SA Affordable Housing March - April 2019 // Issue: 75 | Page 17

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New York tried and failed to implement rent control.
Pettifor says international studies show that in prime
locations such as Vancouver, London and Cape Town,
increases in housing supply and a contraction of demand
thanks to a fall in the number of households, does not
dampen house prices.
“At last count there were 28 million dwellings in the UK,
but only a predicted 27.7 million households,” she says
explaining that there should be more than enough supply –
yet house prices continue to spiral upward.
“Similarly, in Ireland more than 90 000 homes were built
in a country of just four million people in 2006 and yet
prices continued to rise by a whopping 11% that year,”
she says.
“Land is unusual in economic terms, in that it exists in
fixed quantity; increased lending against it serves,
therefore, only to drive up its value,” explains Ryan-Collins.
As speculators invest, so the prices spiral making homes
increasingly unaffordable for the average person on
the street.
But, Pettifor explains, there is a second, dangerous
element to people investing in property.
“Investing in business supports capital investment and
wages, fuelling growth, while money which is channelled
towards speculative property investments starves the real
economy of the investment it needs to improve
productivity and boost people’s wages – further making
homes less affordable,” she says.
So, the key to making housing more affordable in Cape
Town may not be to build more homes but to instead stop
the flow of cash flooding into expensive areas. Build more
without doing this, Pettifor says, and prices won’t fall as the
market will simply absorb that extra money and prices will
continue a sharp upward trend.
In an attempt to stop this seemingly relentless upward
price trend, cities like New York have instituted rent
controls in which landlords are forbidden to charge high
rents and price ceilings are imposed where developers are
required to sell homes at a set low price to keep them
within an affordable bracket. According to professor of
economics and finance at the University of Michigan’s Flint
campus, Mark J Perry, these methods have never worked
and instead make scarcity worse.
Perry explains that rent control has increased demand in
the city where it is instituted saying, “Who wouldn’t want to
live in New York City in a USD600-a-month apartment?” He
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adds that as a move it can also remove rental housing from
the market as people move to turn their properties into
businesses, warehouses or anything that won’t trigger
rent controls.
“Meanwhile, price ceilings reduce the supply because
they decrease the incentive to build,” Perry says.
According to Pettifor the best way to stop the cycle of
upward price trends is through the tax system.
“First for consideration should be a property speculation
tax (PST), as in Germany. This could be used to levy punitive
rates on speculators, or those who own second homes and
empty properties, encouraging them to invest their cash
elsewhere in the economy,” she explains. Alternatively,
incentives (or tax breaks) could be offered for investing in
local business.
Limiting the incentive to invest in property means that
instead of investing in a second home, the wealthy will
choose to put their money into business, boosting the
economy, raising wages and lowering both the demand
for houses and the rate at which property increases in
value, therefore making homes more affordable for
first-time buyers.
Pettifor’s other suggestion is to limit foreign investment
in property. Back in 2017 Stuart Chait, executive chairman
for Land Equity Group was quoted as saying that, “More
than one third of our recent [property] sales have been to
foreign investors from the UK, Switzerland, Germany,
Netherlands, France and Italy which are now focusing
heavily on the Cape.”
Similarly a report by Lightstone, released in August
2018, states that South Africa shows an increase of 42% in
foreign property ownership in January 2018 compared to
the same period in 2017.
These inflows of cash from countries with far stronger
currencies are significant drivers behind the booming Cape
Town property market.
Limiting this investment could be achieved by heavily
taxing capital gains on property for foreign investors or,
even as Pettifor suggests, through a Tobin tax on global
financial transactions.
While it is clear that there is a desperate need for more
affordable homes in Cape Town and throughout the rest of
the country, South Africa is also going to need to pay
attention to its foreign counterparts for solutions if it is
ever going to solve the housing backlog.
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