#DevTalks: Building Inclusive Cities

DISCLAIMER: This webinar transcript was loosely edited and there may be inaccuracies.

LaChaun Banks: Hello, everyone. We're going to go ahead and get started. Thank you for being here today and welcome to the Growth Lab's Development Talk. I am LaChaun Banks. I am the director for Equity and Inclusion at the Bloomberg Harvard City Leadership Initiative and at the Ash Center for Democratic Governance. It is my great pleasure to welcome today. Carel Kleynhans, South African property developer and CEO of Diversity Urban Property Group. He's worked closely with the Growth Lab during their two year engagement in South Africa, focused on diagnosing the causes of South Africa's economic challenges and working to include more South Africans in the process of economic growth. So we are so excited to hear from him today.

 Carel Kleynhans: Thank you to. And also to everybody. It's really a pleasure to be here and thank you for taking a bit of the time out of your schedules to to, I guess, hear what I have to say. I think Alexia was the first victim, at least of a case of my like in Session talking about this topic. So when we met in South Africa, when it was probably over a year ago, the you know, it was clear that there was immediately a lot of, I guess, common interest in this issue that I'd like to share a little bit about today. And it's really, for me, a pleasure to be able to continue having a receptive audience, at least I hope, around this. And thank you to Sean as well for facilitating this discussion. Maybe I'll just end of it here so you can all see the screen. I want to share with you just briefly a little bit about kind of what we do as a business and why we do it really, and then really steer the conversation actually away from from our direct work and more towards maybe a conversation around specifically the issue just in the abstract of inclusivity in cities and why it's such an important issue in my view. So as the Sean mentioned in her introduction, we develop affordable housing in South Africa and really the asset class that would be called multifamily in the US. So essentially apartment buildings that we try and do it in a slightly less horrible way to the norm. And I'll illustrate that visually for you in a moment. What I mean by that and we've built about 7000 apartments today. We've got about 2000 under construction as we stand today, another 5000 that will come into construction in the next year. So we're quite busy and and really we hope to just basically keep doing this and expanding. Not necessarily. We certainly as a company can solve the housing crisis of not even South Africa, never mind, you know, the broader kind of context within which we operate. But for us, the ultimate goal really is to demonstrate a commercially viable and scalable alternative to the current norm around typically spatially marginalizing patterns of affordable housing development. And we hope that if we can do a good enough job at that, that we can really inspired the private capital market to follow suit and really redirect a lot of the capital flows that are going to lots of great things at the moment and to do better things in the simplest possible sense. So that's what we do. I just want to make sure these are literally probably not the best stats when I got them on the train up this morning. So so please bear with me. But just to illustrate the point that cities on mostly housing. This is stats from the US, from HUD stats, the U.S. Department of Housing and Urban Development. And essentially what this shows is that 70% of built form in the states by serve by area is is residential. If you look at it in terms of count of buildings, that over 90% of buildings in the states are ultimately residential dwellings. So the reality is that cities are mostly houses. Very simply put, and this is just to show the equivalent statistic in South Africa, this is stats from our national kind of statistical office, I guess around square meters of building plans approved by building type for these two years. It's not a little bit outdated. And you can clearly see the impact of of the pandemic from 2019 to 2020 on and on building approvals. But if there's a little point here that basically this is all residential, smaller houses, bigger houses, apartments and then basically everything else. And as you can see, it's just it's all housing, right? And the US, I mean, this 70% stat over here I think is indicative of obviously a very advanced economy where there is a lot more kind of commercial use outside of the residential sphere. This is really, I think, much more typical of an emerging market context. So obviously, we've all heard this stat a million times and people always quoted in different ways. And I always wonder when it's going to stop referencing 2015. So it's like by 2050, so many people of any. Living in cities. And, you know, I wonder if it's just going to stay that until 2045. But anyway, it's at least for as long as I've remembered. The job is good, but the point is that there's this massive urban rural migration happening globally, especially in developing contexts, or at least that's where most of it still needs to happen. And essentially, if you think about it in 20 or 30 or however many years into the future, the majority of urban form that will exist in the pretty near future doesn't exist today. And the point I want to make with these couple of slides combined is. Lots of urban forms still to be built in the next couple of decades. It's mostly in the developing world, meaning that it's mostly in markets where people have lower per capita spending ability and it's going to be mostly residential. So by implication, it's an affordable housing problem. The future of what our cities look like really is intimately linked to how we build affordable housing. Just in the simplest possible sense. So this is something that's important to get right. And and I want to talk you through why I think that is the case. This is actually the first thing I spoke. And it's so interesting. What's pictured here is a housing development that I went to the G 2 hours before I met Addiction. So I'd had this thing in my diary that was set up by Keesha. Actually, I think she introduced us here. So someone who is one of those people who, when they ask you to meet someone, you just say yes because it's like someone who I really admire and I must be honest, actually had no idea what the meeting was about, that we were that we had. And I'd just like earlier on that morning, been up to this place, which is about an hour and 20 minutes drive from central Johannesburg where I'm from. And this is an enormous 16,000 houses, new housing estate that's being built literally on an old farm that was just like risen to residential. So the government at great expense installed both services infrastructure here and this private developers rolling out 16,000 houses and about two and a half thousand units a year here. This is like basically entry entry level housing in the South African context. These are, you know, typically low wage earning kind of people working in low wage portions of the would you go to like administrative sector, like clerical workers, administrative staff, people working in retail, people working in the service economy. And these people all live at least an hour and ten to an hour and 20 minutes commute from the city. And you would if you're living here, you'd be spending probably about a third of your income on transport. Come on. Right. This is a disaster not only for the people who live here, but certainly for our society as a whole. And I was very worked up about this when we met, which I think is perhaps why I was as animated as I was my first kind of engagement. So I thought I'd just draw a picture of that. This is this is kind of typically what this stuff looks like, just a bit closer. This is not in Cape Town. It's actually where I was born. You can see Table Mountain in the background there. And this is it's on what we call the Cape Flats. And it's just this sprawling tundra of just like housing going out into the middle of nowhere where we are effectively locking people into poverty. Because once you here, you basically can never get out. And this is government funded public housing. And in South Africa, this is a project in South Sudan just to show like these things happen kind of all over. And really this is this typical form of urban development is basically the norm for housing development, really all of Africa and especially affordable housing development. So and just this is a last picture. This is, again, Johannesburg. This is a slightly more established community just to show like what this eventually looks like. So the typical form is that you get these kind of like matchbox houses built like this, and then people over time fill it in a little bit and do densify to a degree with backyard rental units that they build. And so like all of these little structures here, that's the first structure that was built by the government. And then all of this stuff is filled in by people over time. But even with that infill and further investment by the community into the neighborhood, the problem is you've started with a spatial form that can never be anything other than this, right? You've got small plot sizes to build that apartment building on here is impossible because you'd need to do a land assembly through multiple owners. Often it's like intergenerational, you know, title and ownership. It's just it's basically impossible. So this will be for pretty much for for all practical purposes, be this forever. So why is this a bad thing? The in the context of South Africa, South Africans spend and this that is actually understated. According to our most recent general household survey, South Africans spend on average 33% of their disposable income on transport, which is a complete loss. Like you get nothing for that. You're spending 24 hours a day commuting to and from where you need to go every day, whether that's work, where your kids go to school or where you buy your groceries. It's just an unbelievable loss for our society. You've got a there's an incredible environmental dimension to this, which I think would probably be obvious to most of you. And then also, we were speaking a lot about this earlier today in terms of fiscal. See, this is a huge challenge, especially for governments in emerging market contexts where fiscal constraints are real. The very well established literature around the fact that it's also just kind of obvious if you have more kilometers of roads that you need to build or, you know, sewer lines to install or electricity cables that need to run, then it's just more expensive than doing it in a more dense configuration. But it's not just in terms of the upfront infrastructure cost, it's also service delivery over that in a sprawling urban form. It just costs more to run ambulances if you're running them like 20 miles out to get someone and back to the hospital as opposed to like two blocks down. So so in all these various ways, it's more like urban sprawl and sprawling kind of urban fabrics are much more expensive to maintain in the in the hands of the state. So and then I like the little UN SDGs logo logo here, which I'm sure many of you have seen. It's basically a case of lack, but it can be from a hat and that kind of area of development that we all collectively agree is important is somehow impacted by, you know, urban form, whether it's gender outcomes or early childhood development or public health. All of these things intimately link into spatial form in the way in which cities are going back to the point I made right at the outset. All these cities yet to be built. What's going to be built? The housing. It's going to be mostly low wage households. Housing. So the point is, if you want to get all of the stuff right, you really need to start thinking about how to get housing right. So so that's what we do as a business. So this is the image of one of our projects that an extended team actually were able to visit. It's called Jewel City. The reason it's called Jewel City is this is in quite a central part of Johannesburg. It's actually where the diamond and precious metals trade of Johannesburg was kind of housed for for many decades. It is an area that was in urban decline because a lot of the industries had moved out. And actually gold the gold sector in South Africa has been in systemic decline for four decades. And we acquired seven city blocks immediately adjacent to one another from the former landlord and redeveloped it into this kind of, I guess, neighborhood, really that is to us really the blueprint of the alternative to to this road that we are trying to demonstrate can be commercially viable to invest in. So so what is here? This is 2700 affordable rental apartments for the cost of rent here. The way in which essentially priced to the consumer is that it costs the same to live in an apartment in this building at all in as it would cost. It's actually cheaper renting here than it would cost you to live out here like 2 hours away. And that plus the lower cost of transport combined would be more than staying here. That's if you're one person staying alone, if you're two people sharing and both of you were doing the commute, then it stands to reason that it's that a significantly more affordable to live here. And that's not to mention the the you know, all the ancillary benefits that you're getting because in this community, this building actually over here that you can't see very well is a there's a primary school and a high school. We've got an 800 doing a school there. We've got a primary health care clinic with doctors, nurses, physios and dentists. We've got an early childhood development center. We've got loads of kind of public space. This is this was quite recently after it was developed. All these trees are now much bigger and well established. Those are public greenery and there's lots of public art, all the kind of basic amenities that you need from a pharmacy to your grocery store, restaurants and everything. It's all there. And this it's, you know, for guys like yourselves, I think I believe most of whom have had the benefit of probably growing up in a neighborhood or close to a neighborhood that's perhaps similar to this in terms of access to amenities. It might not be that profound a thing. But for for the average South African who lives here, this is like it's unthinkable to think that you can that you could live in a place like this. We do a huge amount of surveying to our tenants and ask them like, what matters to you? And like, why do you choose to live here, etc.. And the feedback that we get almost without exception is that, you know, people who've grown up here, never in their entire lives thought that they would be able to afford to be able to live somewhere that looks like this. It's just it never even occurred to them. But from our perspective and similarly, you know, we talk to our capital partners who invest in us and funders, and they say, well, you know, how could you make it commercially viable to do this right? Because there's this bullshit preconceived notion that poor people can't have nice things. And and essentially, at the end of the day, what we're trying to do is say, actually, guys, this makes a hell of a lot of commercial sense to do this because we are building really, really high quality assets in the hands of our funders that ultimately pension funds, because this thing will keep generating, you know, like rental income for the next couple of centuries, really, if we do a good job at maintaining it. So I'm going to actually just skip on that. I'm sorry. This is another one that we're doing at the moment. This is a I don't know if any of you've ever been to South Africa, but that's Sandton over there. It's kind of like the I guess the largest it's like the Manhattan of Africa, frankly. And this is like 800 meters down the road, 4000 apartments of people living there. This is the second a couple of this is just the first building that's going up there, about ten buildings that look like this. And they're going to be all over. And again, this whole bottom level here is a big school, 4500 learners again, next school in the clinic, and all the basic things are going. And so basically that's that's what we're doing. But I want to skip on from what we do and return the conversation maybe just to why it's this question of why it's so important to really think critically about how we get urban form, right? Ultimately, if we want to achieve most of the, I think, goals that we collectively agree on or worth pursuing as a society that. Thanks.

LaChaun Banks: Thank you so much, Carel, for giving this this great presentation. So I have a few questions here. I'm going to start with. The first one is so I teach racial equity and economic development. And I had a student a few years ago who was a space major, and I said, Why do you want to take my economic development class? She said, I'm interested to see what it would be like to start a civilization or society on Mars, which I thought was fascinating. But this goes directly to the vision of diversity you talk about your mission is getting cities right when it comes to building equitably and how this can create more economic prosperity and social equity in the areas. Talk a little bit more about what it means to get a city right from the beginning. 

Carel Kleynhans: Thanks. I would love to meet this student of yours. Again. I don't think it's a. I don't have any profound insights around what a city that is. Right. Looks like, Right. I think the kind of the basic theory around urban design is incredibly well established. I was telling Alexia earlier that I read a book by actually one of your faculty members here at Laser when I was a teenager called Triumph of the City. And in that, I think it speaks very compellingly to the, I guess, urban economic benefits that arise from agglomeration economics. And and I think, let's say in economic terms, like a city that is right is described well, another book that was written in the sixties by Jane Jacobs, The Death and Life of Great American Cities, I think describes a very compelling me, just like the kind of physical form of a city that works well. You've got streets where people look on the streets, you've got a certain amount of density, you've got actual two blocks and activated street edges. And in the street public space, you know, these are the principles of urban design. And what makes a city well work well, I think is very well understood and well established. But what what we are not getting right is that that understanding in theory isn't translating into the practical reality of the vast majority of urban form. And I think this is the really the the question of our time is how do we get the the theory that we understand so well to translate into reality? And and I think for me, at least in the context in which I operate, getting it right means taking the these principles that are well understood and and incorporating them into a space that caters for the average person and not just the elite few. Because there are some areas of South Africa that have like recently developed neighborhoods that are like lovely, really, really nice. And that ticks all the boxes of that good urban design, you know, kind of empowering space, etc.. But it's for a complete minority. So. Yeah. 

LaChaun Banks: Excellent. Thank you for that. Recently, I've been hearing a lot of cities here in the States talk about the need to create more green space and canopy coverage in low income housing areas. We can date this back to redlining and when things were being built. How do you all tackle the environmental challenges as well as the affordability challenges? 

Carel Kleynhans: And. Again, I think if you if you're getting density right, a lot of this, it becomes a lot easier. So if you just quickly go back to this, you know, if this is what you're building or even this, you know, just like the amount of trees that you need to plant here, which at the end of the day cost money to to make this like a genuinely green space is is, you know, kind of financially impossible. But, you know, initial city over here, we planted 400 trees which sounds like a lot, but it's it isn't actually that many if you consider it in the space that it occupies. But this is like an urban oasis now. But it was commercially viable because we've got a 2700 apartments and like that, you know, concentrated environment and then effectively financially supported. So I do think density is like it's sorry that it's such a simple, but it is the great kind of like irony with this, with the challenges that so many of the solutions are very obvious, you know, seemingly very obvious, but they're very hard to realize in practice that that's just around greenery and the degree. And that's obviously an important part of, I guess, the overall environmental sustainability of of of a of a neighborhood or of of a city. But if I can digress for a moment, just briefly on the topic of sustainability. So we did an interesting study with the Green Building Council in Africa. That's actually some research that we commissioned and paid for and did it in partnership with them. And many of you would know Arup, the global consulting engineering firm. But but we got them to actually do a quite a sophisticated lifecycle analysis on this type of urban residential development being like dense and central versus the other ones that was pictured. And just in terms of just looking at carbon as a dimension of sustainability, it's unbelievable and again, quite obvious when you think about it. But, but it was quite amazing. I think the power of the work was to demonstrate that quantitatively and robustly, quantitatively that it's over the lifecycle of a building massively more carbon intensive to build the same unit like the same residential unit out in the middle of nowhere, as opposed to in a centrally located area. Because you're effectively by building that thing there. There's a path dependency around patterns of usage that you lock that user into that they don't. I mean, there's like even like a choice dimension here like that that I think is quite, quite relevant, but that you are basically a radically more sustainable thermal dense urban form than, than building out in the middle of nowhere.

LaChaun Banks: Great. Thanks. Karl, can you talk to us about what policies are in place in South Africa that allowed this project to happen and be successful in? Are there overall policies that you think are crucial to developing equitably that you can share that others could maybe benefit from implementing? 

Carel Kleynhans: Um, yeah, I could, I could talk for hours to this question. And so I think the honest truth is that everything we are doing as a business is kind of like in spite of the policy environment and not, not as a result of it. We and I say this as someone who like I thought that I was going into public policy as a student. This was like my kind of future path that I then I thought of after reading Ed's book. And and then I realized that South Africa actually has amazingly progressive spatial policy on paper. But the problem is that it's not translating into practice. And the and I then became an Amazon banker and but but but really with with the ultimate goal of kind of a re approaching the problem but from the from the private capital market side and that's what we're doing at the moment so. The the there is quite a lot that can be done through policy, I believe. But it is a simple spatial policy saying like we would like to have dense urban development isn't enough. The the challenge is that. And again, sorry to keep referencing how conversations of early, but we've had a very productive morning of conversations. So this is all top of mind for me. But. The the typical nine typical peer in the market. Right. Another developer building apartments for low cost housing in South Africa is rationally choosing to do something very different to this. And the other market outcome that I showed you. Not because they're evil people or they like one to fuck with people with like building housing. I'll do whatever. They're just responding to a set of incentives as rational actors and doing what's like the kind of like the given the context, the the market outcome. We are choosing a much harder path because we've got a high pain threshold and make poor life decisions. But this is but, but, but this is not, I'd say the the the thing that would result normally. So so I do think that, you know, it's this like delicate balance between like how much do you want to use policy to constrain market outcomes and how much do you want to use policy to incentivize better market outcomes? I think my personal view is I think you need both. I do think you need to make it harder to build out there in the middle of nowhere through, for example, facing constraints on the ease of rezoning farmland into, you know, housing in the middle of nowhere or perhaps through by as a local authority being less generous with installing roads and, you know, like, you know, bulk infrastructure like through an electricity for a developer that's ultimately building something that doesn't fit with your spatial policy. And this is a market failure in South Africa, where we have. I guess a weak public sector that is easily, um, uh, like lobbied. I mean, lobbying I think is a kind word like one might use a word like, just like blunt corruption as well into, into, into outcomes that are not desirable, but so it's not a very precise answer. But the thing is it's. It's this is frankly something that I think if a guy's like, you should really try and work on this, like, how does one get this, this and the policy space to result in better than a special outcomes? I don't actually quite know. 

LaChaun Banks: And it sounds like you're talking a lot about intentionality and how you are going against the grain, which, you know, that takes the decision to actually do that. So ten years from now, what would success look like with your project? 

Carel Kleynhans: Um. Well, I often think about this. I don't know. I really hope that it's not just us doing it because, I mean, I get so yes, like for whatever reason, like myself and my partners. And it's not easy, not just me. Like I work with an amazing team of people that, you know, if anything came more about this issue than I do. And but but the thing is, I really hope that we are not relying on the intentionality to use your word, of a few, you know, for this to happen in a couple of years. But that one can get to a space where this is a more kind of automatic market outcome and not an exception. So so what would it take to get there? I think that what we are the primary thing that we are doing as a business is demonstrating that this is more commercially viable than the other. The alternative. So if we through a couple years of like solid investment performance, can demonstrate that this is actually just a better investment than the stuff out in the middle of nowhere, it's more resilient to, you know, economic shocks. And it's the kind of thing that a pension fund would be better served to hold on their balance sheet than than, you know, housing. That subprime, if anything, taught us is is not worth much if people are willing to be the keys in the door if it is not serving them. So so so I think that will be one of our major contributions is to show that this is a good thing to be doing with your capital as a capital allocator. Right. But but I hope that we can also use the work that we doing as a platform to engage in conversations like this one that I'm grateful to have and, and, and and really start, you know, contributing to a collective conversation around the policy space as well. And yeah, hopefully that will basically I'd really like to see more of this like massive chunk of urban expansion that still needs to happen in the next couple of decades. Not be horrible. 

LaChaun Banks: Great. I have one more question, then I'm going to open it up for questions and I am going off script. Carel, So don't kill me, okay? You do it like you don't kill me. This is exciting to see. But one of the first questions I thought of is there education you have to do around folks going from like a single family house to now living in an apartment like this. And is there a lot of talk about the space if someone has three kids versus living out in these what look like single family houses to moving here? Is there a lot of education that needs to be done on this is different or is it a lot of coercion to get folks to come or is it just people flooding the gates saying we want to be in an area where we can have other amenities? Hmm. 

Carel Kleynhans: And I yeah, I don't know. Honestly. I'm wondering if if we could have a better outcome if we did more education. But the truth is that we don't really. We again, I think there are a lot of preconceived ideas around, you know, what the consumer would like to have. And I guess our experience is that people are voting with their feet here in that we're like absolutely at capacity, essentially permanently. And that, to me, is suggestive of the fact that clearly there is something known as being forced to live here. So like the fact that people so eagerly live there and pay rent to me suggests that they clearly lack something in it for them that works. You know, I don't know if this speaks to your question, but maybe just an observation. So we've got quite strict hostels because obviously these are dense buildings and, you know, the I guess we we write our house rules thinking that this is going to be like really hard to enforce and ensure that people aren't like having a rave at 2 a.m. on a Tuesday morning and, you know, this kind of thing. But interestingly, what we find is that we actually enforce that. We spend very little energy enforcing our own house rules because the community self enforces and self-regulate, because the reality is that, you know, people who live with us are people who probably need a good night's rest on a Tuesday night much more than we do. And because we've got the luxury of perhaps more resilience in terms of day to day, and if we have a bed at work tomorrow, it's really not the end of the world. But, you know, for for for vulnerable the vulnerable households, which are the majority of people who live with us, you know, getting a good night's rest and like knowing that your kids are safe in the building and and these things are massively important. And once that's established, you know, initially, then the community takes huge or derives huge value from that and essentially self-enforcing. So if I'm going to have like a bender on a Tuesday night, then it's very likely that my neighbor is going to scold me way before our security got on stage and has to get involved. So, so so that is. Yeah, definitely an experience of fun.

LaChaun Banks: Thank you for taking that impromptu question. All right. I would like to open it up to the audience if we have any questions out here before we get to Zoom. Oh, okay. Plaid shirt. I'm going to have you stand up, Say your name and say your question loud. I'll try and repeat it. Also for folks on Zoom, I don't know if we have another microphone. Do you want? 

Guest: Hi, my name is Stephan. I'm a Ph.D. student in Urban Planning. So my question is, I'm reminded a little bit of the developer, Jonathan Lieberman, and Opportunity in Maboneng, which also was a very exciting splash on the scene. But the properties were were liquidated en masse. How would you differentiate your approach from that approach? Maybe you learn some lessons from Property City that you're doing differently, and then maybe if you could speak to sort of the cultural politics of what living in the city means for residents as well as just the the economic aspect. 

Carel Kleynhans: So from a business model point of view, we have quite different opportunity. They were developing fairly high end residential apartments. My knowledge, kind of like typical and let's call it inventory generation to be kind type type like high end apartments and selling them off into the consumer market. And that, you know, the I guess, business model ran into trouble, but they were highly leveraged and they were having cost overruns on the one end and not achieving the slide rates on the other and then basically had a squeeze and went bankrupt. So we were able to build these buildings and hold them on balance sheet permanently. We don't sell them and we rent them out. So for us, our kind of commercial viability is does the rent that we're able to collect net of expenses. So was our cost of capital. And as long as that does, then we're viable. So it's a very different model. And, and because we typically work with pension capital and institutional investors, there's a lot more checks and balances built in that I think prevent effectively speculative development. So so we're quite unregulated, which which I think serves us as as much as that is the bane of my existence on many at Tuesday morning. But so that's that's your first question on the cultural significance of living in the city. I'm not exactly sure what you what you're referring to there, but I do think that, you know, it's very hard not to in the context of the Africa, you know, the the legacy of apartheid era, spatial planning and spatial segregation along racial lines is so ever present still with us today that it's very hard not to think basically. To engage with what we do and think about basically spatial transformation. Really, at the end of the day, the reality is that 99% of people who live with us are black and their parents would not legally have been able to live here. So especially this this project, right. This is in Sandton, the. The it's really hard to stress the degree to which this blows people's mind that basically, to put it super bluntly, poor black people will be able to live in Sandton, right? It's just like totally unheard of. And and and even where we are now, like almost 30 years into the dawn of democracy in South Africa, this is still surprising to people. Right. So so, you know, I don't know if that that speaks to what you are getting at, but I mean, I think that is a very big part of what we do. And the the weight of this is not lost on us. 

LaChaun Banks: There's someone in the back and then over there. 

Guest: Thank you so much. I'm Hagan from South Korea. I would like to applaud your work and building such public housing. I think we have the same model, but in the larger scale in South Korea. And what's happening is the social mix is not happening because of the very architecture of such buildings being like a fortress. Do you have anything in mind?

Carel Kleynhans: By design, you can encourage more social mixing such settings? Yeah, super relevant question. I mean, I'm familiar with the work in South Korea. It's amazing. So we do try and create a mix across the income spectrum through creating different sizes and types and basically pricing of units within our buildings. And then but but I do think that, too, to be perfectly frank, it's less of a concern for us at the moment because literally just by bringing this target market into these areas spatially. There's such a transformative aspect to it already. So basically you're taking someone who would have never been able to live in this area at all and providing them with an opportunity to live there. And that in itself is already quite, you know, that that is where most of the mixing is happening, basically. But it is something that we are thinking about and asking ourselves, like how do we create further integration within our buildings? And you know, it is top of mind, but other than creating different sizes of units and trying to play across as broad an income spectrum as possible without going into like basically pricing the affordable market. That's pretty much what we're doing it. And. 

Guest: Hi, my name is Ekamadate. I'm an architect developer from Kenya. I'm an affordable housing company that builds what I call multi-family housing. I discovered or affordable housing in Kenya. We had 137 units. So you are on 5000. You're sort of you're hitting the bar. So I have I think we need a much longer conversation on how you get there, because building housing in emerging markets is a, you know, battle. But I do have a question in terms of your funding structure and how you ensure how you structure your funding such that this first of all, it doesn't restrict when it comes they don't restrict how you structure a development, but then they also give you patient capital. So I'm at the Harvard Graduate School of Design at the moment doing the math in real estate. So this might be finance. But basically you're saying you're getting patient capital, pension fund capital. So they expect a certain amount of returns. And I'm wondering, do they then impose kind of restrictions on your and the income that you're supposed to be getting on your property? Does that mean that over time we need to sort of control for rental growth? How does then when you increase, when you don't have sort of like when it's still a financial building, it's still income producing property that has to meet certain returns. How then do you control, you know, the market putting pressure on you to either increase your rents beyond what the people you're targeting can afford? So it's sort of like how do you control for the social factors you're trying to hit, especially because your buildings look beautiful. Eventually someone in the middle class would be like, You know what? Why not? And then they sort of create internal gentrification. And then also the second one is I don't know how it is in other apartment buildings in South Africa is sort of like at some point, what is your density threshold that then it doesn't begin to deteriorate the quality of life? What's that maximum, do you think, in your experience? Thank you. 

Carel Kleynhans: Coop. Very happy to chat further. I love Nairobi. It's one of my favorite cities in the world, so I'm happy to exchange ideas. To start at the end. It's not Rinker at all. It's a we charge would be kind of market and maybe like a little bit too much of a neoliberal in this respect. But I don't believe I'm not aware of any example of rent control that's ever worked sustainably in any market anywhere in the world. So I do think that the way to keep housing affordable is to build loads of it. And and that's what we need to do. So. The the funding model is, I think, to a degree a function of the fact that we are lucky to have a well-developed capital market in South Africa. The difference between South Africa and Kenya is that our prime lending rate is about 10%, whereas yours is over 20%. Right. So we are actually able to bring these projects online and service debt on them, whereas in Kenya you can't develop at the yields required to service it. So it's all equity and then you've got a high cost of capital on average. So it makes the project harder to get off the ground. So, so but, but the I've got lots of ideas, but I'm not going to bore the entire audience with the panel. So happy to chat with you offline, but you need to chat to the device. And three and 300 apartments is, in my mind the limit for how many should be in the building. To your question on entity.

Guest: What size? 

Carel Kleynhans: In terms of dwelling in its factors. All I would think about it, I'd say 400 hectare four or 500 hectare and still get like really good of employment that density. 

Guest: So my name is Heiner. I'm also an investor in real estate at the GST. My background in city planning and I'm actually really interested in building affordable housing communities in Mexico. So it's fascinating seeing how the development pattern in South Africa mirrors what's happening right now in Mexico as well. So I have two questions in comparison to areas being median income in the neighborhoods that you have developed projects. How are the rents priced in the properties that you're developing? So this sort of relates to the previous question. Can you specify which income segment of the population, your affordable housing targets? And then also, can you provide a rough estimate as to the occupancy rates in your project as well? What do you consider to be a success in measuring the impact of projects? 

Carel Kleynhans: For us, full is 95 96% occupancy so that you'll have a certain amount of operational vacancy at all times. So like a couple of apartments are being renovated or someone just moved out in the middle of the month and it's empty until the end of the month. So so 95% is full. And that's how we evaluate the in terms of rental. So we basically charge as much as we can, frankly, but for a given product in a given market segment. But we build the way in which we make it affordable as we build really basically small, dense units in well-located areas. So. Not doing a very good job at answering this. Okay. So who lives with us? Basically the lowest wage earning formerly employed people. So? So like, if you've got a job basically working in retail and like, you're like a cashier, you should be able to live with us in the area where you work. Right. That's that's the that's the desire. So the if you in our society is complex, we've got 40% unemployment. So if you don't earn an income, then you can't pay rent. It's kind of obvious. So so there's a huge amount of South African society that is like by default excluded already. So so we still have a huge need for public housing programs and we actually speak about it today. But we also developed social housing, which is state subsidized. And there is a and and we Alexia heard a lot about this from me, but it's a it's a program that is way too small, a portion of our total housing program. And it's something that's basically what the Pinehurst Civic colleagues would call demand side led interventions where you basically effectively subsidizing the end user and letting them decide where they want to live through social housing. So we have that. And that's that's growing. That's what people who earn some money, but typically an informal employment, but they they still can't afford to live with us because at the end of the day, our cheapest rent is basically the cost of building the cheapest apartment that former money can build. That is building code compliant and basically dividing that cost by the cost of capital gives you the rent you need to charge. That's sort of like how we get to it. So and that so happens to be at the moment basically like the lowest wage earning portion of society, essentially minimum wage earners. And then then we play from that up quite a bit up the income spectrum by virtue of how our income distribution works in the country. So we basically go from, like they'd say, the. And percentile buy earnings. To like the 70th percentile and then that. Basically the middle class basically sits above us.

LaChaun Banks: [Inaudible] 

 Guest: Thanks so much for being here. My name is Alex. I'm a second year student here at the Kennedy School and the MPA and International Development Program. I actually spent part of my summer in Johannesburg working with CAF, so I got a little taste of this. And my question is around. I guess when we talk about affordable housing, we mostly talk about the rental market. And obviously, in the South African context, with apartheid, you know, a lot of black and nonwhite families were prevented from owning homes. So kind of where does home ownership maybe fit into this conversation? Is it even a conversation being had? And then also, I guess a second question, kind of talking about the spatial part that you talked a little bit about commute costs and, you know, people kind of coming to the center of the city for work. Is there also talk about kind of reviving or maybe not reviving, but creating a vibrant ecosystems kind of in townships on the outskirts of cities to kind of address the affordable housing kind of race to the center problem? Love to hear your thoughts.

 Carel Kleynhans: Yeah, we've definitely done, like I'd say at least like six, six or seven of the ten most pertinent questions. And that was like two of the top three, I think. So. On home ownership. I mean. There is an insane amount of literature on like both for and against. Right. So I don't think I'm qualified to say specifically, which is correct. And it definitely is contextually specific. Like what is more appropriate I think is contextually specific and even into household it differs. But I do think like just my observation in the South African context that there is way less access to affordable, well-located rental housing than there is housing that you can acquire. And I think, you know, I'll give you an interesting statistic. In South Africa, only 14% of households are nuclear family households where it's mom and dad And again. Right. And single, single family homes as I could. Typology really have been designed and conceived of in the postwar era as something that is in suburbia and caters to mom, dad and kids or to kids. And that is like a household form that essentially doesn't exist in our context. And I think I daresay probably even here too. So basically, we've got changing demographic, the changing demographics profile of society, where you've got more single family households and a lot of single mothers. Basically the largest single grouping of tenants in our buildings are single mothers. We've got over 50% of our tenants are female headed households, not because we specifically favor them or, you know, get to do them anything, but which is almost three times the national average for for households. And it's because single mothers basically really value being in a good location and a safe building close to where the kids go to school. Surprise. It's not that. It's not you know, it's kind of the point I want to make is, you know, there is a real, I think, need for more flexible forms of home like housing tenure in a society that has none, that is majority nontraditional household structures. And because we have so little of that relative to our total housing stock, you know, my personal focus and emphasis is going to be on rental housing because that's really where there's a massive need. And I think that rental housing and basically flexibility around ten years is going to be important. I'll just say one other thing on this. So. So the benefit of having a large portfolio, as we do with quite a spectrum of of of kind of, let's say, unit types and and price points across the portfolio, is that in any given month we do between two and 300 what we call arrangements where we basically have and we were losing a big cost of our business model is basically the cost of acquiring a new tenant. And we were we had this very high rate of churn where a lot of people would leave us all the time. So we started looking into that and doing a lot of exit surveying and figuring out like what's going on here. And we realized that often it's not that someone loses their entire income and they can't live with us anymore, but they actually just like have a family member who has lost their job and they need to like, subsidize their income for a couple of months or they've had some like temporary thing happen to them, which means that they can probably afford 70% of the rent that they could afford previously, but they definitely can't afford the unit they're in anymore. So what we've started doing now is by depending on the circumstance of the individual, either giving them a temporary rental rebate and perhaps a repayment plan to catch that up at the time or like a bit of a discount. We've put a foundation that for certain tenant groups, you know, would subsidize it that actually came out of the pandemic. And but then what we do a lot of is moving people within our portfolio. So we'll say like, okay, cool, you had a two bedroom unit, but you can only afford like, like a lesser And now for a while, let's move you to a one bedroom unit like down the corridor for a couple of months. And like, once you back on your feet, move it back into a two bedroom unit again. Now, this is the kind of flexibility that you're going to get in rental housing that is very difficult to achieve in titled home ownership, where what ends up happening there is now you've had that same thing happen to you, but now the bank forecloses on your mortgage and your credit rating is flat forever and you're out of the house. So basically, I definitely am more in favor of rental.

[00:51:54] LaChaun Banks: Can we keep going? Yeah. Okay. Yes, You. 

[00:52:06] Guest: Thanks for speaking with us. My name is Emily Alexis. I'm an MPA student here and I did an MBA. And I'm curious if you could return to the cost of development. How did you raise the capital needed to build to build these projects by the seven city blocks in the city? And then what kind of returns are you offering to your investors and what's the timeline? Just to get a sense on how this could apply in a U.S. context and like the threshold for the investment?

[00:52:38] Carel Kleynhans: Nothing about the U.S. housing market makes any sense to me. I should start by saying that I don't know how any of it would apply. But so quite simply, we we kind of try and deliver like high return on equities. So like a holding period, we it's mostly permanent capital. So guys think it's not exactly like an hour or two an exit. That's kind of what we're trying to achieve, which is pretty much market related for real estate, private equity in South Africa, which it has to be, right, because we are raising capital from guys who are saying like, do I want to invest in that shopping center over there and make said return, or am I going to give it to to these guys? So so we have to be competitive in the local capital market. And so it's not like soft capital at all or like subsidized in any way. That to answer your question, though, it's a it's been we've been very lucky to have managed to get very established South African real estate partners who had great relationship with the capital market on board with the vision of what we doing early on. And we effectively leveraged their reputation in the market with basically local banks and pension funds to raise cash is the simple answer. There's a much longer story will maybe tell you afterwards. 

 LaChaun Banks: [Inaudible] 

 Guest: Thank you very much I'm Fernando Garcia, a research fellow here at the Growth lab. I think you talked about this a bit, but maybe I would like you to elaborate a little bit more. Why is it that there are not more people like you or like your firm do this? Like in general? You know, in both in South Africa and maybe in other parts of the world? 

Carel Kleynhans: And I think that's a good question. And I don't actually entirely know. I think it's because it's easier to do the alternative than simply so. And I think because it hasn't been convincingly demonstrated that this makes more money. 

Guest: So what is the. 

Carel Kleynhans: Yeah. Yeah, true. Yeah. 

Guest: It is. 

Carel Kleynhans: Yeah. So it's easier to build expensive stuff. 

LaChaun Banks: Well, thank you all for joining today. We love these development talks and we're glad that you're here. And thank you to you, Carel, for giving us such a great experience when it comes to low income housing and how we can really get this right. So with that, enjoy the rest of your day.

Carel Kleynhans: Thank you. Thank you.