Property News

London has the 9th Least Affordable Rental Market Among the World’s Best Cities

Em Morley - June 26, 2017

Being a tenant is becoming increasingly common, but in which cities of the world are renters’ needs most catered for? Well it turns out that it’s not London, which has the ninth least affordable rental market among the world’s top cities of opportunity…

A great city must present a good deal of opportunities to its residents, which means that it shouldn’t hurt to live there.

Apartment search platform RENTCafé has already analysed rent prices in the top global financial centres, but it is now looking at the world in a wider angle – not just restricted to cities with outstanding activity in the financial sector. It’s also bringing the affordability of local rents into the equation.

In its latest Cities of Opportunity report, global professional services firm PwC shortlisted the world’s best cities to work and live in. Its top-30 ranking is the result of an in-depth analysis of the most prosperous global business, finance and culture capitals, which looks at ten different indicators – including, but not limited to: infrastructure, intellectual capital, sustainability and ease of doing business. All of these factors are essential for a great environment.

With this list in its hands, RENTCafé found out how much money people earn in these cities and whether these salaries are high enough to afford a rental property.

Firstly, let’s look at PwC’s best Cities of Opportunity:

  1. London, Great Britain
  2. Singapore, Singapore
  3. Toronto, Canada
  4. Paris, France
  5. Amsterdam, Netherlands
  6. Manhattan (New York City), USA
  7. Stockholm, Sweden
  8. San Francisco, USA
  9. Hong Kong, Hong Kong
  10. Sydney, Australia
  11. Seoul, South Korea
  12. Berlin, Germany
  13. Chicago, USA
  14. Los Angeles, USA
  15. Tokyo, Japan
  16. Madrid, Spain
  17. Dubai, UAE
  18. Milan, Italy
  19. Beijing, China
  20. Kuala Lumpur, Malaysia
  21. Shanghai, China
  22. Moscow, Russia
  23. Mexico City, Mexico
  24. Johannesburg, South Africa
  25. São Paulo, Brazil
  26. Bogotá, Colombia
  27. Rio de Janeiro, Brazil
  28. Jakarta, Indonesia
  29. Mumbai, India
  30. Lagos, Nigeria

RENTCafé then checked out the average rents in these markets, as well as their median incomes, and calculated the rent-to-income ratios.

Traditionally, housing costs exceeding 30% of a household’s income are viewed as a red flag, so this became RENTCafé’s first threshold. Thus, it considered the cities where the average rent was 30% or less of the local median household income to be burden-free.

It then divided the remainder of the list into two – moderately (31-50% rent-to-income) and severely (51%+) rent-burdened cities.

Here’s how the PwC list swapped around when these rent-to-income ratios were applied:

London has the 9th Least Affordable Rental Market Among the World's Best Cities

London has the 9th Least Affordable Rental Market Among the World’s Best Cities

The twist on the data puts these cities into a completely different perspective.

Granted, London sliding back 21 places when ranked by rental affordability was unsurprising, but what’s more shocking is that seven of the top ten most affordable Cities of Opportunity came straight from the lower third of the initial ranking.

Kuala Lumpur, Moscow and Johannesburg were named the most affordable Cities of Opportunity.

The trio launched from 20th, 22nd and 24th places in the original ranking, respectively. Still, the two South American markets of the 4th and 5th places – Bogotá and Rio de Janeiro – have moved the farthest from their original positions – 22 places, up from 26th and 27th respectively.

RENTCafé believes that great cities must obviously come with price tags to match – but paying the rent in these Cities of Opportunity isn’t always so painful…

In 13 of these cities, the rent-to-income ratio is comfortably below the 30% threshold. And although Tokyo, Hong Kong and Madrid technically fall into the moderately rent-burdened category, people in these cities still spend less than a third of their income to pay the rent. If you look at it this way, renting a property in more than half of the world’s Cities of Opportunity shouldn’t be too difficult.

Then again, these are Cities of Opportunity, and what would be the point of these opportunities if only a lucky few could afford to utilise them?

Which brings us to the lower end of the list…

Mexico City, Manhattan and Lagos are the least tenant-friendly Cities of Opportunity in 2017.

Although opportunities are plentiful in these cities, no amount of amenities can overlook the rent burden issue. Renters in Mexico City, Manhattan and Lagos face severe rent burdens, meaning that rent takes up more than half of a household’s income each month (60%, 59% and 57% respectively).

In other words, in an average family with two earners, one of them works only to pay the rent – and even that’s not enough. Tenants in Los Angeles also cash out 47% of their income each month on rent, and the situation isn’t much better in Paris (46%) or Singapore (44%).

Access to the great opportunities these cities offer clearly requires some form of compromise – rental affordability isn’t always their best charms. However, the good news is that there are plenty of other great cities around the world where renting a property isn’t an issue; they’re just not the best ones.