Asset Magazine – Massive small is the future for urban housing

Ordinary South Africans need far more support as entrepreneurs in the property game than they are currently getting, because small developments are producing the majority of housing in urban areas. This is according to Paul Jackson, CEO of TUHF Limited. This support is particularly lacking from the public sector side, and if the right measures were to be put in place, they would make a massive difference to economic growth in our cities.


Paul, who has been TUHF’s CEO since its inception in 2003, has great praise for the good development work done in inner city areas by many of the better known organisations out there. Afhco, Propertuity, Respublica, Circlevest, Southpoint, Jozi Housing and various others have been widely recognised for the way in which they have helped to provide decent and affordable accommodation in inner city areas and helped to turn many of them around.

However, he says that all these efforts combined probably add up to about 30% of what is taking place in terms of property development and redevelopment in downtown Johannesburg particularly. “Ordinary South Africans are taking opportunities in their streets and neighbourhoods – old and young, men and women, educated or uneducated.
They are doing five units here and 20 units there, and they are doing unbelievable work,” he explains. It is the combination of all this effort which he terms ‘massive small’.

Why don’t we know or hear about these people? Probably because they are small time and out of the public eye.

“South Africans are a bit like Americans – we love big projects with ribbon cutting events. If you look at our national human settlements policy and at the urban development imperative, which is really about combating urban sprawl (in other words the imperative of densification) you will see that it’s all about the big projects,” he says. Yet, we don’t have to have an “either/or” mindset about these things. In fact, a “both/ and” mindset is what is needed.


Urban densification, he says, is going to have to take place on the scale of hundreds of thousands of units – most of which will come from smaller projects. “Two hundred and fifty 20-unit projects still gives you 5,000 units. For big developments which often take place outside of the cities, there is the enormous time and cost of land assembly, and you need a complete new set of service infrastructure and administrative infrastructure. In contrast, there is the enormous opportunity to make use of existing physical and administrative infrastructure and services in the city areas,” he notes.


For ‘massive small’ to get off the ground, there are a couple of issues to be addressed.


Firstly, the public sector and the development community need to embrace a ‘both/and’ mindset. “There’s no problem with doing developments the size of Cosmo City or Savannah City, but in addition to those projects, let’s look at the potential of the massive small concept – the idea that (in TUHF parlance) the dawn of demolish and new build is breaking,” says Paul. Just as refurbishments were TUHF’s initial focus, the market moved to the conversion of office and industrial buildings for residential use around 2008, and has comprised more than 70% of investments in recent years, so this is a
movement that is poised to take off with the right support.


The right support is something of a challenge, however. “One of the problems in urban development is that there is just no source of empowerment financing for emerging black property entrepreneurs,” Paul points out. TUHF has the Intuthuko Equity Fund which provides support to emerging inner city property entrepreneurs, and for the past ten years has raised in the order of R30 million a year (this year it will be R50 million) for the fund – but it’s a drop in the ocean. “This is a R5 billion problem. We have received some funding from the Gauteng Partnership Fund, but we have had no support at all from the likes of the Ministry of Human Settlements, the Ministry of Small Business, the National Empowerment Fund, the National Housing Finance Corporation or the Social Housing Regulatory Authority, despite many meetings,” he says. “It is just about impossible to find a source of equity empowerment financing for black entrepreneurs.”


To its credit, Intuthuko Equity Fund has successfully lent money to 104 emerging entrepreneurs over the past decade, but they have had to borrow money at full price and put just about everything they have on the table in order to make it. On the one hand, that’s entrepreneurship – it’s a risk. On the other hand, we do live with a legacy of disadvantage
in this country, and lifting people out of that is a team effort which necessarily should be led by the public sector.


There is certainly no shortage of development opportunities out there. In the Johannesburg area alone, Paul says there are entire suburbs around the city, amounting to thousands of hectares, which are already zoned Residential 4. “You can
buy a couple of houses, demolish them and build a four-storey walk-up. All you need is plan approval – there’s no long process of rezoning, all the rights are already in place,” he comments. The fact that development in these areas is not
galloping ahead is, he believes, a symptom of the fact that nobody is really, seriously committed to urban land reform.


“The truth of the matter is that massive small requires empowerment financing and a commitment to urban land reform that is there on paper but not in practice,” he maintains. Why is it important? Because of the massive positive impact it could have on the fiscus. “There is a great deal of research which shows that in urban densification, a certain level of density is required for social and economic action.


Once you get that economic action, it drives higher property values, and brings in people who are willing and able to pay for rates and services,” he explains.


He contrasts the mile-after-mile rows of RDP houses which exist far outside the main city centres, which change little from one year to the next, with RDP projects like the Alexandra East Bank project, which has seen people take real ownership of their houses – expanding them, starting businesses, and taking advantage of the value of the land in
a busy urban area. It simply makes better sense to have people living close to where they work, where there is already service infrastructure, public transport and other amenities. Paul’s point is that all of this has an important fiscal impact.


“Yet, there is no systemic and systematic programme to bring about the benefits that massive small can deliver,” he says. “We make our living from this and we lend to these entrepreneurs, but from what we can see the ingredients for making the huge step up that is required are just not in place. It’s primarily the public sector that isn’t playing its role.
They talk passionately about it but it’s not
intrinsically a part of any policy.”


He says it’s unfortunate that the abilities of the ordinary South African seem to be viewed in a rather poor light. “I hear people say that South Africans don’t have an entrepreneurial culture, and certainly not everyone is an entrepreneur
– but I have seen people display such resilient entrepreneurial spirit, take carefully calculated risks and work extraordinarily hard. These people have changed the trajectory of their entire families because they have developed solid businesses,” he enthuses.


TUHF has mainly played in the rental housing space, partly because that is where a great
deal of demand has been, but in the interests of having a city where there is a good mix of income groups and uses, the organisation is willing and ready to finance developers who intend to sell for ownership. “However, we won’t be able to do it in a way that brings about the urban land reform imperatives if the public sector continues to sit on its hands and
not make the idea of a housing entrepreneur central to its policies,” Paul comments.


It is an unfortunate and frustrating situation to be in, because from where he sits, he sees massive potential but is only able to do so much to drive things forward through TUHF. That said, TUHF’s contribution has been massive. It has financed over 40,000 flats (equivalent to five Cosmo Cities) and more retail space than is contained in the Mall of Africa. “It hasn’t been seen as significant because it has been 300m2 here and 50m2 there – but it highlights the fact that we
need to celebrate the efforts of the little guys, of ordinary South Africans doing extraordinary things,” he says.


While backyard rentals have gained the attention of the Ministry of Human Settlements, it’s not enough. “My message is that we need to get serious about massive small, about urban land reform, about urban densification and combating urban sprawl,” he continues. “If we can get those three very simple concepts right, we will be well on our way,” he concludes.