Construction shortfalls push up residential rentals to record highs.

Construction shortfalls are pushing up residential rentals to record highs according to PayProp.  Data from the platform shows that the average rent in South Africa rose by 4.9% year-on-year in Q2 2024 - the fastest growth since 2017.

Michelle Dickens, PayProp's GM for Group Sales, points to new private sector residential construction numbers released by Stats SA for H1 2024 as the main reason. The data shows that just 15 871 plans for houses, townhouses, and apartments were passed during the first half of the year compared to 19 746 in the same period in 2023.  

To add to the issue, confidence in the construction sector is low with many housing projects stalling before completion. Reported house building completions have dropped to just a third of what they were during the 2006  to 2008 property boom - and are now ominously in line with the depths of the lockdown. During the first half of 2024, just 9 623 houses, townhouses, and apartments were completed against 12 623 in H1 2023.

Residential rental supply is growing slowly as many of those new homes will go to owner-occupiers while rental demand.

On the other hand, South Africa's population is growing at a healthy clip, driving up rental demand says Dickens. According to Stats SA, there are now more than 19 million households and almost a quarter - 23.9% - live in rented accommodation.

In addition, persistently high interest rates have caused perspective first-time home buyers to delay purchasing homes and to rent for longer. Data from the PayProp Rental Index shows that more high earners are renting than in previous years: 9.3% of applicants earned R80 000 or more per month compared to 6.8% in Q2 2022 when interest rates began to rise.

Dickens explains that having a larger pool of higher-income applicants to choose from makes it easier to find a financially stable tenant who poses less risk of rent arrears. 

But that hasn't helped other renters. These factors have all contributed to rising rental growth, which reached the highest level since 2017 this year.

While residential rental property remains a popular investment for hundreds of thousands of landlords, the residential rental sector needs the support of a robust construction industry to deliver an affordable supply of housing to a growing population. Currently, 16% of South African households live in informal housing, and if construction can't keep up with growing demand, they will not have a route into secure, high-quality homes.

Lower-income tenants could also be priced out of the residential rental sector. According to the latest PayProp Rental Index, those earning R10 000 - R20 000 spend 40% of their income on rent on average and have just 6.2% of their income left over after rent and debt repayments.