Something all politically-conscious South Africans often forget is that the road to hell is paved with good intentions, writes Martin van Staden, a legal researcher at the Free Market Foundation (FMF).
Whether the intention is to achieve easier access to housing, smoking regulations, or safeguarding us when dealing with financial services, the inquiry often just stops at “what does the policy seek to achieve?” and looks no further.
Because smoking regulations are intended to safeguard public health and protect the rights of non-smokers, people generally throw their support behind it without regard to the real consequences and implications of those regulations.
With Johannesburg’s “inclusionary housing” policy, closer study is definitely needed because there is a snake in the grass – a cobra, in fact.
Pouring petrol on a fire to put it out is an example of what produces the “cobra effect” – something intended to solve a problem but makes it even worse.
The cobra effect is named after a government programme run in India that offered a bounty for every dead cobra. Entrepreneurs quickly saw an opportunity and started breeding the snakes. When the government caught on to this, they scrapped the programme, the entrepreneurs set the snakes free, and the cobra population increased. Government’s solution exacerbated a problem it sought to solve.
That is what the “inclusionary housing” policy will yield: intended to bring about more affordable housing, it will instead make housing more expensive for everyone, and reduce the amount of housing available, especially for the poor.
The policy seeks to compel new developments with more than 10 residential units to dedicate 20% of the total units to so-called inclusionary housing. These inclusionary units would be offered at a significant discount – rent control – and must comply with certain minimum standards.
On the face of it, these requirements seem reasonable in South Africa’s housing deficit context, but, on the back of the rent controls and lacklustre ‘incentives’ the policy provides for, the consequences are more likely to be devastating. Taken as a whole, the policy is not an incentive for high-density developments and, in many circumstances, will cause housing prices to rise rather than fall.
As Mark J Perry of the American Enterprise Institute writes, artificially restricting the amount of rent a landlord can charge for a unit creates another problem in the form of developers refusing to supply more rental housing in the future. Dr Thomas Sowell also writes: “Attractive and heady phrases like ‘open space,’ ‘smart growth’ and the like have accompanied land-use restrictions that made the cost of land rise in many places to the point where it greatly exceeded the cost of the homes built on the land.”
With the new Johannesburg policy, smaller developers will be the ones hit hardest. This will drive the price of existing housing up.
The vacuum left in the industry will put more pressure on government housing in the form of informal settlements or RDP houses. It may, conceivably, also lead to a greater propensity to illegally occupy inner city buildings as affordable housing becomes less obtainable.
It is also conceivable that low-density housing will become more popular in the wake of this policy, with small developers building nine, expensive, free-standing houses rather than ten or more dense units.
This will increase urban sprawl and thus create new infrastructure obligations for government, not to mention the fact that it goes against Johannesburg’s policy of favouring high-density developments.
There are better ways to secure affordable housing for low-income households than forcing private developers who have not infringed on anyone’s rights (and thus are not deserving of the kind of punishment envisaged in the policy) into unprofitable and risky ventures.
These alternatives include, for instance, incentivising (rather than forcing) developers to build affordable housing and relaxing or abolishing onerous town planning laws that make it difficult for developers to cater to low-income households. The latter can be partly achieved by making it easier for developers to re-zone plots for high-density developments.
The housing crises facing many of the United States’ cities today is largely the result of decades of inclusionary housing policies that had the opposite effect of what they intended. Those policies led to fewer housing schemes as developers opted instead to build office or commercial spaces, or low-density housing for wealthy households. South Africa will do well to avoid making the same mistakes.
History has shown that a free market with voluntarily-interacting people is the best way to produce affordable housing, and undue government interference in this process simply distorts market signals and leads to easily-avoidable problems.