Rising rents pose growing challenge for renters across the developed world

Rental markets in advanced economies have undergone a dramatic transformation in recent years, according to The Economist. Before the COVID-19 pandemic, rent prices were rising slowly, at a rate of about 2% annually.

However, following the pandemic, rental inflation has surged, with rents increasing by approximately 5% annually, marking the fastest sustained rise in decades. This rapid inflation is placing significant strain on renters, particularly in wealthier nations.

In countries like France, Australia, and Portugal, rental prices have risen sharply since the pandemic. In some areas, rental inflation has far outpaced previous rates. For example, Australian rents have increased eightfold compared to the late 2010s. Even in New Zealand, where home prices have dropped significantly, rents have climbed by 14%. Central banks are struggling to control this rise, as rent prices directly impact inflation indices, contributing significantly to overall inflation.

For many renters, particularly low-income households, these rising rents represent an overwhelming financial burden. The Federal Reserve's 2023 report highlighted that median monthly rent payments rose by 10%, pushing more people towards homelessness. In Canada and the U.S., the homeless population has increased by up to 40% since 2018. While homeowners have largely remained insulated from this crisis due to fixed-rate mortgages, renters are facing higher costs and limited financial relief, contributing to a growing sense of injustice and frustration.

A key factor driving these rising rents is the impact of high-interest rates, particularly in the U.S., where mortgage rates have nearly doubled since 2020. With higher mortgage costs pricing many out of homeownership, more people are forced to rent, increasing demand in an already constrained market. At the same time, landlords with variable-rate mortgages are passing on these higher costs to tenants, further driving up rents.

In addition to these economic factors, increased migration has added pressure to rental markets. New arrivals, who often lack the financial means to purchase homes, are contributing to the demand for rental properties. This has been especially noticeable in countries like Britain and Australia, where migrants are more likely to rent than native-born citizens.

Though rental inflation may be nearing its peak, with construction activity recovering and migration slowing, it remains uncertain whether rents will decrease enough to alleviate pressure on renters. The Economist concludes that many tenants in rich countries will continue to face challenges, with potential political consequences ahead.

By Vugar Khalilov