The purpose of this paper is to provide an overview of the economics of providing well-located housing in the inner city of Cape Town. The paper emphasises the need to maintain an appropriate balance between the viability and affordability of the product offered to the market and overcoming the value versus cost challenges. While developers have limited influence over value, they do have influence over cost structures through the development approach that is chosen. Moreover, local authorities influence the viability of projects through standards and regulations. The conclusion drawn from the research has considerable implications for the formulation of market-driven housing policy interventions.
In addition to the review of urban economics theory and the literature on the drivers and costs of inner-city, higher-density residential development, a series of interviews with inner-city residential developers was conducted to access current property development cost data and to identify the parameters that determine the viability of inner-city, high-density residential development.
Cape Town, like other South African cities, suffers from being inefficient and inequitable largely due to its low density and sprawling nature. As a result, most planning- and housing-related policy interventions advocate the provision the higher-density, more affordable residential housing in well-located areas such as the inner city. However, to date, these policies have, on the whole, been unsuccessful in achieving these outcomes. This paper argues that this is because these policies largely do not take urban economics into account and fail to address the value versus cost tension that needs to be overcome to allow for the provision of such accommodation. Based on the viability calculations provided, the research illustrates the main cost drivers associated with higher-density, inner-city residential development and makes certain recommendations as to how these cost barriers can be reduced.
Financing arrangements and taxation implications have not been accounted for as these are often specific to the developer and thus cannot be generalised.
The solutions put forward by the paper offer lower-income households the ability to successfully compete with higher-income households and other land uses for well-located space in Cape Town’s inner city.
The findings of this research illustrate the type of interventions that the public and private sectors can consider to improve the viability and affordability of affordable housing units in city centres located in emerging countries.
While traditional urban economic concepts are drawn upon, the paper contributes to addressing the challenge of providing higher-density, more affordable accommodation in South African inner cities. It does this by applying these well-known concepts to the inner city of Cape Town and draws on current data and developer views to accurately diagnose the problem and, in turn, to offer pragmatic solutions.
Massyn, M., McGaffin, R., Viruly, F. and Hopkins, N. (2015), "The challenge of developing higher density, affordable housing in the inner city of Cape Town", International Journal of Housing Markets and Analysis, Vol. 8 No. 3, pp. 412-428. https://doi.org/10.1108/IJHMA-11-2014-0049Download as .RIS
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