The traditional home buying preferences of South Africans are changing as more people opt for smaller, easier-to-maintain properties, both for financial reasons and to live life less hampered by the trappings larger homes often bring.
SA’s middle class have been able to afford to live in large, spacious homes, but these are increasingly becoming the domain of the wealthy, with higher-density living on the rise. The relative house price inflation performances reflect an outdated composition of residential property stock, with relatively too many large homes and too few small- to medium-sized homes, according to the FNB Property Barometer 2nd Quarter House Price Growth by Size Category.
“The inappropriate size composition in residential property stock exists despite a broad trend towards building smaller-sized units with smaller average stand sizes that started as far back as the late-1970s, around the time that economic infrastructure investment plummeted and urban land scarcity started to increase noticeably,” says John Loos, household and property sector strategist at FNB Home Loans.
He says given that a house and its running costs is usually the lion’s share of the overall household costs, with more financial limitations in a slow economy it should be unsurprising to see relatively stronger demand for smaller- and medium-sized houses, with “large-size” demand being the weak link.
FNB’s Barometer shows that of the three size categories, the 20-80 square metre ‘small-sized’ category showed year-on-year price growth of +6.2% in the 2nd quarter of 2015. This rate is slightly slower than the +6.4% rate for the 80-230 square metre ‘medium-sized’ category, but still very similar. The 230-800 square metre ‘large-sized’ category, by comparison, is the “odd man out”, having seen significantly slower price growth of 2.5%, relative to the other two segments.
The underperformance of the large-sized segment has been a longer-term phenomenon, and became more noticeable after the 2008/9 recession, says Loos.
From the 1st quarter of 2001, the Large Home Index has risen cumulatively by 265.9%, compared to the medium-sized category’s 323.1% and the small-sized category’s 323.8%. Since the 2nd quarter of 2009, a relative price low point just after the recession, the Large Home Index has risen in total by 25.7% compared to a significantly bigger 37.9% rise in the medium-sized category and 56.1% for the small-sized homes, according to the report.
The list of reasons for the underperformance of large-sized homes is potentially a lengthy one, says Loos. “Since the late-1970s, urban sprawl has been constrained by significantly slower economic infrastructure investment. This, along with ongoing urbanisation, has led to increasing land scarcity, resulting in a long-term trend towards smaller stand sizes and smaller building sizes.”
In addition, he notes the average size of the South African household has declined over the years as fertility rates have dropped, resulting in less need for the typical four bedroom plus homes.
However, he says the recent relative underperformance of large-sized homes may also have been spurred along by increasing home operating costs. High crime rates mean South Africans are having to pay for more security, which makes smaller properties in complexes increasingly attractive. On top of this, rising municipal rates and tariffs, especially electricity, which was rising at around 30% year-on-year at the beginning of 2009, and carried on with sharp double digit hikes for a good few years thereafter, have had a significant impact.
“These home-running related cost increases, at a time when the economy is weak and the household sector is financially constrained in general, have arguably lifted the popularity of smaller sized homes, and the relative price inflation performances of size segments in recent years is therefore not surprising,” says Loos.
So, is this the end of the road for large-sized homes? “No, but we believe that the composition of the country’s housing stock is outdated, and that large-sized homes need to decline as a percentage of total housing stock,” says Loos.
He says where South Africa’s middle class could often afford to live in large, spacious homes, the future is probably one where these increasingly become the domain of the wealthy, with far higher-density living for the middle class.
“Until such time as the composition of the housing stock has adjusted to reflect these changed cost and demand patterns, a long-term process, we would expect the large-sized home segment to underperform the middle- and smaller-sized homes, in terms of house price inflation, for the most part during the coming years,” says Loos.