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< South Africa's GDP
Economics Main Page >

Percentage of total income spent per province on renting of properties

​​​​​Date: 9 January 2019
Category: Economics

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We take a look at the percentage of money spent by South Africans on the renting of properties to live in, and break it down per province and dwelling type.
Picture
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Average percentage of total spending spent on rent per province

Based on the consumer price index weights as calculated and published by Statistics South Africa (Stats SA) the average household in South Africa spends 3.52% of their total spending on rent. While the percentage sounds low one should remember that there are households that stay in the houses they bought and they do not pay rent (we will get to them a little later). The consumer price index basket aims to calculate a basket of goods and services bought by the average household in South Africa. So the total amount of rent spent across the country is divided by all households (whether they pay rent or not) in order to get an estimate of what the average household spends on rent. 

The bar chart below shows the average percentage of total expenses spent on rent (of various different housing types) and breaks it down per province. So looking at the Western Cape for example, the average household in the Western Cape spends 2.17% of their total expenses on Rent for houses, 1.46% on the Rent of flats and 0.77% on Rent of townhouses. 

chart created with amCharts | amCharts
The summary below shows the average percentage spent on Rent per province (sorted from highest to lowest):
  • Western Cape:4.4%
  • All Urban Areas (Average for South Africa as whole): 3.52%
  • Gauteng: 3.38%
  • Eastern Cape: 3%
  • North West:2.74%
  • Free State: 2.69
  • KwaZulu-Natal:2.52%
  • Limpopo: 2.43
  • Mpumalanga: 2.04%
  • Northern Cape: 1.47%

So what about those living in the houses they bought? How does that compare to the rent paid? And how is this calculated? Stats SA using what is called Owner's equivalent rent (OER). OER is used as a proxy to measure the cost of staying in the house instead of renting it out, by using what these owners staying in their houses would have received if they rented out their houses. Basically the opportunity cost that is being lost by living in the house instead of renting it out. 

The bar chart below shows the OER per province and dwelling type.
chart created with amCharts | amCharts
So in the above graphic it is clear the Eastern Cape has the highest OER cost. Basically a large number of people in the Eastern Cape own the homes they stay in and therefore the opportunity cost of owning instead of renting it out is higher. Interestingly in the Eastern Cape there are hardly any flats that are owned and stayed in by owners, as the small percentage of OER in Eastern Cape for Flats show. Only 1.08% of the total OER in Eastern Cape is made up by flats. A similar pattern can be seen across most South African provinces, but the Western Cape, KwaZulu-Natal and Gauteng has a bit more OER for flats than the other provinces, showing a large number of people buying and staying in flats in these provinces.
​
The summary below shows the average percentage spent on owners equivalent rent (OER) (sorted from highest to lowest):
  • Eastern Cape: 14.83%
  • All Urban Areas (Average for South Africa as whole): 13.32%
  • KwaZulu-Natal: 13.26%
  • Gauteng: 12.92%
  • Free State: 11.72%
  • Western Cape: 9.85%
  • Northern Cape: 9.24%
  • North West: 9.09%
  • Limpopo: 8.01%

So if we combined the spending on rent and the OER estimates we get a overall estimate of the cost of occupying a dwelling (just staying in the dwelling, not taking into account rates and taxes and electricity and the the likes). The bar chart below shows the overall cost of occupying a dwelling per province.
chart created with amCharts | amCharts
The bar chart above therefore shows the total percentage of money spent per province on occupying a dwelling (be it by renting or staying in it). So for Gauteng for example, for every R100 that is spent by the average household in Gauteng, R16.30 is spent on occupying the dwelling they stay in. The summary below shows the average percentage spent on owners equivalent rent (OER) (sorted from highest to lowest):
  • Eastern Cape: 17.83%
  • All Urban Areas (Average for South Africa as whole): 16.84%
  • Gauteng: 16.3%
  • KwaZulu-Natal: 15.78%
  • Mpumalanga: 14.47%
  • Free State: 14.41%
  • Western Cape: 14.25%
  • North West: 11.83%
  • Northern Cape: 10.71%
  • Limpopo: 10.44%
Looking at the numbers the thing that stands out is the Western Cape. They reported by far the highest percentage of money spent on rent, yet when it comes to the overall cost of occupying a dwelling they are the 4th lowest of all provinces in South Africa. So rent is high, and OER is not very high (compared to the other provinces), so home ownership in the Western Cape is less prominent? Perhaps. Is the cost of buying a house in the Western Cape forcing those living in the province to rather rent than buy?

And is this pointing to a property bubble in the Western Cape? We recently wrote an article in which we raised concerns about the property market in the Western Cape and the strong house price growth and fast pace of rental prices charged in the province and our worry that it is forming a bubble.

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