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We take a look at the growth in rent paid by South African consumers for houses, flats and townhouses and compare this to the growth in "Owner occupied housing". Basically the cost of staying and owning a home instead of renting it out. Thus the opportunity cost of owning and living in your home. In Statistics South Africa its called "Owners equivalent rent" or OER.
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Renting vs owning a house, flat or townhouse
So lets take a look at the growth in actual rent paid by consumers to stay in houses, flats or townhouses, and compare that to the estimated cost of living in your home instead of renting it out. This is used as proxy in order to derive a "cost of owning" and the growth/inflation rate of such "cost of owning". According to Stats SA rentals paid for various property types such as houses, flats and townhouses are used to derive the Owner's equivalent rent (OER). Based on the respective weights in the CPI basket, South Africans are 3.8 times more likely to own a place than to rent a place from someone. Thus the OER component within the CPI is almost 4 times the size of the actual rentals component.
The line chart below shows the movement in the index levels of the respective categories since January 2017. January 2017 is equal to 100, thus any movement above 100 shows an increase and any level below 100 shows a decrease.
The line chart below shows the movement in the index levels of the respective categories since January 2017. January 2017 is equal to 100, thus any movement above 100 shows an increase and any level below 100 shows a decrease.
From the above it is pretty clear that there was no decreases in the rentals or cost of owning a home since January 2017. In fact since January 2017 up to November 2018, the rent paid on Flats increased by 9.8% (the highest of any of the categories), while the cost of owning a house's inflation rate from January 2017 to November 2018 was sitting at 7.3%5, the lowest of any of the categories in the line chart above.
Actual Rentals: Flats : 9.8%
Actual Rentals: Townhouses: 9.4%
OER: Flats: 8.9%
OER: Townhouses: 8.4%
Actual Rentals: Houses: 7.5%
OER: Houses: 7.3%
So while some might say owning a home is more expensive than renting it, and it may be true as municipal rates, levies etc needs to be paid by owners, it seems owners are passing on increased costs on to tenants as the growth in rental prices paid is higher than the estimated "cost of owning".
Actual Rentals: Flats : 9.8%
Actual Rentals: Townhouses: 9.4%
OER: Flats: 8.9%
OER: Townhouses: 8.4%
Actual Rentals: Houses: 7.5%
OER: Houses: 7.3%
So while some might say owning a home is more expensive than renting it, and it may be true as municipal rates, levies etc needs to be paid by owners, it seems owners are passing on increased costs on to tenants as the growth in rental prices paid is higher than the estimated "cost of owning".
Taking a quick look at the inflation rates of the various provinces of South Africa for November 2018:
For the last 22 months the Western Cape has had the highest inflation rate of any of the provinces in South Africa, and according to Statistics South Africa it is due to the high rental increases in the provinces. As rent is used as a proxy to estimate the cost of housing in the CPI basket. But with rental increases being heavily inflated in South Africa we believe the higher than usual inflation in the Western Cape is artificial in nature, but the worry is the fact that the Western Cape is one of the bigger provinces in South Africa and if their inflation rate is inflated artificially due to the rental bubble in the province it is likely that the overall CPI of South Africa is being overestimated, which has a significant impact on South Africa's monetary policy.
- Western Cape: 5.7%
- Eastern Cape: 4.9%
- Northern Cape: 4.4%
- Free State: 4.7%
- KwaZulu-Natal: 4.5%
- North-West: 4.4%
- Gauteng: 5.4%
- Mpumalanga: 4.8%
- Limpopo:4.3%
For the last 22 months the Western Cape has had the highest inflation rate of any of the provinces in South Africa, and according to Statistics South Africa it is due to the high rental increases in the provinces. As rent is used as a proxy to estimate the cost of housing in the CPI basket. But with rental increases being heavily inflated in South Africa we believe the higher than usual inflation in the Western Cape is artificial in nature, but the worry is the fact that the Western Cape is one of the bigger provinces in South Africa and if their inflation rate is inflated artificially due to the rental bubble in the province it is likely that the overall CPI of South Africa is being overestimated, which has a significant impact on South Africa's monetary policy.