These days, not even the sky's the limit for these through-the-roof prices of almost anything one wishes to buy. From daily groceries to estate prices, inflation has affected everything pretty equally. To be perfectly candid, it is devastating the livelihood of the common man in the broader picture of the economy.
Speaking about estate prices, another entity whose prices have sky-rocketed are rent prices. Major cities all over the world such as Mumbai, New Delhi, Bangalore in India, and global cities like New York City (NYC), Singapore have observed soaring rent prices in recent months.
Source:- https://www.bloomberg.com/opinion/articles/2023-05-05/stabilized-rents-are-going-down-in-new-york-city-really
What is to blame? Inflation, yes. Inflation has driven up the cost of living, and it's becoming increasingly challenging for residents to find affordable housing. It forces people to spend a large portion of their income only for accommodation purposes. Is that it? No, there’s more to it. Let’s dwell on it for a while!
There are a plethora of reasons that have caused this implausible problem. Some of the root causes & potential solutions of this are:
1. Effects of Inflation: Although we discussed this earlier, let’s look at it in detail. Technically, inflation or deflation is measured in terms of Consumer Price Index, or CPI. Inflation can be most lucidly explained as the increase in price of everyday objects.
For example, if you could buy a kilo of potatoes for say Rs. 60/- back in the day, and now for the same amount, you can buy only half a kilo. That is inflation. Basically, the reason people deem life to be unfair. I’m just kidding. But it is indeed a serious problem. In 2022, the inflation rate was around 6.67 percent in comparison to previous year. As of July 2023, the housing category accounted for 34.7% by weight in the annual CPI of the USA.
Source:- https://toppersnotes.co/current-affairs/blog/with-inflation-set-to-remain-above-5-rate-cut-unlikely-this-fiscal-yhXu
2. Supply-Demand Disproportion and Accommodation Shortages: Many prime metropolitan cities such as Bombay, New Delhi and Singapore struggle with the supply-demand disproportion in their housing markets. The aspect at fault here is that despite increased demand for housing, the supply of affordable units hasn't kept pace. Hence, now we have a high demand and low supply, which directly implies a superior competition, pushing rents further higher.
3. Gentrification: First impression? Damn, that’s a big word! No need to hyperventilate, here it is – gentrification is the process of changing or improving the characteristics of a neighborhood by introducing more affluent residences and businesses. It aids in escalating the economic value, but the change in demographic dislocation might result in another derived issue of the same.
Gentrification may result in positive as well as negative consequences. On the one hand, it might result in more money being invested in a community, raising the standard of living for locals. Additionally, it may draw in new companies and employment opportunities, strengthening the local economy.
On the other hand, it has the potential to oust long-standing inhabitants and businesses, harming the social fabric of neighborhoods. Furthermore, higher taxes on homes and rentals may arise, making it more challenging for those with limited incomes to maintain a home in the region.
4. Financial Issues with Evictions: The rising rents are linked to a startling increase in evictions and housing insecurity. From a radical standpoint, individuals and families who cannot keep up with rent payments face the risk of eviction. This results in a repetitive cycle of instability, financial strain, and potential homelessness. Factors contributing to evictions are:
a) Delayed or Non-Payment of Rent: One of the most common reasons for eviction is non-payment of rent. The underlying factor is, once again, inflation. Often, this type of eviction can take an ugly turn, causing filing of lawsuits as well.
b)Breach of Lease: Damage to the property, having unauthorized guests or subletting without the written or verbal consent of the owner can imply this kind of action.
c)Illegal Activity/Foreclosure: Both reasons are well known for their own notorious reasons. Illegal activity is certainly no exception to eviction, and in case of foreclosure, the sale of the property to the new owner might result in the tenant eviction.
5. Government Policies: Government policies play a significant role in addressing the rent fiasco. In some cases, policies may inadvertently support increasing rents, while on the contrary, some of them can help to stabilize the housing market. The answer is moderation. Local governments must strike a balance between protecting tenants and ensuring landlords can cover their expenses. Some of the policies include:
a. Rent Control: Rent control is a government regulation that exercises how much rent can be charged for a particular rental unit. This can help to keep rents affordable for tenants, but it can also make it less lucrative for landlords to build new housing.
b. Homelessness Policies: Homelessness policies can also contribute to rising rents. For example, if the government provides housing vouchers to help people afford rent, this can drive up demand for housing, which may lead to higher rents.
c. Stringent zoning restrictions: By making it simpler to develop new homes by implementing a new section of land zoning policies or at the very least reforming zoning restrictions, can assist in the increase of supply of housing with lower rents.
Now the question is, what can be done? The first thing that can be done is proper implementation and revisitation of the aforementioned governmental policies. In order to address the housing crisis, many cities should try investing in affordable housing initiatives. These programs can aim to increase the supply of affordable housing units, often through subsidies or partnerships with developers.
While these initiatives are a step in the right direction, they require sustained funding and long-term planning. Next, the legal aspect. As a result of the rental issue, tenant advocacy organizations are being developed these days, promoting more tenant protections and regulations.
These groups offer support in navigating landlords and legal concerns as well as education about tenants' rights. No one should have to survive being homeless, should they?
Inflation, supply-demand imbalances, gentrification, and government policies all constitute the aspects that have an impact on the rent crisis in major cities. Stakeholders need to understand the modern complexities involved in order to handle this situation in its entirety.
While initiatives for affordable housing and rent control are necessary, their implementation must be considered in order to achieve a balance between tenant safety and long-term viability for property owners. Additionally, adopting technology and solutions based on data can help with more efficient property management and possibly lessen the burden on tenants.
In order to ensure that housing is affordable for everyone, the rent problem in big cities must be addressed holistically, incorporating economic knowledge, governmental policy modifications, and novel approaches.
Article by:- Shashank Japatti
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