Why capital holders won’t fund SA’s affordable housing - and why they should

Bureaucratic inefficiencies, restrictions on debt enforcement, and misdirected blame are driving private capital away from what could be a lucrative housing market.

This is according to Renier Kriek, Managing Director at innovative home loan provider, Sentinel Homes.

“Unless the government changes its policies and practices, investors and consumers will remain locked out of South Africa’s gap market,” he says.

If such changes do not happen, market players could lose out on trillions of rands in investment returns.

The Market As It Stands

South Africa continues to face a severe housing shortage.

Speaking at the Innovative Building Technologies Summit on 3 February, President Ramaphosa declared a backlog of between 2.5 million and 3 million homes.

The South African housing market is divided into three main segments:

The RDP/low income segment, comprising households earning R3,500 or less per month, makes up about 40 percent of the market.

The gap market, with households earning R3,501 to R25,000 per month and house prices ranging from R351,000 to R700,000, is roughly 30% of the market.

The affluent segment, consisting of households with income over R25,000 per month and homes valued above R700,000, accounts for the remaining 30% of the market.

2026 research from the Centre for Affordable Housing Finance (CAHF) indicates that the gap market is now the hardest hit by the crisis.

The shortage is prevalent in both the owned property and rental accommodation segments.

Failed Financing

The exact value of the gap market is unknown.

However, 3 million homes priced between R351,000 and R700,000 suggests a market value of R1 trillion to R2 trillion in units sold alone.

These optimistic estimates do not account for subsequent rental income or secondary income, like interest on mortgages, or the dividend or trading value of property stocks.

Yet, despite enormous demand and incredible earning potential, the flow of private capital into this segment remains muted.

To put this in perspective, the South African home loans book comprises about 1.6 million accounts, but using census data, there are about 18 million households in South Africa.

There is no chance of addressing this severe dearth of housing finance unless it becomes a key area of policy concern for the government as well as private market actors.

According to the National Credit Regulator’s Consumer Credit Market Report for the second quarter, published in June 2025, 70.2 percent of mortgages granted over that period went to R700 K plus properties.

In contrast, gap market mortgage grants were just under 20 percent.

In addition, new developments that could bring much needed stock into the gap market are severely lacking.

Lastly, the introduction of Basel IV into the banking system threatens to increase the cost of home loans.

Therefore, an arbitrage opportunity exists for non-banking institutes, who are not subject to these requirements, to leverage new regulatory inefficiencies to turn a profit.

“The gap market should be no less profitable than any other, so the lack of capital allocation tells us there is some impediment holding investment back,” says Kriek.

Flawed Market Design

Kriek attributes the problem to market design flaws that create enough risk to dissuade investors from committing capital.

These include:

Bureaucratic inefficiencies: Red tape and corruption that increase the time and cost of releasing land, housing scheme approvals, and other concerns, have forced developers to favour projects in the more affluent market.

Enforcement restrictions: The inability to swiftly foreclose on bond holders or evict tenants in arrears has made lenders and landlords hesitant to service the gap market, where delinquency is statistically higher than in the upper market.

Court backlogs and extended processes like debt reviews only serve to compound the problem.

Welcome relief is provided to this problem by the proposed amendments to the PIE Act, which governs evictions, that was published for comment by the minister in April 2026.

These will exclude delinquent tenants from the operation of PIE, and revert their handling to the position before 2003, if it survives into the final version of the Bill.

Misdirected blame.

Instead of recognising weaknesses in its own systems, the government has consistently directed blame for lack of investment in affordable housing towards commercial entities, such as banks (claims of institutional racism and other aspersions) and short-term rentals, like Airbnb and traditional BnB providers.

Overall, the government’s ideological approach to what is perceived as fairness and equality in housing enforcement has the unintended consequence of chasing investors away – the easier it is to recover deployed capital from delinquent tenants or borrowers, the more capital will be deployed.

It may seem callous to evict tenants or foreclose on bond holders who are financially distressed.

However, current laws and practices cause capital holders to avoid the risks inherent in them, leaving the gap market underserved.

“By protecting a relatively small minority of delinquents, the government is denying the majority their constitutional right to access to adequate housing,” says Kriek.

What Needs To Happen

The government’s role is to design the market in a way that encourages capital allocation.

It is obvious from the lack of investment in gap market housing development that the existing approach has failed not just consumers but investors too.

“It is high time that investors publicly recognise what a huge opportunity cost this is for them - they are losing unrealised returns every day because the market is broken,” says Kriek.

To address the opportunity costs of the poorly designed market, holders of capital must pressure the government to make positive changes, using every opportunity and instrument available to them.

Fast housing stock delivery and rapid debt enforcement will release capital deployment, leading to a thriving market and ample housing.

It’s that simple.

“It means the government will have to make unpopular choices, but make those choices they must - or the crisis will only get worse,” says Kriek.

“We can plainly see that no progress is being made from housing supply expansion data, which shows that South Africa produces only about 300,000 housing units every decade at the current pace.

This pales in comparison to the size of the unhoused population, or the size of the housing market in general.

Australia, on the other hand, has less than half our population, but produces 200,000 housing units each year.

And they still have a housing affordability problem!”

ENDS