Key Takeaways:
- Rent control policies have been proven to fail in numerous cities around the world, leading to a decrease in housing supply and an increase in prices.
- Cape Town’s housing stress is not caused by foreign buyers, but rather by a lack of supply and increasing demand.
- The city is taking steps to address the issue, including releasing land for affordable housing and introducing innovative reforms.
- Rent control policies can entrench inequality, protecting existing tenants while leaving new arrivals and low-income individuals with limited options.
- Increasing supply is the only way to address housing affordability, and the city must focus on freeing up more building and development.
Introduction to the Housing Crisis
The debate around housing costs is a contentious one, with many calling for rent control as a solution to rising prices. However, according to Cape Town Mayor Geordin Hill-Lewis, this approach is misguided. The city is experiencing growing demand, limited land, and escalating prices, but the answer lies not in price controls, but in increasing supply. The proposal to cap rental prices may be emotionally satisfying, but it is demonstrably wrong, with a long history of failure in cities around the world. Cape Town’s desirability is rising, and this is a sign that the city is doing many things right, but it also means that the housing market is under pressure.
The Failure of Rent Control
The reality is that rent control doesn’t fix scarcity, it actually worsens it. When governments freeze or cap rents, supply collapses. This has been seen in cities such as Berlin, where a 50% drop in available rental housing occurred within months of introducing a rent cap. Similarly, in San Francisco, rent control led to a 15% shrinkage of the rental market, as owners converted units into condos or withdrew them from the market. In New York, decades of frozen rents produced poorly-maintained buildings, as landlords were unable to cover rising costs with artificially fixed rents. The strongest argument against rent control is not only that it fails, but also that it actively entrenches inequality, protecting existing tenants while leaving new arrivals and low-income individuals with limited options.
The Real Trends in Cape Town
Foreign buyers are often blamed for the housing crisis in Cape Town, but the reality is more complex. While foreign ownership has increased, it is largely concentrated in luxury neighborhoods, and these buyers also inject capital into the city and support tourism-linked spending. The real problem is not foreign-made, investor-made, or Airbnb-made, but rather supply-made. The city’s housing stock must grow with its population, and while progress is being made, more needs to be done. Cape Town is a national leader in enabling affordable housing delivery, with more land released in the last two years than in the decade prior, and a pipeline of 12,000 well-located affordable housing units close to the CBD and other economic nodes.
Addressing the Housing Crisis
The City of Cape Town is taking steps to address the housing crisis, including introducing innovative reforms such as Land Discount Guidelines, which allow City-owned land to be deeply discounted to maximize social-housing yield. The City is also offering substantial utility and rates discounts for accredited social-housing projects and has amended its Municipal Planning By-Law to make it easier for micro-developers to build affordable units. However, the seductive political temptation to cap rents or restrict increases is not the solution. Economics is not impressed by wishful thinking, and the world’s experiments with rent control are an archive of failure. If we are serious about improving affordability, we must be honest about where the blockages reside and focus on freeing up more building and development.
Conclusion
In conclusion, the housing crisis in Cape Town will not be solved by rent control or other forms of price regulation. The city must focus on increasing supply, and the City is taking steps to do so. By releasing land for affordable housing, introducing innovative reforms, and streamlining approvals, the City can create the conditions for delivery. However, it is essential to be honest about the blockages and not be swayed by political distractions such as rent caps or foreign-buyer restrictions. The city will solve its challenges by freeing up more building, more urgently and ambitiously. In housing, as in economics, you cannot regulate away scarcity, you can only outbuild it.