The continuous rise in housing costs experienced in Major cities (Lagos and Abuja) has become a significant concern affecting individuals and communities. The high inflation rate coupled with rising demand has led to a spike in the rents of accommodation by over 35% in the last 6-24 months. Today, we explore the factors behind this surge and discuss the implications for you, along with strategies to mitigate and reduce the burden of rent expenses.

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Factors Driving Rising Rental Costs:

Rising Inflation Rate:

In May 2023, Nigeria experienced its highest inflation rate, reaching 22.41%. This surge in inflation has particularly affected the housing sector, where there has been an increase in the cost of construction materials. This has resulted in higher build cost which is reflected in higher rental and facility management costs.

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High Cost of Building Materials:

With the ongoing unification of the exchange rate by the Central Bank of Nigeria (CBN), expenses related to building materials, such as lumber, steel, construction and finishing supplies, have been on the rise and thus impacts the rental prices. This has resulted in higher build cost which is reflected in higher rental and facility management costs.

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Limited Availability of Alternatives:

The lack of adequate alternative housing options, particularly in prime locations, puts a strain on the rental market. This scarcity drives up demand which in turn leads to a rise in rental prices. Uptick in demand for studio, one and two bed apartments The increased demand from Gen Z and millennials, coupled with the shift towards hybrid working styles, has created a surge in the popularity of studio, one-bedroom, and two-bedroom apartments. As such home/property managers capitalize on this by adjusting rents owing to heightened demand.

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Lucrative nature of Short-Let Apartments:

Landlords and property owners are increasingly drawn to short-term let apartments due to their potentially high returns. As a result, they prioritize these options over traditional long-term rental properties. This shift in focus has led to a decrease in the inventory of long-term rental properties. With fewer options available, the demand for such properties has intensified, resulting in rising rental costs. This trend is particularly noticeable in areas like Lekki One, Ikate, and Chevron, where there is a significant presence of short-term let apartments.

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Impacts of Rising Housing Costs:

1. Reduction in Disposable Income: Increased rental payments result in less money to spend on other essential expenses considering the high inflation rate currently standing at 22.41% . With less money to spare, it becomes harder to save, invest, or pay for other essential expenses you may have.
2. Increase in communal living arrangements: We have observed a growing trend of co-living spaces in upscale neighborhoods along the Lekki axis due to the escalating rental costs. Opting for shared living arrangements offers various benefits such as the ability to share costs, social interaction, and shared responsibilities. This emerging trend illustrates the impact of high rental costs on individual’s choices in terms of housing arrangements.
3. Decreased Savings Potential: The higher burden of rent payments can impede your ability to save money for future goals, such as homeownership or creating an emergency fund. This leaves less room for saving and hampers your ability to attain financial stability.

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Strategies to Mitigate and Reduce Rent Costs:

1. Select an Affordable Location: Consider exploring areas with more affordable rental options while still meeting your needs. Expanding your search to nearby neighborhoods outskirts can yield cost-effective alternatives.
2. Embrace Shared Living: Sharing accommodations is an emerging trend among GEN-Z and Millennials which allows you to split rent and utility cost thus limiting the financial burden whilst maintaining a comfortable living situation.
3. Be Flexible: Remaining open to different lease terms, property types, or locations can provide opportunities for more affordable rental options. Flexibility enables you to adapt to market conditions and find cost-effective solutions.

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