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In urban areas, the poor struggle to access well located land in cities and legal, institutional and procedural constraints impede secondary residential property markets from functioning effectively in black townships. The purpose of this paper is to examine how municipal property rates policies are, or could be, used as an instrument to promote access by the poor to urban land markets. Buffalo City Municipality and the City of Johannesburg are used as case studies to probe implementation issues and highlight some of the key trade-offs made and approaches taken by municipalities to balance municipal revenue concerns with pro-poor policy intentions.
There are two main avenues by which municipal rates policies could be designed to positively impact on the struggle by low-income households to gain access to urban land. First, by providing direct tax relief, municipal rates policies can impact the demand-side of the equation by making it more affordable to remain in one’s current property or to move up the property ladder. Second, through indirect means, municipal rates policies can create incentives for property owners to make land use decisions which increase the supply of available well-located land and the stock of low-income housing.
Analysis of the municipal property rates policies of the 9 South African Cities Network (SACN) shows that some municipalities limit themselves to the minimum in rebates and exemptions, while others apply more generous and innovative rebates. Cape Town, Nelson Mandela Bay and Ekurhuleni have innovative sliding scale rebates for senior citizens, pensioners and disabled persons with varying numbers of income categories. Linking rates relief to twice the amount of the Old Age Grant is fairly typical, and is an approach adopted by four of the SACN municipalities.
The key difficulty for municipalities in applying rebates to vulnerable groups is that it is difficult to determine who is poor from the information on the valuation roll alone. The rebate process puts the onus on the rate-payer to access the benefit. Hence pro-poor rebates have sound social objectives but are very difficult to implement. Required documents to show eligibility and low levels of public awareness keep take-up rates at minimal levels. Also verification of eligibility information, in the case of rebates for farm workers, often relies solely on the applicants’ self-reporting. As a result, a high number of eligible poor people are therefore not accessing available property tax rebates.
Up to now, National Treasury and the Department have been focused on enabling and monitoring compliance to the MPRA by the deadline; Ensuring that municipalities get new valuation rolls and rates policies in place has been the top priority. However in subsequent phases of implementation of the Act, it will be possible to shift attention to examining the content of those policies, their quality and impact on the poor especially.
This analysis has provided evidence that the lower-middle income band is the hardest hit by property rates: specifically those who earn too much to qualify as indigent but whose property value may exceed the residential exclusion. However the current research is insufficient in providing evidence of how the poor are affected by property rates liabilities: Rates rebates can leave more money in the pocket of poor households, but can they save a family from needing to relocate, or assist a household to move up the property ladder? The general opinion from interviews of municipal officials was that the residential exclusion did not likely affect the property market but further research is needed to test the relationship between the residential exclusion and resale prices in the residential property market.
The paper concluded that effective direct property tax relief measures must a) be narrowly targeted to the poor, b) reach a majority of the eligible population, and c) be cost-effective from the perspective of the municipality which must weigh revenue foregone and administration costs. This analysis has suggested that the residential exclusion is one of the most effective and least costly mechanisms (from an administration perspective) for targeting the poor for rates relief. Better information on collection rates at different income bands and the secondary residential property market in township areas can assist to improve the methodology for setting the residential exclusion threshold, thus improving its pro-poor benefits while respecting municipal revenue needs. Income based rebates and other specific measures to address particular vulnerable groups can then be used to enhance the rates safety net for the poor.
