Big shifts needed in South Africa’s property market

With over 80% of South African households priced out of the formal property market, experts say major changes are needed.

Recent Lightstone data revealed that one property was available for 4.8 households earning under R13,000 a month. This means nearly five households exist for every property that fits their affordability criteria.

If the salary threshold is raised to R26,000 a month, this ratio improves to 3.3 households for every one formal property. For higher income groups, it increases closer to 1.2 to 1.

“But either way, more than 80% of South Africa’s households earned under R26,000 per month, which meant affordability remained a major obstacle to most households having a property to call their own,” Lightstone Property managing executive Hayley Ivins-Downes said.

As a result, many households were pushed into backyard rentals, informal structures, or traditional dwellings that were not formally registered.

Almost 12 million households in South Africa have monthly incomes below R13,000. If they follow the standard advice of spending no more than a third of their earnings on housing costs, fewer than 2.5 million suitable properties are available.

According to Ivins-Downes, this represents by far the biggest mismatch between the number of households and the housing stock available.

For instance, about 2.5 million households earn between R13,000 and R26,000 a month, yet only 1.8 million homes catered to this income bracket.

This equates to roughly 1.3 households competing for every available property. Interestingly, more properties were suited to this income segment than households earning between R26,000 and R40,000 a month.

In addition, only 1% of properties valued below R300,000, of which about 80% were subsidised, had been sold or transferred in the past five years.

Sentinel Homes managing director Renier Kriek also stressed that the trend of the overwhelming majority of South African households being priced out of the local property market is worsening.

“There’s something very wrong if such a large demand is not being met,” Kriek explained. “Although the problem is well known in the property industry, no real solutions are forthcoming from the government actors who are responsible for solving these problems.”

Problems in South Africa’s property market

Although the root causes are mainly systemic and need to be addressed by the government, several problems exist in the property market, making housing construction more costly and selling properties less affordable.

According to Kriek, bureaucratic sprawl is one of the largest problems developers face. This issue is not unique to South Africa.

“Bureaucrats and lawmakers heap regulation upon regulation, increasing time to approvals from months to years, or decades in some cases,” he said.

“The government needs to streamline or completely remove regulations that cause delays and add costs to housing developments.”

Another problem is a concept known as NIMBYism. NIMBY (Not In My Back Yard) refers to people who object to new developments they perceive to be invasive of their lifestyles or threatening to their status.

Kriek said delaying new housing developments in the courts has become a pastime for these people. “This not only discourages development, but the spectre of a nimbyist court challenge adds to the cost of producing new housing stock.”

Legislative and enforcement frameworks intended to solve for housing production should be designed to allow for rigorous public consultation and objections.

However, the time allowed for the process should be limited and access to the already full and overburdened court system should be restricted.

Kriek added that fixed charges, like a basic electricity fee, hit poorer households the hardest. “Low-cost housing becomes substantially more expensive when municipal rates and fixed charges are added, creating the risk that owners cannot afford the property,” he said.

“This disincentivises developers from entering that segment of the market.” He recommended that, as a rule, fixed charges should never be applied.

All municipal charges on property should be either a progressive tax, meaning that poorer individuals pay a smaller percentage, or based on actual consumption.

Kriek explained that it is also difficult for developers to build more small units. This requires building more kitchens and bathrooms, which are the most expensive structures in a house, regardless of size.

It also takes the same energy to sell small properties as large properties, so there are already structural disincentives to building small properties.

“The government can offset this deterrent with better tax breaks, or programmes that release land to developers to build only small, affordable homes,” he said.