A residential rental market study commissioned by the Addis Ababa City Administration has identified 11.24 percent as a benchmark for annual rent increases under conditions where consumer inflation remains below 10 percent.
The study was presented during a panel discussion on June 26 and is intended to provide a data-driven basis for managing rental adjustments in the capital while reducing the need for more aggressive government-imposed rent controls.
The research was conducted by a team from the Addis Ababa Leadership Academy using historical rental data and predictive statistical models to assess the likely movement of residential rents and the potential impact of government intervention.
Two models forecast similar rent increases
Researchers used two statistical approaches: a Hedonic Pricing Model and an Artificial Neural Network (ANN).
The Hedonic Pricing Model projected an average annual rent increase of 11.24 percent, while the ANN forecast an increase of 11.87 percent.
The study found that the observed average market increase of approximately 11.5 percent fell within the statistical confidence intervals produced by both models, which researchers said supports the reliability of the models' forecasts.
The researchers also modelled the potential application of the city's 2018 Rent Control Standards. Under that scenario, the projected legal annual rent adjustment ceiling would be 14.3 percent.
However, the study concluded that broader economic conditions, particularly inflation, are more important in determining the underlying direction of rental prices.
Inflation remains a key factor
According to the study, if annual consumer inflation can be maintained below 10 percent, natural market rent growth could remain around the 11.24 percent level.
Researchers said this could reduce the need for more aggressive rent controls, while still providing a framework for regulating annual adjustments.
The study also identified market demand as another major factor influencing rental prices.
Historical data examined by the researchers showed that annual rent increases have slowed in recent years, falling from 28.76 percent two years ago to 20.58 percent last year.
Study covers nearly 480,000 rental properties
The research was based on an assessment of approximately 480,000 registered private rental houses across Addis Ababa.
Researchers used a multi-stage, stratified sampling approach covering all of the city's sub-cities and 44 woredas.
Field teams surveyed 1,425 households, involving 2,858 tenant participants. The survey achieved a 92 percent response rate, resulting in a final analytical sample of more than 1,200 respondents.
What determines rent?
The study found that the size of a property or its room capacity was the strongest determinant of rental prices.
Other significant factors included:
- Structural quality
- Finishing standards
- Availability of water and electricity
- Geographic location
The findings indicate that rental prices are influenced not only by broader market conditions but also by the characteristics and quality of individual properties.
Many households face significant rent burdens
The study also examined the affordability of rental housing in Addis Ababa.
It found that 54 percent of surveyed households fell within the highest rent-burden category, while 30 percent and 15 percent were classified within lower rent-burden categories.
Nurahun Andargie (PhD), the study's lead researcher, said international benchmarks generally consider spending around 30 percent of household income on rent to be an appropriate level.
He said previous Ethiopian data indicated that some individuals spend around half of their income on rent, while the new study found cases where rent accounted for as much as 80 percent of income.
According to Nurahun, allowing landlords to determine rents without any regulatory framework could place significant pressure on households, including both lower-income residents and middle-income salaried workers.
He argued that government intervention is needed to balance housing supply and rental prices.
New framework aims to improve rental-market transparency
Kedist Woldegiorgis, head of the City Housing Development and Administration Bureau, said the rental valuation study was conducted under the authority provided by Proclamation No. 1320/2016.
She said the purpose is to provide a fair and scientifically based approach to rental contract renewals and adjustments.
The city is also registering landlord-tenant agreements as part of the broader system.
According to Kedist, the registration and rent-adjustment process is intended to improve transparency in the rental market, address illegal practices, strengthen trust between landlords and tenants, and create a more balanced housing market.
The system is designed to allow landlords to receive fair returns while ensuring that rental costs remain reasonably aligned with tenants' incomes.
Implementation expected in the coming budget year
The Addis Ababa City Administration plans to begin implementing the findings of the study in the coming budget year.
The new framework could therefore have implications for both landlords and tenants across the capital, particularly as the city seeks to establish a more predictable approach to rental adjustments.
The study's findings suggest that future rental prices will continue to be shaped by a combination of inflation, market demand, property characteristics and government policy.