One early and frequent prediction early in the pandemic was that big cities, such as New York and London, would become more affordable. For a little while, that did bear out. As the cities cleared out and people opted to move from London to Dartford and from New York to the Hudson Valley, there were quite a few empty apartments on the market. Renters were able to secure better prices for apartments. And because of the rise of working from home, and eventually the new normal of hybrid work schedules, experts predicted that this trend would continue. Workers would be able to spread further out from city centres to save money, which would keep prices from going too high.
These experts could not have been more wrong. While housing costs did fall for a while, they have shot back up with a vengeance. In Inner London, for example, prices are 6-8 per cent higher. This trend has also been seen in New York, Dublin, Sydney, and Miami (where rents have skyrocketed by much higher margins). How did this happen? The experts were not wrong about the work-from-home trend; more people are working from home than before the pandemic, at least double in most countries, and many more have a hybrid work schedule. In London, retailers and restaurants are seeing foot traffic at about 80 per cent of pre-pandemic levels. But rents are still rising because people did not flee expensive centres as expected. Some people did move, but more people decided to stick around and take advantage of city centres, even if they did not have to go to the office every day.
Not just the big ones
Yet this still does not explain why rents are rising throughout the UK and the US, even outside of big capital cities. Phoenix and Brighton are both witnessing record rent hikes. The key is demand. In general, after lockdowns, people decided they did not want to live so crammed together. Instead of living with roommates, far more people are living alone, which greatly stretches the housing supply. The idea of a lockdown in the future is bad enough without the added difficulties of having adult roommates. This increase in demand would not be an issue were it not for a decreased supply. Not only are more people wishing to live alone, but people are renting for longer because buying has become even more expensive for most. According to rental site Zoopla, there are 50% fewer homes available for rent in London and 30% fewer in the rest of the country.
It is hard to predict when rents will stabilise. Renters already spend more of their income on housing than homeowners. Given rising energy costs, they may have less wiggle room to accept increased rent costs than their peers. This may mean that people will start sharing flats and houses with other adults in the near future. It has already increased homelessness rates in many countries. This lack of supply of affordable housing in many countries can be traced back to the Great Recession. The residential construction sector became decidedly more conservative for years, and this has stretched the housing supply. Unless governments directly address this problem, it seems that the private sector, and therefore supply, will continue to lag behind.