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Auditor-general Terrence Nombembe last week sent inspectors to the 2300 homes - built by the Cape Town Community Housing Company (CTCHC) - to look at their cracked walls, exposed electrical cables, damp and toilets that continuously break.
The AG's inspectors would not comment to the media except to say that Nombembe would release a report to Parliament soon.
Gary Hartzenberg, of the Newfields Village Community Representative Committee, said he had been battling with the CTCHC since he moved into his house in 2002.
He said they were initially told they would have to pay R350 a month for five years and would then own their homes.
Earlier this year they were told to pay a R1 200 monthly "rent".
He still does not own the house he lives in.
"They have built us the worst houses in history. There is no cement between the bricks. The floors have cracks."
Fungai Mudimu, chief executive of the CTCHC, said they were taking legal action "against those that are not honouring their instalment obligations".
Mudimu said residents initially agreed to pay R850 a month. But that agreement had been cancelled earlier this year "when clients were in breach of their contracts".
"Had they honoured their monthly instalments they would have owned the houses after five years.
"Since the houses were built, more than 1000 purchasers have taken ownership of their houses," Mudimu said.