Housing shortages across the rich world

"An entire generation of tenants is tearing its hair out"

How to survive the big squeeze. Last week’s Economist has an article from a correspondent in Sweden, talking about how in the wake of Covid, renters across the rich world are suffering from housing shortages.

An entire generation of tenants is tearing its hair out. Across the rich world—from America to New Zealand—millions spend more than a third of their disposable income on rent. The squeeze extends from social democracies that prize strong tenancy rights to Anglophone countries that prefer homeownership—and it is mostly getting worse. The good news for anxious renters is that they are gaining a louder voice as their numbers swell. The bad news is that campaigners and politicians mostly focus on the wrong kinds of solutions to their woes.

Rents have risen particularly sharply in the past three years, fuelled by workers returning to cities after the pandemic and by wages rising even as the supply of properties remains constrained. High interest rates have crimped already inadequate levels of building. Housing starts in Sweden were down by 50% in the first quarter of 2023. And lending rules remain tight.

Some tenants complain about insecurity and grotty conditions. But the biggest problem, particularly for those on low incomes, is affordability. The definition of “unaffordable” is open to debate, but the OECD and others commonly focus on housing that accounts for more than 30% of gross income or, alternatively, 40% of disposable income (ie, income after tax and social-security charges). In 2022 almost half of American households in the private-rental sector were being charged more than 30% of gross income, according to the Joint Centre for Housing Studies at Harvard University in America. That was the highest level on record—and up by 2m in three years. Across the rich world, rents at 40% or more of disposable income are common (see chart 2). And those data miss large black markets—where sublets do not comply with regulations—in countries such as Sweden and Germany.

The article spends most of its time talking about how rent control isn’t going to work, but it does conclude by saying that Auckland’s 2016 upzoning is a good model to follow.

Rent controls are most damaging when supply is constrained and demand is high, squeezing those searching for somewhere to live.

One city provides a good model for helping renters. Frustratingly, its lessons are being ignored. In 2016 Auckland in New Zealand, which had some of the least affordable housing in the world, passed a law allowing more dense development on three-quarters of residential land. Lawmakers particularly wanted to encourage more apartments within walking distance of the city centre, public transport or commercial areas.

A housing boom followed—adding 44,000 homes in seven years, equivalent to around 8% of current stock. A new study by Ryan Greenaway-McGrevy of the University of Auckland estimates that the extra homes have held rents almost 30% below where they otherwise would have been.

All around the world, the only way renters will get a better deal is for cities to enable more building.

More

• Fix Europe’s housing crisis or risk fuelling the far-right, UN expert warns. Jon Henley, Guardian, May 2024. Quotes Balakrishnan Rajagopal, UN special rapporteur on housing: “The housing crisis is no longer affecting just low earners, migrants, single-parent families, but the middle classes. This is the social issue of the 21st century.”

• Remote work is boosting housing demand and driving inflation. Matthew Yglesias, Slow Boring, May 2022. “The problem here is that if you’re a working-class renter, remote work hasn’t improved your life at all, but the surge in housing demand is raising your cost of living.”

• Is the global housing slump over? The Economist, June 2023. Rapid hikes in interest rates made mortgages more expensive and brought down home prices, but by June 2023 they had started rising again. “Research published by the Bank of England suggests that shifts in people’s wants—such as the desire for a home office, or a house rather than a flat—explained half of the growth in British house prices during the pandemic. In many countries, including Australia, the average household size has shrunk, suggesting that people are less willing to house-share.”

• Previous posts: People want more space, housing scarcity spilled over when Covid hit, Auckland’s 2016 upzoning worked, the US homebuilding boom