Calls for rent control in Cape Town are rooted in a reasonable expectation that public representatives should prioritise affordability and wellbeing over market dogma. Yet Mayor Geordin Hill-Lewis has dismissed rent control by leaning on a narrow supply-and-demand argument that ignores the realities of a highly concentrated housing market where increased supply has not translated into lower rents. Rent control may not be a silver bullet, but rejecting it outright reflects a failure of imagination and governance at a time when Cape Town urgently needs solutions that put people, not profit, first.
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.
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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. 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 ishighly 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.
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