access to affordable housing

Since the dawn of democracy, the South African Government has made progress in addressing the housing challenge on many levels, with projects including but not limited to the Reconstruction and Development (RDP) program. Although over 2.2 million “RDP” houses had been delivered by 2010, the backlog of 2.1 million as of 2016 demonstrates that state-subsidized housing programs are too slow to meet the ever-increasing needs for accommodation of the urban poor.

More than 3,5 million South Africans households are stuck in a precarious situation: they earn too much income to qualify for state-subsidized housing, yet too little to participate in the private property market, neither in the form of renting nor purchasing. As a result, Gap Housing has emerged. Gap Housing is a term that describes the shortfall or gap in the market between residential units supplied by the State and houses delivered by the private sector. The Gap Housing market comprises people who typically earn between ZAR 3 500 and ZAR 15 000 per month.

It is here that small-scale private affordable rental properties (SSR) has arisen to meet the needs of the gap market, mostly in the form of backyard dwellings, which are permanent and informal structures (essentially ‘shacks’) erected in the backyard of another property, a distinctly South African phenomenon. According to the 2011 Urban Land Mark report, the small-scale private rental is one of the most “successful, efficient and pervasive accommodation delivery systems in South Africa,” accounting for 35% of all rentals, or 10% of all South African households.

It is the only delivery system creating substantial volumes of:

• Rental affordable to households earning well below ZAR 3 500 per month; and
• Accommodation for intermediate and smaller-sized households.

The Backyard accommodation sector in South Africa increasingly attracts the attention of policymakers because of the large number of households that this sector accommodates. As of 2011, 1,25 million households in South Africa reside in the so-called backyard dwellings. Moreover, the role played by backyard housing in the overall small-scale rental-housing sector is significant, particularly in Gauteng where a large proportion of households rent their primary dwelling.

Research has shown that building structures in backyards of townships serves many different purposes, i.e. to accommodate family growth, creating supplementary income, and etc. According to 2011 Census, there are more than 45,000 families living in backyard dwellings across Johannesburg alone. Soweto has the largest population size of all the backyard housing hotspots; it is also the largest in terms of land area. In addition, levels of economic growth in Soweto have supported a vibrant secondary housing market, with residents opting to move up rather than out of the township.

Hustlenomics (Pty) Ltd. was established in 2015 as a for-profit impact-driven social enterprise based in Soweto, South Africa. The focus is on replacing informal backyard shacks with durable structures using interlocking bricks made from recycled construction waste, and through this, providing sustainable income for homeowners and affordable rental accommodation for low-income earners.

Hustlenomics identifies homeowners who currently rent shack-style (impermanent) structures to tenants. The Hustlenomics team then designs a home plan to build a four-unit and one-bathroom formal structure. The material and labour costs are paid upfront by Hustlenomics – through an innovative rent sharing model. Rental income generated from the completed structures are then used to pay off the development cost, after which full ownership is handed over to the homeowner. At this time, the homeowner can continue to rent out the structures for supplemental income or utilize the units for their own family.

 “Backyard” accommodation constitutes a massive and growing part of South African housing market.

Backyard accommodation is a multibillion Rand sub-market, which can play a positive role in city building and the development of sustainable human settlements. It also provides a great opportunity to promote income generation and wealth creation for low income homeowners in the townships. Demand for stock is high and most Landlords in both Inner Cities and Townships indicated that it is easy to find tenants (over 62%). Township Landlords report that vacancy is effectively zero.

Another benefit of the backyard housing is that it meets density objectives, advocated by many metropolitan municipalities in their Spatial Development Frameworks and other strategic plans. With proper guidance and facilitation of municipalities, it has the potential to help improve the living conditions of thousands of South Africans in the near future.

A primary barrier being faced by emerging micro-developers is obtaining financing because large financial institutions have not participated in this market. As a result, these developers have to cobble together the funds needed from sources other than mortgage loans. It is for the same reason that homeowners, who earn less than ZAR 15,000 per month, also could not qualify for traditional bank financing even if they want to build durable structures in the backyard of their own property.

Another major barrier, related to policy context, is their ability to comply with the complex regulatory frameworks which often holds a negative perception of the backyard accommodation market.

Unique value proposition to the customers:

• No Cost to Homeowner – Building materials and labour are paid off at no cost to the homeowner over a fifty-four-month period.
• Speed – Innovative interlocking brick technology allows Hustlenomics to build a home for a family in approximately one month.
• Rental Income – Low-income families can now create passive and sustainable income through rentals by utilizing unused yard space.

    Unique value proposition to the community:

• Up-skilling – Hustlenomics hires unemployed and unskilled locals, namely women and young adults. It provides training for brickmaking and homebuilding processes.
• Improved living conditions – Replaces unsafe and unsustainable shacks with affordable, durable, and dignified rental homes, equipped with electricity, running water, and an indoor bathroom. Increased property value and upliftment of the community.
• Sustainability – Builds with uniquely designed interlocking bricks, made of recycled materials

    Unique value proposition to partners:

• Rental collection - Efficient tenant management.
• Sourcing and Production - Pays for and supplies building materials upfront, handles the approval of building plans.

Hustlenomics is an enterprise born out of a community need for affordable and sustainable housing. We seek to upskill and employ local women and youth -- creating valuable job opportunities for community members who are both skilled and unskilled. The replacement of informal backyard structures with formal durable structures is understood throughout the community as a measure that will bring dignity to countless residents, and the training of local builders in innovative building technology will set them apart with competitive expertise in the construction space. From the outset, our unique home financing model has had local residents in mind, but a long-term goal is to create opportunities for the community to directly co-invest in Hustlenomics projects, collectively funding more affordable and sustainable housing in the township. The sale and supply of interlocking bricks to local hardware stores will create opportunities for us to provide critical training in sustainable building methods for local construction companies who will in turn become service providers with this technology. These companies represent a guild of skilled artisans including plumbers, carpenters, electricians, bricklayers, and unskilled laborers who stand the most to gain from the sustained building projects we can nurture within the township.  Another way we hope to assure buy-in from community residents is in eradicating the builders' construction waste that is often dumped in community spaces, using it instead as a key component of our interlocking bricks.

Risks, which may influence the progress of Hustlenomics include:

• Lack of efficient systems for training employees;
• Lack of cash flow for project sustainability. To mitigate this risk Hustlenomics will have multiple alternative revenue streams to generate income including rent, brick sales and converting rubble;
• Lack of financial management skills. To mitigate this risk Hustlenomics will outsource to financial freelancers whilst also training internally;
• Price increases and inflation. To mitigate this risk Hustlenomics will take steps to create an internal manufacturing ecosystem and shorten the time between fixing the price of a project and delivering the service;
• Government policies and laws that do not align with our company’s model. To mitigate this risk Hustlenomics will only build semi-permanent structures and will acquire public liability and equipment insurance;
• No HR strategy;
• No Operational plan;
• Model is easy to replicate;
• No safety measures in place. To mitigate this risk Hustlenomics will develop and implement the proper safety precautions related to building and construction, and establish a safety officer within the team;
• No Budget for implementing projects;
• No structure for organization;
• Rate of innovation for competitiveness. To mitigate this risk Hustlenomics will continue to learn and improve building systems and technology, and partner with other relevant innovators;
• Increasing poverty and unemployment in South Africa;
• Misinformation of our company’s mission;
• Lack of insurance;
• Awareness of new technologies;
• Potential theft of building equipment;
• Weather affecting brick curing time and building timeframe;
• New recycling laws; and Lack of machinery servicing and contingency pla

  By building durable structures at no initial cost to homeowners, Hustlenomics is helping to narrow the gap in the housing market and benefitting low-income homeowners as well as renters. It has the potential to change the outlook of townships and contribute to the economy and well-being of those involved. It provides an opportunity for homeowners and landlords to get sustained income from the rooms. It also will help improve the perception about backyard rentals and improve on the quality and value of the homes in the townships.

Hustlenomics is currently constructing the pilot project in Soweto before replicated in other Gauteng townships. In the long run, Hustlenomics is aiming to expand to other townships throughout South Africa.

Implementation Plan Phase 1 (immediate)

With existing funding, Hustlenomics is currently constructing the first pilot project, a four-unit and one-bathroom property, which is expected to be completed within weeks. Hustlenomics is in the process to register with the National Home Builders Registration Council (NHBRC). Registering with NHBRC allows access to funding from financial institutions, access to NHBRC home building information, training programs and interventions by the NHBRC to maintain a healthy working relationship between the home builder and the housing consumer. Once completed, the property will receive the certificate of completion from NHBRC and the certificate of occupation from local Municipality. Upon receiving these certificates, qualified applicants will take up occupancy of the rooms as allocated by Hustlenomics.

Phase 2 (short-term)

Building on the success of the pilot project, using existing funding, Hustlenomics will enter into back to back agreements with homeowners to construct and lease backyard rooms. Hustlenomics plan to construct another 3 projects within 3 months. In this phase, Hustlenomics will also apply for funding to finance the next phase through this business plan and other initiatives and expected to take an average of four months to access funds after meeting all the requirements from financial institutions.

Phase 3 (medium term – 3 years) The period 2022’s operations involves the construction of the twelve backyard properties (four-units with one-bathroom) which the director had already reached agreements with the homeowners. While the construction is underway, Hustlenomics will start advertising the rooms for prospective tenants to make sure that immediately after the completion all the rooms will be taken up. The tenant application and screening process are detailed in Appendix. Selected applicants will be contacted and advised accordingly with additional procedures to take up the tenancy. From 2022 onward, Hustlenomics will embark on other projects of similar nature, thus developing backyard properties for letting in the rest of Soweto and other townships in Gauteng and will also consider participating in rapid expanding areas of constructing RDP houses. Hustlenomics plans to construct on average twelve backyard properties every year

In addition to generating economic benefit for Hustlenomics, investors, and the homeowner, Hustlenomics’ unique business model addresses two pivotal social issues in South Africa: ●    Backyard dwellings are an affordable and accessible form of housing to low-income communities. However, shacks are highly unsafe and unsustainable. Hustlenomics improves the living conditions of many by replacing unsafe and unsustainable shacks with affordable, durable, and dignified rental homes, equipped with electricity, running water, and an indoor bathroom.  ●    The unemployment rate is high in South Africa at approximately 30%. In townships such as Soweto, it is even higher - and the unemployment rate among the youth between 15 to 24 years of age is as high as 55%. Hustlenomics hires unemployed and unskilled locals, namely women and young adults. It provides training for brickmaking and homebuilding processes. Hustlenomics will continue to monitor and assess its impact using the following criteria:  Impact Assessment Criteria                         Level (%)      Environment Friendliness                         100%  Black Ownership                             100%  Management (HDIs)                             100%  Number of Jobs Created                         8  Number of Employees Trained                         30  Number of Shacks Removed                         15  Number of Durable Unit Constructed                     30 Number of Durable Unit Constructed (using inter-locking bricks)    6

Hustlenomics has several competitive advantages that differentiate it from other enterprises in the construction and housing sectors. The business model is inherently tied to the context of the backyard accommodation economy within South Africa and seeks to benefit those with the most to gain from improved housing quality as well as the generation of sustainable rental income.

Our builders are trained in the manufacturing and use of innovative interlocking bricks made from recycled construction waste which is abundant in the township of Soweto.

The prevalence of this waste was seen as an opportunity to create a more cost-effective and sustainable brick as compared to those sold in most hardware stores. We manage costs by making our bricks on site and buying materials in bulk, including the aforementioned post-construction waste.

The quality of our bricks rests in the unique mix of post-construction waste and the type of soil used. We serve our market flexibly by creating varieties of bricks based on customer preferences and a range of structures to demonstrate the versatility of the bricks. These bricks are sustainable, durable and meet the standards of the NHBRC for safety and quality.

We also provide timely delivery of service and work with local partners such as hardware stores to have a steady revenue stream from the sale of our bricks.

We manufacture and use Interlocking bricks to replace conventional
bricks,the bricks are interlocking, thus eliminating the need for mortar
joints in 70% of the structure. Interlocking bricks can be laid 3 times
faster, are usually dry stacked and require little or no mortar during
construction.The benefits from using the alternative building technology
are faster and easier construction,and can be stacked using semi- or
unskilled labour this helps to reduce building costs as much as 30%
saving in cost and time. This innovation in construction has resulted in
an extremely competitive building system suitable for any type of
construction

Hustlenomics has mapped out a set of strategic goals and objectives designed to strengthen its revenue earning potential, delivering on the needs of the society of decent affordable accommodation. The main strategic goals are:

• Create economic empowerment business ventures through sustainable social activity programs with the prospects of becoming financially viable entity.
• Improve the standard of living through provision of decent affordable housing units to the low-income earners in the community.
• Encourages and natures the growth of backyard rental housing as an affordable rental housing segment that fosters or promotes densification.
• Facilitates and encourages focused interventions that concentrate on improving the backyard rental housing market.
• Create a significant number of permanent jobs including beyond the actual project in the areas of supporting services and promoting abundant skills in the townships by creating employment for unemployed skilled people especially for youth and women.

          Realize a positive return on investment by 2022.

Hustlenomics recognized the opportunity in the Gap Housing market and aims to provide alternative durable housing to the Backyard Accommodation sector around townships in South Africa. It positions itself as a backyard property construction and rental company. In contrast to other developers in this sector, Hustlenomics targets low income homeowners, who earns less than ZAR 15,000 per month to access home improvement financing but wish to replace backyard shacks with durable structures. 

The idea is to build in townships four-units and one-bathroom backyard housing at no cost to the homeowners and recoup the initial cost through an innovative rent sharing model. The initial cost includes building materials, labour, and costs for placing tenants.  The estimated time to construct the four-unit property is one month. Immediately after completion, the ownership of one unit is given back to the homeowner while Hustlenomics rents out the remaining three units. From the rental revenue generated by three units, Hustlenomics will be able to recoup the initial cost in eighteen months. Once the initial cost is collected Hustlenomics will hand over a unit every eighteen months to the homeowner and start generating a profit from the rental income of the remaining units post break-even point until the end of the agreement period, which will be fifty-four months. At the time, the homeowner will have full ownership of the four-units property

Hustlenomics’ competitive advantages lie in its unique business model and innovative building technology using interlocking bricks, offering un-matching value to both customers and the community as a whole.  

In addition to generating economic benefit for Hustlenomics, investors, and the homeowner, Hustlenomics’ unique business model addresses two pivotal social issues in South Africa:

• Backyard dwellings are an affordable and accessible form of housing to low-income communities. However, shacks are highly unsafe and unsustainable. Hustlenomics improves the living conditions of many by replacing unsafe and unsustainable shacks with affordable, durable, and dignified rental homes, equipped with electricity, running water, and an indoor bathroom.
• The unemployment rate is high in South Africa at approximately 30%. In townships such as Soweto, it is even higher - and the unemployment rate among the youth between 15 to 24 years of age is as high as 55%. Hustlenomics hires unemployed and unskilled locals, namely women and young adults. It provides training for brickmaking and homebuilding processes.

  Hustlenomics will continue to monitor and assess its impact using the following criteria
 

• Social impact:

Hustlenomics is committed to local skills development, capacity building and job creation. The job creation strategy will focus on a commitment to progress towards employment equity. This strategy forms part of the SED proposal of Hustlenomics which includes commitment to the employment of Historically Disadvantaged Individuals (HDIs), women, youth, people with disabilities, and the participation of HDIs and women in management positions.

Hustlenomics SED objectives include, among other:

• Provision of affordable and accessible alternative form of accommodation/shelter to poorer sectors of the community;
• Provision of valuable employment opportunities to vulnerable members of the community including training them in sustainable construction methods (16 women and youth trained so far);
• Improvement of managerial skills of HDIs and women;
• Transfer of skills to HDIs, Women and People with Disabilities; and

o    Development of the skills base of staff through a structured training programme in the third year of operation.

• Environmental impact

Backyard dwellings are an affordable and accessible form of housing to low-income communities. However, shacks are highly unsafe and unsustainable. Hustlenomics improves the living conditions of many by replacing unsafe and unsustainable shacks with affordable, durable, and dignified rental homes, equipped with electricity, running water, and an indoor bathroom.

• Diversion of construction waste into valuable and affordable building material;
• Building of structures using customised interlocking bricks; and

o    Dissemination of recycled bricks to local hardware stores and private homeowners.

• Economic impact
• Creation of sustainable income for households and affordable rental accommodation for low-income earners; and

o    Provision of substantial volume of rental units affordable to households earning below R 3 500 per month and accommodation for intermediate and smaller sized households.

Currently Hustlenomics has identified partnerships with local hardware stores, homeowners, tenants, PPC, quarries, sub-contractors, legal service providers, accounting service providers, insurance providers and the NHBRC. Hardware stores, homeowners (both low-income and cash-paying), and tenants are our main customers and we have prioritized these partnerships within our business model. For the sourcing of our materials and the production of our services, the key partnerships involved include hardware stores, PPC, quarries, and various sub-contractors, all of which we have formalized partnerships.

To improve our product and service delivery we are always looking for opportunities to collaborate with partners within the construction and social entrepreneurship spaces that can elevate the work that we do.

The role of legal, accounting and insurance providers and the NHBRC as partners is to ensure that our contractual systems are properly established and aligned with our unique business model.

  Hustlenomics has accessed grants of ZAR 1,425,200 to finance the purchase of equipment and tools, for the construction of rental units, and operation expenses for year 2020.  

  The following table provides a detailed breakdown of how the Hustlenomics is using the funds available during 2020.

 SABF Frant

Use of Available Grant Funds (2020)

ZAR

Purchasing of Assets

172,000

758,000

315,000

Working Capital for 12 month (salaries, office costs, third-party costs)

180,200

Total

1,425,200

In addition, Hustlenomics would require grant / interest free loan funds to finance production- and operating costs for 4 months of the 2022 financial year, on the following basis.

 SABF Grant

Use of Grant / Funds (2022)

ZAR

Production costs for 4 months

664,040

Working Capital for 4 months (salaries, office costs, third-party costs)

304,991

Total

969,031