The rental boom: What is behind the increase in real estate costs in Italy?

Renting a house today costs on average 13 euros per square meter. Rental prices in Italy grew by 10.1% on an annual basis at the end of February (3.1% on a half-yearly basis). We are spending more, therefore, but demand is growing at the same time: +9.5% in the last half-year. And at the same time there was a drop of almost 10% in sales. What is going on? Everything can be explained with three words: Frankfurt, Airbnb and market law.

Today you pay more than 10% more than a year ago for the fee. The data (Osservatorio Rentals by Insights) tell us that the most expensive city is Florence, where rents grew by 21.7% in February compared to the same month in 2023. It costs 22.2 euros per meter Square. Milan follows with 23.1 euro/m2 (+8.1%). In the South, Bari is booming, where renting costs on average 11.7 euros/m2 which means +18% per year. Then there is Naples where the increase was 13%. The large cities, the capitals, are the ones where the increases were more decisive (on average +14.3%) while in the small capitals and small towns the cost of rent was more contained. Indeed, in the last six months in small towns there was a drop of 0.3%.

This situation of increasingly higher rental costs is accompanied by a growth in demand of 9.5% in the last six months, compared to an increase in supply of less than 4%, which in any case in many cities is a positive trend compared to to 2022. Rome particularly stands out with the requested growth of 53.5% and Naples with +52%.

What is going on? Frankfurt is the first answer. With high rates, which have a heavy impact on mortgages, the option of buying a house takes a backseat to that of renting. In fact, in 2023 the residential market suffered a contraction of -9.7% compared to 2022 (Revenue Agency data). Purchasing has become a less accessible option for many, due to very high mortgages. This is how you choose the rent.

But here comes the other key word: the laws of the market. By increasing demand, prices are driven upwards. Thus we reached 13 euros/m2 on average.

And finally there is the third factor, the one that has “drugged” the rental market in Italy and around the world. Airbnb. The boom in short-term rentals is evident. In Bologna there was an increase of 300% from 2016 to 2023. Today there are 4720 advertisements of houses and apartments available for a night or a little more. In Rimini in 2017 there were 50, in 2023 1,185. In Turin there are over 1300 “hit and run” tenants. More short-term rentals means less supply of long-term contracts and means driving prices for families and students. New York tried months ago to block short-term rentals, with a restrictive law on the number of nights allowed. The result? Droves of tourists in New Jersey!