By Dr Jonty Cogger, Attorney at Ndifuna Ukwazi (NU) and Claudia Hitzeroth, Project Co-ordinator at the Development Action Group (DAG).

The City of Cape Town has recently received its first planning application since COVID-19 for a large-scale residential development in the CBD. This is encouraging, as it might be the first indication of a post-COVID recovery for the development sector. But it also serves as a reminder that now is the time for the City to be decisive around the type of economic development it encourages. It is an opportune moment to use land-use planning tools such as inclusionary housing to centre inclusivity and spatial justice in a post-COVID thriving Cape Town.

The private developer of a 279-apartment development in the Cape Town CBD has reignited debate by characterising the inclusion of affordable housing units in their development as an additional tax imposed by the government. As two local non-profit organisations advocating for inclusionary housing in Cape Town since 2018, Ndifuna Ukwazi and the Development Action Group (DAG) sought a legal opinion from senior counsel at the Cape Bar to assess the claim that inclusionary housing in-lieu fees are akin to a tax. The legal opinion determined that, in a legal sense, these fees do not qualify as a tax.

Inclusionary housing requires private developers to contribute a fair and feasible contribution to affordable housing. Inclusionary housing contributions can be incorporated in a private development in three possible ways, namely: as a percentage of units in the development, on another site nearby, or as a payment to a City ring-fenced fund to finance the building of affordable housing, generally. Inclusionary housing is in place in Johannesburg and Stellenbosch and in 2022 the Western Cape Government adopted an Inclusionary Housing Policy Framework which mandates local governments, including Cape Town, to adopt inclusionary housing policies.

Some developers have acknowledged their role in fostering inclusive communities by contributing to inclusionary housing without a policy in Cape Town (see NU publication on Regulating the Private Sector). However, the absence of standardized guidelines has led to inconsistency and uncertainty. This ad-hoc approach, lacking clear criteria for contributions, affordability targets, and specifications, has made the process resource-heavy for both the City and developers. The success of inclusionary housing relies on transparent, context-specific regulations, highlighting the pressing need for the City of Cape Town to establish a formal inclusionary housing policy.

Despite growing support for inclusionary housing, the view that it amounts to a tax is a viewpoint that creates pushback. For example, while the Western Cape Property Development Forum says it is not opposed to inclusionary housing, it also raises the spectre of it being an unwanted tax:

“What we are opposed to is what boils down to an additional ‘value added tax’ being imposed on the private sector to fund and implement the development of affordable housing. We are saying government is trying to use us to do its basic job. If government wants us to build affordable housing for it, then contract with us formally,”

The concerns raised by developers regarding the characterisation of fees for an inclusionary housing fund as a tax prompted a legal opinion from Advocate Geoff Budlender SC. In his analysis, Budlender differentiates between regulatory charges and taxes, emphasising that the primary purpose of the statute is pivotal in making this distinction. Drawing on legal precedents, he notes that the “in-lieu” payment, though resembling a tax, is designed to generate revenue for inclusionary housing rather than for general purposes. The payment is integral to fostering mixed-income communities and addressing spatial apartheid’s legacy. The funds are earmarked for a specific inclusionary housing purpose, not a general revenue fund, and their collection is contingent on specific authorisation for the development. This nuanced interpretation underscores the broader societal objectives and targeted use of funds, dispelling the characterisation of the payment as a tax.

Considering this authoritative view, it is possible that developers were merely asserting that inclusionary housing amounts to a tax in a loose sense, to sway public opinion. At the forefront of the developer’s argument is the contention that the inclusion of affordable housing units amounts to an unwarranted imposition by the government, hindering free market dynamics. The narrative weaves a tale of financial constraints and regulatory hurdles, to point toward alleged governmental overreach into the private sector.

If this is the case, which is admittedly understandable in current downturn markets, it is essential to juxtapose this perceived burden with the additional and involuntary financial burden borne by black people in South Africa as they strive to uplift their families from poverty, historical injustices, and systemic discrimination. The call for redress solutions aimed at rectifying past discrimination is not an imposition but a collective endeavor to restore dignity and create a level playing field.

The developer’s resistance to incorporating affordable housing units, under the guise of an additional tax, hints at a reluctance to embrace the shared responsibility of fostering an equitable society by actively contributing towards more affordable homes. This stance inadvertently reinforces existing disparities, perpetuating a cycle of socio-economic and spatial exclusion.

To address these disparities effectively, the discourse on inclusionary housing must transcend the narrow confines of individual interests and embrace a holistic perspective. It reflects our collective values and commitment to forging a society where opportunities are accessible to everyone, irrespective of their background.

We are encouraged by those developers who already recognise this shared societal responsibility and reiterate that it is the City’s responsibility to assist with clear and context-specific guidelines. Implementing inclusionary housing is a distinct opportunity to shape how and for whom the city gets built to ensure that a post-COVID Cape Town is a spatially just Cape Town.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Property Wheel.