Why Geordin Hill-Lewis’ case against rent control falls short in Cape Town’s housing debate

The call for rent control in Cape Town has a moral basis in the legitimate expectation that our public representatives will make decisions that serve clear public interests such as equitable and affordable housing.

It is trite to say that we should have constitutionally grounded expectations that our mayor will work towards more affordable housing rather than holding a banner for the private sector, which has consistently brought about unaffordable housing for ever-increasing numbers of the citizens of Cape Town.

Yet, Geordin Hill-Lewis, the mayor of Cape Town, has written against rent control. We are told that we should be grateful for the high rent we pay, since this is a sign of a successful city. In addition, Hill-Lewis tells his constituents that there is nothing that can or should be done about the dire strain they are taking each year when their rent jumps or they get evicted. His argument cites the economic unfeasibility of rent control.

The Cape Town mayor’s argument rests on an oversimplified understanding of economic principles, suggesting that supply and demand in the housing market are the only relevant economic factors. His argument justifies a conservatism, of doing things the way they have been done rather than attempting change. In his dismissive response, Hill-Lewis fails to account for how this presumably straightforward logic has failed to produce any actual reductions in rent. It is worth considering his claims a little more carefully.

When the ‘demand and supply’ logic breaks down

Hill-Lewis makes the claim that the economics of housing is simple – the only way to decrease rent in the face of high demand is to increase housing supply. This is the logic that might be said to function smoothly in a market. For there to be a market, there needs to be real competition.

Economic competition is often a theoretical ideal, which means that producers compete for consumer demand for a particular good (or service) such as housing, and will be encouraged to keep prices low in order to make their product more attractive to consumers. Simply, if there is true competition, prices will be lower than if there is little or no competition.

When we look at the reality of most economic contexts, we see a situation much more complex than the ideas that appear on the first pages of every economics textbook.

Does South Africa have the economically competitive market needed to incentivise supply to the extent that it would lead to a reduction in prices? Unfortunately, no.

South Africa’s economy is highly concentrated, meaning that across a number of sectors, there are very few firms that dominate their respective markets. This makes it difficult for small companies to enter these industries, because they are competing with huge firms that possess a great percentage of the market share. When there are just a few dominant firms, the price that we pay as consumers is no longer decided through the mechanism of supply and demand.

When there is scant competition and therefore little supply from competitors, there is no strong downward pressure on prices. If you are not competing with anyone, and your products will get sold either way, higher prices mean higher profits. There is not enough competition that might encourage dominant companies to reduce their prices.

In a concentrated economy, like that of South Africa, it does not matter whether supply increases, because prices will not come down. We have seen this to be the case in Cape Town – the supply of housing has increased, but prices have not dropped.

Additionally, there is no incentive for the big players, such as housing developers, to increase supply enough that the cost of housing would drop. This is because the motive of these private firms is not to provide affordable housing, for example, but rather to make a profit. Profit increases can be maintained consistently if supply is managed carefully and prices are kept high. Flooding the market with supply would cause prices to plummet, and profit margins would decrease. Increasing housing supply such that prices fall would, in essence, be bad business.

While Hill-Lewis suggests that rent control would disincentivise developers to increase the supply in the housing market, we can see that there is already a limited incentive for big players in a concentrated economy to increase supply at the rate needed for rent to fall.

We know this since the current crisis that we face in Cape Town is because those who govern have been telling us that the private sector will solve the crisis, and it simply has not done so. In a broken market, we cannot constantly cede to the market. We need to be thinking differently; we need to be thinking about rent control, which at its core involves limits on the increases that can be made to rent.

The economics of wellbeing

Even if we think there is such a thing as true market competition, there is nothing that might suggest that there is such a thing in Cape Town. In the context of a “broken” market system, the wellbeing of people in Cape Town cannot hinge on the profit-motive of the concentrated private sector. In our economic understanding of rent control, we should not be tempted to disregard the complexity of social and economic factors in favour of naïve, idealistic market fantasies.

We must acknowledge that economic decisions need, foremost, to be good for the people – not just for profit. There are a number of factors that should be considered in the discourse on rent control, merging an economic discussion with one about human wellbeing. There are four factors that have not been considered in the discussion, and which show that simplistic economic arguments cannot be accepted from our governing officials.

Increases in local disposable income after rent

Disposable income is what we have to spend after taxes and other charges are deducted from our incomes. A large chunk of our disposable income is often earmarked for housing, whether that be rent or bond repayments. Despite general financial advice that rent should make up no more than 30% of your salary, it can easily cost more than this if you live in Cape Town.

What is spent on rent is money that could be spent on other things, like school uniforms or swimming lessons for your children, being able to get to your university campus more often, paying off debt, or just not feeling the pinch quite as harshly as we are feeling it.

When rent increases faster than your salary, this also means that you cannot spend quite as much on goods and services that might enrich your life and help you to support the local economy. Not only would rent control increase the standard of living for those who rent, but it might be a healthier decision for Cape Town’s local economy.

The benefits of security

The Rent Control Group has advocated for a shift towards long-term rentals and rent control that would reduce the number of evictions made in Cape Town. The moral arguments are clear on this score – evicting people from the place where they make their home on account of rent increases is squarely unethical. There is also an economic argument to be made for the increased security people might feel if there is rent control. When tenants have a secure living situation with predictable future rent, housing security, and extra money to spend, they will be less likely to hold on to their spare money.

People tend to spend more when they feel that their living costs and incomes will remain relatively stable into the long-term future. When we feel secure, we might be more willing to buy a car, eat at restaurants, get a gym membership, get that better insurance or medical aid package, go to galleries and theatre productions, and so on. These things contribute positively to local GDP while drastically increasing the quality of life that people can now afford.

Cape Town’s traffic disaster

Cape Town has the worst traffic situation in the country and finds itself in the top 10 worst in the world. The state of traffic shows persisting inequality, with people who work in the city unable to afford to live near where they work. Rent control would mean that more people can afford to live closer to where they work (or study), and this would mean fewer cars on the road and reduced traffic.

Not only is traffic a blight on any city’s governance, it is exhausting for everyone who gets caught up in it. To live closer to where you work would mean less time and energy wasted getting to work and more time spent working, and/or more time spent on life-enhancing activities. Anyone who is interested in increased local productivity should want to reduce time spent in traffic, and rent control is one way to begin doing so.

A call for serious governance

There is an economic argument to be made in favour of rent control that focuses on wellbeing. To take care of people, our governing officials need to be making explicit decisions to support wellbeing, through means such as rent control, rather than to wait on the (non)market to solve the problem. It is time for us to become aware of how, and how often, this assumption is used to justify deference to the private sector as though we all benefit from its success.

While South African companies hoard a total of R1,8-trillion (R1,800,000,000,000 – and justify this as a rational response to economic and political uncertainty), we are told that almost 30% rent increases are acceptable and unavoidable. We are told that rent control is a ridiculous demand and that we should leave this crisis to the private sector. This “solution” put forward by Hill-Lewis, coupled with his habit of self-congratulatory announcements, helps him to shirk the responsibility he has in attending to affordability and wellbeing as central to his mandate.

The mayor of Cape Town was voted into power by the people of Cape Town and yet chose to respond to their issues, concerns and proposed solutions with derision, using his power to defend the interests of big business at the expense of the people.

The city is in a crisis of affordability, and rent control is one way to begin dealing with this crisis. For this to be possible, we need serious governance for the people. We need a democratic socialist mayor in Cape Town, the kind of mayor that Geordin Hill-Lewis can never be. DM

Kiasha Naidoo is an Associate Lecturer in Philosophy at the University of the Western Cape. She is also a Doctoral Candidate in Philosophy at Stellenbosch University and holds a BA in Political, Philosophical and Economic Studies from Stellenbosch University.