Dangerous proposal for properties in Cape Town

Many Cape Town residents complain about rapidly increasing rental prices and a few stakeholders have proposed rent control. However, this can have devastating consequences.

The Western Cape has the highest rental prices in South Africa, with the average rent 21% higher than the national average.

Many factors contributed to the high rental prices, including semigration, low housing supply, rising interest rates, and booming tourism.

The post-Covid shift to remote work has made the Western Cape, particularly Cape Town, a popular destination for people who previously lived in Gauteng.

More recently, Capetonians have blamed the increase in digital nomads for rising rental prices in the city.

Digital nomads are skilled professionals who travel widely while working remotely using technology and the internet.

These professionals typically pick affordable and beautiful locations, which makes Cape Town and the Garden Route perfect choices.

The City of Cape Town has launched an initiative to attract remote workers from across the globe using the new Digital Nomad Visa.

In May 2024, the Department of Home Affairs implemented a Digital Nomad Visa, allowing foreign nationals who earn over R1 million annually to reside in South Africa.

The City of Cape Town’s MMC for economic growth, James Vos, said this visa will boost their visitor economy and benefit local businesses.

However, not everyone is in favour of digital nomads. Professor Ziyad Motala from the Howard Law School is one of the vocal critics.

He said they profoundly disrupt the local housing markets and economies, calling them “parasitic to local housing markets”.

“Digital nomads distort rental markets, price out locals, and contribute a fraction of what they extract from these communities,” he wrote in a News24 column.

“Coupled with the broader issue of foreign property ownership, the damage becomes systemic, crippling housing affordability and local economic stability.”

Cape Town Mayor Geordin Hill-Lewis dismissed this argument, calling it “a red herring” and a misconception of what was really happening.

He said the digital nomads rent houses and apartments at the top end of the market, which does not distort the normal rental market.

Calls for rent control, which is very dangerous

Some stakeholders, including the housing lobby group Ndifuna Ukwazi, have called for a rental cap, also known as rent control, to address the issue.

“So far, the City of Cape Town has shown no interest to introduce regulation to cap rent. There is a need to regulate property for locals and not foreigners,” the organisation’s Jonty Cogger said.

Cogger told News24 that rent control existed in some neighbourhoods during apartheid and suggested similar measures to alleviate the high rentals.

However, this is a very dangerous suggestion which can have devastating consequences for the city.

Renowned economist Thomas Sowell warned that rent control inevitably results in a shortage of housing for the poor and rising rental prices.

While rent control intends to make housing more affordable for the poor, it makes areas where this is implemented unattractive to property developers and investors.

The money that would have gone into building houses to accommodate working-class people is diverted into building properties not subject to rent control.

The result is that new construction, which is not subject to rent control, is aimed at houses that are only affordable for the wealthy.

Manhattan and San Francisco are the best examples of the impact of rent control, where rent and rent increases are controlled and capped.

Due to these government policies, Manhattan and San Fransisco became two of the areas with the highest property prices in the world.

Apart from a few select buildings, these areas are unaffordable for the poor and became areas where only the super-wealthy can live.

The same will happen to Cape Town should the city consider rent control. It will ensure that there will be very few places where the poor can live.