The pandemic fundamentally warped the housing market, but recovery from the COVID years is proving to have just as strong an effect, especially on rental prices.
With some cities starting to fill up again for the first time in years, rents are starting to rise fast, according to a new survey by British real estate company Savills, and many of the most explosive housing markets in the world are located in the U.S.
In the early days of the pandemic, office buildings stood empty, and once it became clear that working from home was no passing trend, people began filing out of the big cities en masse.
That trend is now reversing.
With many employers still asking staff to return to the office at least some of the time, and many people still eager to move to the big city, urban housing markets are readjusting, and rental prices are soaring.
Four of the 10 cities in Savills’s survey with the steepest rent price surges are located in the U.S., and are some of the most expensive rental markets in the world.
Sky-high rents
During the pandemic, city dwellers were suddenly prioritizing yards, outdoor activities, and big enough indoor spaces so that the home office and the kitchen did not have to share the same room.
This led many in the U.S. to move to suburban areas, but rising rental prices in urban cores around the world suggest that people are starting to flock back.
Four U.S. cities—New York, Miami, Los Angeles, and San Francisco—round out Savills’s list of the cities with the fastest rate of rent hikes this year.
Rental prices in New York are rising at the fastest rate in the world, matched only by Singapore, with rents in those two cities having gone up 8.5% over the past six months.
New York, Miami, and Los Angeles are three of the only seven cities where rents have gone up over five percent.
Savills attributed the rising prices to “pent-up demand” during the pandemic combined with a return of international travel in 2022 and reopened borders in most parts of the world.
Some pandemic-era habits appear to have stuck around, however, as renters are generally still willing to pay more for a nicer property to accommodate remote working schedules.
Rental prices in New York City have been hitting record highs in recent months. The median price for a one-bedroom apartment in New York is now nearly triple what it was before the pandemic, and given that N.Y.C. landlords require applicants for a rental property to demonstrate an annual salary of at least 40 times the monthly rent, renters looking to live on their own salaries need to be earning a minimum of $160,000 a year.
While part of the reason behind the rise in rents has been pent-up demand, low inventory is also a driving factor, according to Savills’s report.
“New York reached the highest rents on record, driven by tight inventory and demand for larger spaces, for which renters are willing to pay a premium,” Savills said, adding that low inventory in cities—especially for the larger homes most renters are looking for—will likely continue to be a driving factor behind high rental prices for the foreseeable future.
A post-pandemic shift
Not every city in the world is seeing rental prices surge, and some in fact are even seeing declines. The return of international travel has been a boon to cities’ rental markets, Savills said, and in places where strict travel restrictions are still in place, prices have either remained stable or fallen.
Hong Kong, which before the pandemic was considered one of the most expensive and fastest-growing rental markets in the world, saw the biggest price decline this year among the cities analyzed by Savills, largely because of ongoing travel restrictions in the city.
Hong Kong’s notoriously strict travel bans and intense quarantine requirements are in part fueling one of the biggest population declines in the city’s history, and with few new people coming in, Savills says this has affected the city’s once-booming rental market.
Many of Hong Kong’s fleeing citizens have opted to move to Singapore instead, a factor Savills says has played an important role in the latter city’s rising rent prices.
