Inclusionary Housing not an additional ‘tax’ on developers - Legal opinion finds

In 2022 the Western Cape Government adopted an Inclusionary Housing Policy Framework which mandates local governments, including the City of Cape Town, to adopt Inclusionary Housing policies.

Inclusionary Housing is a spatial planning tool that mandates private developers to make fair and feasible contributions to affordable housing. These contributions can be incorporated into 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.

Recently, a private developer of a 279-apartment development on Mechau Street in the Cape Town CBD has re-ignited a longstanding debate by labeling the inclusion of affordable housing units in their development as an additional tax imposed by the government.

As two local non-profit organisations that have been advocating for Inclusionary Housing in Cape Town since 2018, Ndifuna Ukwazi and Development Action Group (DAG), we find cause for concern in the view that it amounts to an additional tax placed on developers.

As such, already in 2023 we sought a legal opinion from Advocate Geoff Budlender SC to assess the claim that Inclusionary Housing in-lieu fees are akin to a tax. Geoff Budlender is a senior counsel at the Cape Bar and is widely revered for his impressive experience in public interest law.

The legal opinion, which has just been published by the two organisations (view here), determines that Inclusionary Housing in-lieu fees do not qualify as a tax in a legal sense.

In his analysis, Budlender 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. His nuanced interpretation underscores the broader societal objectives and targeted use of funds, dispelling the characterisation of the payment as a tax.

It's acknowledged that developers might use the term "tax" more loosely to emphasise alleged governmental overreach into the private sector.

The developer's resistance to incorporating affordable housing units suggests a reluctance to embrace the shared responsibility of fostering an equitable society by actively contributing towards more affordable homes.

We welcome the fact that some developers have acknowledged their role in fostering inclusive communities by contributing to Inclusionary Housing without a policy being in effect in Cape Town (see NU publication on Regulating the Private Sector). However, the absence of standardized guidelines has led to inconsistency and uncertainty, owing to the lack of clear criteria for contributions, affordability targets, and specifications.

This has made the process resource-heavy for both the city and developers.

The success of Inclusionary Housing relies on transparent, context-specific regulations. We therefore call on the City of Cape Town to establish a formal Inclusionary Housing policy as a matter of urgency.

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