Stronger Home Rental Markets can Support a Post-Covid Recovery

This blog was originally published on Jan 17, 2022 by Prindex. Prindex Senior Land Governance Advisor Denys Nizalov argues that developing large, flexible rental markets with strong protections for renters and landlords can stimulate economies and support post-covid economic recoveries.

Last summer in the US, an estimated 15 million people were at risk of eviction. Similar problems have been seen in rental markets around the world. Just ahead of the pandemic, Prindex’s global survey found that 1 in 3 renters worldwide fear eviction – an estimated 272 million people. The pandemic has undoubtedly pushed this figure up.

Secure rental markets are not only important for renters’ peace of mind, they also stimulate investment and allow for a mobile workforce and dynamic economy. Giving tenants stronger protections would help give the economy the stable base it needs for the post-covid recovery.

Well-functioning rental markets boost the wider economy

Around the world, about 15% of adults – or 800 million people – live in rented accommodation. The number of renters varies greatly from country to country, from over half the adult population in Denmark and Saudi Arabia, to tiny numbers in Uzbekistan and Niger.

A well-developed rental market – one that is large, flexible, and has a high level of protection for renters and landlords – stimulates growth in many sectors. First, being able to rent a property in a new place supports labour mobility, reducing unemployment. Rural-urban migration and free movement within the EU are good examples of this.

Second, the opportunity to securely rent a property out stimulates investment in housing and increases the affordability and quality of rental properties. Renting also drives demand for mortgages, as buy-to-rent investors require capital.

Finally, a strong rental market allows for a more efficient use of the existing housing stock and disincentivises the expansion of informal settlements. Well-functioning rental markets also promote social mobility and improve living standards, as well as being good for the wellbeing of renters and homeowners alike.

Prindex findings support these points. The data shows a strong correlation between the size of a country’s rental market and GDP per capita. However, higher incomes can also stimulate demand for rental accommodation, which makes this relationship mutually reinforcing.

Share of renters varies between countries, Prindex 2020

A large insecurity gap between owners and renters is bad for rental markets

When the Prindex results came in we immediately noticed that renters are much more likely to feel secure about their rights in countries with large rental markets. In Austria and Finland, which have sizable rental markets, over 90% of renters feel secure. On the flip side, less than 15% of renters feel secure in Afghanistan, Turkmenistan and Azerbaijan – countries with tiny rental markets.

On closer inspection, it turns out that the tenure security gap between renters and owners is key in determining the size of the rental market. Prindex data clearly shows this link, even after taking into account other factors, such as income level, population density, rule of law, social exclusion, and the number of uprooted people in a country.

Large tenure security gaps between owners and renters are associated with smaller rental markets, Prindex 2020 data (140 countries)

In countries where renters feel far less secure than owners, Prindex finds renters are much more likely to say eviction by the owner is their number one reason for feeling insecure. In Azerbaijan, Kyrgyzstan and Turkmenistan where the insecurity gap between owners and renters is wide, this was the main source of insecurity more than 70% of renters. This suggests that strong protections for owners may adversely impact renters’ rights and the size of rental markets.

Reasons renters gave for feeling insecure, Prindex 2020

Policies to enhance renters’ rights

Governments can improve renters’ rights by simplifying legal protections for renters and providing legal counsel and mediation services for disputes. Making buy-to-let mortgages more accessible would also expand the supply of rental accommodation and drive improvements in rental markets.

Local government, housing programmes and land regulations play an important role in providing affordable rental housing, but new technology can also help. Online marketplaces where renters and landlords leave reviews and ratings for each other can add transparency. Average rental prices and resources on tenant rights should also be freely available to the public.

Overall, improving legal protections for renters would encourage investment in housing, make renting more affordable, stimulate the wider economy, cut unemployment, and reduce demand for informal housing. All of which would make us more resilient to future shocks like Covid-19.

Photo by Brian Snelson via Flickr