township economy in...

1

Township economies and the informal sector

represent increasingly important livelihood

options in attempts to bolster the heavily

damaged South African economy after the

protracted impacts of Covid-19. Yet, the

structure of the township economy is poorly

understood and most micro-enterprises op-

erate outside of an effective policy environ-

ment. The Sustainable Livelihoods Founda-

tion (SLF) has focused its efforts over the last

decade on the layout and spatial context of

local township economies and the factors

that make certain businesses more active

(and successful) in certain township locations

than in others. Using a ‘small-area census’ re-

search approach, we have generated a range

of new insights into the informal economy in

townships and especially the spatial dynam-

ics of the distribution and functioning of mi-

cro-enterprises. An under-considered aspect

of South African township economies in rap-

idly growing and expanding cities is the busi-

ness of providing rental accommodation. Re-

cent research has highlighted the significant

scale of these activities in the Western Cape

and Gauteng provinces (Turok et al., 2019;

Hamann et al., 2018). However, until now

there was little information on the relative

Leif Petersen, Andrew Charman, Andreas Scheba and Ivan Turok

Rental Accommodation in Delft South and Eindhoven

TOWNSHIP ECONOMY IN 2020

scale of these activities within specific town-

ship economy contexts such as Delft.

In this blog, the second of our series on the

Township Economy in 2020, we report on a

new study of township rental accommoda-

tion, conducted in Delft South and Eindho-

ven, in Cape Town. In addition to providing

evidence on the scope and scale of this as-

pect of the township economy, the paper

highlights the need to reconsider the policy

framework for regulating the informal accom-

modation sector. The research entailed a

partnership between SLF, the Provincial Gov-

ernment of the Western Cape’s Department

of Economic Development and Tourism,

Concordia University (Canada), the Human

Sciences Research Council, and the UCT

Graduate School of Business.

Our research sites were Delft South and

Eindhoven. In 2011, when the last census was

conducted, the population of the site was

43,185 people. At that time there were

11,322 households.

In January-March 2020, building on our prior

research undertaken in 2010/11 and 2015, a

field research team comprising eight re-

searchers and two community liaison per-

sons proficient in locally predominant lan-

guages of isiXhosa, Afrikaans, English, Shona

Series #2 May 2020

TOWNSHIP ECONOMY IN 2020 SERIES #2 MAY 2020

Introduction

1We acknowledge the important contributions from our collaborators, including Johan Peters, Benson Mchunu, Youkita Naidoo, Ralph

Hamann, Rob Nason, Joel Bothello and Anthony Muteti.

Research Approach

2

and isiZulu traversed every street / road /

pathway within the specified geographic ar-

ea, locating and interviewing all local accom-

modation services in-situ. Where we found

such activities, the researchers sought to en-

gage with property owners, managers and

tenants, using a questionnaire. The question-

naire interview took approximately 20-25

minutes to complete, though some took up

to 40 minutes where important discussions

were required.

The research identified 1,578 cases with at

least one rental unit. These cases represent

around 15% of properties in Delft / Eindho-

ven. Of these 1,578 cases, 204 persons re-

fused to participate in the research and 586

sites were recorded as ‘not at home’ as the

property was locked and hence inaccessible

or there was no one to interview. We were

able to obtain data from 788 persons who

resided on the property. Some 29% of re-

spondents were property owners, whilst 44%

were tenants, 5.1% neighbours and 22% fam-

ily members . The researchers interviewed

763 South Africans and 25 non-South Afri-

cans.

A Range of Accommodation Types

Recent research showed that the provision of

rental accommodation in Delft South repre-

sents a large, diverse and important econom-

ic activity (Scheba and Turok, 2020). This

study contributes important quantitative data

to previous analysis of the growing informal

rental market. In our study site alone, we

identified 2,864 purpose built rental accom-

modation units, which we have divided into

separate accommodation categories. In this

study we intentionally excluded dwellings

built for accommodating family and friends

The location of Delft

South and Eindhoven in

the Cape Town Metro

(image source: City of

Cape Town Map Viewer)

FIGURE 1

TOWNSHIP ECONOMY IN 2020 SERIES #1 APRIL 2020 TOWNSHIP ECONOMY IN 2020 SERIES #2 MAY 2020

Findings

3

in backyard structures in terms of social obli-

gation or reciprocal exchange, a practice we

did not enumerate for nearly all properties

contain additional structures. Instead we spe-

cifically focused on commercial rentals. The

scope of research excludes business proper-

ties situated within residential homes such as

spaza shops; a topic we investigated in the

business survey (summary findings present-

ed in #1). On average, such business proper-

ties are rented out for R1,500 pm. Table 1

provides an overview of the number of prop-

erties and rental units of different accommo-

dation types as well as the total monthly turn-

over for those units where data was available.

Figure 2 presents the average monthly rental

cost and electricity charge for each of the

main categories of rental accommodation.

The data in Table 1 includes multiple rental

types within a single property. It is not un-

common, for example, for a single property

to have different rental types, such as zozos

and brick structures. Table 1 shows that the

most common rental stock for basic accom-

modation needs were shacks made from cor-

rugated zinc (iron) sheeting. These were

identified on 850 properties collectively con-


Table 1 above indicates

rental accommodation

in Delft South and

Eindhoven

TABLE 1

Category Properties No. of Units

Units Leased

Cases with Fin.

Data

Monthly Turno-ver / Fin Case

Zozo Rooms 850 1281 1112 405 R228,528

Wendy Houses 163 193 149 64 R33,913

Semi Detached Extensions

118 236 208 60 R81,879

Micro-Flats 502 547 415 145 R169,764

Block of Flats 144 589 477 68 R110,813

Total 2846 2361 R624,897

Figure 2 presents the

average monthly rental

cost and electricity

charge for each

category of rental

accommodation

FIGURE 2

4

taining 1,112 individual units under rental.

These are leased for an average of R428 per

month (pm), excluding electricity (an addi-

tional R136 pm), though in exceptional cases

or larger units, rentals up to R2,000 pm are

charged. The second most frequently ob-

served form of rental accommodation in the

low price category are wooden “wendy hous-

es” of which the research identified 149 units

for an average rental of R412 pm, with elec-

tricity costing a further R120 pm. Tenants liv-

ing in shacks and wendy houses usually

source electricity from the main house; few

have individual meters. This arrangement has

the potential for overcharging and inequita-

ble distribution of costs compared to actual

consumption. In most cases, these units

share communal water and toilet facilities.

In the medium price range, the most fre-

quently identified forms of rental accommo-

dation were brick-and-mortar “micro-flats”,

built alongside or adjoining primary residen-

tial homes. The research identified 502 prop-

erties with such flats with 415 units currently

under lease. These are leased at an average

rate of R958, ranging from just under R1,000-

R3,000 pm, excluding electricity, for which

on average an additional sum of R213 pm is

charged. A minority of units have separate

electricity meters, though our dataset is too

incomplete to accurately report the scale of

this development. Most of these flats provide

tenants with access to tap water and toilets

connected to the main sewerage system. At a

similar price point are rooms built onto exist-

ing houses as semi-detached extensions. We

identified 118 properties containing such de-

velopments, with 208 units under rental.

In the upper tier of the rental accommoda-

tion market, the most significant develop-

ment in Delft South has been the emergence

of multi-story blocks of flats. These two and

three storey buildings are often built over the

entire cadastral footprint, with the original

RDP dwelling usually demolished. Our re-

search identified 144 blocks of such flats in

which 477 units were under rent (since we

were unable to interview most of the owners

of these flats, the number of rental units and

average rents under reports the true situa-

tion). From the data we could obtain, we


Map 1 indicates the spatial

distribution of Micro-Flats

in Delft South and Eindho-

ven (excluding multiple

categories, hence slightly

lower number)

MAP 1

5

learnt that these units are rented out for an

average of R1,418 pm (plus electricity of

R211 pm) with the most expensive units rent-

ed for R3,500 pm. The largest block of flats

that the researchers identified contains 24

units, with 21 under rent.

The spatial distribution of micro-flats and

blocks of flats in the research sites are shown

in maps 1 and 2. The micro-flats and blocks

of flats are scattered across Delft South, with

no apparent concentrations in particular pre-

cincts. There are substantially fewer cases of

these developments in Eindhoven (top right

hand corner of the map). One possible rea-

son is that Eindhoven has a more restrictive

land use zoning scheme than Delft South

(SR1 / residential housing verse SR2/ incre-

mental housing), though it is unclear whether

these different schemes are enforced in

equal measures. Another possible explana-

tion is the greater availably of RDP houses for

sale in Delft South, which the developers pur-

chase (interview notes). In Delft South, the

spatial distribution reflects the bottom-up,

spontaneous process of property develop-

ment that is taking place outside of formal

urban planning policy, whereas in a spatially

planned situation one might expect to see

higher densities of both forms close to the

main transport routes and nodes, particularly

the blocks of flats.

Financial Scale

Out of 144 blocks of flats, we were able to obtain financial data from 68 cases that col-lectively provide 418 units of accommoda-tion. Property rental can be a lucrative busi-ness, with one property developer reporting a turnover of R45,600 pm (although the aver-age is around R11,000 pm). Anecdotal evi-dence suggests that monthly maintenance costs are kept at minimum and no taxes are being paid, which means that most of this turnover is cashed in as net income. Taking all forms of identified rental accommodation into consideration, we estimate that the infor-mal rental market (outside the renting of pri-mary residences and commercial property) generates a turnover of some R2.25 million


Map 2 indicates the loca-

tion of Blocks of Flats in

Delft and Eindhoven

(excluding multiple catego-

ries, hence slightly lower

number)

MAP 2

6

pm in Delft / Eindhoven, though the true fig-ure would be much higher were we to in-clude the 586 cases where no-one was home. The relative distribution of the month-ly turnover across the 5 types of accommoda-tion are shown in Figure 3. The blocks of flats and micro-flats account for 56% of the turno-ver, though possibly even higher as stated above.

Informal and Formal but very Commercial

The commercial rental market in Delft com-prises different forms of property develop-ers/landlords (subsistence, homeowner and entrepreneurial landlords) (Scheba and Turok, 2020), with variable combinations of informal and formal rental arrangements. We found that the great majority of tenants rent their accommodation under informal lease agreements. Approximately 90% of the tenant respondents reside under verbal agreements on a month by month basis. Yet, in respect to property ownership, we learnt that in 76% of cases, the property owner held formally issued title deeds. Although we

were unable to interview the owners of the larger developments (notably in the category of flats), the majority of property developers in zozo, wendy house and home extensions market segments (on which we have more reliable data) were unwilling or unable to ac-cess formal finance channels to develop their properties. Within this segment, the owners drew on either personal savings or other means (including income from business, em-ployment or retirement schemes) to fund the development. Merely eight individuals said that they had accessed finance from institu-tional lenders (such as banks) and 15 said that they had obtained the finance from in-


Potential market share of the different

accommodation types

FIGURE 3

7

formal sources (including family).

In most developments – from shacks to

blocks of flats – municipal planning and land

use zoning are possibly non-compliant. In the

case of the blocks of flats, most develop-

ments are built over building set-backs

(building footprint restrictions) and municipal

servitudes. The quality of blocks of flats var-

ies, with some clearly problematic and evi-

dently non-compliant with national building

regulations. These buildings are also poten-

tially unsafe. Most properties have been con-

structed with cement blocks, where seeming-

ly few buildings have structural reinforce-

ment to reduce the loadbearing on the pe-

rimeter building walls. The adjacent pictures

illustrate the qualitative differences of double

storey buildings. The small windows and un-

certain stability of the access terrace/balcony

in the figures 4 and 6 respectively point to

health and safety risks.

The development of micro-flats and blocks of

flats represents a notable inward entrepre-

neurial investment in Delft, previously not

seen from our prior investigations in this

study area. Anecdotal evidence indicates that

the value of these investments range from

around R400,000 to in excess of R1 million,

with the underlying residential property

alone (in other words the original plot or RDP

house) valued at around R250,000 (this fig-

ure was gained from multiple interviews with

Delft residents). From the perspective of the

wider economy, these investments play an

important role in generating economic

growth and employment through the hous-

ing value chain - construction labour, build-


The Need for Policy Direction and

Regulation

FIGURE 4

FIGURE 5

FIGURE 6

FIGURE 7

8

ing materials, furniture and fittings, on site

services, rental agents, etc. In addition, they

provide better quality, affordable rental ac-

commodation to wage earners working in

formal (e.g. policemen, nurses, teachers, re-

tail staff) and informal sectors, especially

SADC migrants (field worker notes).

Our evidence shows that many of the proper-

ty developers in this segment of the informal

rental market are typically South Africans

who do not reside in Delft. For these proper-

ty entrepreneurs, investing in the rental econ-

omy in Delft presents a lucrative income op-

portunity, which is bolstered by the lack of

enforcement of otherwise costly formal build-

ing and planning regulations. The non-

compliance with building and planning regu-

lations poses health and safety risks and

could potentially cause breakdowns of infra-

structure/services. There is a risk of a down-

ward spiral as population densities rise, ser-

vices get overburdened, infrastructure de-

cays, environmental conditions deteriorate

and the state’s capacity to implement essen-

tial safeguards diminishes. We were unable

to ascertain whether or not property owners

were compliant with rates, though if not, this

might be a further cost-burden on the city.

In order to mitigate these risks and harness

the positive benefits of informal rental mar-

kets, the government could adopt an ena-

bling approach that works with rather than

against informality in the property sector.

This essentially means creating a regulatory

framework that is appropriate to the setting

and nature of change within Delft (as the city

and its suburbs grow) and devising support

mechanisms and inclusive governance insti-

tutions to enforce compliance. The enforce-

ment of appropriate regulations should take

place in an incremental and progressive way,

in the beginning focusing on ensuring mini-

mum health and safety standards, followed

by advancing land use/planning formaliza-

tion and ending with full regulatory compli-

ance over the medium term. Municipal spa-

tial planning policy and regulations should

be revisited and amended to fit the reality of

townships. The municipality could consider

zoning amendments to enable formalisation,

easing some of the current re-zoning / land-

use compliance requirements that are pres-

ently not attainable for the majority of these

developers. Other regulatory processes that

could also benefit from reform and streamlin-

ing are land registration and national build-

ing standards.

Any revised policy to address the opportuni-

ties and challenges from this sector should

also address landlord-tenant relations, which

can be exploitative. We would recommend

awareness campaigns and support mecha-

nisms that explain the benefits of more for-

malised agreements to landlords and ten-

ants.

Finally, given the large increase in the popu-

lation of the areas associated with the intensi-

fication of development, there is bound to be

a need for additional investment in the physi-

cal and social infrastructure. Although no ob-

vious signs of sewage spillage or burst pipes

were apparent, the pressure on water, sanita-

tion, stormwater drains and electricity net-

works is bound to be considerable. The same

applies to schools, clinics and police stations.

The rental accommodation market is a rapid-

ly growing and dynamic sector that attracts


Conclusions

9

inwards investment sorely needed in the

township economy. Such investments should

be encouraged to stimulate growth in the lo-

cal economy and to address the housing

shortage and to improve the quality of the

housing stock. White-collar workers and oth-

er wage earners, from both formal and infor-

mal sectors, are willing to pay higher rents to

benefit from better quality rental accommo-

dation. The growing demand attracts entre-

preneurial landlords and property develop-

ers, who see a lucrative investment oppor-

tunity in commercial rental accommodation.

Most of these activities take place outside of

formal land use planning and national build-

ing regulations, which poses health and safe-

ty risks to the public. As population densities

rise, places like Delft also risk a downward

spiral of infrastructure and service break-

downs. Furthermore, local government raises

very little taxes from commercial property

developments in townships, despite the size-

able rents collected by some landlords. The

current regulatory framework and govern-

ance approach are ill suited to address these

challenges.

We propose an enabling approach that con-

tains the negative externalities and harnesses

the positive socio-economic benefits of town-

ship rental markets. Working with rather than

against informality, an enabling approach

develops appropriate regulations and devis-

es support mechanisms to enforce compli-

ance incrementally and progressively over

time. The initial focus is on achieving mini-

mum health and safety standards, followed

by advancing land use/planning formaliza-

tion and reaching full compliance over the

medium term. Municipal planning policy and

zoning regulations should be revisited to

ease some of the current land use compli-

ance requirements that are presently not at-

tainable for the majority of these developers.

Land registration and building plan process-

es could also benefit from streamlining and

reform.

Once the appropriate regulatory environ-

ment and functioning support mechanisms

have been developed, the municipality

would be better positioned to enforce com-

pliance and levy rates on commercial rental

properties, which can be used to finance

physical and social infrastructure investments

to meet the higher service demand of the ar-

ea.

Charman, A. J. E., Petersen, L. M., Piper, L. E.,

Liedeman, R., & Legg, T. (2015). Small Area Cen-

sus Approach to Measure the Township Informal

Economy in South Africa. Journal of Mixed Meth-

ods Research. https://

doi.org/10.1177/1558689815572024

Charman, Govender and de Villiers (2017). The

impact of land systems on micro-economic in-

vestments: Ivory Park Case Studies. http://

livelihoods.org.za/wp-content/uploads/2018/05/

Impact-of-Land-Systems-of-Micro-Economic-

Investments.pdf

Hamann, C, T Mkhize and G Gotz (2018),

“Backyard and informal dwellings (2001-2016)”,

Gauteng City Region Observatory Map of the

Month.

Scheba, A., & Turok, I. (2020). Informal rental

housing in the South: dynamic but neglected.

Environment and Urbanization, Vol 32(1), 109–

132 https://

doi.org/10.1177/0956247819895958.

Turok, I., Scheba, A. & Visagie, J. (2010). Back-

yard rental housing: Dynamic but neglected. Re-

port to the Western Cape Government, Depart-

ment of Human Settlements. HSRC: Cape Town


Further Reading

https://doi.org/10.1177/1558689815572024

https://doi.org/10.1177/1558689815572024

http://livelihoods.org.za/wp-content/uploads/2018/05/Impact-of-Land-Systems-of-Micro-Economic-Investments.pdf




https://doi.org/10.1177/0956247819895958

https://doi.org/10.1177/0956247819895958

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