In Cape Town it has been estimated that the average household can afford a R336,000 home, but the average house price is over R1 million. 1 This affordability gap in the formal market has led to the growth of informal settlements that often lack the clear land ownership and infrastructure required for rising productivity and liveability. This brief discusses potential ways the City of Cape Town could use its grant from the central government, focused on areas of non-mortgage finance and funding for development finance. Specifically, it analyses the costs and benefits of demand-side and supply-side housing subsidies in tackling this affordability gap.