4 B etween 2000 and 2016, almost five million people have been added to the ranks of the middle class, according to Research on Socio-Economic Policy Unit and Consulting for Sustainable Solutions. Middle class households tend to be small and this suggests that housing stock needed to grow by 2,5 million over this period. However, Statistics South Africa residential building figures indicate t ha t ha l f t h i s n umb e r we r e delivered by the pr i va te sec tor since the new democracy. The affordable hous- ing market is de- fined by the Financial Sector Code as households earning under R20 800 per month. Growth in afford- able housing supply has been con- strainedby a variety of factors; includ- ing rising uptake of unsecured credit impacting the ability of homeowners to securemortgages; increasing inter- est rates, which effectively increases the credit burden on households; and substantial increases in develop- ment costs inmajor metros, straining homeowner affordability. The most critical element of this affordability challenge is well-located land at the right price, mirroring international trends. The emerging middle class requires easy access to job opportunities, schools, health care facilities and other social ame- nities associated with middle class Growth inGapandaffordable m a r k e t h o u s i n g h a s struggled to keep pace with the rapid urbanisation and the ever increasing number of households over the past 15 years. lifestyles. Currently they are paying a premium for this; land costs typically account for 20% to 35% of the total cost of a housing unit in major urban nodes such as Cape Town and Johan- nesburg. Add to this the annual in- crease in construction costs in excess of 9%, and it is clear that affordability of apartments and small homes is coming under threat. Currently, very little new sales stock comes onto the market at under R400 000, squeez- ing out first-time homeowners with monthly incomes under R16 000. Rentals provide a compelling solution in this context, offering the emerging middle class an affordable opportunity to live close to amenities that support their aspirational life- styles and upward income mobility. Nedbank Corporate and Investment Banking’s Head of Affordable Hous- ing Development Finance, Manie Annandale says; “We have seen a marked increase in the appetite for developing rental stock amongst our client base over the past two years, owing to factors such as high unmet demand, solid collections and attrac- tive yields relative to upper segments of the residential market.” Recently published rentals data from TPN shows that a sweet spot in the tenant market lies between the R3 000 and R7 000 rental – the core of the gap market – where more than 85% of tenants are in good stand- ing. No doubt this is influenced by the shortage of stock serving this market; if tenants lose access to a well-located rental unit, it may take thema long time to finda vacant com- parable unit. TPN reports that vacan- cies are lowest in rental units pricedat R3 000 to R7 000 highlighting the need for more rental stock priced in this range. According to TPN, yields are also attractive. Gross yields in lower to middle income areas are currently in the region of 8%, driven largely by demand for sectional title units. There is an expectation that yields will rise further, resulting in a reduc- tion in first-time buying activity and an increasing preference for rent- ing cheaper units due to financial pressure. Further, dependent on where units are located, escala- tions may sub- stantially exceed i n f l a t i on such as in the West- e r n Cape . “At Nedbank we remain committed to supporting top tier affordable hous- ing developers as they expand their presence in the rentalsmarket. By un- derstanding the needs of the emerg- ing middle class, and forging part- nerships with landowners including municipal and provincial governments, these developers are able to respond to market needs by deliver- ing competi- tively priced products,” says A n n a n d a l e , “and this sup- ports our mission of closing the housing gap.” ■ ‘Recently published rentals data from TPN shows that a sweet spot in the tenant market lies between R3 000 and R7 000 rental – the core of the gap market – where more than 85% of tenants are in good standing.’ Nedbank supports growth in affordable rentals