South Africa’s biggest cities are broken 

South Africa’s largest cities are poorly planned, resulting in low-density urban spaces that pose significant barriers to labour market inclusion and business growth. 

The legacy of urban sprawl and fragmented communities due to Apartheid-era segregation policies undermines productivity and limits access to jobs. 

Settlements far from city centres and hubs of economic activity make it difficult for small businesses in particular to achieve the critical mass needed to thrive. 

This is feedback from the Organisation for Economic Co-operation and Development (OECD), which analysed why South Africa’s economy has stagnated over the past decade. 

In its latest economic survey on South Africa, the organisation highlighted the role of deteriorating state finances, elevated unemployment, and onerous regulations in hindering economic growth. 

One of the other major factors it pointed to was the design of South Africa’s cities, which present a significant barrier to entry for new businesses and employment. 

This, it said, was largely a legacy of Apartheid-era spatial planning, which the current government has failed to address. 

Millions of South Africans remain isolated in underserved townships on the periphery of cities, resulting in transport taking up a large share of disposable income. This, in turn, creates a high barrier to entry for employment in cities. 

As a result, South Africa’s urban spaces, particularly in Gauteng, are low-density and hobble business growth. This undermines productivity and labour market inclusion, making it very difficult for small businesses to be sustainable. 

This has been exacerbated by the construction of Reconstruction and Development Programme (RDP) houses on the outskirts of cities. 

A strong policy focus on homeownership has also undermined efforts to improve the productivity of South Africa’s cities, resulting in many preferring to buy a house on the outskirts rather than rent closer to the city centre. 

Policies such as the corridors of freedom in Johannesburg that aim to connect underserved, remote townships to the city centre via public transport have had mixed success as a result. 

Several policies that focused on improving access to decent housing have had the undesirable effect of isolating segments of the population from labour market opportunities. 

Meanwhile, the supply of social rental housing in densely populated urban areas has fallen short of demand as it has been difficult to keep up with rapid population growth in large municipalities. 

A significant housing backlog persists, with over 2.4 million households registered on the National Housing Needs Register in 2023. This has often resulted in the expansion of informal settlements. 

For example, between 1996 and 2011, population growth in Cape Town was 18 times larger than that of the housing market, resulting in large informal settlements. In 2023, 12.2% of South African households lived in informal dwellings.

The graph below shows the relatively low urban density of South Africa’s major cities in comparison to OECD countries and how this translates into higher housing costs. 

Reviving South Africa’s cities

South Africa’s major metros are reformulating social housing programmes to actively counter Apartheid-era spatial planning and increase urban density. 

This has been combined with efforts to redevelop inner cities and CBDs, which have had mixed success so far in Gauteng. 

Another aspect of this plan is to increase housing near public transport and development corridors to connect existing communities with city centres and job opportunities. 

Reforming restrictive local building regulations could help support urban densification and housing supply, the OECD said. 

Policies such as floor area and building coverage ratios, which cap the maximum allowed built-up area, often prevent high-rise developments. 

For example, easing such regulations in Paris doubled the construction of apartments from 40,000 to 80,000 units per year. 

These constraints also reduce the housing market’s ability to respond to fluctuations in demand, increasing prices and worsening affordability. 

This challenge is evident in South Africa, where a low increase in urban density has been historically coupled with rapidly rising prices. 

Improving the urban density of South Africa’s cities has the potential to remove a significant barrier for many individuals to access employment opportunities. 

Around 70% of discouraged job seekers cite their location as the key constraint to looking for a job, with the average commute being between 44 minutes and 84 minutes. 

Commuting costs are substantial and disproportionately affect low-income households, consuming up to 37% of post-tax income for the lowest quintile and up to 80% when including the time spent commuting. 

Aligning transport, urban planning and housing policies and reducing the fragmentation of land use and infrastructure planning will be key to increasing workers’ mobility, productivity and business growth, the OECD said.