Global Shortages and Rising Rental Demand

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These days, every time I open a news app I read about housing shortages. Across the world, demand for rentals is rising while the supply is shrinking, causing rental rates to boom…

In Ireland for instance, there are currently just 1,164 rentals listed in the entire country of over 5 million people. In parts of Portugal, rents have skyrocketed. In the city of Évora—an hour and a half south of Lisbon—rents have risen a whopping 127% in just 12 months, going from an average of $637 to $1,447. On the other side of the world in Australia, some rental viewings are drawing as much as 120 people, with “rent bidding” becoming the norm. 

Meanwhile, in the U.S., for the first time in over 20 years, the typical American spends over 30% of their income on housing thanks to dwindling supply. (By different estimates, the U.S. is short 1.5 million to 5.5 million homes.)

And there is no sign that demand will be met anytime soon…

Indeed, much of the underlying issue goes back to the global housing crash, which happened around 2008. After that, many homebuilders went out of business, setting homebuilding back decades.

But the pandemic has added fuel to the fire…or rather it has emptied the whole canister of gasoline on top, fueling another global slowdown, and causing havoc with materials and labor shortages that persist to this day.

The economic aftereffects of the pandemic and the war in Ukraine have ushered in skyrocketing inflation, an easing of monetary policies. There are continued bureaucratic bottlenecks, and geopolitical tension and economic warfare is spurring supply chain decoupling. 

The world is now grappling with the fact that the real estate shortage has no easy fix. It’s not something that can be created out of thin air. It takes a complex mix of capital, material, and labor, now all hindered by a high interest rate environment, inflation, and supply chain issues. Added to that, bottlenecks in the permitting process in much of the world has slowed to a crawl. I’ve seen cases where even a written acknowledgement of a permitting application has taken over a year to receive. 

These supply shortages have sent governments scurrying for solutions. Often the wrong ones.  

For instance, price caps have had the detrimental effect of driving investors from the market. A recent report on Ireland’s rent pressure zones (RPZs)—which caps rents on high-demand areas—has shown that the measures have backfired and “in many cases have led to an increase in rents.” 

In Portugal, the new proposals to ban new short-term rental licenses (yet to be finalized) may achieve the opposite effect, reducing short-term rental inventory in the long run while pushing rental prices up. These measures do nothing to help resolve the fundamental issue that there simply are not enough homes being built. While creating an uncertain environment for anyone considering becoming a landlord. 

In short, while demand soars, supply of new rentals is going to be a long-term issue in many places for years to come.

And this has created an unprecedented opportunity for real estate investors. Own the right real estate in the right place and at the right price and your rental yield could be huge…

Of course, this income opportunity in the Era of Scarcity is not a “can’t miss” play. It’s all about owning the right real estate in the right place and at the right price. It’s about knowing how to maximize your yields, choosing competitive rates, finding your niche, and marketing your rental successfully…