Want to live in London or New York? Good luck if you’re renting

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London (CNN) — In May, Viveca Chow hurriedly transferred $3,700 over her phone while standing in the lobby of a building in Queens, New York. She made the upfront payment to secure an apartment minutes after seeing it.

It was a moment the 28-year-old lifestyle influencer — forced to leave her previous accommodation after the landlord increased her monthly rent by $1,000 — described to CNN as “dystopian.”

Yet it is something that Chow, along with millions of renters in big cities, has come to expect as part of the fight for affordable housing. Her realtor urged her to pay the holding deposit on the spot to secure the one-bedroom unit.

In many urban centers, an influx of workers and students after the pandemic has collided with a lack of accommodation for rent, high levels of inflation, and rising interest rates that are trapping some people in the rental market when they would otherwise be buying a home.

Average rents in New York and Sydney grew by an inflation-busting 4.7% and 6.9% respectively in the year to August, according to real estate firm Knight Frank. While growth in rental costs in both cities has slowed compared with its pandemic peaks, average rents are still at all-time highs.

In other places, rents are rising even faster. In London, the average annual rise in the cost of a rental property exceeded 17% in April and again last month, the biggest jumps since real estate agency Hamptons started collecting the data in 2014.

That runaway growth far exceeds both inflation and pay raises in the United Kingdom.

Many are struggling to meet the costs.

According to property website Realtor.com, affordability in the New York metropolitan area deteriorated the most out of the 50 largest US metro areas in the year to July. The share of median household income in the New York area eaten up by the median rent rose from 35% to 37% in that time.

Based on one approach, housing costs are judged affordable if they account for no more than 30% of the typical household income, Realtor.com said. This is also the benchmark used by the UK Office for National Statistics when assessing private rents.

‘Entirely unaffordable’

In London, the destination for many UK college students looking for work after graduating, renting has become “entirely unaffordable” for that cohort, said SpareRoom, the UK’s biggest room search site, in a recent analysis.

The platform used the ONS’s measure of affordability in its study and the average graduate starting salary of £29,000 ($36,000) a year. According to SpareRoom’s latest Quarterly Rental Index, average monthly room rent reached £971 ($1,190) in the second quarter, up by almost a fifth compared with the same period in 2022.

Barnaby Scudds is feeling the pain. The public relations executive moved to London in March after graduating last year and now pays £975 ($1,195) a month to rent a room, which gobbles up more than half of his monthly paycheck.

“I’m paid well for the work that I do, and yet it’s still difficult,” he told CNN.

Even at those prices, rooms get snapped up fast.

“It is very difficult because properties come on at about six o’clock in the morning generally, and they are normally gone by six o’clock in the evening,” he said.

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

Beyond problems afflicting most global cities, such as a proliferation of short-term rentals offered through platforms like Airbnb, the shortage of places for long-term rent in London is exacerbated by local factors.

Since 2016, the UK government has increased taxes on purchases of second homes and cut the amount of tax landlords can claim back. Put simply, being a landlord in the UK isn’t as lucrative as it used to be.

“[It] is a much more tight-margin experience than it was six, seven years ago. And a lot of people are just selling up and leaving the market,” Hutchinson said, adding that rising interest rates, as well as higher costs for labor and materials, had discouraged many from investing in rental properties.

In a recent note about rental markets in 10 cities worldwide, Liam Bailey, global head of research at Knight Frank, concluded: “Affordability of housing is set to become the leading political issue within the next 12 months.”

Rent caps ‘a bad idea’

London’s mayor, Sadiq Khan, last month reiterated his call for rent control, urging the UK government to impose a two-year rent freeze for the capital’s 2.7 million private tenants. It is a version of a policy proposed by politicians and campaigners over the years as a way out of the affordability crisis.

But rental caps, while instinctively appealing, are generally “a bad idea,” Nikodem Szumilo, director of the Bartlett Real Estate Institute at University College London, told CNN.

“It benefits people who live in the rent control unit and maybe the politicians who impose the policy, but nobody else,” Szumilo said, noting that rental caps discouraged home builders from investing in new units, which in turn limited supply growth in places where demand might be rising.

A better way, Szumilo argues, is to simply make it easier to build more homes. Tokyo, the world’s most populous city, housing more than 37 million people, has a “very deregulated market” where rents are “relatively stable,” he said.

Policies that help people become homeowners — for example, offering subsidies on down payments or on mortgages for first-time buyers, as the UK government has done — are also effective, Szumilo said, because they help ease demand in the rental market.

Still, Chow in New York is grateful for rent control.

She and her partner live in one of the city’s coveted rent-stabilized units, which means the $3,700 they pay each month can’t increase by more than 3.75% if they renew the lease for another year. That’s below the 4.7% annual increase in rental costs in the city recorded by Knight Frank at the start of August.

That “doesn’t necessarily mean it’s cheap,” Chow said, but the cap provides a welcome safety net after the instabilities — and indignities — of her last place.

“We didn’t even have a kitchen, a proper kitchen. It was like a kitchen nailed to the wall. So I was like, you’re not raising $1,000 on me!”

This story was first published on CNN.com, "Want to live in London or New York? Good luck if you’re renting"