Impact of low cost housing on house prices

Pinelands, Cape Town in the Western Cape is set to be the site of a new housing development. Construction is expected to start in 2018. However, there are often concerns that low cost and affordable housing and similar projects affect the property values in the surrounding residential area. But is this true?

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Anthea Houston is chief executive officer of Communicare, a non-profit social enterprise that provides rental housing in Cape Town, stated: “There is a myth that developing social housing will reduce property values but this is not necessarily the case. Property valuations are complex and while the sales values or rentals of other similar properties in the market affect a property value, valuations are also affected by the factors like the property’s location, condition, access to amenities, its current and future use and the income it generates. It should therefore not be assumed that social housing will have a negative impact on property prices.

“For example, [Communicare’s] development of 120 social housing rental apartments in Bothasig in 2013 was resisted because people in Bothasig were concerned about their property values. Since its development four years ago, properties in Bothasig continue to rise in value. In the very street where the social housing is situated, properties are being sold at the same average value of properties found in the rest of Bothasig,” explained Houston.

The Pinelands project

Ntomboxolo Makoba-Somdaka, spokesperson to Minister Bonginkosi Madikizela of the Western Cape Department of Human Settlements, clarified that the Conradie Better Living Model (Conradie BLM) in Pinelands is not a low cost housing project, but a mixed –income, mixed-used development, to cater for the affordable/gap market.

“The development will consists of rental opportunities, affordable housing opportunities, as well as open market homes to be sold to higher income brackets. This “live, work, play” model of development will also include commercial space, schools and social amenities. Such a development is therefore likely to enhance the immediate and surrounding areas,” said Makoba-Somdaka.

Makoba-Somdaka highlighted that there is a belief that a mixed-income, mixed-used development, such as the Conradie Better Living Model, will change the game when it comes to how our government optimises its assets and unlocks the economic potential of state-owned property in the future.

She explained: “The Conradie BLM development expects to see 3600 residential opportunities being built, of which at least 49% affordable (not free) and open market units. The development will result in a major investment into the upgrading of the surrounding road infrastructure and public transport. It will also deliver new commercial and retail business opportunities, new parks, recreational spaces, education and health facilities which will directly benefit surrounding communities. Developments such as Conradie BLM will be a catalyst for major improvements in infrastructure, facilities and services in the area, which will positively impact residents.”

Factors affecting house pricing

There are a number of things considered when determining a property’s value. Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa pointed out that two of these have to do with your property’s surroundings, namely location and the condition of the neighbourhood. Other factors are more focused on the property itself, such as poor or unusual renovation and lack of parking.

Goslett highlighted: “The mantra of location, location, location will continue to ring true throughout the ages. The simple truth of the matter is that location and property values are intrinsically linked. Where a home is situated, along with the amenities that surround it will influence the demand for that property. Homes that are in high demand will sell for a higher price. Factors such as its proximity to entertainment and shopping facilities, recreation areas, and good schools will all bear weight on how the property is viewed and valued by potential buyers.”

While the above can add value to a property, there are things that can potentially bring the value of the property down. For example, Goslett revealed that aspects such as noisy freeways, railway lines or airports or anything else that could be seen by a buyer as a potential annoyance or eyesore will negatively affect their opinion of the property.

As such, even if your home is immaculate, the surrounding area can influence the perceived value of the property. However, this is generally out of the seller’s control. Goslett said: “The state of an area can change over time, be it positive or negative. Many run-down inner city areas have been transformed through urban renewal projects and are now trendy sought-after neighbourhoods. Likewise, there are other areas that were once thriving but have deteriorated due to poor municipal management, high crime rates or large industrial failures.

“A rundown area could result in the homeowner having to drop their price in order to sell. Where possible, homeowner’s should form or join a homeowner’s association to ensure that the community they live in is properly taken care of. This might mean paying some kind of levy or fee, but the rewards will be worth it in the long run.”

Finding the right location

Makoba-Somdaka pointed out that the Department of Human Settlements is responsible for developing sustainable integrated human settlements in the Western Cape. They are tasked with creating human settlements that allow its residents to access social and economic opportunities close to where they live. As far as possible, developments must be on well-located land and within close proximity to amenities and transport infrastructure.

Prior to any development taking place, Makoba-Somdaka emphasised that government does not start development without consultation with the affected communities.

“Thorough public participation is conducted to discuss any concerns affected communities may have with any respective development. It is important for government to understand any community concerns in order to address these concerns. This ensures that all fears, needs or any potential risks are taken into account and attended to prior to developing. In the case of Conradie BLM, for example, various public participation sessions have already been conducted with the community, with more planned as the project progresses. These sessions also assists government in dispelling any erroneous rumours or perceptions with regard to developments,” said Makoba-Somdaka.

She added: “Developments, such as Conradie BLM, not only facilitates the immediate and surrounding communities in terms of housing opportunities, but is also aimed at stimulating economic growth and jobs. We believe such developments will make a major contribution toward providing citizens with a place where people can live, work, play and learn, within a connected, safe and socially inclusive environment. Government can only deliver services and provide/facilitate an environment that is conducive to economic growth – with the help and support of citizens.”

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