The power of Secondary Cities

The power of Secondary Cities

Private Property South Africa
Kerry Dimmer

Secondary Cities, or Intermediate City Municipalities (ICMs) could be a key driver of the real estate market.

By 2050, two-thirds of the world’s population will live in cities; this equates to some 6.5-billion urbanites. It’s a number that may be hard to comprehend, yet just two years ago, in 2018, there were already 4.2-billion people living in global cities, 40 percent of which are in African cities.

According to the World Bank, the number of people living in African urban areas will double to more than one-billion by 2042, which is considered unprecedented. The problem is that existing cities were not built to handle such huge numbers, they simply tend to sprawl if there is space to do so or if not adequately developed.

South Africa’s biggest cities – Cape Town, Durban, Johannesburg, Pretoria - all face this problem, which is further compounded by a dim national economic outlook, and rapid urbanisation and population growth. Solving any kind of housing problem or a city sprawl is not also not as simple as devising a one-size-fit-all formula as each city comes with its own specific needs, goals and challenges. This makes a strong case for the continued development of Secondary Cities.

Somewhat of a sleeping giant, Secondary Cities in South Africa are home to more than 15% of the population (Marais et al. 2016a) and they contributed some 27% to South Africa’s GDP in 2016.

Nomfundo Dlamini, Programme Manager: Productive Cities at the South African Cities Network says that the development of the Integrated Urban Development Framework (IUDF) Implementation Plan in 2016 has been critical in unlocking investment and development synergies for inclusive, resilient and liveable cities and towns.

Defining an Intermediate City Municipality

“Initially 97 areas were classified into three tiers based on population size, those being: below 100 000 residents; between 100 000 – 600 000 (intermediate); and above 600 000. Secondary Cities fall into the intermediate category of which there are currently 39 municipalities, identified by National Treasury, and there is an array of factors that caused these Intermediate City Municipalities (ICMs) to emerge.

“The average population size of a metro is 2.56-million versus an average ICM of 355,896. Thus the economics and developmental complexities and challenges would be vastly different,” says Dlamini. “Large metropolitan areas have mainly diversified their economies to the tertiary sector, that being, for example business and its allied commercial services, whereas secondary cities may still have substantial parts of their economics directly or indirectly linked to primary (raw materials) or secondary (manufacturing) sources.

“This actually makes secondary cities more vulnerable; should any or part of the primary or secondary economies fail, the impacts can be far more devastating on the community whose average household incomes are relatively smaller than some metros.”

As it is, Dlamini confirms, ICMs are under strain, as are all municipalities, especially with the macro economic crisis, climate change and the instability of state-owned enterprises that help municipalities generate their income and revenue through water and electricity service provision. “But the sustainability of ICMs remains strong at 39, even though they face challenges in governance and service delivery provision.”

Contemporary and modern

Despite their vulnerability, Secondary Cities are exceptionally valuable because they present prospects of employment and a better quality of life. Their growth means they have a huge influence upon the future economic development of the entire country. One of the major drivers will be in hosting, for example, localised production or transport hubs, for people or goods to and from the major cities.

South African’s are well adapted to long commutes, be that by car, train, taxi or bus, which also makes a case for more affordable home ownership in nearby ICMs rather than in acquiring property in the expensive (and what may be) better developed, primary metro’s.

Costly upgrades to existing metro precincts also increases cost-of-city-living versus the new developments that ICMs motivate, which are often more sustainable homes with green belts and parklands, good local schooling, and modern infrastructure. Even if such features don’t exist in the early phases, they will certainly have been planned for as part of the municipal town planning growth strategy.

ICM urban planning has a far more contemporary nature than the metro’s of old, given that town planners have, in modern times, a plethora of analyses and trajectory’s to work from, allowing them to anticipate long-term needs, and work towards the potential of an ICM becoming a primary metro of the future.

Promotion to a metro

To become recognised as a major city, the SA Cities Network says the following is considered:

  • The demographics: city population, migration trends, population density and percentage share of the national population;
  • The economy: economic growth rates and city’s share of national Gross Domestic Product;
  • Income levels: personal and per capita income;
  • The city’s public finances – annual total revenue and per capita revenue;
  • Employment capacity; and
  • Any other indicators – such as access to services.

There are obviously pro’s and con’s in making a decision to move to a Secondary City, but international trends in Europe, Australia and the US suggest that Secondary Cities present as ‘new’ prime real estate opportunities for investors, particularly for the youth or young family. With remote work and flexible working hours also on the increase, the Secondary City real estate migration may just be the next property boom.

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