The cost of living and housing in Cape Town is increasing and becoming dislocated from local incomes, potentially leading to a misallocation of resources within the economy. This could lead to less money being spent in the real economy and less investment in technology and innovation, lowering productivity. In this article, Sindile Vabaza discusses how affordable housing and efficient public transport can make Cape Town richer and more productive, creating a virtuous cycle of demand and employment. This article first appeared in the Daily Friend.
How Cape Town can become richer and more productive
By Sindile Vabaza*
While the City of Cape Town deserves many plaudits for being a beautiful, functional and well-run city compared with every other major metro in South Africa, there are some issues that, if looked at correctly, can actually become opportunities to make Cape Town and its residents richer and more productive.
According to the NUMBEO Cost of Living Plus Rent Index comparing Cape Town and Durban, rentals in Cape Town for similar properties are 54% higher than in Durban. In fact, to have the same standard of living as in Durban with R38 000, you would need over R44 809 in Cape Town even as salaries on average are only R3 000 higher.
In other words, what is tweeted about on social media and spoken about at braais and get-togethers about how expensive Cape Town is, is backed up by numbers. This might not matter much to people who are fleeing dysfunctional metros and are willing to put up with the cost of housing (both renting and buying) eating up more of their salaries than it really should.
What is the issue?
There are two specific issues with housing prices and rent increasingly becoming dislocated from local incomes. Here the speculative bubbles in Western housing markets and, in particular, the United Kingdom can offer lessons.
The first is that this dislocation can lead to a misallocation of resources within an economy. This potentially could be the case in Cape Town, as semigration speeds up and the competition in the housing market becomes ferocious. What happens in instances like these, is that more and more people’s income is sunk into housing. Residents end up having less money to spend in the real economy (which can create more and better jobs), and to save, which means institutions like banks have less money to lend businesses that can invest in technology and innovation and therefore the productivity of their workers.
The basis of how cities enable the construction of housing is rooted in zoning, If zoning and housing regulations lead to speculative bubbles and house prices being dislocated from local incomes, then this is an unwelcome distortion that shifts resource allocation away from other sectors of the economy towards specialized interests in housing.
The other problem that is well documented within Western cities is that young people’s inability to get on the housing ladder is leading to their either delaying families, not having families at all, or not having children at the rate of population replacement. This aging problem is common in the West and East Asia, including China.
A National Bureau of Economic Research working paper found that remote work or workplace flexibility may have aided a baby boom amongst college-educated women in America. Those who work remotely can afford to live in cheaper locales or live in the exurbs of cities that offer high paying jobs (if they need to commute only once or twice a week). This means that college-educated women’s willingness to have more children is affected by being able to not only afford bigger and cheaper houses but also being able to be nearer their children and not have to commute long distances.
It is instructive that for non-college-educated women fertility declines continued.
What can be done?
For one, the City of Cape Town wanting control of the rail network is a good start if the intention of the City is to make mobility easier, cheaper and more efficient, especially for working class residents. Inefficient public transport (as seen with taxis in Cape Town) erodes the benefits of being able to place workers with the right skills into the appropriate vacancies. This lack of labour-matching leads to inefficiencies within the labour market and stifles overall productivity and wealth creation in the city.
The other factor is that zoning and regulations have to prioritize housing verticality and density that will lead to higher housing supply and more affordable housing, especially for young people who may want to get married and have children. This won’t be easy as NIMBYism will be a factor as it is in many other cities where housing costs are out of control.
Simply put, without the failure of other metros and the willingness of people to semigrate away from that failure, the City of Cape Town could be sowing the seeds that stifle the city’s own future economic and job growth and the productivity of the workers in the city. If indeed, other more affordable metros do get their act together and the country sees improvements, Cape Town’s comparative “good governance” advantage will whittle away and young workers, even many skilled ones, could semigrate away from Cape Town. As it stands, Johannesburg still has a much bigger economy and more job opportunities despite all the failure and poor governance within that city.
For Cape Town to become more productive and richer, zoning and regulations must lead to verticality and density and the provision of more affordable housing for those not within high productivity and opportunity nodes. Public transport also has to become cheaper and more efficient to allow for better labour matching and a more efficient labour market.
More affordable housing also means more money in the hands of residents to spend in the real economy, creating a virtuous cycle of demand and employment. This will lead to happier residents with more disposable income who will experience the city as even more liveable and world-class.
*Sindile Vabaza is an avid writer and an aspiring economist.
The views of the writer are not necessarily the views of the Daily Friend, the IRR or BizNews.
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