Focus Article Metropolitan and rural housing market developments


The upswing in the South African residential property market which started around 2000 was driven by a wide range of economic, social, cyclical and structural factors. The combined effect of these factors caused the demand for housing to increase significantly over this period. At the same time, the supply of housing came under pressure. As a result, property price growth increased to levels not seen since the boom of the early 1980s.

By 2004, these developments caused many property commentators and analysts to believe that the market had reached bubble proportions and that it was set for a major downward correction. However, in line with our expectations at the time, the market peaked towards the end of 2004, then steadily slowed down up to early 2007. During this period, year-on-year house price growth declined from a high of 35,6% in late 2004 to 15,5% in the first quarter of 2007.

The slowdown in the housing market, as indicated by the steady downward trend in price growth over the past two years, was confirmed by statistics compiled by Property24. These showed that, between the first half of 2004 and the second half of 2006, the number of days that properties were listed on the market before being sold, increased significantly and the gap between asking and selling prices widened.

The gradual downward trend in the residential property market occurred long before the current upward trend in interest rates started in mid-2006. The affordability of housing is regarded as one of the major factors which caused the market to experience some slowing down.

Against the background of these developments, the housing market grew significantly over the past number of years, not only in the countrys major metropolitan regions, but also in rural areas.

This article focuses on the performance of the housing market at metropolitan level compared with that of the rural areas around the country. The analysis starts by defining the metropolitan and rural regions. This definition is followed by an overview of trends in the most important influencing factors: from demographics to economic indicators. An analysis of the trends in the metropolitan and rural housing markets follows, touching on aspects such as price developments, the affordability of housing, building costs, and trends in the land and building area of new housing.

Defining South Africas metropolitan and rural areas

South Africa is regarded as having seven major metropolitan areas:

  • Greater Johannesburg in Gauteng, which includes the magisterial districts of Randburg and Roodepoort in the northwest and Alberton, Benoni, Boksburg, Brakpan, Germiston, Kempton Park and Springs on the East Rand. Johannesburg and Soweto comprise the central and southern parts of the city.
  • Pretoria in Gauteng.
  • Bloemfontein in the Free State.
  • Durban and Pinetown in KwaZulu-Natal.
  • East London in the Eastern Cape.
  • Port Elizabeth, Uitenhage and Despatch in the Eastern Cape.
  • Greater Cape Town in the Western Cape, consisting of the magisterial districts of Bellville, Cape Town, Goodwood, Kuils River, Mitchells Plain, Simons Town and Wynberg.
  • Two other areas in the country that have experienced strong growth and expansion over the past few years and are becoming proper metropolitan areas, are the Nelspruit-White River area in Mpumalanga and the George-Mossel Bay area in the southern part of the Western Cape. However, for the purpose of this study, these two regions were grouped with the rural areas of the country.

The rural areas of South Africa are regarded as consisting of the following:

  • Gauteng, excluding Greater Johannesburg and Pretoria.
  • The Free State, excluding Bloemfontein.
  • Eastern Cape, excluding East London, Port Elizabeth, Uitenhage and Despatch.
  • KwaZulu-Natal, excluding Durban and Pinetown.
  • The Western Cape, excluding Greater Cape Town.
  • Limpopo.
  • Mpumalanga.
  • North West.
  • The Northern Cape.

Factors influencing the property market at metropolitan and rural level

Demographic factors: In 2005, 12,3 million people (25,7% of the countrys total population of 47,8 million) were living in the abovementioned metropolitan areas. This was 1,6 million, or 14,9%, more than in 1996. During the period from 1996 to 2005, the average annual population growth was 1,6% in the metropolitan areas.

About 35,5 million people (74,3% of the total population) were living in the countrys rural areas in 2005. This was 4 million, or 12,7%, more than in 1996. The average annual population growth in these areas was 1,3% during the period from 1996 to 2005.

Population density (the number of people per square kilometre) increased by 89,4 from 589,6 in 1996 to 688 in 2005 in the metropolitan areas. In the rural areas, the population density increased by only 3,3 from 26,2 in 1996 to 29,5 in 2005.

In the metropolitan areas, the total number of households increased by 825 478, or 27,7%, between 1996 and 2005. In the rural areas, the number of households increased by 2,2 million, or 33%, from 1996 to 2005.

Socio-economic factors: In the metropolitan areas, total employment increased by 1,5 million workers, or 35,6%, from 4,2 million in 1996 to 5,7 million in 2005. Of these 5,7 million workers, 4,9 million, or 86,4%, were employed in the formal sector.

In the rural areas of the country, total employment stood at 5,9 million workers in 2005. This was 1,1 million, or 23,1%, up on a total of 4,8 million employed in 1996. Formal sector employment comprised 76,3% of total employment in the rural areas in 2005.

The average annual nominal income per household in the countrys major metropolitan areas increased by R74 381, or 104,9%, from R70 921 in 1996 to R145 282 in 2005. In the rural areas, households average annual income rose by a total of R22 404 per annum, or 66,1% in total, from R33 875 in 1996 to R56 279 in 2005.

Household income in rural areas as a percentage of that in the metropolitan areas declined from 47,8% in 1996 to 38,7% in 2005, which is an indication that the annual income of households in the rural areas increased at a much slower rate (0,1% per annum in real terms) than that of households in metropolitan areas (2,5% per annum in real terms) over this period.

These household income developments caused the share of total personal income in the metropolitan areas to increase from 48,2% of the national total in 1996 to 52,4% in 2005. The share of the rural areas declined from 51,8% in 1996 to 47,6% in 2005.

Economic factors: The metropolitan areas have increased their share of total gross domestic product from 55,6% in 1996 to 58,4% in 2005, whereas the percentage contribution of the rural areas declined from 44,4% in 1996 to 41,6% in 2005. This was the result of real economic growth in the metropolitan areas averaging 3,9% per annum in the period from 1996 to 2005, compared with 2,3% per annum in the rural areas over the same period.

In 1996, the ratio of total gross domestic product in the rural areas to that in the metropolitan areas was 79,7%, declining to 71,4% in 2005.

On a national level, the sharply lower interest rates since the middle of 2003 had a positive effect on the economic performance of both the metropolitan and rural regions in South Africa.

In view of the abovementioned demographic, socioeconomic and economic trends and developments in the metropolitan and rural regions of the country, it is evident that urbanisation has further increased over the years; that employment in the metropolitan areas has increased at a faster pace than in the rural areas; and that the level of household wealth in the metropolitan areas has risen more rapidly than that in the rural areas.

Lifestyle factors: Hectic urban lifestyles, traffic congestion, technological progress and changing urban conditions have prompted more people to work from home and live in higher-density residential developments close to places of work and amenities such as schools, shopping centres and access routes. Also, an increasing number of people have opted to live in various types of more relaxed, tranquil, less cramped and perceived to be more secure estates. Many others, such as retirees and artists, have moved to remote rural areas and places along the coast. These changes in lifestyle had a profound effect on property markets in both metropolitan and rural areas.

Housing market trends in metropolitan and rural areas

House prices: Over the years, year-on-year growth in nominal house prices in the metropolitan areas seems to be closely correlated with that in rural areas. Prices in both the rural and metropolitan areas have increased significantly since 2000, with growth rates peaking in 2004 before subsiding in 2005 and 2006. This was largely the result of housing becoming less affordable right across the country (see section below on the affordability of metropolitan and rural housing).

Since the start of the housing boom a few years ago, nominal house prices in the metropolitan areas have increased by a total of 204,9% (from an average of R285 200 in 2000 to R869 600 in 2006). In the rural areas, nominal house prices have risen by a total of 207,2% (from an average of R228 900 in 2000 to R703 100 in 2006). The ratio of rural to metropolitan house prices increased marginally from 80,3% in 2000 to 80,9% in 2006. This was probably the result of strong price growth in certain rural areas, especially along the coast, where supply and demand conditions have pushed prices up significantly.

Affordability of housing: A generally accepted method of determining how the affordability of housing has changed over time is to calculate the ratio of house prices to household income.

During the past number of years (2000 to 2005), the nominal year-on-year growth in house prices outstripped that of gross household income by a large margin in the metropolitan as well as in the rural regions of the country. This resulted in the ratio of house prices to household income increasing to higher levels across the country over this period.

In the metropolitan areas, the house price-to-income ratio increased from a relatively stable 2,7 times on average during 1996 to 1999, to 2,9 times in 2000 and 5,2 times in 2005. In the rural areas, this ratio jumped sharply from 4,8 times in 1999 to as high as 10,5 times in 2005. With house prices having risen faster than household income in both the metropolitan and rural areas since 2000, housing has, in general, become increasingly less affordable during the past few years up to 2005.

Despite house prices in the metropolitan areas having been on average 28% higher than in the rural areas in the period from 1996 to 2005, the house price-to-income ratio has been higher in the rural areas than in the metropolitan areas. The ratio has also increased at a much faster rate in the rural areas than in the metropolitan areas since 2000. The main reason for this is that the level of household income in the metropolitan areas is, on average, significantly higher than in the rural areas, whereas the metropolitan areas have also recorded higher growth in nominal income of around 8,5% per annum between 1996 and 2005 compared with about 6% per annum over the same period in the rural areas.

Against this background, the affordability of housing has decreased at a faster rate in the rural areas than in the metropolitan areas. The result is that, in terms of house prices in relation to household income, residential property can be regarded having become more expensive in the rural areas than in the metropolitan areas of the country.

Building costs for new housing: Over the past few years, the rise in building costs in metropolitan as well as in rural areas has been above the headline inflation rate. This can be regarded as an indication of an active building and construction sector in all regions. Factors such as a strong demand for building materials and skilled labour in view of the demand for new housing have largely contributed to this development.

However, the year-on-year growth in the cost of building a new house peaked in 2003 in the metropolitan areas and in 2004 in the rural areas. This can be ascribed to the large number of property developers and building contractors active in the housing market in recent years, leading to greater competition.

Size trends in new housing:

  • Building area: According to Absas calculations, the average building area of newly-built residential properties in the countrys metropolitan and rural areas was on a gradual upward trend between the mid-1990s and 2003.

    However, the average size of new housing reached a recent peak of 181 m in the metropolitan regions in 2003 and 157 m in the rural regions. A declining trend then occurred in both areas. This is probably because the affordability of housing started to impact negatively on the average size of newly-built housing across the country.

  • Land area: The average size of stands on which new housing was built has been on a declining trend in both metropolitan and rural areas since the early 1990s. This can be ascribed to suitable vacant land for residential development becoming increasingly scarce, not only in the rapidly growing metropolitan areas, but also in most rural areas. The availability of services such as water and electricity has to a large extent contributed to this trend, causing prices for fully-serviced stands to increase sharply in recent years. Other factors such as lifestyle changes (see above) have also played an important role in the average land area for new housing dropping to an all-time low.

    In 2006, the average land area declined to 474 m in the metropolitan areas, which was only 40,8% of the average of 1 161 m back in 1980. In the rural areas, the average land area was 572 m in 2006, which was 43,7% of the average of 1 310 m in 1980.


Since 2000, the housing market in South Africa experienced strong growth in metropolitan as well as rural areas, largely as a result of a range of demographic, economic and socioeconomic factors.

Population growth was faster in the metropolitan areas than in the rural areas. This was mainly driven by the process of urbanisation. Formal sector employment increased significantly in the metropolitan areas, with the average level of household income rising faster in the metropolitan areas than in the rural areas.

Although house prices have been higher in the metropolitan areas than in the rural areas over the years, housing in the rural areas is regarded as being less affordable than in the metropolitan areas, mainly as a result of lower and slower-growing household income in rural regions compared with the metropolitan regions.

As the affordability of housing has come under pressure in recent years in rural as well as metropolitan areas, the building and land areas of new housing have declined throughout the country.

Courtesy Jacques du Toit Senior Economist ABSA Bank

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