CT rental tariff poses a dilemma

I love Cape Town but it is a city filled with contradictions. 

We sell mountain views and ocean sunsets to the world. We host global events and celebrate record tourism numbers. Yet we speak about housing shortages, affordability crises and the slow exodus of long-term tenants from once-accessible neighbourhoods.

The City of Cape Town recently announced a new bylaw that will charge commercial municipal rates on short-term rentals such as Airbnb. 

This could result in a 135% tariff increase for certain short-term rental properties. While many support the tariff, the question is not whether it is well-intentioned but whether it addresses the issue it aims to solve. What is the tariff targeting?

The proposed increase applies to properties available for short-term letting of 60 days or more a year. In other words, it is not aimed at someone renting out their primary residence over December to cover school fees. It is aimed at properties operating consistently in the short-term rental market. As if they were their own small hospitality business.

I chatted to Nic Tromp, the CFO of Blok. Blok has developed more than 20 residential developments in the Atlantic Seaboard and Cape Town CBD over the past 11 years. Some of its customers will be affected by the new tariff.

Tromp says the apartments most affected will be the larger, higher-value lifestyle properties. A R30 million villa paying around R12 000 in monthly property rates could see a 135% increase in rates. As the villas don’t have high net yields to hide the increase, they’ll feel it the most.

By contrast, sectional title investors with smaller apartments and solid occupancy rates will not be hit nearly as hard. 

Based on Blok’s numbers, owners could see a roughly 0.8% decline in net rental returns, assuming revenues remain flat.

That is not insignificant. But it is not catastrophic either. 

Tromp says some self-managed, short-term operators might exit the market due to fear and uncertainty. That could push a portion of stock back into the long-term rental pool. Professional operators with technology and pricing strategies might absorb the additional cost by increasing their average daily rates.

If that happens, supply in the short-term market shrinks, pricing rises and professionalisation accelerates. But does that create more affordable housing?

When looking at the bigger housing question, I spoke to one of the best property economists in the business, Francois Viruly. He urges caution in collapsing the debate into a single narrative. He makes a critical distinction between two types of short-term rental participants.

On one end, there are commercial operators running multiple apartments as businesses. On the other hand, some households supplement their income by renting out a room or letting out their flat during peak season to make ends meet.

In a country like South Africa, where household income is under pressure, the distinction matters.

At what point does a landlord become a commercial operator? When does a residential flat effectively become a hotel? These are regulatory questions every global city is grappling with.

Viruly points out that cities like Paris require short-term rental operators to register and inform the municipality of the properties they are letting out. This helps tighten regulation, improve transparency and increase tax compliance.

Increasing tariffs alone does not automatically fix affordability.

Cape Town has roughly 27 000 homes listed on Airbnb. If the policy goal is to unlock lower-priced flats for residents, we must assess whether these are the flats that would realistically convert to affordable housing stock. A R30m villa in Camps Bay does not become workforce housing because rates go up.

If the problem is a shortage of lower-priced flats, then land release, zoning reform, infrastructure rollout and development incentives become central. A tariff does not create land.

What problem is the city trying to solve with the tariff? 

There is a legitimate policy dilemma here. Short-term rentals have grown because they filled a gap that the hotel sector could not. They offer flexibility, scale during events and have become embedded in Cape Town’s tourism economy. The industry supports jobs, from cleaning and property management to bars, restaurants and retail.

Tromp estimates the tariff could generate an additional R200m to R250m in revenue for the City. That is meaningful money.

But where will it be spent? If the goal is housing, the City needs to clearly articulate how the additional revenue translates into measurable supply outcomes.

Recent data shows that more than 100 000 families have moved to Cape Town in the past 

36 months (it’s probably more). Compare this to annual housing delivery and supply falls short compared to demand.

Viruly argues that raising the tariff alone does not resolve the housing crisis. It might be a regulatory step but it does not explain why short-term rentals are more attractive than long-term leases.

One reason could be risk. Long-term landlords face eviction constraints under the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act and often struggle with arrears and enforcement. 

If policymakers want more long-term stock, perhaps the conversation should include how to make long- term letting more attractive. Could there be a property rates rebate for landlords who commit to multiyear leases? Could incentives be structured differently?

In other cities, quotas limit the number of short-term rentals in specific zones. Others formalise registration systems to distinguish casual hosts from commercial operators. There isn’t a cookie-cutter template, rather it’s a balancing act.

Cape Town is a unique city in a developing economy with high unemployment and a globally desirable lifestyle offering. Policy cannot be so heavy-handed that it collapses an industry that supports jobs. Nor can it ignore the frustration of residents who feel priced out of their own neighbourhoods.

Tromp believes the City is attempting to thread multiple needles at once. Capture additional revenue from a growing industry without tanking it. Nudge some stock back into the long-term market without collapsing investor confidence.

Viruly argues that the City must first be clear about its diagnosis. If the objective is affordability, there are broader structural levers to pull. If the objective is regulatory fairness, then the conversation shifts to classification, compliance, planning rights and related rates and taxes.

Perhaps the uncomfortable truth is that the housing crisis in Cape Town is too large,too layered and too spatially complex to be fixed by a single tariff adjustment.

A 135% increase makes headlines and signals intent but it won’t create land, build homes or convert luxury inventory into affordable homes.

Policy is often judged by how tough it sounds. It should instead be judged by whether it moves the needle on the problem.

If this tariff is about regulation or revenue, state it clearly. If it is about housing supply, then show us how. Because in a city as beautiful and as unequal as Cape Town, symbolism is not enough.

I would love to hear your thoughts on this topic. 

Please email me: ash@askash.co.za