A notable decline in new housing construction over the past five years is creating a shortage of both first-time homes and affordable buy-to-let units that is currently pushing up prices and rentals but might not serve the market well in the longer term.
Late last year, rental management systems company PayProp commented that construction shortfalls were contributing not only to a rapid recovery in monthly rentals, but to a looming housing shortage across the board. And the most recent private sector building statistics released by Statistics SA now show how serious this is becoming.
The report shows that the overall value of building plans passed (at current prices) increased by 1,3% (R272,9m) in the first quarter of 2025 compared to the first quarter of 2024, but that while increases were reported for non-residential buildings (R952,3m) and additions and alterations (R425,4m), there was a decrease of more than R1bn in the value of plans passed for residential buildings.
What is more, the actual number of plans passed for houses, townhouses and flats in the first quarter was only 6940, compared to 8073 in the first quarter of 2024 and 11 020 passed in the first quarter of 2021, the first year after the Covid pandemic.
To compound the issue, confidence among property developers and builders has been low since interest rates began rising in late 2022, and many planned projects have been shelved or mothballed in recent years, resulting in a much lower number of homes being completed and delivered to market than one might have expected. Indeed, a lot of the big apartment developments currently going up in Johannesburg and Cape Town have actually been in the pipeline for several years.
The lack of market appetite among developers has improved slightly since the Reserve Bank began cutting rates again in September 2024, and the value of residential buildings reported by StatsSA as completed (at current prices) in the first quarter of this year increased by R120,6m, while the actual number of houses, flats and townhouses completed increased to 5536, compared to 4583 in the first quarter of 2024.
However, this number was still significantly down on the 7075 completed in the first quarter of 2021 - and a far cry from the 11 050 completed in the first quarter of 2019.
The other side of this coin is that the number of SA households keeps growing and now stands at some 19m, about 4,5m of which live in rented accommodation. The high interest rates of the past few years have of course prevented many tenants from becoming homebuyers due to a lack of affordability but now, just as rates are coming down, there is a distinct and growing shortage of new homes for them to buy.
In addition, tenant numbers continue to be boosted by retirees and former homeowners who are making the switch to renting mostly for security, convenience and lifestyle reasons but sometimes also due to higher property rates and other operating costs.
Indeed, PayProp recently reported that the number of renters earning R80 000 a month or more now stands at 9,3%, compared to just 6,8% three years ago, and this shift does underpin higher rentals and higher annual increases, which is of course great news for investors with existing rental portfolios.
But combined with the lack of new housing delivery, this trend is also fuelling higher property sale prices and a growing lack of affordability for new buy-to-let investors as well as first-time buyers with more limited resources.
Read more: Good prospects now for buy-to-let investors
In fact, we worry that there are many young people who are in danger now of being priced out of the formal rental market altogether, and thus also out of their future opportunities to become homebuyers and owners as their employment and financial prospects improve. This would of course be a huge setback for overall market growth.
Meanwhile, our strong advice to anyone who can afford to buy or invest at current prices is to do so without delay, because demand is set to exceed the supply of new housing for at least the next few years and put continued upward pressure on both prices and rentals.
