Gauteng SA’s most affordable province for home buyers

The City of Cape Town has by far the lowest estimated number of first-time buyers at 8% of total home buyers. This is far below Joburg’s 27%, Tshwane’s 21% and Nelson Mandela Bay’s 22%.

According to John Loos, household and property sector strategist at FNB, analysing affordability between regions - even within the same currency area - is an inexact science.

Loos says average price levels alone say little about comparative home affordability between regions, or about whether a specific market is more “overvalued” or “undervalued” than another.

However, looking at macro-affordability measures such as an average house price/per capita income ratio, combined with certain non-house price-related indicators and evaluating a market against itself over time - in other words, which region’s affordability has changed the most or the least - can give an indication of affordability trends across the different provinces.

When looking at the average house price/per capita income ratio, Gauteng is the most affordable of the Big 4 provinces, and the Western Cape, second. KwaZulu-Natal and the Eastern Cape are significantly less affordable due to having far lower per capita incomes.

However, according to Loos, this does not mean a ‘young professional’ in the Western Cape can more easily afford a given level of home than the equivalent young professional in the Eastern Cape - but rather that “there are far more low-income households in the Eastern Cape and KZN who live outside of the ‘mainstream’ formal housing market”.

“It may surprise some to hear that the Western Cape is not the least affordable housing market for all of its own inhabitants,” he says. “Despite having the highest regional average house price, the province also has the second highest per capita income after Gauteng.”

Yet, for the normal middle-class candidates in the formal housing market, Loos says the affordability challenges in the Western Cape are actually probably more severe than in the Eastern Cape and KZN.

Affordability in the Western Cape

“We believe we have found a key indicator which indeed points to the Western Cape housing market having become significantly less affordable for its local ‘clientele’ in recent years,” says Loos.

This is reflected more in the rising (deteriorating trend) in the province’s house price/per capita income ratio in recent years, along with a lower estimated first-time buyer percentage in the Western Cape.

The Western Cape home affordability ratio (average house price/per capita income ratio) had risen from 15.4 in 2011 to 17.8 in 2015.

“While we don’t yet have 2016 per capita income data by province, the Western Cape’s Average House Price growth strengthened further to 9.4% in 2016, from 2015’s 9.2%,” says Loos.

Cumulatively, over the past seven years up until the 1st quarter of 2017, the Western Cape’s average house price growth of 75.8% has outpaced all the other major regions, the 44.5% rate for KZN being the next strongest over the period.

This suggests that the Western Cape’s affordability ratio probably deteriorated more than the others once again.

“Averaging the two summer 2016/17 quarters’ survey results, in order to enhance sample size by city, we indeed find the City of Cape Town to have by far the lowest estimated number of first-time buyers expressed as a percentage of total home buyers, to the tune of 8%,” says Loos.

“This is far below Joburg’s 27%, Tshwane’s 21% and Nelson Mandela Bay’s 22%. Even Ethekwini’s mediocre estimate of 14% is significantly higher.”

This appears to reflect a more significant affordability deterioration for local residents of Cape Town, compared to other major cities.”

A further tell-tale sign is the Western Cape having a noticeably older average home buyer age than the other nine SA provinces in recent years.

Structurally, Loos says the age demographics can mean that a province can have a permanently older average age of home buyer without this implying anything about relative affordability.

 “However, since around 2012, in a relatively short space of time, we have seen the Western Cape’s average age of home buyer rise markedly faster than the rest of the major provinces, to open up a gap on the rest of the provinces, its average age being 45.64 years for the four quarters up to the 1st quarter of 2017,” he says.

What is pushing up Western Cape prices?

Compared to other provinces, the FNB Estate Agent Survey continued to provide a higher estimate of foreign buyers (8.9%) of total home buying for Cape Town in the two summer quarters of 2016/17

However, Loos says the major change since around 2009/10 has not been as much foreign buying levels as it has been a strongly accelerating ‘semigration’ rate of repeat home buyers from other parts of South Africa to the Western Cape.

“By 2016, our estimated net inflow of repeat home buyers into the Western Cape was 15.7% of total repeat home buying in that province,” he says.

“No other province comes close to such a net inflow percentage, and we believe that this inflow of repeat home buyers has been the major differentiator, driving Western Cape housing demand to relatively stronger levels than in other provinces, its house price growth to stronger rates than others, and its greater affordability deterioration.”

What about Gauteng?

Gauteng, by comparison, seems to have the best (least challenging) affordability situation for its residents in recent times, having the lowest house price/per capita income ratio, the highest per capita income, the highest estimated first-time buyer percentage of major metro regions, and the lowest average home buyer age (41.2) of the nine SA provinces.

 “This relatively good affordability situation in Gauteng is one important factor in attracting the young skilled labour that is required to maintain the region’s status as the number one economy, in terms of both sheer size as well as long term growth,” says Loos.

KZN and the Eastern Cape

KZN and the Eastern Cape have significantly worse affordability measures than Gauteng and the Western Cape.

However, this is due to their low per capita incomes rather than due to high house prices.

The KZN home affordability ratio (average house price/per capita income ratio) declined (improved) from 24.8 to 23.2, and the Eastern Cape had also improved (declined) from 25.6 to 24.1.