The February residential building stats captures our SA essence in a nutshell. Decade-long stagnation in the middle- and higher-income market segments, robust stirrings in the low-income ones. But overall we aren't really going places. For that we need stronger economic growth generally.

The same story, really, as we heard from Transnet only last week. A very realistic reassessment about SA mining export potential, especially coal and iron ore, reiterating that the Transnet capex budget is getting spread out over a (much) longer time frame, but also now the avowed intention to diversify, for instance into manufacturing, especially high-value consumption goods (including motor trade?) where there apparently remain niche transport opportunities.

The real issue facing Transnet, the building trade and the rest of us, however, is economic growth. We need much faster growth to really go places.

PPC intending to double the size of its business every decade (implying 7% real growth) will make the company ten times bigger by 2050 when Africa’s population will have doubled. In its case, it clearly wants to be part of THAT physical infrastructure growth story that is apparently accepted as given, whereas our sad sacks locally can't even get to 1% growth now (implying stagnation per capita in perpetuity…unless a few crucial things change, for the better).

My friend Johan Snyman (Director, Medium-Term Forecasting Associates) unpacked some of the recent building numbers and their meaning.

Dividing the residential market into three key segments, the building plans passed for residences <80m2 in Jan-Feb16 todate (conveniently depicted as 1Q16) was 2961 units, some 10% up on Jan-Feb15 (1Q15).

In contrast, for houses >80m2, the 1Q16 at 2540 units was 2% down on 1Q15.

For flats and townhouses, the 1Q16 at 3305 units was 2% higher than 1Q15.

So two market segments showed growth, one decreased. But considering that houses >80m2 and flats & townhouses constitute the higher-income, more expensive residential market segments, the growth in the one effectively offset the decline for this Jan-Feb period in the other.

According to Johan, the houses >80m2 and the flats/townhouses have effectively been moving sideways for almost eight years now, after having dropped almost 40% from peak levels recorded in 2006/07, showing little revival todate.

In contrast, the housing segment <80m2 has shown the greatest liveliness in recent years. Interestingly, subsidized publicly-funded housing for the poor (nowadays pegged at R135 000 per unit max) is not included in the StatsSA series because these data series refer to “privately-funded” housing for which plans are approved by local authorities/municipalities.

For instance, where developers develop a township with bulk loans from banks or Old Mutual’s Housing Impact Fund. This makes the series very unstable because such privately-funded housing projects are approved irregularly en masse.

Whereas the stagnation observed in the houses >80m2 and flats/townhouses can be explained by changed bank mortgage lending criteria (which became a whole lot tougher since 2008), these mature market segments are dependent on faster real income growth and more families seeking such accommodation. Our disappointing growth performance in recent years has mostly disallowed that, and interest rates have been raised by 2% these past two years to prime 10.5%.

In contrast, for houses <80m2, a lot of new household incomes have been created in recent years, especially in the public sector. With large backlogs of formal housing existing, and such new incomes often qualifying for mortgages, this market segment has seen a lot of pent-up demand.

Given remaining housing backlogs, and ongoing redistribution of income, this building market segment is likely to sustain vigorous growth for years to come.

Johan dug up some data in Gordhan’s February Budget documents regarding the “public-funded” or “state-funded” housing not covered by StatsSA in the above data series.

According to those records, the total such units subsidized/provided averaged about 100 000 to 110 000 units annually these past three years, with a further 11 000 to 14 000 extra subsidies allocated annually, for a grand total of about 120 000 units annually. The housing backlogs here are still in the millions, promising ongoing future building activity and need for land and building materials.

Cees Bruggemans

Bruggemans & Associates, Consulting Economists

Website  www.bruggemans.co.za

Email. economics@bruggemans.co.za

Twitter  @ceesbruggemans

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