Across the world’s top cities, we have found that households are spending as much as over 50% of their annual income just to provide a roof over their head. For instance, BBC analyzed the cost of renting apartments and found that a one-bed flat in London takes up nearly half of the average salary. A report by the U.S. Department of Housing and Urban Development also shows that 12 million households in the United States pay more than 50% of their annual incomes on rent. Looking at the numbers for the U.S, it means that more than 10% of households in the United State pay over half their annual income to provide a roof over their heads. What is even more interesting is that the numbers run even higher in New York, San Francisco and Los Angeles areas.
Globally, households are spending over 50% of annual income against the popular 30% rule of thumb, to live closer to the city centers.
The global rule of thumb regarding rent to income ratio is that rent should usually be 30% of income. This means that from an individual’s annual income, the permissible spend on accommodation is about one-third of total income. In a recent research, we were analyzing annual spend on rent across the world and found that the 30% rent guideline is usually not the case. In some places like the UK and US, households spend on rent are closer to 50%, and in Lagos, our research has shown that some households are spending up to 70% of their annual income on rent. This poses some questions of interest, especially when you consider the other costs associated with living and working in Lagos state.
While a family in the UK or US can afford to pay higher ratios on rent and still live a decent life, it is hardly achievable in developing countries. In the case of our country Nigeria, transportation, health care and feeding costs when compared to income is much higher than many advanced countries where these amenities come with heavy subsidies and government aid. Spending 70% of income on accommodation obviously is only sustainable by magic and in this article, we will be sharing some insights on how Lagos residents can better manage this.
What is the shade for Africa’s key cities?
Bringing this home, a similar narrative plays out across Africa’s top cities. Surging inflation, uneven urbanization and population spread in Africa, among other factors, have fueled a hike in property prices in key cities including Johannesburg, Accra, Nairobi, Kampala, Cairo and Lagos. Our interaction with a number of Lagos residents suggests that the larger chunk of the city’s population are barely working to pay rent and transportation. According to a 2016 report by Euromonitor International, average household spend on housing and transport in Lagos was 71% higher than the rest of the country. Housing alone in Lagos, accounted for over 74% greater household expenditure in 2016 compared to the rest of the country. With the high rate of inflation and surging prices in rents across Lagos, these numbers today are definitely higher than what was reported by Euromonitor in 2016. Cost of construction keeps rising, making it difficult for property prices to fall. With this in mind, how then can the average person reduce the burden associated with renting an apartment? Considering the high cost of rents in Lagos, more than half of Lagos’ population would need to pay as high as 80% of their annual income if they were to get decent accommodation in neighbourhoods close to the city centres. This should not be the case. In the following paragraphs, we will be discussing some tips to help you cut down on your expenses when getting an apartment in Lagos.
3 ways to reduce your rental spend.
1. Pick budget friendly locations and rent only what you need.
The bigger the space and size, potentially the higher your rent. We understand the fantasy of a walk-in closet, lush marble tiles, grandiose floor to ceiling heights, fitted kitchens and the other good stuff. However, your buying power should be the starting point when choosing a property. Additionally, it is important that you rent what you need. It is not necessary to have a guest room when you do not have visitors who frequently stay over. In fact, it can even be cheaper to lodge visitors in a hotel than having an extra room in your apartment. Another growing trend that we have found very helpful in reducing your costs is shared apartment options. Outside the security and privacy related challenges, sharing an apartment can cut your rental spend to almost half and when properly done, are a good cost saving strategy.
2. Relocation and renovations? Major in the major and minor in the minor.
Yes we get it, some houses are in really terrible forms and it costs a lot to make them habitable but sometimes our renovation costs sky rocket because of our compulsive need for some ‘nice-to-haves. There are expenses on our renovation checklist that if we did a proper cost-benefit analysis, they have no business being there. For example, it may not be necessary and important to paint a newly completed apartment. You may not need to hire a moving company to transport your items to the new house. As much as possible, you can leverage on your network and friends to assist with some relocation needs to cut expenses. A few friends can help you move some items in their cars on a weekend. Someone within can also help you with other minor things that can be very expensive when outsourced. You may consider hiring freelance cleaners as against hiring a janitorial company.
3. Why discard your old household items?
Depending on your taste, new home furnishing spend can take even more than the cost of renting an apartment. This is another significant cost element for people in Lagos. If you have bought furniture in the past few months you will agree that the prices are now through the roof. Except where your furniture has completely worn out, it is advisable to retain your old household items. If the chairs, bed frame etc. are still usable, consider remodeling them to look new rather than buying new ones.
We hope these few tips are helpful. You can check out BuyLetLive.com to find affordable homes that meet your taste and budget. You can also follow us on LinkedIn and Instagram to get more insights on how to navigate the Nigerian real estate market.