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Rise of renting: Lease or leave

As rents skyrocket worldwide, it's more than just prices going up—the very fabric of urban living, work, and policy is being unraveled.

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Quntumrun Foresight
July 16, 2024

Insight summary

Rental costs worldwide surged significantly in the first half of 2023, surpassing growth rates observed in the last decade, influenced by various factors, including shifts back to urban centers. This rent increase is sparking wide-ranging effects, from putting financial pressure on individuals to compelling governments and businesses to rethink their approaches to housing and urban development. The ongoing trend suggests a future where high rents continue to challenge societal norms, prompting innovative solutions to ensure housing remains accessible and affordable.

Rise of renting context

According to real estate firm Knight Frank's Prime Global Rental Index, rental costs have surged by 7.5 percent in the first half of 2023, outpacing the pre-COVID-19 pandemic annual growth average observed from 2010 to 2020. This increase is attributed to a return to urban areas post-lockdown, central bank rate hikes making home buying less affordable, and supply chain disruptions slowing down new property constructions. Notably, cities like New York, Singapore, and London have led the charge in rental growth recovery, witnessing astronomical increases since the first quarter of 2021.

The implications of rising rents extend beyond the immediate financial pressures on tenants to broader economic and social ramifications. For example, housing affordability is becoming a critical issue in major capitals, climbing the global political agenda. This scenario is compounded by a lack of inventory, particularly affordable rental options, and the challenge of balancing supply and demand in a post-pandemic world. The situation is particularly acute in New York, where despite a slowdown in rent increases due to affordability constraints, the shortage of available properties persists, underlining the complexity of the housing market dynamics.

Looking ahead, the trajectory of rental market trends suggests a continuation of high rents, driven by the ongoing challenges in increasing housing supply. The Knight Frank report hints at a sustained demand for rentals despite slight moderations in growth rates in specific locales. This enduring high-rent environment poses significant challenges for tenants, landlords, and policymakers, requiring innovative solutions to address housing affordability and availability on a global scale.

Disruptive impact

The continuous rise in rental prices globally means adjusting household budgets to accommodate higher living expenses, potentially leading to a greater share of income allocated to housing costs. This trend can result in decreased savings and less disposable income for other necessities or leisure activities, affecting overall quality of life. Additionally, the high cost of renting may push individuals to reconsider their living situations, such as moving to less expensive areas or opting for shared housing arrangements to mitigate costs. In the long term, these adjustments could lead to significant demographic shifts, with populations migrating from high-cost urban centers to more affordable regions, impacting local communities and economies.

Businesses, particularly those operating in urban centers with high rental costs, may need to rethink their operational strategies and workforce management. The increasing cost of commercial rents can lead to higher operational expenses, potentially increasing prices for goods and services. Furthermore, businesses may face challenges in attracting and retaining employees burdened by high living costs, requiring adopting remote work policies or providing housing allowances as part of compensation packages. Over time, companies might consider relocating to regions with lower rent levels or investing in virtual office solutions to maintain competitiveness and ensure sustainability.

Governments will need to address the implications of rising rental prices through policy-making and urban planning initiatives to ensure housing affordability and stability in the rental market. These measures may involve implementing rent control measures, offering subsidies to low-income renters, or encouraging affordable housing development through incentives for builders. In addition, governments could collaborate to share best practices and develop strategies to manage the global trend of increasing rents globally.

Implications of the rise of renting

Wider implications of the rise of renting may include:

The shift toward more flexible work environments, encouraging companies to adopt remote or hybrid work policies to accommodate employees facing high rent costs.

An increase in the development of co-living spaces, offering more affordable housing options and fostering community among residents.

Urban planning focusing on denser, mixed-use developments to efficiently use space in high-demand areas, reducing commute times and improving quality of life.

A rise in demand for rental insurance products, as tenants seek to protect their possessions in more transient living situations.

Governments introducing more stringent regulations on short-term rentals to preserve housing stock for long-term residents and maintain community stability.

Enhanced investment in public transportation systems as cities expand outward, accommodating residents who seek affordable rents in suburban areas.

A surge in the popularity of rent-to-own housing schemes, providing a pathway to homeownership for those challenged by rising property prices.

Increased political mobilization around housing rights and affordability, leading to stronger tenant protection laws and advocacy for housing as a fundamental right.

The labor market experiencing greater mobility, as individuals have the flexibility to relocate more easily in pursuit of job opportunities without the commitment of homeownership.

A boost in the development of smart home technology tailored for renters, offering portable and non-invasive solutions that enhance the rental living experience.