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Figure 33 Average House Price by Province (Rand)

Source: Quantec and FNB House prices

Property developers in the Western Cape have reported that in the current market,
entry-level housing cannot be built for less than R400 000. The primary reason for this has
to do with red tape – delays in the achievement of regulatory and administrative steps
in the housing delivery process – and the impact this has on the cost and availability of
funding to support the delivery.

To some degree, red tape has an impact on the rate of delivery. It simply takes longer
for housing to be delivered, and as a result, the province’s annual delivery figures are
much lower than demand would suggest is commercially possible. In simple economic
terms, this also places upward pressure on housing prices as fewer houses are available
for purchase amongst the available buyers. Possibly more significant, is the impact on
the cost and scale of delivery. The analysis suggests that in a development of 2 259
units, a 24-month delay increased development costs by 175%, which translated into
an increase of 124% on the originally budgeted selling price of the development. The
increased costs contributed towards an increase in the selling price of the unit (and
thereby declining affordability). This reduced the capacity of the funds available to
deliver more units, undermining the scale of delivery, and putting additional upward
pressure on prices.

In short, the affordability of property in the Western Cape is declining and the inflation
of house prices in the province means good returns on properties in the province.
Despite the number of state-provided housing supply options to meet the demand
of households that are unable to access the bonded market, the shortage of housing
stock in the gap market perpetuates a cycle of rising prices and supply shortage.

70 QUARTERLY ECONOMIC BULLETIN 2016