The African National Congress is starting its “dispute resolution process” in a bid to address the a.
Housing Minister Lindiwe Sisulu has rejected a cabinet decision to transfer the function of building homes from provincial governments to municipalities.
"The recommendation will not find favour because the housing department had wanted to accredit municipalities before to deliver housing but it was discovered that they had no capacity," Sisulu's spokesman Marianne Merten said.
Len Verwey, of the think tank Institute for Democracy in South Africa's, also disagreed with the cabinet decision.
"It is good that cabinet is considering other options but it is questionable if the municipalities can do what provinces can't. Many municipalities would not have the staff and the capacity to deliver housing.
"Municipalities should receive a conditional grant where they need to account for how many houses they have built before the grant gets renewed the next year." said Verwey.
Government figures indicate that for the plan to eradicate informal settlements by 2014 to succeed, the state would have to build 500000 a year.
Earlier this year, Thubelisha Homes, the government's housing company, collapsed under the weight of heavy losses and a poor delivery record.
Thubelisha was supposed to build thousands of low-cost homes but was instead declared "technically insolvent" in May after it made a loss of almost R68 million and failed to come close to its target of delivering over 16290 low cost homes.