I NCLUSI VE CI TI ES ROUND TABLE ON PRO-POOR PROPERTY RATI NG POLI CI ES How can municipal rates policies promote access by the poor to urban land markets? Presentation of research on property rates policies and the urban poor Alison Hickey Tshangana 18 September 2009 South Africa Cities Network South Africa Cities Network Braamfontein, Johannesburg
Purpose and design of project Purpose and design of project p p g g p p j j Focus on ‘how the instrument of municipal rates policy can be used or revised to ensure that the urban poor can actively engage in and benefit from urban land markets’ 1. Initial roundtable (9 July) ( y) 2. Research • a. Review of existing policy and instruments • b Two case studies: Johannesburg Buffalo City • b. Two case studies: Johannesburg Buffalo City 3. Follow-up roundtable (18 Sept) Provide input to review paper Provide input to review paper Review findings of case studies Deliberate on knowledge dissemination strategies 2
Introduction and background Introduction and background 3
Barriers Barriers to functioning township property to functioning township property market market (TRPM, Finmark Trust et al. 2004) market (TRPM Finmark Trust et al 2004) market (TRPM Finmark Trust et al 2004) (TRPM, Finmark Trust et al. 2004) Factors for properly functioning property market include: To what extent – Sufficient supply of housing stock pp y g can municipal i i l – Sufficient supply of end-user finance property rates – Secure land title policy impact on – Adequate number of willing sellers and buyers these factors? t ese acto s – Ease in performing transactions Ease in performing transactions – Information Legal, institutional and procedural constraints to functioning land market for th the poor – Insufficient supply of stock – Very few formal transactions (mostly informal) – Housing ladder not active (people don’t move between markets) Housing ladder not active (people don t move between markets) – Secondary market dysfunctional: • lack of legal title • delays in transferring title to subsidy beneficiaries • difficulty obtaining mun clearance certificate required of new owner difficulty obtaining mun clearance certificate required of new owner • prohibited from selling for 8 years • lack of conveyancers and estate agents 4 • expensive transaction costs
Exploring the impact of mun property rates Exploring the impact of mun property rates on access by the poor to urban land on access by the poor to urban land on access by the poor to urban land on access by the poor to urban land ➔ Considering the identified obstacles which block the poor’s access to urban land markets, can rates policy be used to tackle those barriers? • Is it an effective lever? How significant are property rates as a • I it ff ti l ? H i ifi t t t determinant of access by the poor to urban land markets? • Is rates policy the appropriate lever for influencing property markets in favour of the poor? markets in favour of the poor? ➔ What innovative instruments in mun rates policy could be put in ➔ What innovative instruments in mun rates policy could be put in place to assist the poor to access urban land? • What are the potential advantages? • What are the obstacles in the implementation of these tools? What are the obstacles in the implementation of these tools? 5
Significance of property rates as municipal Significance of property rates as municipal revenue source revenue source revenue source revenue source Average for six metros: 80% 70% 66% Rates & service 60% charges as % h % of total revenue 50% Rates as % of 40% property rates & p p y service charges 30% 28% 20% Rates as % 19% of total revenue 10% 0% 2005/06 2006/07 2007/08 2008/09 Budget Year Budget Year Budget Year Outcome Outcome Outcome Outcome 2009/10 2010/11 2011/12 6 Source: NT municipal database
How could municipal property rates impact How could municipal property rates impact on the poor? on the poor? on the poor? on the poor? Tax incidence: inequitable spreading tax burden among categories of residents/property owners? By imposing unaffordable tax burden, prompting eviction or inability to move up housing ladder By impacting market behaviour: affecting prices and land use decisions by property owners 7
Potential instruments Potential instruments in municipal property rates to in municipal property rates to promote access by the poor to urban land markets promote access by the poor to urban land markets promote access by the poor to urban land markets promote access by the poor to urban land markets Demand-side means: Direct tax relief for poor Direct tax relief for poor Increasing • Exemptions, exclusions and rebates affordability? • Circuit breakers Indirect property rates instruments to impact market behaviour • Impact of differential rates on pricing of property categories Impact of differential rates on pricing of property categories • Taxing vacant land Supply-side means: Special rating areas Improve stock of Other planning and zoning instruments available affordable land/housing? 8
Direct tax relief instruments Direct tax relief instruments 9
Affordability from a household perspective Affordability from a household perspective y y p p p p Average rates and services revenue as % of average household income, for six metros 18% 2005/06 Outcome 16% 14% 2006/07 Outcome 12% 2007/08 Outcome 10% 2008/09 Outcome 8% Budget Year 2009/10 6% 4% Budget Year 2010/11 2% Budget Year 2011/12 g 0% n i i g y e e n n a w r n g e i u w B a a o l b u w r k T ' a e h e o h l v r e h J e u s A p T d T k a e n E C a M M n o s l e N 10 Source: NT municipal database.
Affordability from household perspective Affordability from household perspective y y p p p p 2009/10 for 6 metros: 12% of monthly household income y spent on rates and service charges → Below 15% benchmark However many cities set the cut off for indigent support at an However many cities set the cut-off for indigent support at an income level equal to two social pensions (R2020). → Group worst affected by rates and service charges is poor/lower-income households whose income exceeds limit for indigent register, and whose property values may exceed the residential exclusion. → Often pay over the 15% mark 11
Section 17(1)h: First R15 000 of residential property Section 17(1)h: First R15 000 of residential property exempt from rates exempt from rates exempt from rates exempt from rates R 0.010 R 160,000 on R 0.009 R 140,000 eable exclusio R 0.008 R 120,000 R 0.007 ential rate R 100,000 R 0.006 R 0.005 R 80,000 R 0.004 Reside R 60,000 R 60,000 Non-rate R 0.003 R 40,000 R 0.002 R 20,000 R 0.001 R 0.000 R 0 n n g g e e y y i i i i y y g g i i n n n n z z a t t w r n n i e i u u w C a B u o l d b u w k a T n s a o h e g h e u l l e e h r a n s u s n p d T f a T M n k f a n u M e E a C a B h M o J n o s l e N Residential rate Non-rateable exclusion for residential property R'000 Msunduzi rate is R0.0075, net of residential reduction from ‘general rate’ Tshwane rate is R0.0066105, net of 35% reduction from quoted residential rate Mangaung gives R100 000 exclusion for indigents. Msunduzi gives R130 000 exclusion for indigents. 12 Source: Municipal rates policies. Own calculations.
Average price of property transactions in Average price of property transactions in BCM and Joburg 2003 BCM and Joburg 2003 2009 BCM and Joburg, 2003 BCM and Joburg, 2003-2009 2009 2009 1,200,000 , , alue (R) 1,000,000 2003 nsaction va 800,000 2004 2005 2006 600,000 2007 verage tran 2008 400,000 2009 200 000 200,000 Av - Johannesburg g Buffalo City y 13 Source: Centre for Affordable Housing Finance in Africa
Impact of residential exclusion on poor Impact of residential exclusion on poor p p p p Thresholds for residential exclusion differ widely: up to R150 000 – Joburg: prior collection rates for low-value properties; aim is to continue relief to same group – BCM: adopted from MPRA Originally intended to exempt RDP house but not kept pace with subsidy Originally intended to exempt RDP house but not kept pace with subsidy amount – Logical link between RE and value of RDP house; alignment of policy – Amount of subsidy climbed from R15 000 in 1994 to current R55 706 Also not kept pace with input costs or estimated re-sale price of RDP house – Input costs: top structure approx. R65 000; land and servicing approx. R40 000 – Re-sale restricted; prices anywhere from R7 000 – R50 000 Re sale restricted; prices anywhere from R7 000 R50 000 ➨ RDP beneficiaries in some municipalities liable for rates while beneficiaries in neighboring municipalities may be exempt. g g p y p 14
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