Property values: Enabling what?

The City if Cape Town has recently released its 2018 property valuation roll. This lists the prices that they use to calculate your monthly rates — a tax charged against the value of your property, in addition to any service connection fees and consumption charges. This money goes into the City budget and is used, in addition to grants from National Government, to find various infrastructure and services.

It is an important feature of local government finance, and it is important for ensuring the City has enough revenue to maintain infrastructure and to develop and improve the city and to provide better services to the poor.

The system where the state enforces obligations on us in exchange for public value creation only works if there is fairness, trust and transparency.

Trust that the money will be spent well, fairness that we are paying a reasonable proportion, and transparency in how those calculations and budget decisions are reached.

Initial responses from residents are that the latest City valuations appear to be inflated. While the period 2010–2017 saw substantial heat in the property market (and the corresponding emergence of civic groups and political fallout over an increasingly exclusive and unaffordable city), 2018 saw prices plateaux in many segments and nodes.

The current valuation roll seems to have used listing or higher than listing prices for neighborhoods, not taking into account actual sales prices (and lack of sales in some areas).

If you are a homeowner, you can check how the City has valued your property here. And here is a service (untested) that can assist you to verify the value and submit an objection, and another to test the value. Based on the latter tool and the recent sale of an adjacent and better quality property I estimate the City’s valuation of my property in Observatory to be about 23% inflated. Others are suggesting margins of error closer to 50%, where the City is claiming their property has doubled in value in 4 years.

The bigger picture

Perhaps more concerning than just getting it wrong (through incompetence or unfairness), is the City of Cape Town’s interpretation of the valuation as being a positive thing.

In this article (which reads more like a press release), the City is celebrating such high price inflation as a marker of their success and as being fundamentally good for households.

Most city rankings around the world now look at affordability as key to performance and success — it’s important for inclusion, for diverse labour markets (which is good for diverse and vibrant economies and communites), social stability and reduced inequality of quality of life, and for increased disposable incomes (which is, of course, great for other types of spend in the local economy).

Property price increases do not help the average household — who either rent or own one property (and would be buying and selling in the same market). They only benefit speculators (the city even celebrates vacant land increasing in value) and those who can afford more than one property (I am in that category and am thus a hypocrite…). The rest of the population will experience:

  • increased rates (these are yet to be determined, but it is plausible given the trend over recent years)
  • increased rents when landlords pass these costs on
  • increased agent commissions, transfer fees and registration costs when buying and selling
  • greater exclusion from ever entering the market

There is definitely value in former RDP/similar houses increasing in value to a point, and I support the notion that a house can be both a shelter and an economic asset for these families — for example, if families want to register debt against that value and invest it to start a business, pay for studies, expand to build sublet-able units for extra income etc… but there are other ways to achieve those ends than the type of exclusive and displacing gentrification that produces spatial and market distortions Cape Town has become known for.

An overall increase of 34% is unsustainable and it’s scary that Nielsen sees this as evidence of the “enabling environment” created by the CCT. Who, or what, has been enabled?

The rich making greater returns on speculative and non-productive, non-inclusive and non-distributive investments, while the average tenant or single house owner is squeezed even more?

Towards a fairer system

A more just approach to this could include a combination of the following mechanisms:

  • A scaled cent-in-rand (the measure used to calculate your rates — how many cents you pay the City per Rand value of your property) where those who own multiple properties are charged a higher rate for each additional property, alleviating pressure on those for whom a house is just that — a home, not a hedge fund. Even better if property owners who are semi-decent and not increasing rents at exorbitant rates each year could declare this, and be incentivised to opt-in to a voluntary rent (increase?) control system in exchange for a reduced cent-in-rand level.
  • Transparent and accurate methods for valuation (let’s hope they get the message with all the appeals they are bound to receive)
  • Inclusionary housing policies that ensure that when land and development rights speculation has occurred, a portion of the value accrued at development is allocated for affordable housing.

Perhaps more critically, municipalities require a whole new revenue model. Right now, municipalities have to trade off the need to provide infrastructure and services in the context of rapid urbanization and inequality against keeping rates and taxes affordable. A new model would need to be one that:

  • Reduces or removes the perverse incentive for increased property rates and increased energy and water consumption.
  • Anticipates and enables a transition to new urban governance where the City creates enabling, inter-operable and high standard partners to provide distributed and innovative systems, rather than being the bulk provider and big budget needer it currently is.

You can read more about this in the SACN reports on municipal finance.

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Urbanjodi

Archive of thoughts. Imperfect, incomplete and not assumed to be my final position. My actions speak louder than my words. Learn more: https://jodi.city