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South Africa has too big a wealth gap, and therefore we need radical economic transformation. Radical economic transformation is neither defined nor understood, but the headlines scream this phrase.

Some are scared; others think it’s heaven.  But the emptiness of the slogan becomes clear if one thinks of what could be done without pain or controversy, with trillions of rand in value being transferred.

So how do we radically change the ownership of our economy - about which every politician talks - but without harming the economy?

Interestingly, South Africa has a home ownership rate of 63%, according to the General Household Survey. In recent years this rate has fallen from 68%, as more people get government housing, and the number of families grows.

Nonetheless the 63% level would put South Africa in the top 40 countries in the world, in terms of homeownership rates.
 
However, SA has already built millions of houses, but not formally transferred their ownership to the people.   Over 1 million people report that they pay rent on municipal houses. and 2,2 million stay rent-free in these houses.

Now, these 3,3 million houses have an average value of about R450 000 each, according to the estimates of the people who stay in them. The total value of all these homes, therefore, could be about R1,6 trillion.

Meanwhile, there are many houses in the traditional areas which we know are owned - but not through formal title deeds.

With 22% of African households having a second home, many of which are in traditional areas, the awarding of title deeds would ease the transfer of houses within families - and would, in many cases, protect those women who sometimes get chased out of their houses when their husband dies.

This, also, would lessen the power of traditional leaders, who often hold a whole community in their power.

An estimate of total housing value in traditional areas is more difficult to estimate, but I believe that it could be as high as R1,5 trillion, even if we are only talking about 1,65 million houses.

Then we can add the homes of some labour tenants on farms, who should have the right to receive title deeds.  While the total number of these people is not as large as in the former categories, the value of their homes is currently zero - but if they are given proper ownership, their homes would change overnight into assets - and would provide security.

One does need to be careful, as people tend to overestimate the value of their homes, and it is difficult to value houses in traditional areas, as there is not a real housing market there. However, I believe that a reasonable estimate could be around R2 trillion for these nearly 5 million properties.

In addition, there are some properties on agricultural land which are not occupied by farm labourers, and which could also be formally transferred - as the Free Market Foundation has been doing.

The transfer of ownership would not only give - mainly black- households trillions in assets, but crucially it would also allow for postal addresses to be used to provide collateral for loans, thus making easier the establishment of businesses.

Jobs would result through house sales and rentals.  There would be a need for more estate agents, conveyancing attorneys, surveyors. Meanwhile, property ownership tends to bring improved investment in upkeep and maintenance, so construction will benefit. 

In addition, small businesses, like bed and breakfasts, will find it easier to get off the ground.

Owning your own home will increase pride and confidence, which many areas lack. Pride and the certainty of tenure will give millions of poor South Africans less insecurity and more confidence.

Even if we are only talking of 4,5 million houses, the changes I am suggesting would increase the homeownership rate to close to 90%.

Such a high homeownership rate would help people see the country very differently, and we should attract more investment – even if it is just from our own households and firms. 

This transfer of value would, at least, help to kick-start the economy.  

What are we waiting for?

Mike Schussler heads economists.co.za

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Giles Scott 7/8/2018 12:37:49 PM
This is an amazing article, about what seems to be an excellent suggestion. Please can you follow up by (1) reporting what the effect on our Wealth Gap & Gini co-efficient would be, if these properties were transferred to their private residents and (2) reporting what is, & could be, being done to get this actioned? A major benefit would be that home-ownership is one of the key determinants for rejection of violent & destructive behaviour. So many more people would have a real stake in the country's nett wealth and would be taken out of the heated land transfer debate. Giles Scott
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