The inner city investment case is under threat due to the consistently above inflation increases that have been imposed through council charges over the last 10 years. These increases affect low income households living in the inner city directly and when rental including council charge recovery become unaffordable to tenants, the investment case for downtown suffers.
“Low income earners who are tenants of flats in the inner city are paying similar for electricity, water and sewer charges as families living in affluent suburbs. This is not to mention the large areas, specifically townships, who are breaching electricity and don’t pay council at all. The City, COJ in particular, needs to deal with the size of the overhead and important efficiencies in service delivery. If they collected what was due to them they should have sufficient revenue to meet their service delivery obligations without putting pressure on regular payers. We need an effective and cost efficient organisation” said Paul Jackson, CEO of TUHF Limited, an inner city property financier. “We have seen improvements in billing and we are pleased to see that that COJ is taking the issue seriously, but there are questions to be asked around the future of inner city property investment when affordability of tenants are squeezed in this way.”
To this end, TUHF Limited recently hosted a thought leadership event or TUHF Talk addressing the Rising Council Charges in Affordable Housing in the Inner City.
Nic Barnes, Chairman of the Johannesburg Property Owners and Managers Association (JPOMA) was one of the speakers and used the illustration based on an average building that members of JPOMA would own. A family with an average household income of R12 000 is paying R3 988 for rent in addition to R1 183 for municipal charges per month. That is almost half of their total household income paying towards rent and council charges. What is more alarming is the general trend over the last 10 years. This makes inner city housing “unaffordable” and subsequently “un-investable”.
The above illustration shows that landlords have maintained their increases in proportion to the household income, whereas council charges have increased by 100%. Source: Average of JPOMA properties.
As panellist at the event, inner city entrepreneur Nthabiseng Mabasa, Director at Ratcom, said “The City [COJ] increases the value of your property so that you can pay higher rates and this causes fights with tenants because of increases passed on to them. They are already under pressure with their monthly budgets and cannot afford these consistent increases”. Pressage Nyoni, Liason Officer at TUHF, shared the same sentiments saying “The rates also impact landlords who cannot afford to maintain buildings and are preventing new property owners from entering the market.”
What can Inner City Landlords do?
“We are taking the matter up with city councils, but in the meantime, landlords need to be proactive in the way that they deal with these rising charges,” said Jackson.
Below is a list of actionable steps property owners can consider:
Accurate measuring and matched billing
Check metering and rating standards for your area to ensure you are not over paying for rates, water, electricity and waste collection. Ensure your property is correctly zoned and rated for the purpose that it is used and that you are being charged the right tariffs for commercial and residential areas. Ensure that you are accurately metered and not connected to adjacent properties’ metering.
Employee and tenant training
Tenants are less likely to wastefully consume electricity, hot water and heating if they are pre-paying for what they consume. Prepaid meters give tenants real time control over electricity and water consumption based on pre-purchased electricity credits.
In addition, landlords can instil and drive a culture of low consumption and encourage proactive reporting of wasteful usage or leaks.
Dripping taps or pipes and lights left on during the day are latent things that can increase your bill. Do an audit of our properties to ensure that there are no leaks and consider installing timers or motion detectors on lighting.
Consider green solutions
Energy efficiency, like property rental, is a long-term game with many green strategies will require upfront investment that will realise greater savings over months and years.
While there are many different solutions and energy saving devices, as an owner you need to be sure you choose the right energy saving strategies for your building, as no two buildings are the same.
Consider replacing baths with showers to reduce excessive hot and cold water usage. Consider making deep basins available elsewhere for tenants who wash laundry by hand. Dual flushing toilets will reduce the amount of water used per flush.
Engage your networks
Contact your local councillor to make him or her aware of the issues you are experiencing as a landlord and consider joining property networks such as JPOMA who lobby these issues at a larger scale.
Download the presentations from the TUHF Talk below: