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Most economists define a market as a place where the forces of demand and supply
interact. There are a number of dynamics at play on the demand- and supply-side of
the housing market in South Africa, particularly in the Western Cape.

High real estate price inflation has inevitably contributed to the deterioration in the
supply of affordable housing in the province, which has significantly impacted on
households in the so called ‘gap-housing market’. Perhaps the biggest irony is that
while the Western Cape has experienced relatively good economic growth (which
has driven the relative strength in its residential property market), the high real estate
pricing has impacted negatively on its housing market. In the long run – should the
lack of new stock and affordability challenges be left unaddressed – it can become a
growth constraining factor. Put simply, what we often fail to acknowledge is that even
though high property values are often glorified as a virtue, it will eventually prohibit the
attraction of skills due to in-affordability, and can ultimately become a constraining
factor for economic growth.

The provision of fully subsidised housing remains the standard form of housing assistance
in the Western Cape for lower-income households earning less than R3 500 per month.
Still, the Western Cape government faces enormous housing challenges in providing
affordable houses for households earning between R3 500 and R15 000 per month.

The reality of limited budgets and increasing building costs (amongst other constraints)
makes it difficult for the province to maintain the required pace of housing provision.
Delivering housing opportunities at scale is often technically, socially and financially
demanding. This challenge becomes even more complicated by increasing population
rates, net in-migration, and the reduction in functional households. The result is smaller
household units across all populations and limits in construction industry capacity. The
Western Cape is not delivering at the rate and scale needed for housing supply to meet
demand, nor, given the differing levels of affordability and access to credit, is it serving
the diversity of the market – not in the gap market, nor in the subsidy-eligible market.
A strategy to address the shortages in the supply of gap-housing is to encourage the
private-sector to spot the excess demand and respond by stretching down lower in the
housing market.

What is Gap-housing?
Gap-housing is used to describe the shortfall in the market between residential units
that are supplied by the state and houses delivered by the private sector. The gap-
housing market accommodates people who typically earn between R3 500 and
R15 000 per month – which is deemed too much to qualify for state assistance, yet too
little to enable them to take part in the private property market.

The Western Cape government estimated that in 2014, about 36% of households in the
Western Cape were in the gap-housing market, with no access to mortgage credit. This
is projected to increase to 41% by 2040.
The 2011 State of Cities Report (SoCR) noted that progress in delivering housing to
the gap-housing market segment has been limited and very few households have
successfully accessed private mortgage funding to acquire housing in this market. With
this in mind, it is clear that there are gaps in the housing ladder between the subsidised
houses that someone earning less than R3 500 might have access to, and the affordable
house that someone earning more than R15 000 might have access to.

68 QUARTERLY ECONOMIC BULLETIN 2016