Renting in London or New York? Brace Yourself for Tough Times!

Viveca Chow, a 28-year-old lifestyle influencer, hastily transferred $3,700 via her phone in May. Standing in the lobby of a building in Queens, New York, she made the upfront payment to secure an apartment merely minutes after viewing it. This sudden move was prompted by her previous landlord raising her monthly rent by $1,000, a situation she described to CNN as "dystopian."

However, this has become a common expectation for Chow and countless other renters in major cities who are struggling to find affordable housing. Urged by her realtor, Chow was advised to promptly pay the holding deposit in order to secure the one-bedroom unit. The situation is similar in numerous urban areas, where a surge of workers and students following the pandemic has exacerbated the shortage of available rental properties. Coupled with soaring inflation and increasing interest rates, this predicament has trapped individuals in the rental market when they would otherwise be pursuing homeownership.

Average rents in New York and Sydney experienced a substantial surge of 4.7% and 6.9% respectively in the year leading up to August, surpassing inflation rates, as reported by real estate firm Knight Frank. Although the pace of rental cost growth in these cities has decelerated from its peak during the pandemic, average rents continue to reach unprecedented levels.

The Manhattan skyline reflected on the East River Ferry near the Queens borough of New York CIty in August 2022.

Ismail Ferdous/Bloomberg/Getty Images

Rents in other locations are increasing at an even more rapid rate. In London, the average annual increase in rental property costs surpassed 17% in April and once again last month, marking the largest leaps since real estate agency Hamptons began gathering data in 2014. This exponential growth significantly surpasses both inflation and wage increases in the United Kingdom.

A significant number of individuals are facing difficulties in managing their expenses.

The New York metropolitan area witnessed a decline in affordability, compared to the 50 largest US metro areas, according to Realtor.com. In the year leading up to July, the proportion of median rent cost in relation to median household income increased from 35% to 37% in the New York area.

Entirely unaffordable

According to a recent analysis by SpareRoom, the largest room search site in the UK, renting in London has become "completely unaffordable" for many college students in the country who are seeking work after graduating. SpareRoom utilized the ONS's affordability measure and the average starting salary of £29,000 ($36,000) per year for graduates in its study. The latest Quarterly Rental Index from SpareRoom reveals that the average monthly room rent in the second quarter increased by nearly 20% compared to the same period in 2022, reaching £971 ($1,190).

Barnaby Scudds is experiencing significant discomfort. After graduating last year, the public relations executive relocated to London in March. Presently, he is paying £975 ($1,195) each month to rent a room, consuming over 50% of his monthly salary. Despite being fairly compensated for his job, Scudds expressed his ongoing struggles.

Rooms are quickly taken, despite their high prices.

"It's quite challenging because the properties usually become available around six o'clock in the morning and are typically gone by six o'clock in the evening," he explained.

A property for rent in London, seen in August.

Andy Raim/EPA-EFE/Shutterstock

Matt Hutchinson, communications director at SpareRoom, told CNN that the UKs chronic lack of supply of rental properties was to blame.

In addition to common issues faced by global cities, such as the rise of short-term rentals on platforms like Airbnb, London is experiencing a worsened shortage of long-term rental spaces due to local factors. Over the years, the UK government has implemented higher taxes on second home purchases and reduced the amount of tax relief available for landlords. This has significantly diminished the profitability of being a landlord in the UK.

According to Hutchinson, the rental market has become more challenging compared to six or seven years ago. As a result, many individuals are choosing to sell their properties and exit the market. Factors such as increasing interest rates and rising costs for labor and materials have discouraged potential investors from investing in rental properties.

In a recent report analyzing rental markets in 10 cities globally, Liam Bailey, Knight Frank's global head of research, stated that the affordability of housing is predicted to emerge as the primary political concern in the next 12 months.

Rent caps a bad idea

Sadiq Khan, the mayor of London, made a renewed push last month for the implementation of rent control measures. He called on the UK government to enforce a two-year freeze on rent prices for the city's 2.7 million private tenants. This policy has been suggested by politicians and activists over the years as a potential solution to address the issue of housing affordability.

Rental caps may seem like a good idea at first, but they are usually "a bad idea," according to Nikodem Szumilo, director of the Bartlett Real Estate Institute at University College London. Szumilo explains that while rental caps may benefit those living in rent-controlled units and the politicians who implement these policies, they are detrimental to everyone else. He points out that rental caps discourage home builders from investing in new units, leading to limited supply growth in areas where demand is increasing.

According to Szumilo, a more effective approach is to streamline the process of constructing additional housing units. Tokyo, the city with the highest population in the world, accommodating over 37 million individuals, maintains a "highly deregulated market" resulting in "reasonably consistent" rental rates.

Lifestyle influencer Viveca Chow feels lucky to have found a rent-stabilized apartment in New York City.

Courtesy Viveca Chow

Rent control is something Chow in New York is grateful for, despite the effectiveness of policies that assist people in becoming homeowners, such as subsidies on down payments or mortgages for first-time buyers, as seen with the UK government's initiatives.

Living in one of the sought-after rent-stabilized units in the city, she and her partner pay $3,700 per month. Renewing their lease for another year ensures that their rent cannot increase by more than 3.75%, which is lower than the recorded 4.7% annual increase in rental costs in the city by Knight Frank in early August. According to Chow, this does not necessarily imply affordability, but the rent cap offers a reassuring safety net compared to the uncertainties and unpleasant experiences they faced in their previous residence.

"We didnt even have a kitchen, a proper kitchen. It was like a kitchen nailed to the wall. So I was like, youre not raising $1,000 on me!"