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

FEATURES 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 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. MARCH - APRIL 2019 15