In many western countries, building enough new houses to meet demand has been a source of frustration for successive governments.
Research from the UK government suggests that with every one per cent rise in the total number of homes available in a market there will be a two per cent drop in house prices or rents. The rent crisis has been described as a “living hell” in the UK media, as costs keep rising and the quality of properties deteriorates.
In the US, there has been vigorous debate about rental inflation; how it is measured, the impact on the overall inflation picture and the knock-on effect on interest rate-setting policy. In a presidential election year, rents have been a hot topic and are expected to be a big concern for voters, with US President Joe Biden last month announcing a plan to lower housing costs.
The policy also provides incentives to encourage construction to increase supply of apartments and homes for rent.
Market intervention is always controversial and risky but the situation has become as urgent as it is dire. Rents in America have surged 26 per cent since early 2020, according to the Joint Centre for Housing Studies at Harvard University. The rise easily outpaces overall inflation. Also, a record-high 22.4 million households are spending more than 30 per cent of their income on rent and utilities in 2022 – an increase of 2 million over the previous three years.
These households are considered “cost-burdened”. In New York, for example, to rent an average-priced apartment would account for more than two thirds of a median household income, according to Moody’s Analytics.
Overpaying for unsuitable housing is not only demoralising for people affected by the state of the market, it also means they do not have money to spend on many other things, including basics, let alone being in a position to save up to buy their own home.
Rising rental costs are a drain on overall prosperity. It makes wealth creation for the majority almost impossible. The opposite is also true. Access to affordable quality housing helps improve quality of life. So, spurring development and investment in housing effectively means putting money back into people’s pockets.
In recent years, following the financial crisis, the soft infrastructure – access to quality, affordable health care, housing and education – has become as important as the “hard” infrastructure such as roads and transport networks in terms of what makes a place most attractive to live in. These are the metrics by which people now feel “rich” as opposed to simply their bank balance.
Rental costs are hence always a topic of conversation at the dinner table in the UAE, especially when so many people have been moving to the Emirates – since the pandemic. The 2023 census showed that Abu Dhabi's population rose to about 3.8 million last year, an increase of 83 per cent since 2011.
In Abu Dhabi, a lot of effort has gone into ensuring access to affordable housing, as well as education and health care through fast evolving policymaking. The latest reform being the new residential rental index, providing a benchmark for both tenants and landlords across the emirate.
The Abu Dhabi Real Estate Centre, part of the Department of Municipalities and Transport and the body, which has developed the index, says on its website, the centre “embodies a commitment to developing Abu Dhabi as a vibrant hub, fostering inclusivity for residents, investors and visitors.”
The index itself “will help both local residents and those living abroad to better understand the rental market, enabling them to make informed decisions based on reliable data”.
There are hopes that the creation of such a data set will help make Abu Dhabi an even more attractive place to live in and ultimately make people feel more prosperous by paying less for their home.
The index should also support investor interest in the local market and most importantly, the right kind of investor. While people may like or dislike in equal measure rapidly upwards-moving rents, depending on if they are a landlord or a tenant, the most successful investors prefer visibility and stability.
An index that has the potential for a calming effect and helps dampen boom and bust cycles might put off some who seek outsize and quick returns, typically a feature of frontier markets.
However, an economy like the UAE’s, which is already listed among emerging markets, with ambitions to be considered a mature market in order to draw in a wider swathe of international capital, is quickly moving forward. So, it knows to satisfy the biggest global investors, it is considered a good thing to be able to forecast income , even if it might mean lower yields in the short term.
Naturally, knowing with greater certainty what you will earn from a property over a 10-20 year period will also influence the size of the initial investment, which could in the near-term disrupt the flow of construction as values adjust and profit expectations adapt.
The strength of the Abu Dhabi market in the medium to long-term lies in features such as stability, a friendly regulatory landscape, excellent transport and trade links and, most importantly, the clustering of talented people. This means blue chip property developers will probably want to be here.
By creating the rental index, as well as other databases on property prices, mortgages and sales, Abu Dhabi has shown it knows how to ensure access to quality homes for the people who live and work here. It remains not just a priority but a reality that fuels that feeling of prosperity that seems so elusive in much of the West at the moment.
