Rents

Rents

Rents keep rising in most cities despite bubbly real estate prices.

This trend could continue as an entire generation has been resigned to renting, where owning their home for most young people today is a distant dream. Renting has become so normalized for young adults aged between 18 to 40 that there is even a term for it, generation rent, where most young people are priced out of the real estate market.

Residential rents could be the new bond yield for conservative investors, pension funds, and those seeking inflation hedges and a relatively low-risk investment

However, there is a political risk for investors seeking rent as an income.

Frankly, the fact that an entire young generation will probably be renting all their life is one of the many signs of a failing system morphing into neo-serfdom. I envisage politics shifting biased towards tenants as more of the voting public become renters, electing political parties to power that pledge pro-tenant laws and pro-tenant regulations, thereby pricing out the small private landlords. A collectivisation of residential real estate could then play out, with a handful of mega landlords privileged access to cheap credit and close affiliations with the government owning it all.

To some extent, this is already happening. In the UK, stamp duty increases on buy-to-rent, and in Spain and the UK, the new one-year rent contract automatically becomes five years, where rental increases can only go up with the CPI (inflation according to government statistics and we all know what that means).

Property rents on a rent contract have become like a five-year inflation-linked sovereign bond, more so if the investor takes out a tenant’s default insurance

The added advantage of residential real estate as an investment is that when the five-year rental contract expires, the investor receives a tangible asset, land and building, which is better than a bundle of rapidly debased fiat currency when a bond matures. 

But nothing in life is risk-free, and investing in residential properties for rental income has political risks.  

Rents are soaring in key bubble markets. 

Key Takeaways

• Real rents in Dubai have shot up 60% since 2020, while real home prices have increased 40% amid high demand.
• Surging rents in Madrid have led to thousands of protesters taking the streets as real rental costs have risen nearly triple the rate of real home prices in the last year.
• By contrast, real rents have declined the most in Singapore amid government efforts to cool foreign demand in the property market.

Across real estate bubble cities, average rents have increased 5% since mid-2022 in real terms, while inflation-adjusted home prices have dropped 15%.

Bubble cities in North America saw the vast majority of declines in average rents. Leading these decreases were Los Angeles (-4.0%), Toronto (-2.8%), and Miami (-2.8%), which rank among the top five bubble-risk cities in 2024.