Global Rent Prices Soar as Housing Shortage Persists

Knight Frank, a global real estate consulting firm, has recently reported that the rents in the global luxury housing markets are seeing significant growth.

Knight Frank, a global real estate consulting firm, has recently reported that the rents in the global luxury housing markets are seeing significant growth. From March 2022 to March 2023, Knight Frank Prime's global rental index rose 8.5%, indicating that most of the markets Knight Frank tracks have set new records for rent growth. Though the first quarter of 2023 has seen slow growth compared to Q4 of 2022, global rent growth is still at an impressive pace as economies continue to recover from the pandemic.

Out of all the markets tracked by Knight Frank, Singapore is currently the leader in rent growth with a staggering 31.5% increase over the past 12 months. In Q1 2023 alone, house rents in Singapore grew by 6.4%. London ranked second with almost 17% growth from March 2022 to March 2023. Other high-ranking markets, such as Sydney, Toronto, and New York, had double-digit rental growth. Auckland and Hong Kong were the only two markets that experienced negative rent growth over the past 12 months, but their rents increased during the first three months of this year.

Since the beginning of the Covid-19 pandemic, rents in major markets have surged due to limited housing supplies from construction disruptions during the pandemic and increased demand for sales. Additionally, the mass return of workers to major cities for work has also affected the housing market. Knight Frank data shows that rents in Singapore have increased across all market segments, driven mainly by the return of foreign workers to the country post-pandemic. The rising cost of buying properties, with successive tax hikes (up to 60% for some foreign buyers), has left many people dependent on rental properties.

At the same time, housing rents have surged in markets such as Sydney, New York, and London, due to the chronic shortage of existing rental properties and new housing constructions falling short in supply. New York's main market has seen record rents in Manhattan and Brooklyn. However, the busiest rental season is yet to come, leaving tenants facing limited options and higher costs as the market becomes more competitive.

The rapid growth in housing rents across many markets increases the likelihood of governments needing to implement protective policies to shelter from the rise in costs. Nonetheless, arguments against the need for rent-caps suggest that they disrupt the market and weaken the incentive to invest in new construction, ultimately making the situation worse.

Many countries worldwide have shown a growing interest in investing in the rental housing construction sector as a solution to reduce rents. Knight Frank predicts that this segment will become the largest investable real estate market in the world within the next ten years. "Despite slowing growth, rents are hitting new record highs as workers return to major cities. Housing construction volume remains low due to lack of raw materials and high construction costs; rents are expected to continue to rise. The key question for investors is how the government will react to prices. Rents continue to rise," says Liam Bailey, global head of research at Knight Frank.

Knight Frank's data suggests that the housing market is currently seeing tremendous growth, with global luxury housing markets experiencing significant rent growth. Singapore is the leading market with record-breaking growth, followed closely by London, Sydney, Toronto, and New York also experiencing double-digit rental growth. The shortage of supply in the market is driving up prices, and the return of workers to major cities has added extra pressure. Going forward, the government's reaction to rent prices will likely be crucial, with many countries looking to invest in the rental housing construction sector as a long-term solution for reduced rent costs.