalities dealing with tenants that are failing to pay their rent or unlawfully occupying rental units. There are two other Acts, not specific to the rental housing sector, but which can have an impact on the performance of municipalities in the delivery of housing. 6

15 Chapter II: Municipalities and Rental Housing These are the Municipal Systems Act (MSA, 2000) and the Municipal Finance Management Act (MFMA, 2003), which will be further discussed in chapter V. Approved by the Cabinet in 2004, the Comprehensive Housing Plan for the Development of Integrated Sustainable Human Settlements, also known as Breaking New Ground (BNG), reflects a shift in emphasis from the provision of housing to the establishment of sustainable human settlements. One of the elements of the BNG plan is to facilitate rental housing for income groups earning below R7500 per month. The National Rental Housing Strategy aims to speed up the delivery of rental housing units, with the Social Housing programme and the CRU programme forming part of this strategy. In 2010, the national government introduced an Outcome Based Approach to improve government performance. This approach is comprised of 12 outcomes, one of these outcomes is Outcome 8, which focuses on the housing sector. The core of this particular outcome is to upscale the development of affordable rental housing stock by delivering 80,000 units by The National Housing Code (2009) contains a broad overview of the housing programmes. It outlines the policy principles, guidelines and norms and standards of the housing programmes. 3. What is the role of the municipality in rental housing? Although the National and Provincial government are legally required to take all reasonable measures to provide South African citizens with access to adequate housing, municipalities too play an important role in this. The municipality initiates, coordinates and has to create an enabling environment to facilitate the development of rental housing units, making the municipality an important actor for the relationship between the delivery agents, the provincial government and other stakeholders. The exact tasks of municipalities with regard to rental housing can differ per housing programme, and will be discussed in more detail later on in this chapter. Some of the main tasks of municipalities in rental housing are to: 7

16 Chapter II: Municipalities and Rental Housing Create an enabling environment to facilitate the development of rental housing; Plan for sustainable human settlements; Facilitate delivery; Identify the land for the development of rental housing and; Create the accurate infrastructure for the development of rental housing projects. When identifying the location of rental housing, it is important that projects are developed in areas with access to economic and social amenities. However, for rental housing projects to be implemented and well-coordinated, it is important to appoint a champion within the municipality. The champion will be the central contact person and coordinator of the housing projects in the municipality, thereby responsible for monitoring the projects and maintaining contact with all the relevant stakeholders. By law, the municipality is required to plan for rental housing through the Housing Chapter in the Integrated Development Plan (IDP). To do this properly, the municipality must formulate its objectives and goals regarding (rental) housing. This creates a clear framework for the formulation of a rental housing policy, and in turn the policy must ensure to contribute to the objectives and goals stated in the IDP and its Housing Chapter. Overall, a compatible IDP, Housing Chapter, and rental housing policy, will contribute to an integrated and sustainable development of the municipality. 4. Municipal Accreditation The Department of Human Settlements (DHS) has delineated a process for the accreditation of municipalities. The main goal of accreditation is the progressive delegation of certain functions to municipalities, which previously were the responsibilities of the provincial government. To become accredited, municipalities will have to demonstrate that they have sufficient capacity to perform specific functions. There are three levels of accreditation, which correspond to the level of capacity of the municipality. 8

17 Chapter II: Municipalities and Rental Housing When municipalities reach level three they are fully accredited. The three levels are: Level one: Subsidy budget planning and allocation; Level two: Programme management and administration (in addition to level one); Level three: Financial administration (in addition to level two). Municipalities can apply in writing to the Member of the Executive Committee (MEC) for accreditation. In order to assist municipalities in building their capacity, funds are made available by the DHS. Subsequently, once a municipality has succeeded in becoming accredited, many roles and responsibilities of the provincial government are passed on to the municipality. An overview of the components and definitions of the three levels of accreditation can be found in Appendix 3 of this toolkit. More information on accreditation and the available support can be found at 5. Who are the main stakeholders? As discussed in the previous paragraph, the municipality is an important actor within the rental housing sector. Besides the municipality, there are however, other important stakeholders involved in rental housing. These stakeholders can be involved in the rental housing process at different stages, being responsible for the legislation, implementation or organisation of rental housing. The National Department of Human Settlements (DHS) The DHS is the overall leader in the housing sector, ensuring the quality and quantity of housing delivery. It develops the regulatory and legislative environment for rental housing, which enables all stakeholders in the sector to operate effectively. Furthermore, the DHS is responsible for the overall monitoring of the sector. 9

18 Chapter II: Municipalities and Rental Housing The Provincial Departments of Human Settlements (PDoHS) The Provincial Departments of Human Settlements (PDoHS) share the mandate to provide access to proper housing with the DHS. These departments are responsible for approving, allocating, and administrating all rental housing subsidies, and provide a provincial regulatory and legislative framework in which provincial housing priorities are addressed. This provincial framework needs to be aligned to the national framework, and municipalities and other stakeholders must operate within it. The PDoHS need to work closely with municipalities in identifying the development of rental housing projects, explaining the importance of the relationship between municipalities and the provincial departments. Social Housing Regulatory Authority (SHRA) In accordance to the Social Housing Act (2008), the Social Housing Regulatory Authority (SHRA) was established by the DHS in The SHRA is in charge of the accreditation of Social Housing Institutions (SHIs) and has the responsibility of monitoring their performance and compliance with regulations. Importantly, the provision of grants to SHIs is carried out by the SHRA. More information on the SHRA can be found on their website: and more information on the levels of SHI accreditation can be found in Appendix 4 of this Toolkit. The delivery agents in rental housing projects There are a range of delivery agents in the rental housing sector, such as municipal entities and non-profit companies known as Social Housing Institutions (SHIs). Additionally, there are delivery agents that exist as private sector companies or Public Private Partnerships (PPPs). Regardless which type of delivery agent a municipality is dealing with, delivery agents are responsible for the delivery and the management of rental housing projects. More detailed information on delivery agents will be provided in chapter V of this toolkit. 10

19 Chapter II: Municipalities and Rental Housing 6. Who can provide capacity building and financial support? To assist in the development of a strong and sustainable rental housing sector, a number of organisations can provide financial or capacity building support. Below we name a few examples: SALGA The South African Local Government Association (SALGA) is mandated as the voice and representative of local government. SALGA provides information and guidance to municipalities and provides a conducive environment for municipalities by lobbying relevant stakeholders. This toolkit is part of this guidance and will help municipalities by describing and determining their position and tasks in the rental housing sector. NASHO The National Association of Social Housing Organisations (NASHO) represents SHIs throughout South Africa. NASHO aims to support SHIs specifically and the rental housing sector in general, through methods of representation, advocacy, information provision, capacity development and support. HDA The Housing Development Agency (HDA) was established in 2009 to make well-located land and buildings available for the development of sustainable human settlements. NHFC The National Housing Finance Corporation was created in 1996 to ensure affordable housing finance for the low to middle income group. In the affordable housing finance market sector the NHFC acts as an innovator, financer, and facilitator. For capacity building or financial support, a municipality can also consider international donors, large companies in the area, a foreign sister municipality, or other bodies with the capacity and willingness to provide support for the development of rental housing. Currently, some of these donors are already involved in projects for rental housing throughout South Africa. 11

20 Chapter II: Municipalities and Rental Housing More information on the organisations can be found with the following links: SALGA ( NASHO ( HDA ( NHFC ( Part two: The Community Residential Units Programme 1. What is the Community Residential Units programme? The Community Residential Units (CRU) programme, launched in 2007, is one of the main rental housing programmes provided by the DHS. The aim of the programme is to provide affordable rental housing accommodation by making funds available for the redevelopment and refurbishment of existing public housing stock as well as for the development of new rental housing units. The target group of the CRU programme are households earning below R3500 per month. To be able to afford the required rent for a CRU unit, households should at least earn around R800 per month. 2. How does the subsidy for CRU work? The CRU subsidy is applicable in every municipality as long as the housing stock is owned by either a provincial housing department or the municipality itself. The stock must remain in public ownership and the stock cannot be sold or transferred to the tenants. The CRU subsidy covers the total capital costs of project preparation and project development. Because of this, no loan funding is needed, making it possible to keep the rental rates affordable for the target group. After a minimum period of five years, a request for maintenance funding can be made, this funding being made available after every 5 year period. The subsidy does not cover the running costs for management and maintenance, as these costs need to be recovered from the rent collection. The amount of the subsidy varies, depending on the type of development and size of the project. It is calculated per square metre and based on standard development costs and on whether the housing involved will be newly built, or whether it entails refurbishment or renovation. 12

21 Chapter II: Municipalities and Rental Housing 3. What is the role of the municipality in the CRU Programme? The municipality is the leading actor in the CRU programme and is responsible for the application of CRU funding at the PDoHS. Municipalities can either outsource the management of CRU projects to a delivery agent or manage the CRU project through their housing department or municipal entity. For municipalities that are dealing with capacity challenges, it is especially recommended to delegate the management tasks to an external party. An overview of the exact roles and responsibilities of municipalities can be found in the CRU chapter of the National Housing Code at: Part three: The Institutional Subsidy 1. What is the Institutional Subsidy? The Institutional Subsidy is one of the rental housing subsidy programmes initiated by the DHS, with the main objective of delivering affordable rental housing. The Institutional Subsidy is applicable in all municipalities and has been in place since This subsidy is only granted to delivery agents, who can apply for the subsidy at the PDoHS. 2. How does the Institutional Subsidy work? The subsidy is based on a fixed amount per household earning below R3500 per month, determined annually by the national government. Provinces can however, choose to add a specific amount to the subsidy, due to specific circumstances, such as the geological situation of the area. The delivery agent is responsible for the development and management of one or more projects, thereby being responsible for the collection of rent, maintenance of the units, and tenant administration. The subsidy amount covers only part of the development costs of the project. The delivery agent needs to cover the rest of the costs through loan funding, equitable share, or other sources. It is considered difficult to develop an economically viable project with the Institutional Subsidy, since the construction costs have 13

22 Chapter II: Municipalities and Rental Housing increased over the last years and the income bracket of the subsidy has not been adjusted for inflation since its establishment. The units developed through the Institutional Subsidy must remain in ownership of the delivery agent for at least the first four years after they are built. The lease agreement will need to stipulate whether or not the delivery agent will offer tenants the opportunity for ownership, and thereby describes the conditions, the period and the costs of buying the unit. 3. What is the role of the municipality in the Institutional Subsidy? In projects financed with the Institutional Subsidy, delivery agents are the main actors and implementing agencies. The delivery agents however need to work closely with municipalities, as these parties have a relationship of mutual dependence. The delivery agent may need assistance from the municipality with regard to the provision of land and infrastructure. On the other hand, in order for the municipality to fulfil their goals towards the delivery of and access to proper housing, they depend on delivery agents to deliver the units required. Part four: The Social Housing Programme 1. What is Social Housing? Social housing is a rental housing option mainly delivered by SHIs, aimed at a target group of households earning between R1500 and R7500 per month. Box 3: Definition of Social Housing The Social Housing Act defines social housing as: A rental or co-operative housing option for low income persons at a level of scale and built form which requires institutionalised management and which is provided by accredited SHIs or in accredited social housing projects in designated restructuring areas. Social housing is a way of providing affordable housing with a focus on mediumto high-density housing. It strives for a socially, racially and economically integrated society. Social housing is not an instrument for mass delivery of 14

23 Chapter II: Municipalities and Rental Housing housing units, but is intended to create sustainable human settlements. The main providers are SHIs, which deliver and manage social housing. 2. How does the subsidy for Social Housing work? The subsidy for social housing is divided in two parts: the Restructuring Capital Grant and the Institutional Subsidy. The Institutional Subsidy has been discussed earlier, since it is also a subsidy on its own. The SHRA manages the allocation of the Restructuring Capital Grant, while the provinces will provide a top-up fund in the form of the Institutional Subsidy. Before the SHI can apply for the Restructuring Capital Grant, certain criteria must be met in order to be eligible for this grant. It is important to note that the Restructuring Capital Grant can only be used in areas known as Restructuring Zones (RZs). This means that the municipalities must apply at the national level for the approval of their RZ(s) before the SHI can apply for the Restructuring Capital Grant. See for an elaboration on the criteria that a SHI must fulfil in order to become eligible for the Restructuring Capital Grant. 3. What are the specific features of the Social Housing Programme? a. Restructuring Zones (RZs) RZs are geographical areas within the city that are identified by municipalities for targeted and focused investment. These tend to be areas within the city which provide beneficial opportunities for social and economic development. To be designated as a RZ, an area has to fit into a certain profile based on factors such as economic, social and spatial criteria. Currently, only a limited number of 13 municipalities have been selected where provisional RZs are designated and where social housing projects are implemented. The number of municipalities with RZs will be extended in the future. b. Accreditation SHIs The Social Housing Act describes an accreditation process for SHIs to stimulate and regulate the social housing sector. Accreditation for SHIs entails that the institution has been approved according to the criteria of the SHRA and is thereby considered eligible to apply for the Restructuring Capital Grant. 15

24 Chapter II: Municipalities and Rental Housing Municipalities can assist SHIs in achieving accreditation, through financial or inkind support. Only accredited SHIs, and companies implementing accredited social housing projects within the RZs, can apply for a Restructuring Capital Grant. More information on the accreditation levels can be found in Appendix 4 of this toolkit. 4. What is the role of the municipality in Social Housing? The municipality is an important actor in the social housing sector that initiates and coordinates social housing, whilst the SHIs are the implementing agencies. According to the National Social Housing Policy (NSHP), local government plays a key role in initiating and facilitating social housing. The task of municipalities is to create an enabling environment for SHIs and other developers, by providing the necessary incentives and support, and by facilitating the social housing process. Moreover, the municipality plays a central role in identifying the RZs where social housing will be initiated. In Appendix 2 an extensive overview is given on the roles and responsibilities of the major stakeholders in the social and the rental housing sectors, as stated by the National Housing Code. 16

25 Chapter III: Getting Started Chapter III: Getting started 1. Is rental housing applicable in our municipality? Before committing to rental housing, it is important to investigate and determine the applicability of rental housing in your municipality. Rental housing may seem very appealing, however you must ask yourself whether rental housing is a realistic option for dealing with your municipality s specific housing challenges. A useful rule of thumb is that rental housing tends to be especially beneficial in urban areas, whereas other housing options tend to be more appropriate for rural areas. This is due to demographic, economic, and spatial factors, which in urban areas favour the demand for and sustainability of rental housing. Chapter II of this toolkit describes rental housing, thereby illustrating the principles and characteristics of the three rental housing programmes. It is important to study chapter II, in order to determine whether the aims of any of these programmes reflect your municipality s ambitions and whether they reach the target group you have in mind. Also, consider the potential advantages and disadvantages of rental housing (see: Box 4) and create your own list of pros and cons, thereby weighing the impact that rental housing may have on your municipality. For more information, you can find guiding principles specific to social housing in Appendix 6, although many of these principles are also applicable for the other rental housing programmes. Remember that even if rental housing is not applicable in your municipality, this toolkit can be used for the development of your overall housing policy. 17

26 Chapter III: Getting Started Box 4: Advantages and disadvantages of rental housing To verify the applicability of rental housing in your municipality, you can consider the following advantages and disadvantages, and reflect on their impact on your municipality. Advantages Solution for people who cannot or do not (yet) want to buy a house Provides more variety in the housing supply, fosters a mix of income groups Can be considered an instrument to address urban sprawl and urban decay Can contribute to long term sustainability and economic growth of the municipality May attract professionals and investment to the municipality Disadvantages - Often requires institutional management - Can be difficult to make financially viable - May be difficult to get a healthy rent collection rate 2. Which basic conditions need to be in place before getting started? If you decide that rental housing is likely to be a success in your municipality, the next step would be to develop a rental housing policy. However, some preparatory work must be done before the rental housing policy can be drafted. There are a range of basic conditions (See: Box 5) that need to be in place, and which can be used as a checklist before developing your rental housing policy. 18

27 Chapter III: Getting Started Box 5: Basic conditions You need to appoint a champion (See: Case 1); a person with the capability and motivation to initiate and uphold the rental housing process in your municipality. You need to ensure political support for rental housing. Adopting a council resolution on rental housing support is a good way to ensure this. You need capacity, both quantitatively and qualitatively. This means you need sufficient staff in the housing department as well as staff with experience and knowledge of rental housing. You need to understand the rental housing demand in the municipality and the applicability of rental housing. Only formulate a rental housing policy if there is sufficient evidence to believe that rental housing will be viable and beneficial for your municipality. You need to inform all stakeholders upfront by outlining a policy development process and/or schedule. Case 1: Champion Challenge: The municipality needs a champion to take the lead in rental housing. Case: Buffalo City Metropolitan Municipality Having one person in charge of leading and coordinating rental housing is crucial in order to support and facilitate the processes of rental housing in the municipality. In Buffalo City Metropolitan Municipality, a champion is in charge of coordinating rental housing. The champion acts as a contact person for rental housing that all stakeholders can communicate with, and her role as a champion covers an array of responsibilities, ranging from engaging with the public to monitoring specific projects. Having a clearly identifiable champion has helped make rental housing more comprehensive for all stakeholders involved in the process, and is most certainly contributing to the municipality s ability to reach its rental housing goals and ambitions. 19

28 Chapter III: Getting Started 3. How do we relate the municipal rental housing policy to our IDP? Primarily, the relationship between the municipal rental housing policy and the IDP should be that the rental housing policy contributes input to the IDP. Simultaneously, the rental housing policy must integrate with and complement other municipal policies within the IDP. If possible, the municipal rental housing policy should base itself on information from the IDP, as well as other existing documents such as the Spatial Development Framework (SDF) and Land Use Management System (LUMS). It is important to have a thorough look at which documents exist and which ones are relevant in relation to the municipal rental housing policy. Information such as statistics and demographical data from these documents can be useful for policy formation, and will additionally ensure the compatibility of the documents in question. Nonetheless, it is important to note that in practice many documents have not been developed to the stage in which they can provide this required input. This implies that you may need to do additional research in order to obtain the information necessary for your policy. Once you have consulted with the IDP and other relevant documents and ensured your policy s integration with them, specific projects can be formulated. The figure below gives a schematic overview of this relationship between your municipal rental housing policy, the IDP, and other documents. As described in chapter II, the Housing Chapter is an important component of the IDP, and must cover the following information and criteria: Analysis; which includes the identification, specification and definition of demand. Strategies; which includes negotiated supply objectives and strategies. Projects; including the time frame and spatial planning of the implementation of projects. Integration; the Housing Chapter must be integrated with the other chapters of the IDP. 20

29 Chapter III: Getting Started 4. My municipality would like to implement rental housing. How do we proceed? If you have decided for rental housing, this implies that you are confident that rental housing is applicable in your municipality, that you fulfil the basic conditions for rental housing, and that you have a clear view of how the municipal rental housing policy relates to the IDP and other relevant documents in your municipality. The following figure gives an overview of the steps and considerations which need to be undertaken in order to get started. 21

30 Chapter III: Getting Started Once this is in place, you can commence with the actual process of developing the policy. Chapter IV explains step-by-step what information to include in your municipal rental housing policy. We would like to emphasise that you may choose for a range of people or departments to write different parts of the policy, but remember that the champion should direct and manage the overall writing process. Also, be mindful that it often takes time to gather the necessary information for the policy, as you will (partly) rely on a range of stakeholders in order to obtain this data. 22

31 Chapter IV: Generic Framework Chapter IV: Generic Framework This chapter provides a generic framework and serves as a step-by-step guide for writing a municipal rental housing policy. The framework consists of the following two complementing parts, the first part focusing on what your policy aims to do, and the second part describing how your policy will ensure to achieve its goals. Part one covers chapters one to six of the policy document and gives you the opportunity to describe the current housing situation in your municipality, as well as outline the specific goals and objectives of your rental housing policy. Part two covers chapters seven to nine, where you can specify the measures that need to be taken in order to reach your goals, as well as clarify how the monitoring and evaluation of the projects will be conducted. For the purpose of providing you with additional support, the chapters of the framework have been equipped with guiding questions and corresponding explanations that may help you in writing your municipal rental housing policy. Moreover, examples of several municipalities as well as the fictional Ekhaya Municipality can be found throughout the chapter, which serve as a supplementary indication on how to write your municipal rental housing policy. The generic framework we provide you with can be used as the foundation for your municipal rental housing policy. On page 25 you will find a table of contents, giving you an overview of topics that should be included in your policy, and which you may choose to use as the table of contents for your own municipal rental housing policy. 23

32 Chapter IV: Generic Framework Ekhaya Municipality: Ekhaya is a medium sized urban municipality. The population is relatively young and migration to the main city from rural areas is putting pressure on the housing market. The housing department has been looking at the possibility of rental housing based on the guiding principles of the National Rental Housing Strategy, the aims of Outcome 8, and on the local housing demand. They chose rental housing as one of the options to deal with their housing backlog. The housing department has determined the basic conditions by appointing a champion who will be leading the policy development. She will collect information from different organisations and institutions and will inform others within the department and the municipality who are dealing with rental housing as well. The idea of rental housing has been proposed to the council and they have given their political support in a council resolution. The champion will inform all stakeholders involved and outline a policy development schedule. 24

33 Chapter IV: Generic Framework Generic Framework for a Municipal Rental Housing Policy Part one: What to do? 1. Introduction 1.1 Concept of rental housing 1.2 Policy Objectives 2. Rental Housing Environment 2.1 Policy context 2.2 Legislation 3. Current Situation 4. Future Housing Demand 5. Obstacles to rental housing 5.1 Internal constraints 5.2 External constraints 6. Housing delivery goals 6.1 Vision 6.2 Mission 6.3 Objectives and Goals Part two: How to do it? 7. Housing delivery strategy 7.1 Actions to be undertaken 7.2 Financial implications 8. Responsibilities of other stakeholders 8.1 Responsibilities of stakeholders 8.2 Relationship between the municipality and SHIs 9. Monitoring and evaluation 25

34 Chapter IV: Generic Framework Municipal Rental Housing Policy Box 6: Executive Summary It is recommended to provide your policy with an executive summary at the beginning of the policy document, thereby presenting the reader with an impression of what to expect throughout the document. The executive summary should only be written once the policy document has been completed, as it should contain the most important findings and conclusions of the policy. Part one: What to do? 1. Introduction Guiding Question: Why do we need a municipal rental housing policy? In this first chapter you state generally why your municipality is developing a rental housing policy. At a national level, rental housing is considered to be a key component in the development of sustainable human settlements, explaining the national trend towards rental housing. Nonetheless, you must be able to demonstrate that your municipality has made an informed decision on rental housing, and that this type of housing offers a solution to your municipal housing issues. Therefore, this section gives you the opportunity to briefly explain the reasons why your municipality is opting for rental housing Concept of rental housing Guiding Question: What does the concept of rental housing mean for this municipality? Before considering a rental housing policy, a thorough understanding of rental housing is crucial in order to successfully write and implement a rental housing policy. It is therefore important to comprehend what rental housing is and how it works, as well as to have the possible implications in mind of rental housing in your specific municipality. At a national level, rental housing is considered to be one of the key instruments to provide secure tenure, aiming to reach those households earning less than R7,500 per month. However, keep in mind that 26

35 Chapter IV: Generic Framework although rental housing may be a national priority, its urgency is not necessarily applicable to all municipalities. You must therefore place the concept of rental housing in your municipality s specific context, thereby demonstrating the need for, and positive effects of, the implementation of a rental housing policy. Furthermore, it is also important to understand the pillars of affordable rental housing, these being the Social Housing programme, the CRU programme, and the Institutional Subsidy. Although these three programmes are all forms of subsidised rental housing, they each have a specific target group and subsidy system, which you can find in Chapter II of this toolkit. Ekhaya Municipality: The municipality has decided that rental housing will be one of the ways in which they will deal with their housing backlog. Ekhaya considers rental housing to play a key role in ensuring the provision of affordable, adequate housing in areas where the municipality has identified demand for this type of housing. Rental housing will make tenure available for a range of low to middle income target groups, and will thereby play an important role in contributing to Ekhaya s socioeconomic integration. Rental housing will also play a significant role in the urban restructuring of Ekhaya, as a result of regeneration schemes in inner city areas, as well as due to additional investments that a rental housing project may attract Policy objectives Guiding Question: What do we want to achieve with a municipal rental housing policy? The policy objectives should describe the ultimate purpose of the municipal rental housing policy. At a national level, delivering rental housing is considered to be an important measure for serving the lower to middle income group, which is a group that is not frequently catered for in other housing programmes. However, remember that you must ensure whether there is a need for this type of housing in your municipality, and whether there are additional positive effects that the policy may lead to in your municipality. Many municipalities with a housing backlog, for example, consider rental housing to be an attractive option because it has the potential of playing an important role in the regeneration of specific areas, such as decayed inner city areas. Therefore, a municipal rental 27

36 Chapter IV: Generic Framework housing policy can be considered an instrument in the goal for an overall improvement of municipalities and their communities. Ekhaya Municipality: The main objective of the policy document for Ekhaya is to create an enabling environment for rental housing development, growth, and delivery at scale. Regeneration of the city centre and reducing the housing backlog are priorities within the policy. Regeneration will be done by integrating social and economic activities and by integrating people from various economic, social and racial backgrounds. 2. Rental housing environment Guiding Question: In which context do we place rental housing in our municipality? The second chapter of the policy should place rental housing in your specific municipality s context, taking into account a range of existing policies and legislation that apply to your municipality. This will most certainly help in formulating a feasible policy of rental housing, which will be likely to succeed in achieving its objectives and goals Policy context Guiding Question: In what kind of policy framework should the municipal rental housing policy fit? It is important to bring your municipal rental housing policy in line with existing policies, thereby aiming to align your policy with other spheres of government, as well as within the local level. This makes it possible to detect how your policy may be influenced by external policies, as well as determine how your policy may contribute to existing municipal, provincial, and national targets. Alignment with other spheres of government (Vertical alignment) Your policy needs to align with provincial and national policies as well as with other relevant programmes. You have to indicate which policies and programmes are of importance for social housing in your municipality and how 28

37 Chapter IV: Generic Framework they influence your policy. Revisit Chapter II of this toolkit for an overview of the main national policies that need to be taken into consideration during the process of designing your municipality s policy, such as BNG and Outcome 8. Additionally, it is important to consult your province s housing policies and programmes, as these often differ per province, and can affect your rental housing policy. Once you have gathered this information, you can proceed to describe how your policy will link up with and support provincial and national policies. Alignment within the municipal level (Horizontal alignment) At the municipal level, it is important to align the rental housing policy with the process of integrated development planning. As stated by the MSA (2000), all municipalities are required to compile an IDP, which should also include a Housing Chapter. Hereby, municipalities are responsible for ensuring linkages between housing delivery, spatial planning, transportation systems, and more. The IDP demands that all policies submitted for inclusion in the IDP must already be interrelated before submission; an IDP is not a pot in which you can stir until all policies are integrated. In theory, an IDP should give detailed guidelines for project planning in the different departments and divisions. Spatial Development Frameworks (SDFs), form a decisive component of the IDP, making it recommendable to consult with spatial planning during the formulation of your rental housing policy. Additionally, your municipality may have other documents that are relevant for rental housing and to which the rental housing policy should be aligned. As soon as you have identified relevant municipal policies, you will be able to put in writing what the municipal policy framework is, and how your rental housing policy complements it. Ekhaya Municipality: The housing department has decided to align its main objectives of rental housing with the National Rental Housing Strategy and Outcome 8, therefore aiming to gear rental housing provision to scale, and to address affordability and access for lower income groups to rental housing. The policy is also aligned with the province s rental housing programme and with the municipal IDP. 29

38 Chapter IV: Generic Framework 2.2. Legislation Guiding Question: What is the legislative context of rental housing in our municipality? The Constitution (1996) stresses the right to access to adequate housing. In order to give effect to the formulated policy however, you should look at other existing legislation and identify the regulations that will define the formulation of your policy. It is extremely important to familiarise yourself with the Housing Act (1997) and the Rental Housing Act (1999), which outline the overall responsibility of the government towards (rental) housing. Chapter II, paragraph 6 of this toolkit, describes other important legislation to take into consideration, such as the Social Housing Act, the MSA, and the MFMA. Important to note is that many municipalities stumble on the MFMA, as its provisions may come into conflict with the policy your municipality is aiming to formulate. More information on the MFMA can be found in Chapter V, where we briefly explain how the MFMA works with regard to rental housing and delivery agents, and in addition answers key questions concerning the formulation of your policy and the MFMA. For further details on the legislation we refer you to the website of the Department of Human Settlements: 30

39 Chapter IV: Generic Framework Ekhaya Municipality: Ekhaya has made an overview of the most relevant legislation that they need to take into account while developing their rental housing policy. The Housing Act of 1997 clarifies the roles and responsibilities of the three governmental spheres. The Housing Code gives practical guidelines. The Social Housing Act of 2008 describes the roles and responsibilities of all involved stakeholders, establishes a sustainable social housing environment and defines the functions of all spheres of government with respect to social housing. The Provincial Housing Act aligns with the National Housing Act and sets out the powers and duties of the MEC responsible for human settlements. The Rental Housing Act of 1999 is the legislative acknowledgement of the rental sector and the rental housing tribunal. The Prevention of Illegal Eviction and Unlawful Occupation of Land Act (PIE) of 1998 significantly affects the ability of a landlord to evict defaulting residents. The amendments of the Acts are also relevant. 31

40 Chapter IV: Generic Framework 3. Current Situation Guiding Question: What is the current rental housing situation in our municipality? In this chapter you describe the current situation of rental housing in the specific municipal area of jurisdiction. This is an important first step towards developing a plan for rental housing delivery, as it will provide you with an overview of the municipal strengths and shortcomings in terms of rental housing. You can, for instance, mention the developments regarding the following aspects of your municipality: The main stakeholders in the housing field, The current municipal housing stock, The current backlog, The number of SHIs established, The number of current projects, The nature of the rental housing supply (Social Housing, Institutional Subsidy, or CRU), Demographic statistics, Waiting lists, Include any other data that will help you formulate an adequate and informed rental housing policy. Some of this information can be drawn from the IDP, whilst any missing information may best be completed by carrying out research. Performing a socioeconomic study is a good way to obtain up-to-date information for planning the delivery of rental housing. This way, you will also be better prepared to deal with any transformations on the composition or size of the needs of your target group. This research will also provide information with which you can estimate how much of the housing backlog is formed by different target groups, and will help determine whether one or more of the three rental housing programmes best fits the local demand. Another method for obtaining information is to organise a brainstorm session with all stakeholders, in order to obtain an overview of the demands that need to be dealt with in the future (See: Case 2). In order to ensure a feasible outcome of the policy, we recommend you to discuss the current situation in a meeting with the main stakeholders involved in the rental housing process. It may also be a good idea to establish a working group within the municipality containing 32

41 Chapter IV: Generic Framework representatives of all departments that will be involved in the rental housing process, in order to ensure the same positive effect. Case 2: Stakeholders Challenge: In describing the current situation it is essential to have a clear overview of the most important stakeholders in the process of rental housing. After the stakeholders have been identified, their roles and responsibilities need to be clarified in order to avoid overlaps or vacuums. Case: Camdeboo Local Municipality Through a twinning programme, Camdeboo has worked together with its sister municipality from The Netherlands in order to design a method for public participation. Together the municipalities have identified the following stakeholders: Camdeboo Municipality; owner of the sites and project Eastern Cape Province; provider of the housing subsidies Own Haven Housing Association (OHHA); the proposed SHI to develop the project Directly involved pubic; future tenants with low and middle income levels The mentioned stakeholders were involved in different activities throughout the process of rental housing, such as meetings and a series of interactive workshops. (See also SALGA s Good Practices in Public Participation in Rental Housing ) 33

42 Chapter IV: Generic Framework Ekhaya Municipality: The champion of the housing department has organised a three-hour meeting with the main stakeholders, in order to discuss the current situation, which turned out to be as follows: The estimated housing backlog at the moment, based on socio-economic surveys, is units. Of these 15000, 5000 units should be targeting the social housing income group (R1500-R7500). The remaining units should be targeted at the CRU income group (R800-R3500). The municipality has no previous experience with rental housing. There is one newly established SHI, Smart Home Solutions that does not have the capacity to supply all the units for the demand of Ekhaya. The private sector, on the other hand, would be able to deliver and manage 1000 units in the next five years. There are hostels as municipal housing stock, which after refurbishment could count for an additional 1500 CRU housing units. On the outskirts of the city there are two major townships, and many middle and upper class people are moving from the inner city to newly developing areas west of the city. The vacancies in the inner city are not being filled because of the high prices. 4. Future housing demand Guiding Question: How will the housing demand develop in the future? In the previous chapter you described the current situation in your municipality, ranging from the housing backlog to the demographic situation. In this chapter you use this information to draw a picture of what you think will happen in the future and how the housing demand and supply will develop. It is also useful to make an informed estimation of what the needs of your target group may result in, in the years to come. Once again a socio-economic survey is a good way through which to obtain this information. Take into account determining factors such as (un)employment, the average age of the population, the effect of HIV/AIDS, and any other issue that may affect the housing demand. It may be worthwhile to consider a range of possible scenarios for the future demand. For instance, visualize the effect on the rental housing 34

43 Chapter IV: Generic Framework demand based on a high growth rate, and consecutively also determine the alternative effect that a low growth rate may have. To estimate and formulate the future demand, economic developments and changes in the demographics should therefore be projected onto the current demand. Keep in mind that South Africa is rapidly changing, and that economic and demographic developments will continuously have an impact on rental housing. This makes it crucial to be aware of how the economy and demography in your municipality may be changing, in order to be able to implement educated measures in advance. Ekhaya Municipality: Due to the young population and the migration from rural areas, the increase of the population will cause an estimated additional housing backlog of 4000 units over the next five years. With the current backlog of 15000, this increases the total housing backlog to units. The increase in future backlog for the Social Housing income group is estimated at 1000, whilst the CRU housing income group s increase is estimated at 3000 in the coming five years. Due to the young population, several facilities will be needed, such as schools and day care centres, in areas where these young families live. 5. Constraints on the way to rental housing Guiding Question: What kinds of constraints or problems will we have to deal with? When developing a municipal rental housing policy it is good to have insight into potential problems or constraints, so you can solve them or find a way to deal with them upfront. Although you may have already encountered some constraints in your current situation (chapter three of your policy), this particular chapter gives you the opportunity to elaborate on how these may affect you. Challenges you may encounter while developing and implementing your rental housing policy can be divided into two categories. The first category includes internal constraints within your department or unit, which therefore fall within your own responsibility and authority. Internal constraints include problems such as shortcomings within the municipal housing department. The second category on 35

44 Chapter IV: Generic Framework the other hand, encompasses external constraints that may be affecting your department or unit. These describe problems that go beyond the power of the housing department, although they can still come from within the municipality. In order to solve any of these problems, the assistance of other departments and stakeholders will play an important role. Therefore, it is especially important to firstly identify possible constraints, in order to plan how to deal with them accordingly Constraints within our unit Guiding Question: What internal constraints will we need to deal with within our rental housing unit? The municipality s challenge is to facilitate the provision of adequate rental housing units in order to respond to the future demand for this type of affordable housing. However, there can be constraints within the department responsible for housing that can obstruct the policy development process or even the implementation of the policy. To be able to deliver an adequate policy, you need to be aware of the constraints you are facing and deal with them in an appropriate way. Common problems are the lack of personnel in the unit, insufficient experience or knowledge in rental housing, or even a lack of sufficient communication within the municipality. To confront these challenges, it may be wise to look for assistance from external groups, such as, municipalities with experience in rental housing, or national bodies such as SALGA. 36

45 Chapter IV: Generic Framework Case 3: Limited capacity Challenge: Many municipalities, but also institutions and organisations in South Africa, are dealing with a lack of capacity. This can be a shortage in the number of staff, although insufficient knowledge on matters related to rental housing is also widespread. Case: Camdeboo Municipality The department dealing with rental housing in Camdeboo did not have sufficient capacity, in staff as well as in knowledge, to develop a well-informed rental housing policy. In collaboration with their Dutch sister municipality, they contracted a research consultant from the Nelson Mandela Metropolitan University to conduct research on the local rental housing market. Furthermore, workshops between the sister municipalities contributed to the increase in Cambedoo s Councillors and officials knowledge on rental housing. Cooperation between these two municipalities allowed for Camdeboo to successfully write an informed municipal rental housing policy. Ekhaya Municipality: Since rental housing is new to Ekhaya, the knowledge base in the housing department as well as in the rest of the municipal organisation is limited. This has made it difficult for Ekhaya to start writing its rental housing policy. In order to overcome this limitation, the appointed champion, has gathered information from experienced bodies, such as SALGA, the DHS, as well as other municipalities that have an extensive understanding of rental housing. The champion has further distributed this information to other departments in the municipality that are also involved in rental housing. In order to assess the financial implications of a rental housing policy, Ekhaya has decided to hire an external consultant. 37

46 Chapter IV: Generic Framework 5.2. External constraints affecting our unit Guiding Question: What external constraints affect our rental housing unit? There will be difficulties that you will need to deal with during the policy development and implementation process that will not be directly under your control or authority. The delivery of rental housing needs to be done in combination with other facilities, such as infrastructure, which require input and cooperation from other departments within the municipality. This means that your policy will be partly dependent on external groups, such as other municipal departments and a range of stakeholders. If the input or cooperation from these groups is not effective or non-existent, you must find a way to deal with it so that your policy development process can continue without delay. You need to be aware of any possible constraints and deal with them by either solving them, or finding a way to work around them. We encourage you to organise and ensure that there is a clear communication method for your department to correspond with other municipal departments and stakeholders. Remember that quality communication plays a key role in preventing external problems and dealing with any other challenges that you may encounter. Ekhaya Municipality: One major weakness in Ekhaya is the lack of communication between the different stakeholders involved, including the departments within the municipality. The housing champion has identified this problem and aims to improve the situation. Her first step was to contact the different stakeholders individually and to organise a shared meeting every three months. This turned out to be a great success, as the other departments and stakeholders wanted to share information as well. 38

47 Chapter IV: Generic Framework 6. Housing delivery goals Guiding Question: How do we formulate our rental housing goals? In this chapter you set out the ambitions of your municipality for a certain period of time and explain how you plan to approach the challenges mentioned in the previous chapter. Based on the information you have gathered in the previous chapters, you formulate your vision, mission, objectives and goals Vision Guiding Question: What is our vision? Your vision should clearly define the ambitions of your municipality and the ideal conditions you are aiming for. It must also be in line with the national housing vision for South Africa: [a] nation housed in sustainable human settlements with access to socio-economic infrastructure. Remember that the municipal rental housing vision must also align with provincial and general municipal housing visions. Ekhaya Municipality: The vision of Ekhaya for their rental housing policy is: To ensure that habitable, sustainable, affordable, and secure rental housing units are developed on locations that provide access to employment opportunities, health, education, and social amenities Mission Guiding Question: What is our mission? A mission statement briefly explains how you want to achieve the preceding vision. It is a statement that describes an overall attitude that supports the vision, and therefore does not need to consist of measurable targets. 39

48 Chapter IV: Generic Framework Ekhaya Municipality: The mission that Ekhaya has stated for its rental housing policy is: to facilitate rental housing delivery by creating an enabling and effective environment Objectives and Goals Guiding Question: What exactly do we want to strive for in our policy? In this part of the policy you state your objectives and goals. Objectives set out the principles for rental housing that will guide the municipality in its path to rental housing. Goals are more specific and provide measurable targets, which can be used to evaluate achievements after the policy has been put to work. Repay a visit to the previous chapters of your policy, which should guide you in the formulation of your objectives and goals. You can choose to base your objectives on the targets set out by Outcome 8. These include important objectives such as accelerating the development of affordable rental housing stock, improving access to basic services, and the promotion of sustainable human settlements. Goals on the other hand, need to be specific, measurable, achievable, realistic, and placed within an explicitly defined timeframe. The main goals can include the number of units you are striving for, the plans you have for the existing units, the specific target groups, the geographical areas that you are looking into, and the period in which you wish to accomplish everything. Remember to coordinate these goals with your municipality s existing SDF when you are determining the areas for rental housing. Related goals may include the establishment of a delivery agent, the creation of commercial units, and the allocation of rental housing units to specific income groups, taking into consideration the options for rental housing programmes. Ensure that the objectives and goals you formulate are realistic, especially within the given timeframe. This includes keeping in mind the confines of your budget, your current capacity, and any constraints that you must work with. 40

49 Chapter IV: Generic Framework Ekhaya Municipality: Ekhaya s housing department has studied the targets of Outcome 8 and a range of existing policies, and with their current situation in mind, has formulated its objectives accordingly. The main ones are: 1) Responding to the housing demand. 2) Striving for urban restructuring. 3) The delivery of housing for a range of income groups, in order to achieve social integration and financial cross subsidisation. 4) The encouragement of economic activities in the area. To achieve these objectives the following goals have been formulated: 1) To build 6000 rental housing units within the next five years. 2) To build these units in open areas between the city centre and townships. Hereby the infrastructure in these areas area will be uplifted within the next five years. 3) To allocate rental housing units to different income groups (50% of the units will be allocated to the R800-R3500 income group, 25% to the R3500-R5500 income group and another 25% to the R5500-R7500 income group). 4) To stimulate economic activity, the housing department wants to allocate one commercial unit for every 100 rental housing units. These commercial units will be rented out as business premises. This will be in agreement with the delivery agents involved. Part two: How to do it? 7. Housing delivery strategy Guiding Question: How do we reach our goals? In this chapter, you will take your objectives and goals a step further by formulating concrete actions that are needed to achieve your goals and attach a budget to your actions. These actions include internal procedures that need to be carried out within your municipal department, as well as actions that concern other stakeholders. Each goal mentioned in the previous chapter should refer to one or more actions (to be formulated in section 7.1) and each of these actions could have a financial implication attached to it (to be formulated in section 7.2). It would be 41

50 Chapter IV: Generic Framework advantageous to attach each task to a person or department that will be responsible and accountable for its implementation Actions to be undertaken Guiding Question: Which actions must be undertaken? You know what you want to achieve with your municipal rental housing policy, now you have to think about how you are going to make it happen. The goals, stated in the previous chapter, must be connected to actual actions. This means that if you want to deliver 6000 units in five years, you need to ask yourself which actions need to be undertaken to get that number of units within the timeframe, based on the current situation. You need to have an overview of what is necessary to achieve these goals. To be able to achieve the targeted delivery in five years, you need a rental housing environment that is contributing to that delivery. You need enough SHIs or other delivery agents, but also the municipality and other institutions should be capable of servicing that amount of delivery. You need to ask yourself if, in the current situation, the rental housing sector in your municipality is adequately capacitated to implement your goals. If there are no delivery agents present or they can t deliver the number of units that you are targeting, you can look for providers from outside your municipality, either SHIs or private companies, or you can set up a SHI as a municipal entity or engage in Public Private Partnerships (See: Chapter V). Financial or other incentives, such as preferential access to land, buildings or municipal housing stock or reduced costs for municipal infrastructure and services or local fiscal benefits, could be useful tools to stimulate and steer providing agents. Of importance is to ensure that all providers, SHIs, private companies and others have the same opportunities and none of them will get special treatment. Other actions to be undertaken could include: application for subsidies with provincial or national government; the devolution of provincial- and nationalowned land to the municipality; organising the transfer of municipal housing stock to SHIs; etc. Actions that you take must be in accordance with the goals that you have stated. The champion of the department should be the person to coordinate all the actions that you plan. 42

51 Chapter IV: Generic Framework With the planning department you need to discuss the physical planning for rental housing by zoning for it in the SDF and by including rental housing projects in the IDP. Rental housing development should also be included in other planning initiatives, such as urban renewal programmes or corridor developments. Other actions could be organising socio-economic surveys, public participation sessions (See: Case 4) or (the consideration of) becoming an accredited municipality. There can be many other actions that you, as a municipality, have to undertake to achieve your goals. It is merely a matter of looking at your goals and logically attaching the appropriate actions to them. To deliver units often means you have to make changes in your municipality as well, including allocating additional resources, such as additional staff. Case 4: Rental housing information Challenge: The housing department should provide information and coordination between the stakeholders in the rental housing process. An accurately informed public plays an important role in the implementation of rental housing projects. However, the public are often overlooked as relevant stakeholders. Case: Nelson Mandela Bay Municipality Nelson Mandela Bay Municipality saw the importance of the public and chose for a cycle of workshops in all the identified RZs, in order to engage all directly and indirectly affected public. It provided an opportunity for informing stakeholders on what rental housing really is, hereby challenging some incorrect assumptions about rental housing that had been leading to much negativity around the concept of rental housing. Moreover, this was a successful method for learning about the public s perceptions and receiving useful input. Finally, the workshops also succeeded in getting officials and Councilors in line to cooperate in the field of rental housing, which many other municipalities experience to be a major challenge. 43

52 Chapter IV: Generic Framework Ekhaya Municipality: The main goal that Ekhaya has adopted is to deliver 6000 rental housing units within five years (Goal 1). The following actions are believed to ensure the achievement of this goal: 1a) The housing department will establish Ekhaya Housing Institution, a municipal entity. This entity should be able to deliver and manage 1000 Social Housing units in the next five years. Furthermore, the municipality will transfer the management of the hostels to Ekhaya Housing Institution, which will refurbish them and make 1500 CRU housing units out of them. 1b) The CRU units will be complimented by another 500 newly developed CRU units. Depending on the capacity of Ekhaya Housing Institution, these units will either be managed by the municipal entity, or will be outsourced to an existing SHI. 1c) The housing department will support the new municipal entity with staff, office space and some funds for the first two years. 1d) The housing department will also help identify and obtain additional funding for the new Ekhaya Housing Institution. Planning a meeting with the DHS is a priority. 1e) The municipality will sign contracts with private developers for the delivery of an additional 1000 social housing units. 1f) The housing unit will look for SHIs or other delivery agents from outside the municipality to deliver the remaining 2000 social housing units to reach their goal of 6000 rental housing units in the next five years. 1g) All rental housing projects will get municipal support in the form of land cost and service delivery incentives Financial implications Guiding Question: What will be the costs and benefits of our actions? Creating an enabling environment for rental housing, as well as building rental housing units, are costly operations which must therefore be planned carefully. The actual development of the units is a task for the delivery agents and should be financed by them through subsidies, loans, or other financial resources. The municipality however, is responsible for facilitating an environment for rental housing, and should therefore finance all the necessary actions connected to it. This means that in order to ensure the implementation of the policy, you will need to obtain a good understanding on the implications it will have on the 44

53 Chapter IV: Generic Framework municipal budget. Bear in mind, however, that the different types of rental housing will have different financial implications for your municipality. In this paragraph you shouldn t provide a specific budget, though it is important to strive for a good indication of the costs and their impact on your budget. Some of these costs will fall within the (rental) housing unit, such as the employment of extra staff. These costs can be quite specific. Other costs will be related to the support of the rental housing sector in general, such as tax rebates, the reduction of land prices, and bulk services. Although these costs cannot yet be specified, you should have estimations of what these costs may be. For instance, by determining the percentages of tax rebates that you aspire to give per rental housing unit, you will have an idea of the financial implications for your municipality. A specific budget however, can only be finalised once the projects have been entirely formulated and you know exactly how much you will have to spend e.g. on land price reductions. Besides describing the costs, in this paragraph you should also consider the financial benefits for the municipality that will directly or indirectly be derived from the development of rental housing units. Benefits can, among others, come from taxes. The indication of costs to create the enabling environment will give you and others in the municipal structure a good overview of what the financial implications will be in the strive to achieving your rental housing goals. This overview is absolutely necessary in order to discover to what extent the municipality is able to assist the rental housing sector financially. It is also important, as it will provide you with an indication of the potential benefits of creating a rental housing environment. It may be necessary to look into the possibility of obtaining additional funds for rental housing. You could, for example, in the event that you have a twinning relationship, ask your sister municipality for assistance. Other options can be to make use of national finance bodies, (international) donors, or anything in the like. Spend some time exploring these opportunities, as these organisations can often do a lot to financially support your municipality. Note that rental housing projects must be economically viable in the long term and that the delivery agent must be financially independent over time. 45

54 Chapter IV: Generic Framework Ekhaya Municipality: For the development of 6000 rental housing units the municipality will bear costs as well as receive revenues. After long negotiations between municipal officials and politicians, Ekhaya agreed on the following financial statements for the support of building the 6000 rental housing units: 1) R per year for the operation of Ekhaya Housing Institution, plus secondment of two staff members and free office space within a vacant municipal building. 2) Provide land to the rental housing developers with a 30% reduction on market prices. 3) Provide bulk services with a 50% reduction on market price. 4) Allocate four extra full time staff members to the Housing Unit of Ekhaya. 5) R per year for research on rental housing issues. Ekhaya also decided to search for funds from outside the municipality. They will at least have talks with their twinning city and the province to attract additional funds. 8. Responsibilities of other stakeholders Guiding Question: How do we divide the responsibilities? Firstly, it is important to ensure that you have identified all stakeholders involved, and informed them of the rental housing process. Now that you have also decided what actions to undertake in chapter seven of your policy, you need to make sure that all stakeholders involved in the sector are well aware of their tasks. This chapter therefore must include an analysis of the tasks of the stakeholders. There is a special section on the relationship between the municipality and the delivery agents, as they are crucial for the delivery of rental housing units. Their relationship to the municipality and the responsibilities to each other should be well formulated (See: Chapter VI). 46

55 Chapter IV: Generic Framework 8.1. Responsibilities of stakeholders Guiding Question: What are the responsibilities of each individual stakeholder? When you reach the implementation phase of the policy, you will notice that there are several stakeholders that influence your ability to successfully execute your municipal rental housing policy. Therefore, it is crucial to identify stakeholders, explain what is expected from them, and to do this at an early stage of the rental housing process. You should now reflect upon the roles and responsibilities of each stakeholder involved, based on the goals and actions that you formulated in the chapters six and seven. As mentioned earlier on, the champion will be in charge of coordinating and monitoring the actions of the stakeholders during the implementation phase. Where possible the stakeholders should be linked to the actions in chapter seven of the policy. According to the goals you have formulated in chapter six and the actions you have stated in chapter seven, you now have to designate responsibilities to all the stakeholders. One group of stakeholders that should certainly not be forgotten is the public. Not only does this group involve (potential) tenants, it is also important to involve the community in the area where rental housing projects will be located. For further information on how to approach this issue, see the SALGA booklet Good Practices in Public Participation in Rental Housing. Case 5: Responsibilities of primary stakeholders Challenge: As a municipality, you have to ensure that all stakeholders are well aware of their responsibilities and of what is expected of them. Case: Buffalo City Municipality The municipality has divided all the stakeholders into primary and secondary stakeholders. The primary stakeholders have been identified as the municipality, the delivery agents, the provincial housing department and beneficiary groups (tenants and applicants). The municipality has made an overview of the responsibilities of each of the first three primary stakeholders. 47

56 Chapter IV: Generic Framework For further details see Appendix 2, this gives an overview of the main stakeholders and their roles and responsibilities. For further information on the interaction with the community, see the SALGA booklet Good Practices in Public Participation in Rental Housing, available on the SALGA website. Ekhaya Municipality: The rental housing champion of Ekhaya described the roles and responsibilities of the different stakeholders as follows: 1) Municipal departments: a) The housing department is the champion and coordinator of rental housing; b) Other departments are aware and committed to undertake their specific tasks; 2) Province: a) There will be a Memorandum of Understanding between Ekhaya and the province stating agreements made between them; b) The province will receive the proposal of the RZs from the municipality and submit it to the DHS; c) Province will provide assistance in capacity building in the accreditation process of the municipality; 3) Social Housing Institutions: After a search for additional delivery agents the housing champion has found two SHIs that are interested in delivering and managing a total of 2000 social housing units in the next five years; 4) Ekhaya Housing Institution: they will deliver 1000 social housing units and manage at least 1500 CRU units; 48

57 Chapter IV: Generic Framework 8.2. Relationship between municipality and the delivery agent Guiding Question: How does the municipality relate to delivery agents? While chapter three of your policy can describe the current relationship between your municipality and the delivery agent(s), this specific section is reserved for describing the ideal relationship between your municipality and the delivery agents. It is important to mention what is expected from the delivery agents, what the role of your municipality will be, and also how the relationship will be monitored. The exact tasks of the municipality and the delivery agents with regard to rental housing can differ per housing programme. For the delivery of Social Housing, delivery agents (SHIs) will take on many responsibilities, as they are the main deliverers and managers of this type of housing. The main role of the municipality is to identify and seek approval for the RZs, as well as to take other measures which will create the environment that enables SHIs to develop social housing. With the CRU programme, a municipality plays a greater role in the implementation and management than in Social Housing. A municipality may, however, choose to involve one or more delivery agents in the management of the units. A municipality may decide to do so when it recognizes a lack of internal capacity to cope with the management of CRU stock. It can outsource the management of units to a delivery agent. However, the units will always remain in ownership of the municipality. In this case, it is particularly important to clearly describe what the tasks and responsibilities of the municipality and the delivery agent(s) will be. In projects financed with the Institutional Subsidy, delivery agents are the main actors and the implementing agents, as they are the sole bodies qualified for receiving the subsidy. Nonetheless, delivery agents and the municipality have a relationship of mutual dependence. In order to avoid future conflict, the municipality and the delivery agent(s) must engage in signing a performance agreement (See: Box 7), in which both parties clearly state what is expected of them. Besides a performance agreement signed with each delivery agent for individual projects, the municipality can also sign a 49

58 Chapter IV: Generic Framework generic partnership agreement with a number of delivery agents, which describes the overall relationship between the delivery agents and the municipality. In Chapter VI of this Toolkit we will discuss performance agreements in more detail. Furthermore, Chapter VI also contains a template for the development of such a performance agreement. Box 7: Relationship with the delivery agent The roles and responsibilities of the municipality and the delivery agent(s) should be clearly indicated. A rental housing policy on itself does not ensure the actual production of rental housing units. Several municipalities have seen the planning of rental housing and the establishment of housing institutions, yet have not succeeded in the delivery of a single unit. It is advisable to sign performance agreements with delivery agents in which the commitment of both parties explain their commitment to the delivery of rental housing. The municipality can, for example, make land and buildings available at a low cost, whilst delivery agents will take responsibility for delivering a certain amount of housing for a particular target group. The developments and the ability to fulfil the commitments should be monitored periodically. 50

59 Chapter IV: Generic Framework Ekhaya Municipality: Ekhaya has established a municipal entity, called Ekhaya Housing Institution. Together with the municipality, specific obligations and benefits have been agreed upon, which have been formally acknowledged in a performance agreement. This agreement states that the municipal entity must deliver and manage 1000 social housing units in five years and shall manage another 1500 CRU units from the former hostels. The municipality will assist the municipal entity in the establishment phase and it will provide funds for its operation and for additional research. Contracts have been signed with private sector companies that are executing rental housing projects. They will be delivering and managing 1000 units in five years. Apart from the support to the municipal entity in the establishment phase, the municipality will apply the same provisions to the private sector as it does to the municipal entity. 9. Monitoring and evaluation Guiding Question: How do we monitor and evaluate the policy? When all the targets have been set, the actions have been planned and every stakeholder knows what role it has to play, it is important to think about the implementation and how you want to monitor it. Specific implementation and monitoring plans can be made after the policy has been integrated into the IDP and concrete projects are formulated. In this chapter, however, you should write how you want to monitor and evaluate the activities planned in your policy. Monitoring is essential in order to control the implementation and delivery process of rental housing. Monitoring allows for the detection of problems at an early stage, and makes intervention possible when necessary. At the same time, it is a useful tool for measuring progress and for highlighting success. The monitoring process involves tracking the activity of several actors, including the delivery agent(s). In order to determine to what extent these are truly operating according to the performance agreement, municipalities should monitor their achievements. This can be done through regular meetings and annual reports, which can also be regulated in the performance agreements. 51

60 Chapter IV: Generic Framework Monitoring criteria can include such aspects as the number and type of units built, vacancies and arrears, demographics of tenants, financial status, and more. After a project has been completed, the evaluation is an essential learning component that will give a clear picture of all the achievements and shortcomings of the project. Therefore, this chapter should state how the rental housing project will be evaluated, who will be in charge of the evaluation, and which criteria will be used for evaluation. Criteria for monitoring and evaluation can be derived from the objectives and goals that you have stated in chapter six of the policy. If your goal was to deliver 6000 rental housing units in five years, and at the end of the five years you see that only 1000 units have been completed, you must ask yourself what went wrong. Why was the target not reached? Maybe the goals were set too high, or despite good planning, unforeseen obstacles were encountered. Identifying and recording what went wrong will help your municipality in the future. Box 8: Approval of the policy Now that the writing of your policy has been completed, it is time to seek council approval in order to guarantee the implementation process of your policy. 52

61 Chapter IV: Generic Framework Ekhaya Municipality: The rental housing champion of Ekhaya is in charge of monitoring the developments in the rental housing process. The champion has decided that the housing department must meet at least once quarterly with the delivery agents to discuss progress and potential problems. Additionally, all delivery agents have agreed to write a report every six months, thereby portraying the current situation and any possible developments. Ekhaya Municipality has set out the following criteria for evaluation: The number of units that have been established in five years. The number of units established in the inner city. The income groups divided over the new units. The number of commercial units established and rented out in five years. In addition, inhabitants of rental housing projects will be asked for their experience and feedback. Ten Golden Principles In order to summarize all the previous information, we have extracted the 10 most important points that you should keep in mind while developing your rental housing policy. We have named this overview the Ten Golden Principles, which will guide and support you throughout the process of developing a municipal rental housing policy. 53

62 Chapter IV: Generic Framework Ten Golden Principles for Developing a Municipal Rental Housing Policy 1. Familiarise yourself with the needs for rental housing in your municipality and use this as the base for your policy. 2. Identify a champion for rental housing and establish a rental housing entity (See: Box 5 and Case 2). 3. Find and ensure political support for the rental housing policy (See: Box 5). 4. Find or create enough capacity to develop and implement the policy. This includes a sufficiency in number of staff, as well as in competency and knowledge (See: Box 5). 5. Inform stakeholders before and during the writing process. The best way to do this is to organize a stakeholders forum (See: Box 5 and Case 3). 6. Aim for realistic objectives and goals. Take into account your weaknesses, those of other stakeholders, and the local situation (See: Chapter IV, headings 5 and 6). 7. Integrate the rental housing policy into the municipal Integrated Development Plan (See: Chapter III). 8. Sign a performance agreement with the SHIs involved, in which you clarify roles, responsibilities, and expectations (See: Box 7 and Chapter VI). 9. Ensure community support for rental housing. Neighbors need to understand what rental housing is, what it is not, and what the implications will be for the neighborhood (See: Chapter IV, heading 8). 10. Measure your outcome periodically by monitoring. Evaluate every project when it has been finalized. (See Chapter IV, heading 9) 54

63 Chapter V: The MFMA and Rental Housing Delivery Chapter V: The MFMA and Rental Housing Delivery Part one: The MFMA 1. Why dedicate this chapter to the MFMA? Interpreting the Municipal Finance Management Act (MFMA) and related legislation is often considered to be a challenge, having raised a number of questions at a range of municipalities throughout South Africa. This chapter has therefore been developed in order to answer the most frequent of these questions. Many municipalities have experienced difficulties with the legal aspect of the MFMA, thereby struggling with their relationship with delivery agents, particularly when it comes to ownership issues. Some municipalities, for example, have a previously established delivery agent that is a non-profit company, which they would like to convert into a municipal entity. Other municipalities do not have any existing delivery agents in the area, and would like to establish one, however feel uncertain about which structure to choose. Lastly, widespread uncertainties exist on the relationship between the delivery agents of rental housing and the municipality, particularly on the extent of control that a municipality should have over this agent. This chapter will give you an overview of the most frequently asked questions regarding the MFMA, and will serve to clarify these issues for you. Due to the extensiveness and complexity of the MFMA, we will not elaborate on all the legal details that the act covers. Nonetheless, this chapter will provide you with guidance on the MFMA,that may make it possible for you to have an informed foundation in order to commence the procedure of rental housing delivery. 2. What is the overall aim and purpose of the MFMA? The MFMA was enacted in 2003, with the purpose of creating and regulating norms for financial management in local government. The MFMA applies to all municipalities, all municipal entities, and to national and provincial institutions 55

64 Chapter V: The MFMA and Rental Housing Delivery of the state, providing they are dealing with municipalities. The Municipal Systems Act (MSA), the Companies Act and the Public Finance Management Act (PFMA) are important acts in combination with the MFMA. However, it is stated in the MFMA that the provision of the MFMA prevails in the event of any inconsistency between the MFMA s provisions and any other legislation which regulates any aspect of the fiscal and financial affairs of municipalities or municipal entities. Part two: Delivery agents of rental housing 1. Which types of delivery agents for rental housing can you choose from? For the delivery of rental housing, the municipality needs an independent company that will deliver and manage these rental housing units (See: Chapter II, paragraph 7). In order to deliver and manage the rental housing stock, each municipality will need to decide which type of company will best suit in their case. There are several options that the municipality can choose from, and the choice will largely depend on the local circumstances in each municipality. What will also affect this decision is the fact that each different type of delivery agent will have a different level of control that the municipality can exercise over it. Depending on these factors, you will be able to make a suitable choice for your municipality. In the following chapter, we explain what the options are for the delivery of rental housing, and then we proceed to elaborate on their advantages and disadvantages. Delivery agents: Option 1 Municipal entity: The first option would be to establish a a municipal entity as a delivery agent. In this case the municipality is the owner of the delivery agent and will monitor it, although most tangible work is done by the entity itself. Option 2 Public Private Partnership (PPP): The second option of rental housing delivery is through the establishment of a Public Private Partnership (PPP). This entails the municipality creating a joint venture with a private body. It is important to understand that a PPP is not a delivery agency in itself; it is simply a partnership between the municipality and another company that will be doing the delivery of rental housing units. 56

65 Chapter V: The MFMA and Rental Housing Delivery Option 3 Third party: The third and last option is the delivery of rental housing through a third party. This means that a company, other than a municipal entity, will do the delivery. This can be a non-profit or a for-profit company, such as a SHI or an independent for-profit company. Be aware that it is not possible to have rental housing units developed and managed by your municipal housing department. Remember that subsidies (whether the Restructuring Capital Grant or the Institutional Subsidy) can only go to authorized housing institutions. Re-examine chapter II for more information on the subsidies and the accreditation of SHIs. 2. How does the municipality relate to each delivery agent? The above mentioned three options all have different implications for your municipality, in terms of the level of ownership and degree of involvement that your municipality will have. Although the municipality has control over the output of the project, the control over the internal management of the institution decreases from delivery options 1 to 3. Regardless of which option is chosen, the municipality will have to sign a performance agreement with the delivery agent, which will always guarantee the municipality a certain degree of say in the outcome of rental housing delivery. If the delivery agent is a municipal entity, the municipality is the owner and main shareholder of the entity. However, a municipal entity is, at least in its management, independent from the municipality. The board of directors and the executive management of the municipal entity are accountable for running the day-to-day affairs. The municipality, on the other hand, has shareholder powers, meaning that they have the power to appoint directors and to exercise the majority of the votes at the company s general meetings. Furthermore, the budgets of the municipal entity must be submitted to the municipality, and the municipal entity is additionally subject to any recommendations from the municipality. The budget must be in line with the municipality s finances and Integrated Development Plan (IDP), giving the municipality the right to intervene in these affairs. Lastly, the municipality can choose to close down the entity if these or other conditions are not being met. In a PPP there are two partners; one of these being the municipality, and the other being a private company. This private company is an entirely independent body, meaning that the municipality has no control over the company s internal affairs. In the case of a PPP, the private company will perform a municipal 57

66 Chapter V: The MFMA and Rental Housing Delivery function on behalf of the municipality, or will utilise municipal property for its own commercial purposes. While the municipality retains ownership on the housing stock and land, the private party takes on most of the tasks and risks. Keep in mind that a PPP is a temporary partnership that has a fixed duration. Once the contract terminates, the stock and land will return to the municipality. Finally, if the delivery agent is a third party, this means that the municipality is dealing with a completely separate and independent company. This entails that the municipality cannot interfere in any way in its management. Considering that the municipality is not the owner or partner, as had been the case in the two previous delivery options, it is especially important for the municipality to sign a performance agreement with the third party. This is an extremely important tool, and perhaps even the only means, by which the municipality can clarify its relationship with the delivery agent in writing. Moreover, this document serves to enable the municipality to exercise considerable control over the outcome of the rental housing delivery. It is important to understand the correct proximity between your municipality and the delivery agent you have chosen to work with. For the municipality it is of interest to have sufficient influence on the delivery process, in order to ensure that the goals of its rental housing policy are realised. On the other hand, it is important that the delivery agent function without an excess of political interference so as not to obstruct its efficiency. Bear in mind that having a commercially effective delivery agent is also in the interest of your municipality as it will bring you closer to achieving your rental housing goals. To conclude, we recommend you to make sure to consider all three delivery options, taking into account your local situation, as well as the advantages and disadvantages of each option, which we will proceed to elaborate on. 3. What are the advantages of a municipal entity? A municipal entity is the only type of company that can be established by a municipality. The establishment of a municipal entity as a delivery agent may result from a range of reasons, varying from legal reasons to a lack of other alternatives. There are three types of municipal entities, these being; the private company, the service utility and the multi-jurisdictional service utility. Of these three options, the private company may be the best fit for rental housing, while the service 58

67 Chapter V: The MFMA and Rental Housing Delivery utility and multi-jurisdictional service utility are more appropriate for the delivery of services such as electricity and water. These two latter types moreover, are not able to acquire the Institutional Subsidy. One important advantage of a private company is that many creditors tend to prefer to give loans to private companies. This is because this allows creditors to take an equity stake, particularly when there are financial guarantees from the parent municipality. Without this guarantee, however, lenders are not very likely to provide finances. Keep in mind that this type of guarantee needs council approval and that there may be other restricting measures which you should be aware of. Since it can be quite a complicated and detailed process, we suggest you to familiarise yourself with section 50 of the MFMA. Please note that a private company in the context of rental housing, is defined according to stipulations in section 20 of the Companies Act, and therefore does not necessarily mean that the company is owned by private individual(s). In Box 9 we have summarised the advantages of establishing a municipal entity as a delivery agent. The Social Housing Regulatory Authority (SHRA) makes funds available for capacity building in accredited SHIs. This opens the possibility for building the necessary capacity for running a municipal entity. Another option is that your municipality agree to assist the delivery agent in the initial stages, for example with support in terms of finance and/or material assets. 59

68 Chapter V: The MFMA and Rental Housing Delivery Box 9: Advantages of a municipal entity Reasons for establishing a municipal entity as a delivery agent can be: a) Short communication lines: To a considerable extent, the municipal entity operates independently, though it is still owned by and accountable to the municipality as a representative of the public. Since the municipality is the owner of the entity, the communication lines between the municipality and the delivery agent will be relatively short. This principally implies that policy and implementation processes are closely linked, which can add to the effectiveness of policy implementation. Nonetheless, one needs to keep in mind that this close connection can also become a disadvantage, particularly in cases where the council intervenes and executes too much influence on the entity. b) Access to capital funding: Following the establishment of a municipal entity, the provision of the rental housing service will be of ring-fenced nature. This means that all revenues derived from this service will remain within the entity, and can therefore serve to reinvest in rental housing. Note that this is a feature that many investors deem attractive. c) Preferential procurement: Municipalities often prefer to make use of the municipal entity for the delivery of rental housing, since this allows all assets to remain within municipal ownership. Yet, one has to keep in mind that it is often better to have more than one supplier for rental housing, in order to spread the delivery. 4. What are the disadvantages of a municipal entity? There are certain restrictions that prevent some municipalities from establishing a municipal entity. The MSA lays out five rules that set restrictions on the establishment and use of municipal entities, and which are further explained in Appendix 5. According to the MFMA and the MSA, a municipality can only establish a municipal entity for the delivery of a municipal service. This comes into conflict with the Housing Act, where housing is considered to be a provincial and national service, and not a municipal service. However, it is undeniable that the local municipality has relevant tasks when it comes to rental housing. As has already been mentioned in Chapters II and III, the municipality is responsible for designing a plan for rental housing which matches the Housing Chapter of the municipal IDP. Furthermore, as previously explained, the municipality is 60

69 Chapter V: The MFMA and Rental Housing Delivery responsible for creating an enabling environment for rental housing. Therefore, these responsibilities should be emphasized in order to demonstrate that the establishment of a municipal entity is indeed a municipal service, and thereby avoid coming into conflict with the MFMA and the Housing Act. By clearly revealing the need for rental housing in your municipality, you can demonstrate that setting up a municipal entity fits within the definition of a municipal service. This should be demonstrated to the municipal council and treasury, who will give you the authorization of setting up the municipal entity. Box 10: Disadvantages of a municipal entity (continued) a) Administrative burden: Having a municipal entity for the delivery of rental housing places an enormous administrative burden on the municipality, especially due to bureaucratic rules of governmental organisations. This is an important reason why many municipalities have chosen for other types of delivery agents. b) Political influence: Since the municipality is the owner of the municipal entity, the municipality can easily cut the budget for the entity, and/or change the strategy. This can happen, for instance, when there are major changes in the priorities of the council after elections. This makes municipal entities especially prone to political instability. c) Low rent collection: As municipal entities are often perceived as being associated with the government and free housing, low rent collection rates are common amongst municipal entities, affecting their sustainability severely. 61

70 Chapter V: The MFMA and Rental Housing Delivery Case 6: Access to capital funding Challenge: Obtaining capital funding for projects can be particularly difficult for a municipal entity, due to the close link between the entity and the municipality. Investors may be hesitant towards such entities, especially since they fear a negative effect caused by an excess of political involvement. Case: Johannesburg In Gauteng, the Gauteng Partnership Fund (GPF) prefers to lend to a Special Purpose Vehicle (SPV), established as a private company, in which they can take shareholding as a way of securing control over their investment. The Johannesburg Housing Company that undertook the Brickfields Development in the centre of Johannesburg has incorporated a separate private company (PTY) as a project vehicle so that project funds become ring-fenced and so that the different investors (such as GPF) can take equity in the project. This way, investors are more motivated to invest in projects. 5. What are the advantages of a PPP? A Public Private Partnership is a joint-venture between the municipality and a private party, where both parties share ownership over the PPP. It is a temporary arrangement, although it may, for example, last as long as 30 years. While the company is in charge of the development and management of the rental housing projects, the municipality takes on the responsibility of monitoring the process. 62

71 Chapter V: The MFMA and Rental Housing Delivery Box 11: Requirements for a PPP There are certain requirements for a Public Private Partnership, these being: 1) Within the PPP the private party must perform a municipal function, or otherwise manage or use municipal property for its own commercial purposes. This will include the development and/or management of rental housing stock. 2) The private party must assume extensive financial, technical and operational risks with regard to performing the municipal function, or with managing or using the municipal property. This means that the private party carries the risks of the project. 3) The private party must receive benefits from performing the municipal function or from the utilisation of the municipal property. In return for the development and management of the project, and for carrying the risks of rental housing, the private party will make profit at the end of the project. In a PPP the municipality preserves ownership of the land or housing stock that will be developed and/or managed by the private party. The private party and the municipality sign a lease agreement for a specific amount of time. When the lease agreement has ended, all assets are handed back to the municipality, meaning that there can never be a permanent transfer of land or housing stock from the municipality to the private party within a PPP. This way the municipality will regain control of the land or stock and will be able to continue using it for rental housing or other municipal purposes. It is due to the particular fact that the land is not owned by the private partner, which can cause some difficulties for the acquirement of loans, as is the case with municipal entities. One of the main reasons for municipalities to enter into a PPP is to transfer risks to an external service provider. The amount of risk that the private party will accept can differ per PPP, and will be defined in an agreement. This agreement will specify the risks and responsibilities of the municipality and the private party, and need to be signed by both partners. Naturally, the project needs to be economically viable and the private party will have to be able to retrieve a reasonable income from it. Private parties are not usually willing to enter an agreement with municipalities unless they are ensured that they will turn a profit. Thus, the goal of the PPP is to provide a municipal service with a commercial quality and efficiency rate. 63

72 Chapter V: The MFMA and Rental Housing Delivery Box 12: Advantages of a PPP The advantages of a Public Private Partnership for the municipality are as follows: a) Commercial operation: The private partner that is in charge of the development and/or management of rental housing, has the necessary experience and expertise to provide this service in a commercially oriented fashion. b) Separation from politics: By handing over the day-to-day business to a private partner, the amount of political interference is minimized. The municipality will still need to monitor the performance of the company and will be in charge of setting all tariffs, but will not be able to interfere in the way the company chooses to operate. c) Accountability: By signing performance agreements with the private party, the municipality can hold the company accountable for the delivery of services. If the company does not perform according to the agreement, the municipality can, in the worst case, apply sanctions or end the contract. d) Access to capital funding: A private partner will have easier access to capital than a municipality, provided that it is a financially healthy company. e) Capacity: Through a PPP it is possible to implement large scale projects. 6. What are the disadvantages of a PPP? As with all the options, the establishment of a PPP also has its downsides. Firstly, it can be a procedurally demanding and expensive process. This process has been described by National Treasury as a project cycle, which is further described in the National Treasury PPP manual. The cycle consists of several modules that need to be passed in order to establish a PPP, and which need the approval from Treasury at certain stages of the procedure. Obtaining all approvals and fulfilling all requirements in order to complete the cycle, is often found to be a timeconsuming and expensive process. 64

73 Chapter V: The MFMA and Rental Housing Delivery Secondly, in order to make a PPP economically viable, the projects involved often need to be of a certain minimum size. Some experts consider a financial threshold for viable PPPs to be at around R50 to R100 million. Not all projects will reach this range, and in these cases a PPP is not considered to be a viable option. A third disadvantage of PPPs is that some municipalities lack the capacity and experience to properly monitor the private partner. Characteristics that the municipality should be capable of, are for example: a) Carefully structuring the transaction with realistic investment requirements b) Committing funding and internal expertise to a rigorous procurement process c) Monitoring contract compliance during implementation of the project d) Dealing with at least some opposition towards the project on behalf of organised labour. This last point tends to occur when cut-backs on municipal staff take place, or when fundamental socio-economic rights or expectations are endangered, such as the right to proper housing. Box 13: Disadvantages of a PPP The following are considered to be the main disadvantages of engaging in a PPP: a) Establishment: Establishing a PPP is procedurally a demanding and expensive process. b) Economical viability: For a PPP to be economically viable, one will need large projects. c) Capacity: The municipality will need sufficient capacity and experience to properly monitor the private partner. Reaching the financial threshold is a pressing constraint for many municipalities. Yet, examples exist of forms of co-operation with non-profit delivery agents that are financially sustainable although they may be below the threshold range (See: Case 7). These forms of co-operation are not formally acknowledged as PPPs, yet in practice display many similarities. They are based on lease agreements that can run for 30 years, equivalent to the PPP situation. The essential principle is 65

74 Chapter V: The MFMA and Rental Housing Delivery that the flow of resources to the delivery agent, in terms of leasehold land and housing subsidy, must ensure the viability of the specific project as well as of the institution over time. It is also possible to have an agreement for, say, 5 years in which the land leased is controlled on the basis of the leasehold agreement. In such instances the initial PPP gives way to a strong contractual relationship with a private delivery agent. The National Treasury has developed a PPP manual that can be downloaded from their website: This can further assist you in your decision making. 7. What are the advantages of a third party? The third option that we discuss here is delivery of rental housing through a third party, which can be either a non-profit or a for-profit company. It can be an accredited SHI, but also for example a private, for-profit party or even a municipal entity from another municipality. Though the rental housing sector may not be an extremely profitable sector, some for-profit companies may still be interested in certain projects in which they can make small earnings. Non-profit companies, on the other hand, will have to reinvest any profit they make back into rental housing, through new or existing projects. The third party, having the necessary practical knowledge and experience, will perform the implementation of the rental housing projects. The advantage here is that the delivery and management of the project can be done free from political interference. Moreover, this way the municipality can avoid placing any additional burden on its own workload and capacity, since the company will take responsibility over the day-to-day work and its many challenges. The municipality does not have jurisdiction over the company itself, this meaning that it does not have any shares or any right to monitor the internal management of the company. However, to make sure that the company will deliver and manage the rental housing units as agreed upon with the municipality, the two parties are required to sign a performance agreement and other relevant contracts. In the performance agreement both parties commit 66

75 Chapter V: The MFMA and Rental Housing Delivery themselves to the overall goal of the delivery of rental housing units, thereby ensuring each party s interests. See Chapter VI for more information on performance agreements, as well as for an instructive and generic framework for this document. Box 14: Advantages of a third party This option has a number of advantages: a) Commercial operation: The company can take on a commercial approach, which often has a positive effect on performance and rent collection rates. b) Separation from politics: The delivery agent will function detached from political influence. Thereby, the burden on the rental housing program, as well as on the municipal housing department, will be reduced. c) Accountability: By signing a performance agreement, the municipality can be ensured that the output of the rental housing project(s) will be as expected. d) Access to capital funding: A private sector company will have more direct access to capital than a municipality, provided that it is a financially healthy company. 67

76 Chapter V: The MFMA and Rental Housing Delivery Case 7: PPP-like co-operation Challenge: The municipality is planning a rental housing project on municipal land in a preferential area. The municipality is not willing to sell the land, as they would like to ensure its availability for rental housing in the long term. Transferring ownership of the land to an independent delivery agent may mean that the municipality will lose control over the fate of the land and its units. Furthermore, the project in mind is not large enough to reach the economic threshold for a PPP. Case: City of Cape Town: To ensure keeping control over the municipal land and the rental housing units that are being built, the City of Cape Town has chosen for a combination of a PPP and a third party. They have entered into performance agreements with several non-profit SHIs, who will be delivering and managing the rental housing units. These parties have also signed land lease contracts for 30 years, through which the SHIs will be able to make enough money from the project to cover the costs. After the 30 years, the assets will be returned to the municipality. The municipality has carefully selected its partners based on their experience and financial stability. If the initial projects are successful, these partners will receive more projects to enlarge their financial viability in the future. However, Cape Town has chosen not to engage with too many partners, because the partners require sufficient housing stock to be financially viable. 8. What are the disadvantages of a third party? The transfer of land or housing stock to a third party is a very complicated matter. If the municipality transfers stock and/or land to a third party, it will be lost for future municipal purposes, while in the case of a municipal entity or a PPP arrangement, it remains municipal property. The stock or land has to be sold at market value, while taking the economic and community value of the transfer into account. If the stock or land that is sold is to be used for rental housing, then there will be a certain value returned to the community by the development of these rental housing units. The municipality can also choose to transfer municipal buildings that are not being used, and that may have potential for rental housing. In this 68

77 Chapter V: The MFMA and Rental Housing Delivery case one can think of former office buildings or hospitals within the city that are vacant, and which can be converted into rental housing units. Evidently, it may be a good idea to consider a lease agreement with the delivery agents instead of a definite transfer of land (See: Case 7). This way, your municipality will eventually regain control over the land and/ or stock. Box 15: Disadvantages of a third party Having a third party as a delivery agent also comes with some possible constraints: a) Municipal ownership: The municipality has no form of ownership in the third party and therefore can only exercise a degree of control via performance agreements and other contracts with the third party. b) Land transfer: With a third party the issue of land and/or stock transfer is complicated. If a transfer takes place it will be permanent in nature, implying that the municipality will lose control over that stock in the future. c) Procurement: Procurement of rental housing projects may be unfavorable for third parties since municipalities will, in most cases, prefer to use their own municipal entity, if existent. Which option to choose? Having discussed the different options that are available for rental housing delivery, it is now up to you to weigh the advantages and disadvantages and to decide which option will be best in your municipality. There are a range of issues that you must take into account when making this decision, such as the capacity of your municipal housing department, the rental housing demand in your municipality and the availability of delivery agents or other possible providers. Also consider the time that it will take before the entity will be able to deliver. For example, if fast delivery is what you are looking for, then you may want to look for an already established and functioning provider. 69

78 Chapter V: The MFMA and Rental Housing Delivery Ekhaya Municipality: Having taken into consideration the different possibilities for delivery agents, the local circumstances and the capacity of the housing department, Ekhaya has established a municipal entity as a delivery agent, named Ekhaya Housing Institution. The municipality has additionally decided to attract other delivery agents that are currently operating in other municipalities as well as the existing Smart Home Solutions. These delivery agents will be responsible for a portion of the delivery and management of the rental housing units in Ekhaya. Subsequently, Ekhaya Housing Institution will be able to take over the management of the municipal rental stock when it has gained sufficient capacity to do so. The municipality will sign land lease agreements with all delivery agents. Part Three: Frequently Asked Questions 1. What to do if there is no existing delivery agent available? While some municipalities already have a municipal entity or independent SHI in their area of jurisdiction, other municipalities do not. If a delivery agency already exists in your municipality or in a neighbouring municipality, then it is not necessary for you to establish such an entity. Even when there is no delivery agent, but there is another similar company that can execute the implementation of a rental housing project, you can work with this company. In the case that there are no delivery agents or other companies that you can make use of for rental housing, you may have to consider establishing a municipal entity. This option is a delicate undertaking which can be rather complicated. Before deciding to establish a municipal entity, it is important to carry out an assessment on the impact that such an entity may have on your municipality. You will need to investigate a number of factors, such as the amount of money that will need to be invested, what type of assistance should be given to the entity, whether staff or assets will need to be transferred, and other factors. The formation of municipal entities faces certain restrictions, which should be closely inspected. These have been summarised into five rules, and are presented in Appendix 5. 70

79 Chapter V: The MFMA and Rental Housing Delivery 2. What to do with existing municipal entities that have been set up as a nonprofit company? The MSA states that a municipal entity can only be considered a private company, service utility or a multi-jurisdictional service utility, and thereby cannot be formed as a non-profit company. Some municipalities had already established municipal entities as non-profit companies for rental housing before the Municipal Systems Amendment Act took effect in For these entities an exception is made, meaning that the municipality does not need to disestablish or convert the company. This exception entails that those existing municipal entities that had been founded as a non-profit company will continue to be treated as a regular municipal entity. Newly established municipal entities, however, will have to be established as one of the three previously described types of entity. It is possible to convert a non-profit company if you wish to do so, however keep in mind that this is not obligatory. If you do choose to convert, this should be done by means of a by-law into a service utility. Yet, if the municipality would want to change the non-profit company into a private company, it requires closing down the company. Considering that a private company is often considered to be the most competent and efficient type of municipal entity for rental housing, you would have to choose between leaving the non-profit company as it is, or closing it down and changing it into a private company municipal entity. 71

80 Chapter V: The MFMA and Rental Housing Delivery Case 8: Non-Profit Company Challenge: Municipal entities cannot exist as non-profit companies. Yet, there are municipal entities that were established as a non-profit company before the enactment of the MFMA in 2003, and some municipalities are still struggling to address this. Case: The City of Tshwane The City of Tshwane established a municipal entity as a non-profit company in However, since it was established before the enactment of the MFMA, the entity can continue being a non-profit company, and is dealt with as a regular municipal entity. 3. What to do with your municipal housing stock? If you have municipal housing stock it may be worthwhile considering the transfer of your housing stock to the rental housing provider. This may be an appealing option, as the municipal housing stock may be putting a burden on your housing department, while it may be financially attractive for a delivery agent to obtain the stock. This is due to the possibility of the extra housing stock making the delivery agent more financially viable. Yet, if the stock is in poor condition or there are other problems such as non-payment or an unfavourable geographical location, the transferral of stock may jeopardise the economic position of the agent. This will make it less attractive for delivery agents, reducing the probability that the delivery agent will want to accept the transfer of stock. While a municipal entity cannot own stock, it can manage stock that remains municipal property. In the case of a PPP, ownership is shared, although the stock is returned to the municipality once the PPP has come to an ending. In the case of third parties, the ownership of stock can be handled in different ways. If a lease agreement is signed by both parties, the agreement holds that that the municipality will remain being the owner of stock, even if it is temporarily transferred to the third party. On the other hand, the municipality can choose to sell the stock, in which case the third party will obtain permanent ownership. As always, both options have their advantages and disadvantages. A municipality 72

81 Chapter V: The MFMA and Rental Housing Delivery often finds it important to maintain control over the land involved, in which case a lease agreement would be the best option. However, for the delivery agent it can be important to obtain full ownership, since it will increase their possibilities to access loans. Both options should be discussed, in order to decide the best option for the specific circumstances of both parties. If the municipality wishes to transfer housing stock to a delivery agent, both parties must agree to it. An independent delivery agent can never be forced to take over unviable stock, and in most cases a municipality cannot force a municipal entity to take over the management of unviable stock either. On top of this, the DHS only gives subsidies to delivery agents that are accredited and economically viable. Nonetheless, there are cases in which a delivery agent can come to an agreement with a municipality on taking over economically nonviable stock, especially when the municipality offers something in return. This can be, for example, a profitable piece of land or stock, which will compensate for the costs. However, also keep in mind that a municipality is not allowed to transfer stock when it is suspected that this can jeopardise the minimum level of basic municipal services. Therefore, we stress once again the need to make an informed decision on these matters. 4. In which ways can a municipality assist a delivery agent? A municipality can decide for itself to what extent it would like to support a delivery agent, as well as the type of support it will provide the agent with. A municipal entity may need assistance in the form of office space and equipment, the temporary secondment of municipal staff, or assistance in the payment of staff. This type of assistance is typically only given in the initial stages of its establishment, since the municipal entity should be financially self-sustaining after a certain (previously agreed upon) period of time. Another way in which a delivery agent can be assisted is through the sale of land, stock, or the delivery of bulk services, at a reduced and therefore favourable price. This is attractive for a delivery agent, as it reduces its costs, thereby also ensuring that the rental prices of the housing units are kept low. Delivery agents should be able to obtain preferential treatment in the access to municipal land, buildings and/or rental stock, especially over companies that do not provide affordable rental housing. This preferential treatment should hold true for all 73

82 Chapter V: The MFMA and Rental Housing Delivery types of delivery agents or rental housing projects that aim to provide sustainable settlements. Case 9: Municipal assistance to delivery agents Challenge: For any delivery agent, ranging from a municipal entity or a private sector SHI, the phase of establishment will be challenging. Since there is no existing housing stock yet, there is no income, while office space, equipment, and salaries will need to be paid. Case: Ethekwini Municipality The Ethekwini Housing Association (ETHA) received assistance from the municipal housing unit in their establishment phase. This assistance was in the form of: - administration support by communicating to their clients and stakeholders - facilitating access to well located land for rental housing development - facilitating access to capital money for projects - assisting in the application for restructuring grants - identification and finalisation of provisional restructuring zones for social housing. 5. Is it recommended to temporarily assign municipal staff to a municipal entity? Seconding staff to a municipal entity can be helpful in the starting phase of the entity, as the municipal staff will often have experience with housing and could help getting the municipal entity on the right track. Yet, there are some possible problems that come with the secondment of staff. The first factor is that the seconded staff will be paid by the municipality, but working for the municipal entity, making it difficult to determine to which party they are accountable. Another issue worth considering is the disparity between the working culture of the municipality compared to that of the municipal entity. While municipalities focus on service delivery rather than profit, municipal entities need to endorse a commercial attitude in order to ensure survival. This divergence often makes it difficult for municipal staff to function effectively within such an entity. Lastly, due to these same reasons, it can often be difficult for the seconded staff member 74

83 Chapter V: The MFMA and Rental Housing Delivery to be placed adequately once transferred back into the municipality. Then again, there have been success stories where the secondment of municipal staff truly helped the municipal entity gain capacity to stand on its own (See: Case 10). Case 10: Secondment of municipal staff Challenge: When a municipal entity is being established, it can be a challenge to find suitable staff that is already experienced in rental housing and that is able to get the entity started. Case: Ekurhuleni For the establishment of the municipal entity Ekurhuleni Development Company (EDC), the municipality seconded municipal officials to EDC. As EDC improved its capacity and resources, the seconded staff was gradually placed back into the municipality. Currently EDC is functioning with its own human resource capacity. 6. What is the role of the board of a municipal entity? A municipal entity s board of directors is not allowed to have any members, politicians or officials, in its composition. There have been instances when there have been municipal members on the board of municipal entities, although this has been corrected for in most cases. Although municipal representatives cannot be board members, the municipality does have the right to have a municipal representative attend meetings of the board as a non-participating observer. The tasks of the board of directors are: a. To provide effective, transparent, accountable and coherent corporate governance and conduct effective oversight of the affairs of the municipal entity. b. To ensure that the board and the municipal entity comply with all applicable legislation and agreements. c. To communicate openly and promptly with the parent municipality of the municipal entity. 75

84 Chapter V: The MFMA and Rental Housing Delivery Case 11: Board of the municipal entity Challenge: The board of the municipal entity should be formed by people with knowledge of rental housing and/or related fields of expertise. However, there cannot be any politicians or civil servants from the municipality on the board, even if they have the required knowledge and skills. Case: Polokwane Municipality Until recently, Polokwane Housing Association (PHA) experienced several problems, including extreme low rent collection rates and the inability to perform key operations for its survival as a municipal entity. A change of political leadership led to the dismissal of the previous PHA board and the nomination of a new board based on their merits in property and business management. This led to the current board, composed of persons experienced in town planning, property management, HR, finance, and law. The current board is considered to be very proactive, having come up with innovative ideas for a new strategy for PHA. Since then, the performance of PHA has drastically improved in many aspects. 76

85 Chapter V: The MFMA and Rental Housing Delivery Ekhaya Municipality: Ekhaya municipality has determined to establish a municipal entity, supporting it with staff and operational costs throughout the first two years. The municipality has opted for a private company municipal entity as an addition to the private sector developers that are already present. One of the reasons for establishing a municipal entity, is that it makes it possible to temporarily transfer the management of the existing 1500 hostels of municipal rental stock to the entity, without having to sell them. They will then refurbish and make 1500 CRU housing units of them. Council has agreed that, based on demand for rental housing in the municipality, it is indeed a vital task of the municipality to supply sufficient housing for this target group. Ekhaya is careful to keep the correct distance between Ekhaya Housing Institution and the municipality. Therefore it has been determined that the municipal staff that will be seconded to the entity, will only be there in the initial phase. The municipality has appointed the municipal entity s board of directors after a transparent selection procedure, and has selected board members with differing work backgrounds. Subsequently, the CEO has been appointed by the board. 77

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87 Chapter VI: Performance Agreements Chapter VI: Performance Agreements Part one: Introduction 1. Why a chapter on Performance Agreements? This chapter and the template are designed to assist you in the development of performance agreements between the municipality and the delivery agent(s). According to the Social Housing Act, all municipalities are required to sign performance agreements for their relations with delivery agents when it comes to the social housing programme. For CRU and the Institutional Subsidy however, it is not compulsory, yet highly advisable, to engage in formulating such an agreement. As performance agreements are a relatively new component of rental housing for many municipalities, we find it important to explain what they consist of, and why they are needed. 2. What are Performance Agreements? A performance agreement is a contract between a municipality and one or more delivery agents, in which the parties agree on the general terms, common goals, and targets for rental housing. Instead of signing performance agreements with each delivery agent, your municipality can choose to sign one single performance agreement with several delivery agents. This serves to ensure that only a limited number of delivery agents will be conducting the rental housing projects in your municipality, thereby enhancing their possibilities to become economically viable (See: Case 12). Once the performance agreement has been signed, it becomes a legally binding document, and is valid for a predetermined number of years. Nonetheless, provision can be made for changes or adjustments in the performance agreement during the course of the contract, as long as both parties agree. The performance agreement should reflect the objectives that have been formulated in your municipality s rental housing policy, and must also be aligned with your municipal IDP. It is a vital instrument for your municipality to exert influence on certain aspects of the delivery of rental housing units carried out by the agent. It 79

88 Chapter VI: Performance Agreements enables the municipality to ensure, for example, that the rental housing units will be allocated to the correct target group, that the units will be developed in suitable areas, and that the project will contribute to a sustainable living environment. The delivery agent(s), on the other hand, consider the agreement to be an important device in order to ensure that the municipality will adhere to its part of the deal. This is especially important for the delivery agent in cases where the municipality has agreed to assist the agent, such as through the allocation of land for rental housing, or the provision of bulk services at favourable prices. This agreement can therefore be considered to be a security measure, in case something goes wrong or if the other party is unable or unwilling to keep its promises. 3. Why do you need a Performance Agreement? Through a performance agreement, the municipality and the delivery agent(s) manage the performance of each party, as well as organise the relationship itself. It serves to indicate how the two parties are related to each other in the rental housing sector, by defining their tasks and their areas of cooperation. The document additionally contains other important information, such as public interests and social objectives, which are part of the municipal policy. The municipality s main objective is the delivery of sufficient and quality rental housing units, whilst the objective of the agent is to deliver and manage these rental housing units in an economically viable way. As both parties rely on each other in order to reach their goals and objectives, it is important to define and align these objectives, guaranteeing that both parties enter the agreement in good faith and with a common goal. The performance agreement will clarify and facilitate cooperation, thereby aiding both parties in achieving their goals. 4. What topics should the Performance Agreement cover? The performance agreement should describe the roles and responsibilities of the signing parties, synchronizing these with the general objectives of the municipal rental housing policy. Other topics, and the degree to which these are included in the performance agreement, should be decided upon in collaboration with the delivery agent(s). These topics should include anything that both parties find relevant for the delivery of rental housing, as well as for the relationship between the municipality and the delivery agent(s) during the delivery and management 80

89 Chapter VI: Performance Agreements processes. You should also take into account local circumstances and past experiences with performance agreements and rental housing delivery, and extract relevant topics from these experiences to include in the performance agreement. There is no need to describe any technical details in the performance agreement, as these should be covered in project proposals, devised by the delivery agent for specific projects. Naturally, project proposals must be aligned with the content of the performance agreement. Only then can the project proposal be submitted to the national and/or provincial government for the subsidy. Apart from defining roles and responsibilities, the performance agreement should include a system for monitoring and evaluating the delivery of housing. Finally, remember to include provisions for conflict resolution, in case future conflict arises between the parties. In the second part of this chapter, we give a more detailed overview of the possible topics that can be covered in the performance agreement. Box 16: Functions of a performance agreement Specific functions of a performance agreement are: to provide a framework for the cooperation between a municipality and the delivery agent(s). The tasks and contributions of the partners are specified; to specify the nature of the partnership. It is both about managing the relationship and about supervising the performance of delivery; to ensure that the partnership and the projects comply with all the necessary policy and legal requirements for rental housing delivery; to unveil complex issues and define how the partnership has agreed to view and respond to these issues; to provide information relating to public interests and social objectives; to highlight the problems in the local housing market and help authenticate the relevance of the planned project(s); to provide measurable indicators for monitoring and evaluation, including a timeframe; to determine service levels and the quality of service. 81

90 Chapter VI: Performance Agreements 5. What additional agreements are there? The performance agreement must be signed by the municipality and the individual delivery agents involved. It is an agreement that regulates the relationship between these two (or more) parties, and therefore it is not merely an agreement for one specific project. However, if desired, the municipality can sign project level agreements with each delivery agent. This may be a good idea, as this agreement can be more profound, and include technical and other specific details, indicating the features of that particular project. Keep in mind that municipal entities and PPPs have different regulatory requirements than other delivery agents, which should be taken into consideration in the performance agreement. However, many parts of the performance agreement will remain applicable and easily customisable for these different relationships. Case 12: Type of performance agreement Challenge: The municipality needs to decide on the level of detail that it would like to include in its performance agreements with delivery agents. The agreement can be a general agreement complemented by separate agreements for each specific project that the delivery agent carries out. Otherwise, the municipality can choose for a more detailed agreement, regardless of whether it will be supplemented by additional project level agreements. Case: City of Johannesburg The City of Johannesburg has signed an overall performance agreement with the municipal entity JOSHCO, and has opted for additional project level agreements on individual projects. As a municipal entity, JOSHCO is also expected to annually prepare and submit a business plan, which must counterpart the previously mentioned agreements. 82

91 Chapter VI: Performance Agreements 6. What are the legal considerations? Once the content of the performance agreement has been thoroughly discussed and put into writing, the resulting document must be presented at the legal department, in order to convert it into a legally binding contract. There are some legal considerations that will have an impact on a performance agreement, such as: The performance agreement must comply with the municipality s existing legal processes for entering into a project contract with a third party. It must comply with various legal requirements, including the MFMA and the MSA, in relation to board representation and procurement. The performance agreement must be signed by the municipal manager and the delivery agents accounting officer. Considering that there are political decisions involved in the performance agreement, it may be necessary to have the approval of the Mayoral Committee. 7. Before getting started Before initiating the discussion of a performance agreement with a delivery agent, you must ensure that your rental housing policy has been approved by the municipal council. Your rental housing policy should include a situational analysis with a clear outline of the gap that exists in rental housing services. Moreover, the situational analysis should be integrated into the municipal IDP. Once this procedure has been completed, both parties involved should reflect upon their own expectations, followed by a discussion in which both parties come to an agreement. 83

92 Chapter VI: Performance Agreements Ekhaya Municipality: Ekhaya has signed performance agreements with each agent that will be delivering rental housing in the municipality, including the Ekhaya Housing Institution municipal entity. In these performance agreements, the parties commit to the rental housing objectives as stipulated in the municipal rental housing policy. Hereby the parties commit to the establishment of sufficient and quality rental housing units. The agreement clearly outlines the roles and responsibilities, of both the municipality and the delivery agents, in reaching the objectives defined at a previous stage. The support that the municipality will be giving the municipal entity and the other delivery agents will be included in the performance agreements that the municipality signs with each party. For example, the municipality has signed an agreement with Ekhaya Housing Institution, for the transfer and refurbishment of former hostel units. Part two: Generic Framework for a Performance Agreement The following framework will guide you in the process of formulating your performance agreement, by naming and explaining a range of topics which should be included in the agreement. Keep in mind that the framework presented is of generic nature, meaning that it can be used as a rough guide for your performance agreement, but must be modified to fit your municipality s specific situation. This implies that such an agreement should always be tailormade for the specific municipality and delivery agent(s) involved, and that your agreement may cover a range of topics that are not presented in this chapter. Nevertheless, you may choose to follow the framework s general structure and use its table of contents for organising your performance agreement. 84

93 Chapter VI: Performance Agreements Generic Framework for a Performance Agreement 1. Parties involved in the performance agreement and the duration of the agreement 2. Objectives of the performance agreement 3. Roles of the municipality 4. Role of the delivery agent(s) 5. Topics to agree upon Number of rental housing units Housing options and typologies Target markets Defining beneficiaries Restructuring issues Quality of life and security Consultation Other 6. Cancellation or adjustment of the performance agreement 7. Breach and dispute resolutions 8. Monitoring and evaluation of the performance agreement 85

94 Chapter VI: Performance Agreements 1. Parties involved in the performance agreement and the duration of the performance agreement Guiding questions: Who are the parties involved in this performance agreement? What will be the duration of our performance agreement? This section of the performance agreement states the parties involved in the agreement, thereby providing details of the municipality and the delivery agent. Furthermore, it should declare the duration of the agreement, and in doing so, defines the timeframe in which the agreement is legally valid. Although performance agreements are ideally meant to last multiple years, the partners involved can opt for a single-year agreement. The choice of duration will depend on a number of factors, such as the duration of municipal support to a delivery agent, or the length of a project s developmental phase. Ekhaya Municipality: Ekhaya is dealing with a municipal entity (Ekahaya Housing Institution), two independent SHIs (Smart Home Solutions and Kolapeng Housing), and a number of for-profit private sector companies. A performance agreement will be signed with each delivery agent. In this example we will give further details of the agreements that Ekhaya has made with the three SHIs: The parties in the performance agreements are: The Ekhaya Municipality (demarcation number: EM285) whose registere office is at 120 Church Square, Ekhaya Town, 0001; and: Ekhaya Housing Insitution (municipal entity) (registered number: ) whose registered office is at 84, Church street, Ekhaya Town, 0001 Smart Home Solutions (registered number: ) whose registered office is at 121, Smal Street, Ekhaya Town, 0001 Kolapeng Housing (registered number: ) whose registered office is at 56, Nelson Mandela Road, Madikwe City. The performance agreements shall all commence on the date of signing and shall remain in force and effect for a period of five years. The agreement will terminate after this period unless the parties jointly decide to end the performance agreements earlier, or to extend them beyond the pre-determined end date. 86

95 Chapter VI: Performance Agreements 2. Objectives of the performance agreement Guiding question: What are our performance agreement objectives? This section of the performance agreement should indicate the broad objectives of your performance agreement. These objectives must be aligned to the policy objectives of the municipality. This is an important step, which will facilitate the formulation of roles and responsibilities at a later stage. Ekhaya Municipality: The objective of the agreement is to specify the obligations of each party in ensuring the delivery of well-located rental housing to low income households through a programme that contributes to: Access of low-income households to decent housing in well- located urban environments. Access of these households to the socio-economic amenities of the municipality. Access to such housing opportunities for people with special needs. The delivery agent will administer and provide services in accordance with the municipality's policy on rental housing. Therefore, the agreement serves as an enabling mechanism to facilitate the process of service delivery by delivery agents. 3. Roles of the municipality Guiding question: What are the municipality s responsibilities in relation to the delivery agent(s)? The Housing Act (1997) and the Rental Housing Act (1999) outline the overall responsibility of the government towards (rental) housing. The municipality however, plays a key role in rental housing delivery, as it is the main link between delivery agents, the provincial government, and other stakeholders. The municipality must initiate and coordinate the rental housing process, and must additionally create an enabling environment for the development of rental housing units. In practice this means that municipalities must create the 87

96 Chapter VI: Performance Agreements appropriate conditions to encourage and aid delivery agents in delivering rental housing units. The support that the municipality can give to delivery agents can be divided into three categories: To provide developmental support o Land and buildings; o Municipal rental stock; o Infrastructure and services; and o Local fiscal benefits such as rebates on rates and service charges. To provide process support o Identifying the point of contact for communication (a person with sufficient authority to streamline decision making); o Prioritising planning approvals; o Convening a forum of delivery agents operating in the municipal area; o Lending support in grant applications and submissions for accreditation; and o Committing to the delivery agent as a stakeholder in planning processes. To provide institutional support o Logistical and resource support to the delivery agent in its establishment phase; o Granting funding; and o Financial support. The municipality decides how much support it is able and willing to give to the delivery agent(s). This will depend on the type and extent of assistance that the delivery agent needs, particularly when the delivery agent has only recently been established. These aspects of support should be negotiated with the delivery agent(s) and consequently recorded in the performance agreements. 88

97 Chapter VI: Performance Agreements 4. Roles of the delivery agent(s) Guiding question: What are the responsibilities of the delivery agent(s) in relation to the municipality? The main task of the delivery agent(s) is to deliver and manage rental housing units in accordance with the municipal policy. However, this section of the performance agreement should cover additional tasks, such as the delivery agent s responsibilities in: The contribution to municipal targets The delivery and management of units The management of tenancies Target market specification Allocation by means of an agreed upon allocation process Tenant participation. 89

98 Chapter VI: Performance Agreements Ekhaya Municipality: Ekhaya Municipality has made the following general agreements with each delivery agent, which apply to all parties: Assisting and engaging with each other in good faith during the creation and implementation of rental housing Respecting the institutional integrity of each other in implementing rental housing projects Resolving any disputes between each other in a manner that supports the realisation of the objectives of the agreement Setting up appropriate structures and systems to facilitate the implementation of rental housing projects Sharing information and ensuring effective communication between each other and other stakeholders Commitment to building trust between the parties of the agreement. For the development that is being done by private developers, the municipality will sign separate agreements for each project with them. Besides the general agreements, the municipality has held discussions with the delivery agents to determine the roles of the municipality and the delivery agents. The general roles of the parties are as follows: The roles of the municipality: o Facilitate access to available subsidies, o Facilitate access to land and buildings to assist in the delivery of rental housing, o Assist with facilitating the necessary planning process for the use of land and buildings for rental housing purposes The roles of the delivery agents: o Facilitate the development of rental housing units, o Management of units and tenancies, o Allocation of units on basis of agreement with the municipality 90

99 Chapter VI: Performance Agreements 5. Topics to agree upon Guiding question: On what topics do we need to agree? Now that the general responsibilities have been defined, it is important to go into more detail on specific matters that need to be agreed upon. You may base these on the targets delineated in your municipality s rental housing policy, as well as on the long term business plans of the delivery agent(s). However, you may also choose to discuss certain matters in more detail, particularly when previous experience and cooperation may be relevant. Possible topics to include in your performance agreement are: Number of rental housing units The municipality has set a target in the rental housing policy for the number of rental housing units that are required. This section must determine the specific amount of units that the delivery agent will deliver, which will largely depend on the delivery agent s capacity. The delivery agent may be able to deliver the total amount of units that the municipality has identified a need for, if it finds itself with sufficient capacity to do so. On the contrary, the municipality may rely on several delivery agents, meaning that each delivery agent delivers a portion of the total amount needed. When the municipality has, for example, set a target for 1100 units, it can agree with one delivery agent that it will deliver 500 units and that two other delivery agents will deliver 300 units each. Housing options and typologies Under this topic you agree on common targets for rental housing. These can be based on the municipal rental housing policy and on the business plan of the delivery agent(s). The targets can involve issues on the areas you would like to allocate for rental housing, the mix of different types of housing, the quality of the buildings, and the inclusion of units for commercial purposes. 91

100 Chapter IV: Generic Framework Target markets It is important to clearly define the target group for the rental housing that will be delivered. Remember that the redevelopment and refurbishment of housing through the CRU programme is aimed at households earning between R800 and R3500 per month, whilst social housing through the Social Housing programme is targeted at those earning between R1500 and R7500 per month, and that the Institutional Subsidy is made available for households earning less than R3500 per month. However, you can further specify the income brackets in order to reach the precise target group that the project is intended for. In order to encourage the economic, social and racial integration of the neighbourhood, the municipality can, in agreement with the delivery agent(s), strive for a mix of people of different income levels within projects. This can be done for example, by reserving a certain percentage of the units for the income group of R1500- R3500, another percentage for the income group of R3500-R7500 and perhaps even a small percentage of units for ownership. Defining beneficiaries Although the income brackets for rental housing beneficiaries is determined by national policies, a municipality has the freedom to develop its own profile of who a beneficiary shall be. This is especially relevant since the municipality must strive to ensure that a representative balance is attained in the beneficiary mix. The types of beneficiaries will vary from one municipality to another due to socio-economic and demographic differences, and may even vary from one project to another within the same municipality. The municipality and the delivery agent(s) will have to agree upon a system to select the beneficiaries for the projects involved. It may be useful for the delivery agent to create a waiting list for the specific target group of the housing project. This should be separate from the municipal waiting list for housing, since the municipal list includes those who are waiting for BNG houses and are not able to afford paying rent. Restructuring issues You can make agreements with the delivery agent(s) on topics related to the land and infrastructure that is available and/or necessary for the development of rental housing units. Rental housing projects must always be established in areas where social and economic facilities are either present, or will be developed. This will require planning and reaching mutual consent between the delivery agent 92

101 Chapter IV: Generic Framework and the municipality. These agreements can include, for example, that the municipality will cater for the infrastructure and service the land at a reduced price. Quality of life and security Safety is a major issue in South Africa, making it a recommendable topic to discuss and make arrangements on. Provision for security can be made by ensuring a strategic location for the units and by following specific structural designs that are known to increase a neighbourhood s safety. Examples of measures that can be taken are: ensuring that the area is well lit at night, avoiding the creation of dark alleys, and by encouraging a good relationship among the residents. Furthermore, there are supplementary measures that can be taken to improve the resident s quality of life, such as by providing greenery in the neighbourhood, and by providing spaces for social activities. Both the municipality and the delivery agent(s) can play a role in contributing to the area s attractiveness, and therefore it is important to discuss the range of options that will improve the residents quality of life and security. Consultation It is important to discuss and agree on the methods of public consultation that will be used both during the planning of the rental housing project, as well as after completion of the project. Consultation is an important mechanism through which to ensure a lasting public satisfaction in the project. As soon as the roles that the municipality and the delivery agent will play in public consultation have been agreed upon, it may be useful to create a complete list of all the specific tasks that each party will carry out. Bear in mind that you will need council support for the performance agreements that are designed between your municipality and the delivery agent(s). Achieving council support may be especially challenging when the performance agreement allocates a high degree of municipal assistance towards the delivery agent. 93

102 Chapter IV: Generic Framework Ekhaya Municipality: Ekhaya municipality, Ekhaya Housing Institution, Smart Home Solutions, and Kolapeng Housing have agreed on the following themes: Housing options: The target of the rental housing policy is to develop 6000 units over the next five years of which 1200 should be delivered by Smart Home Solutions, 800 by Kolapeng Housing and 3000 units by Ekhaya Housing Institution. Within the rental housing projects there will be a mix of different sizes and price classes. Target markets: The allocation of the units will be done according to the percentages for the different income groups that the municipality has stipulated in its rental housing policy. Ekhaya has classified these income groups as: R , R and R Defining beneficiaries: The municipality has developed a waiting list for rental housing, which is subdivided into the income sub-groups that the municipality has categorized. The SHIs will make use of this same list, with beneficiaries being offered a unit according to their position on the list. This in turn, is based on the moment of registration as well as the consideration of certain urgency factors. Restructuring issues: The municipality will take care of servicing the land on which Kolapeng Housing will develop its units. All delivery agents will assist the municipality in the development of economic and social facilities in and near the projects that they will develop. In the development of these facilities the delivery agents will take into account the fact that a large proportion of the population looking for rental housing units is young. The specific details for the mentioned will be determined for each separate project. 94

103 Chapter IV: Generic Framework (continued) Ekhaya Municipality: Quality of life and security: Ekhaya Housing Institution, Kolapeng Housing, and Smart Home Solutions will take safety issues into account in the design of their projects. They will individually consult with the municipality during the designing process, and thereby determine specific measures for safety and residential well-being for each project. Consultation: The municipality will publish the plans for the projects in the local newspaper and will have copies available at the civic centre. People will be encouraged to give feedback, express any comments, suggestions, and/or complaints. The delivery agents will ensure that every rental housing project will offer the possibility for residents to select a resident s board that will represent them in meetings with the delivery agents. 6. Cancellation or adjustment of the performance agreement Guiding question: How to deal with unforeseen circumstances that require the cancellation or adjustment of the performance agreement? Unexpected situations may arise that will require either the municipality or the delivery agent(s) to cancel the performance agreement. It is advisable to design a method in which to manage such cancellations in advance, and to include the provisions of these in the performance agreement. On the other hand, there may be changes that do not necessarily require a cancellation of the performance agreement, but that may require a renegotiation of the agreement. For these situations you should include the option of re-opening the negotiation and adjusting the performance agreement if necessary. 95

104 Chapter IV: Generic Framework Ekhaya Municipality: To ensure being prepared for any emergencies and/or unforeseen circumstances Ekhaya and the delivery agents have included a section for the cancellation of the agreement: Should either party to the agreement wish to re-open the negotiation of the agreement, this can be done by mutual agreement with notification processes, within a period of 90 (ninety) days. Should either party to the agreement wish to cancel this agreement, they shall need to adhere to the following conditions: 1. This agreement may be cancelled by mutual agreement with notification processes, within a period of 90 (ninety) days. 2. A party who wished to cancel the agreement shall give three months written notice of its intention to do so to the other party. 3. Such notice shall contain reasons for such cancellation of the agreement. 7. Breach and dispute resolutions Guiding question: How to deal with a breach of the performance agreement by one of the parties or a dispute between the parties? We suggest you to include a section on conflict resolution in case conflict occurs. Although it is the intention for both parties to enter the performance agreement in good faith and with common goals, unforeseen problems may occur which may jeopardise the delivery of housing and services. Therefore it is wise to anticipate any possible setbacks, by designing a system with which to deal with conflicts. As a backup, the performance agreement should additionally include the (legal) consequences for breaching the performance agreement. The first step to solving a problem is to examine and converse about the problem with the other party, thereby exploring the possibilities of compromise. However, if no agreement is reached, you may need to consider appointing an objective third party for mediation and/or arbitration. If this too is unsuccessful, 96

105 Chapter IV: Generic Framework then you may fall back on your performance agreement, where the consequences are stated for the party that does not live up to its part of the agreement. Ekhaya Municipality: Ekhaya municipality and the delivery agents have agreed on the following text for the dispute resolution section: In the event of a breach or a dispute arising between the parties, the parties shall follow the following process to rectify the breach or settle the dispute: 1. In the event of any dispute arising between any of the parties relating to or arising out of this agreement, the parties shall immediately meet to attempt to settle such dispute. If a settlement to the dispute cannot be reached within a period of 15 (fifteen business days, the dispute will be submitted to arbitration in the municipal are in accordance with the rules of Arbitration foundation of Southern Africa. 2. The arbitration shall be held on an informal basis, the intention being that a decision regarding the dispute should be reached in a cordial way. 3. If a party fails to take part in the arbitration proceedings conducted in accordance with this clause, such failure shall constitute consent to an award being made against such party. 8. Monitoring and evaluation of the performance agreement Guiding question: What type of monitoring and evaluation system should we use, and how do we use it? Monitoring and evaluation are vital activities that need to take place in all municipal projects and contracts. It reveals the successes and weaknesses of particular projects, and also helps understand the impact that has been made on the broader developmental objectives of the municipality. Therefore, it is recommendable to create a monitoring system that will allow the municipality to follow the progress that is being made. Furthermore, it is a helpful instrument for the municipality to (publicly) demonstrate its accountability. Through the 97

106 Chapter IV: Generic Framework inclusion of a clause on monitoring and evaluation, the procedures for overseeing the work undertaken by the delivery agent will become clear. However, take into account that properly monitoring and evaluating progress will require time and capacity within your housing department. You may want to agree on regular meetings with the delivery agent(s) on the progress they are making and on the services that you as a municipality have agreed to deliver. In order to ensure successful meetings, agree in advance upon specific topics that need to be reported on, how to report and when to report. Designing a timeline of targets for all parties is a useful and comprehensive tool, by which you can plan ahead as well as monitor progress. We emphasize the importance of keeping track of all developments, as this will allow for a timely detection and intervention of problems. Ekhaya Municipality: As stated in the rental housing policy, the champion of Ekhaya is in charge of monitoring the process of rental housing delivery. There will be a minimum of four meetings with the delivery agents per year to discuss their progress and/or possible problems. All delivery agents have agreed to write a report every six months on their situation. In this report they will give an update on all the topics that have been included in the performance agreements. Furthermore, the report will give an overview of the number of units that have been developed or are in the process of development. Other issues included in the report will be the waiting list that the delivery agent maintains and the level of rent collection. Lastly, monitoring will be based on the targets and agreements that were stated in the performance agreements and in the rental housing policy. 98

107 Appendices Appendices Appendix 1: Overview of the Rental Housing Sector Appendix 2: Overview of the Roles and Responsibilities of the Actors Involved in Social Housing Appendix 3: Municipal Accreditation Appendix 4: SHI Accreditation Appendix 5: Rules for the Establishment of a Municipal Entity Appendix 6: Guiding Principles of the National Social Housing Policy. 99

108 Appendices Appendix 1: Overview of the Rental Housing Sector 100