South Africa’s housing market carries a surprising weight in the economy: residential property accounts for almost a quarter of the country’s Consumer Price Index (CPI) basket. Housing and utilities have a 24.1% weighting, ahead of food and transport, with rentals alone accounting for 15.5%.
Source: Pexels.
But the numbers reveal an intriguing contradiction. For homeowners, rising property values and rents can boost wealth and returns. For those who need somewhere to live, however, the same increases make housing less affordable. Even homeowners are counted as consuming a rental service through “owners’ equivalent rent”.
This may sound strange to some, because owners don’t pay any rent. But that is only because the owner has incurred huge costs as the investor in the asset, then incurs a cost by foregoing a potential rental income that would have been received should a paying tenant have been placed in the house instead.
The CPI attempts to measure the effective cost of consumption of the rental service to the homeowner. StatsSA uses actual rentals on equivalent dwellings to estimate the owner equivalent rent where properties are owned and occupied by the same people.
This should be a realistic estimate of the rental income that owners forego (i.e. incurring a cost) by not having a tenant in their own property instead.
In housing, households often invest in the asset that directly provides the consumer service: I highlight the CPI’s for rentals and owner equivalent rentals to make the point that a house is in effect an investment asset and a consumer service-providing item at the same time, the investor in the asset and the consumer of the service provided (space usage) often even being the same person.
Let’s ponder investing in shares of a company that supplies a consumer good or service. If their share price skyrockets, the investor might have made an excellent return, but not necessarily at the expense of the consumer.
This is because a rise in the share price does not necessarily mean a rise in price of the consumer product supplied. They are two separate things. In fact, often, it is the ability of a consumer product manufacturer to contain cost increases and drive volume growth that can drive that company’s performance and share price higher.
In such an instance, the desires of the investor can be satisfied without harming the consumer. In the case of a house, a person is investing directly in the asset that supplies the consumer service, i.e. living space, often with a view to consuming that service themselves.
The direct home investor who already owns the asset would often love nothing more than to see the asset price go skyrocketing, along with their own rental income (the two being strongly linked and influenced by each other). But should this happen, it doesn't serve the interests of the “tenant consumer”, nor the aspirant owner-occupier for whom consumption (i.e. a place to live) is the main priority.
You must either pay rent, or alternatively pay the price, interest and transaction costs on the property if you are an aspirant consumer of the service seeking to be an owner occupier. And if those costs go spiraling upwards, that is not in the interests of the consumer.
Cape Town paradox
The Western Cape currently highlights the competing investor vs consumer desires: No South African region highlights these competing interests more than the City of Cape Town currently, whose outperforming housing market (both rentals and house prices) has no doubt made plenty of existing property owners very happy. However, simultaneously we have experienced sharply rising dissatisfaction being expressed around residential in-affordability from many locally employed people there, likely more from those who lean towards consumption, and who increasingly can't afford to buy or to rent in many parts of the city.
Many Capetonians have for years been proud of their city offering a better perceived quality of life than many other South African cities, not only due to the natural environment but also because of relatively better service and infrastructure delivery by its metro council, compared with many other metro councils and municipalities in South Africa.
This has attracted relatively better investor confidence in the Western Cape and Cape Town, stronger net inflows of higher income and skilled households, and an outperforming economy that has had stronger job creation than most others. The consequence is a significantly stronger housing market, and higher property and rental values on average compared to the other eight provinces.
These are the implications of relative regional economic success. Ultimately, Cape Town's, and indeed the broader Western Cape’s, superior returns on property compared to much of the country, should lead to more rapid building activity, and thus growth in new residential supply to satisfy the shortage.
Indeed, in recent years this appears to have been the case, with Western Cape residential building plans passed exceeding the number of plans passed in Gauteng Province, despite the latter province being far larger in terms of population size and economic size.
This I believe will ultimately lead to the Western Cape's rapid house price and rental growth subsiding, shifting more into line with the rest of the country.
But the current noise around Cape Town’s relative in-affordability serves to highlight the importance of residential property not only as an investment, but as a directly consumer-related item that contributes greatly to the consumers’ well-being.
Real home values don’t always rise
Many people believe residential property to be a creator of wealth. Indeed, it can be that. But real home values do not always rise, often they decline.
Examining StatsSA’s house price indices, which I have converted to real values by adjusting them using CPI inflation, points to very significant real average house price decline in seven of South Africa's nine provinces, from January 2010 to April 2026. Only the Western Cape has shown significant average real house price growth, to the tune of 34,89%, with the Northern Cape also showing very slight positive growth of 3,91%.
The other seven provinces all showed significant real price decline over the period, Gauteng and KZN (the two largest provincial economies) measuring -16,27% and -17,56% declines respectively.
But financial benefits of home ownership can be significant even when the asset doesn’t perform that well: But even when the asset class doesn't perform well, and some financial experts do the financial calculations to say you'd be better off renting and investing the money that you save on transaction costs and bond repayment costs in equities for instance, buying a house may still be a useful investment.
The reason is that buying a house and committing contractually to pay off a home loan and other home-related costs imposes a financial discipline on a homeowner that may not be there if they were a tenant. I have never met the person who rents and, each month, does the calculation on what they're saving by not having bought a house, then diligently puts that difference into an investment.
More often than not, I suspect, the savings would be spent on consumer goods and services with no financial return. By comparison, the homeowner who has paid off the mortgage debt, years down the line has an asset worth a significant amount of money in many instances, even if the capital appreciation hasn't been that good.
Affordable housing matters
The well-being and economic benefits of housing as a consumer-related item are huge: However, there is much to emphasise around property as a consumer service-related item, which arguably justifies the need for formal homes to be as affordable as possible, be it rental or owner occupied.
A formal home is a massive improvement from an informal home. Being more protected from the elements implies potential health and security benefits. With formal housing normally comes proper services such as electricity, running water, sanitation and a more orderly suburban layout. Electricity has often been shown to improve many things, from social life to education levels.
More affordable housing in close proximity to places of major employment, or perhaps to reliable public transport for example, can often greatly reduce financial and time costs for commuters of all income classes.
Being an owner occupier comes with additional stability benefits, the occupier being able to determine their own date of departure from the property, as well as how they refurbish or upgrade it, as opposed to being at the mercy of a landlord.
In some research, being an owner occupier is seen as coming with a certain amount of status in society. Being an owner occupier, in part for reasons mentioned above, can have a positive mental-health benefit, provided that it doesn't create financial stress for the owner.
And much of the above has the potential to improve labour productivity, and thus a region’s economic performance.
In short, I am of the view that housing plays a far more important role than merely contributing directly to a home owner’s wealth through the direct financial return on the asset.
When viewing it as a consumer service-related item, housing plays a key role in household well-being, development and productivity, thus being a potentially important contributor to a region’s economic performance.
When a city, or region runs into housing affordability constraints, that can start to hamper the supply of certain types of labour, if not resolved. Consider the “lower paid” professionals such as nurses and teachers. A lack of supply of these skills in an in-affordable area/region can put health or education services under pressure, while a slowdown of higher income/highly skilled “semi-grants” from other regions can happen as a result.
Therefore, for an existing owner, housing-supply scarcity relative to demand, driving home values and rentals skywards may well be desirable. But this is often in direct conflict with desirable performance when viewing the home as consumer service-related product, “desirable” then being greater affordability caused by supply more than keeping up with demand.
In conclusion – “Good” housing market performance arguably differs when viewed from an investor vs a consumer and economic benefit point of view. So, when measuring housing market performance from an investor point of view, the return on existing properties (capital growth and rental income) is normally desired, and this can be boosted by supply shortages relative to demand.
But when measuring housing market performance from the broader consumer and economic performance point of view, the pace of new housing-supply growth is probably a better metric to evaluate market performance, while improving affordability in both ownership and rental markets is more desirable.
For consumers of goods and services, housing being one, inflation is rarely popular.
