The relationship between house prices and mortgage demand and supply in South Africa

Abstract

South Africa has a housing problem, particularly for low-income earners who earn enough not to qualify for Reconstruction Development Programme (RDP) and ineligible to qualify for mortgage financing from the private sector. The Finance Linked Individual Subsidy Programme (FLISP) was established by the government to subsidise households earning between R3501- R22 000 as an attempt to help fix this challenge. In this study, a survey was conducted using a sample of 385 participants with the aim of determining whether the FLISP has been successful in assisting qualifying households access mortgage financing from the private institutions. The study found that majority of the participants had no knowledge of the FLISP. Even though some of the participants had knowledge of FLISP, they did not know how to apply for the subsidy. This indicates that the subsidy might not have been successful in enabling access to finance, which would in turn assist households with accessing housing. The cointegrating and vector error correction models was used to perform the study which found that house prices and mortgage financing have a long-term cointegrating relationship.