Rent Stabilisation needed in South Africa

THE boom in property prices in South Africa has meant that for many families, owning property is out of the question. Renting results in vulnerability and a number of factors below need to be considered. The move by listed property groups into residential property has further pushed up rental prices. Rents have increased on average by 10% pa, with yields at 6% compared to the inflation rate 3.90%

Rent stabilisation offers an alternative to social housing projects. In the London borough of Camden, demands for rent stabilization are producing results, and it perhaps time that similar policies were considered in South Africa.

Like Cape Town, at least a third of Camden residents live in privately rented homes, with more and more families being forced to move into a sector once considered mainly for young professionals and students.

This means that tenants have no long-term security which affects issues such as preventing children settling in their local schools and families becoming part of their community.

The average house price in Camden is £700,000 (R125 million) and is way out of reach of all but the wealthiest families. The average rent for a two bedroom property is £440 (R7883) per week and these rents and house prices are simply unaffordable for the majority of local people in a borough where average income is around £33,000 (R591 246)”

According to a report produced by the Camden City Council, “The main economic reason for introducing regulation is that the market in question is operating badly – i.e., there is market failure arising from market power; lack of information and asymmetry in that information; external costs or benefits from the provision of the good; dynamic problems in ensuring adequate investment; and/or issues around risk and uncertainty. The housing market is susceptible to many of these problems, particularly because of the contractual relationship between landlord and tenant and because it is difficult to adjust supply rapidly in the face of changing demand.”

“Regulation may also be introduced for reasons of equity and distribution. In particular because housing is both costly and a necessity of life, regulation may be introduced to make housing more secure and affordable. In these circumstances there will often be a tension between helping tenants and protecting returns to landlords, and an emphasis on the former can result in lower investment and increasing pressure on rents. In this environment it is often necessary to introduce other subsidies or forms of provision such as social housing where market returns are not required.”

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