Housing Should Not Be A Speculative Asset

It isn’t a free market in real estate that has caused the rise in housing prices and the drastic shortage of houses. It’s government policy that distorts the market and restricts development...

Photo by Breno Assis on Unsplash

A house should not be treated like a speculative asset that should be sat on, hoarded and sold like gold or stocks. Policies and financial cultures that have encouraged this view have led to the drastic rise in housing prices, which was the plan. But this rise has priced millions out of ever owning a home and is continuing to price even more out of even being able to rent one.

This is not to say that we should restrict or regulate the housing market. In fact, we should be doing the very opposite. It isn’t a free market in real estate that has caused the rise in housing prices and the drastic shortage of houses. It’s government policy that distorts the market and restricts developers from building more homes.

The problem is that homes are artificially scarce. Apartheid-era zoning laws, still largely intact, block densification and exclude poor and working-class residents from well-located areas. These restrictions must be repealed to allow high-density and mixed-use development by right, especially near transport hubs and job centres. Developers should be free to respond to demand without asking government permission to build homes people desperately need.

All overregulation and zoning laws accomplish is restricting the supply of houses, especially in urban centres. And, as the population rises and the supply of houses remains the same, prices skyrocket – further incentivising investors to turn houses into wealth-garnering assets rather than something that is meant to be lived in.

In South Africa, terrible economic policies across the board have led to the housing crises in Cape Town and other urban centres. A lack of economic opportunities, created by terrible policies like Black Economic Empowerment (BEE) and red tape, has led to people from rural areas flocking to already industrialised cities. This has led to even more of a demand-supply gap.

Low-cost, subsidised housing isn’t the solution, and government has repeatedly proven this through the failures of RDP housing – which, at best, just trap recipients in subpar accommodation without granting them access to the real boons of home ownership.

Even in cases where land is owned, millions of South Africans still lack formal title. Fixing the title deed backlog is essential to unleashing housing investment. Without a legal claim to their property, people cannot improve, sell or borrow against their homes. Government must prioritise fast, cheap, and legally binding titling across informal settlements, RDP developments, and rural areas. A house without ownership is a prison, not a home.

The focus should be on cutting red-tape and abolishing restrictions on land-use so that people want to stay in small towns and rural areas. Much of South Africa’s land, urban and rural, is locked up in government or tribal trust ownership. This land must be brought into the open market, with clear, tradable title deeds. Individuals must be empowered to own, sell, or develop their land without the permission of traditional authorities or bureaucrats.

NIMBY (Not In My Backyard) associations protesting developers and densification also need to be rejected. A suburban homeowner has no right to protect their property value from competition in the same way that a business should have no right to restrict competition in their industry. So, what if an apartment will raise the supply of accommodation in an area? The role of policy isn’t to protect already enriched elites. It is to protect the inalienable rights of individuals to their life, liberty and property and not the arbitrary monetary value of that property.

Regulations, race and localisation quotas and a lack of protection by police have also led to the rise of construction mafias that hamper development and balloon prices through corruption and criminality. The destruction of these mafias should be of tantamount importance to law enforcement. Additionally, private security must be enabled to deal with land occupations and criminality with sufficient force.

Lastly, to replace real estate as an investment asset, the government should abolish taxes on dividends and encourage access to investments in the stock exchange. This will democratise investments far more than real estate ever can.

If we want to see housing become plentiful and cheaper, we need to allow developers to build homes. It’s as simple as that. We must not be dissuaded by people with corrupt skin in the game. An open and free market can provide the solution. If we want a future where every South African can afford a home, we must break the barriers to land, construction, and ownership. That means freeing up land, scrapping zoning, fixing titling, and letting the builders build.

Nicholas Woode-Smith is the Managing Editor of the Rational Standard. He is an author, economic historian and a senior associate at the Free Market Foundation. He writes in his personal capacity.