With a high housing deficit and low homeownership level in Nigeria, rents have increased across the country, hitting households and threatening to plunge the rental market into a crisis.
With 30-40 percent increase in rent paid for houses, depending on location and house type, the situation in the rental market in the last 12 months has snowballed from rising inflation and high energy cost.
“Market has seen increases in rent for new buildings of up to 25 percent. One bedroom is now about N2.5 million while two bedroom is around N3.5 million, up from N1.8 million and N2.3 million respectively in Lekki axis,” MKO Balogun, CEO of Global PFI, confirmed to BusinessDay.
In low- and mid-income locations of Lagos such as Surulere, Yaba, Ilupeju, Gbagada, Egbeda, Ejigbo, Okota, the situation is worse. In these locations, landlords are brazen in increasing rents. In Surulere, particularly, tenants have seen over 50 percent rise in rent.
A two-bedroom apartment in Surulere now goes for between N550,000 and N700,000 per annum, up from between N350,000 and N500,000 per annum 12-24 months ago.
But Nigeria is not an isolated case. According to a recent Bloomberg report on the United States housing market, the country’s rent crisis is snowballing to a point that “nowhere and no one is spared.”
In Nigeria, inflation hit a five-year high of 18.6 percent in June, diesel price climbed 136 percent and food prices surges, piling enormous pressure on virtually every household, reducing income levels and witling down consumers’ purchasing power.
The situation, according to experts, is such that rent default, which is part of the crisis, now happens everywhere.
“Rent default is now across board. The high end which hitherto had a low level of defaults because of the calibre of tenants has seen an upsurge in rent default,” according to Gbenga Olaniyan, CEO of Estate Links Limited.
Ayo Ibaru, chief operating officer at Northcourt Real Estate, explained to this reporter that because prices have gone up, landlords are transferring costs to tenants.
In a recent survey of 22 estates in Yaba, Ikeja, Surulere, Victoria Island, Lekki Phase 1, Ikoyi, Osapa, Chevron and Ajah in Lagos, Estate Intel, an online property research firm, found that the average power tariff in these locations grew 76 percent from 90/KwH to 178/KwH between February and July.
“This is the period, according to the survey, when price of diesel rose 136 percent from N330 to N780 per litre,” said Dolapo Omidire, the company’s CEO, adding that these are some of the reasons for the rent increases the market has seen.
As in Nigeria, where house prices are quite high, raising affordability issues, the US also has affordability problem, which is not new. But, according to the Bloomberg report, it has snowballed over the past year as people returned to big cities and some areas short on housing supply saw a boom of new residents.
“Demand for rentals has soared, with many would-be homebuyers backing out of the market after mortgage rates jumped this year as a result of the Federal Reserve’s aggressive interest-rate hikes,” the report said.
There is also a similarity in both Nigerian and the US market. In the US, the tight inventory is leading to bidding wars, typically more of a fixture of the homebuying market. Rising costs and a shortage of available units are giving landlords the leverage to hike rents at all price points. And the end of the federal eviction moratorium, combined with dwindling rental assistance, has forced people to make tough choices.
In Nigeria, it is estimated that 80 percent of the country’s 200 million population are spending over 50 percent of their income on house rent. Similarly, in the US, many renters, who typically spend a greater share of their income on housing than homeowners, are already struggling to keep up with larger bills at the grocery store and the gas station, thanks to inflation running near the highest in four decades.
Inflation peaked at 18.60 percent as of June in Nigeria and it is projected that the July figures may be as high as 19.40 percent. This is likely to push up building materials prices, compelling landlords and other space suppliers to increase rents.
Rent hikes are expected to be persistently higher in the US since leases are staggered and renters face shocks at different times. The Bloomberg report cites Labour Department data showing that shelter costs account for about a third of the closely watched consumer price index, which increased by 8.5 percent in July from a year earlier.
“People of colour and those with lower incomes are the most affected by the increase in rent prices, since they account for the majority of renters. In the US, about 58 percent of households headed by Black adults rent their homes, along with nearly 52 percent of Latino-led households,” the report said, citing a Pew Research Center analysis of census data.