Tax Credit Mechanisms and Policy Innovation for Affordable Housing in South Africa: A Systematic Review

Bongekile Mvuyana^1*Georgeanne Matthews²

• ¹Mangosuthu University of Technology, Umlazi, South Africa
• ²University of Maryland, College Park, United States

South Africa continues to face a significant housing crisis characterized by a growing backlog, unaffordability, and spatial inequality. Although state-led interventions such as the Reconstruction and Development Programme (RDP) and the Finance Linked Individual Subsidy Programme (FLISP) have improved access for low-income households, these initiatives have not adequately addressed the housing needs of the missing middle, nor have they fully leveraged private sector participation. This article investigates how tax credits can complement existing housing programs, including BNG, FLISP, and informal settlement upgrading initiatives. The South African government is seeking innovative, scalable, and financially sustainable approaches to address the housing crisis. Tax-based incentives, particularly housing tax credits, represent a promising but underutilized strategy. This article conducts a systematic literature review to assess the effectiveness of tax credit mechanisms in promoting affordable housing. The analysis primarily draws on international case studies, including the United States' LIHTC program. The review covers peer-reviewed articles, government policy documents, and institutional reports published between 2010 and 2024. The PRISMA framework and Participatory Design principles guide the review to ensure transparency and replicability. The findings reveal that tax credit programs have successfully mobilized private investment in affordable housing in several countries, particularly when supported by strong regulatory oversight, clear eligibility criteria, and alignment with spatial planning frameworks. However, implementation challenges remain, including market capture, the exclusion of the poorest households, and administrative complexity. In South Africa, although limited tax incentives, such as Urban Development Zone (UDZ) tax deductions, are available, they have not been specifically tailored to incentivize the delivery of affordable housing. This article proposes a SA-AHTC model to complement existing housing subsidies. The model aims to attract private capital to mixed-income and rental housing in high-demand urban areas, responding to the growing trend of urbanization. The proposal emphasizes integration with local government planning, outcome-based compliance systems, and continuous monitoring to promote equity and effectiveness. The analysis demonstrates how well-designed tax credit frameworks can align public policy objectives with market-based solutions. Incorporating tax credits into a broader, equity-focused housing strategy could expand access to affordable shelter and support inclusive urban development.