Data from the South African Cities Network (SACN) shows that the country’s biggest cities have seen a major decline in electricity revenue over the last decade, while property rate hikes are one of the revenue streams that have seen a sizeable jump.
This data supports some arguments made by the South African Property Owners Association (SAPOA) in raising concerns around the significant hikes property owners have had to absorb – though the SACN disputes the figures bandied about.
SAPOA said last week that municipalities and major metros in particular were hiking property rates at exorbitant levels to cover losses from electricity sales. This was done to the detriment of their own economies, it said.
“Property rate income rose by a substantial 174% between 2010 and 2021, much higher than the 72% increase in CPI and the 156% rise in overall revenue – thereby compensating for shortfalls on other revenue streams,” it said.
According to the SACN, though, these figures are overblown.
“In all big cities, after electricity, property rates revenues are the largest revenue source for cities. So property rates are an important source of own city revenue, ranging from a low of 17% in Buffalo City to a high of 24% in Ekurhuleni and Cape Town (SACN State of City Finances, 2022:21).
“The SAPOA assertion that property rates are becoming increasingly important in supporting municipal revenue is supported by SACN research, which shows that while electricity, the most important source of revenue for metros, has been declining as a proportion of total city revenue between 2016/17 – 2020/21. Property rates revenue has been increasing as a source of city revenue over the same period,” the SACN said.
“However, the extent to which this decline in revenue from electricity has been compensated for by increasing property rates, as asserted by SAPOA, is open to debate.”
SACN’s research, using audited financial data from the National Treasury Local Government Database, shows that the average annual growth in property rates in all big cities was 10.2% (above inflation of 5.7%) between 2010/11 – 2015/16 and 9.1% (above inflation of 4.2%) from 2015/16 – 2020/21.
When looking at the relationship between the growth in house prices, national GDP growth, and CPI between 2010/11−2015/16 and 2015/16−2020/21 (two local government administrative terms), the growth in house prices matched inflation from 2010/11 to 2015/16 but was lower than inflation from 2015/16 to 2020/21.
Aside from the official figures, cities also have to factor in the general valuation rolls which are updated every five years, the progressive taxing of properties based on value, subsidies for the poor and various other datapoints that go into determining rate changes.
The SACN said that the complexities around city budgets, revenues, rate hikes and the different circumstances related to these make wide-sweeping conclusions – like SAPOA calling rate hikes unsustainable – extremely difficult.
“It is impossible to quantify accurately the extent to which cities achieve this balance,” SACN said. “It is difficult to make blanket statements alleging that the increases in property rates are unsustainable and are also placing upward pressure on inflation. The argument is more complex than that.”
However, while the SACN’s data is incongruent with SAOPA’s claims, the group agreed with the overall message that economic growth was essential to the sustainability of cities in the country – especially the major metros, which are core to job creation.
“A city’s finances are dependent on the economy underpinning it. The more vibrant that economy, the more businesses operate profitably and consume municipal services – water, electricity and sanitation – and their employees’ households,” it said.