Zoopla has forecasted that the severe imbalance between supply and demand in the private rental sector is likely to persist well into 2025. While demand for rental properties has somewhat decreased, partly due to fading pandemic-related factors and lower mortgage rates allowing some renters to step onto the property ladder, the overall supply shortage remains a significant issue.

The consultancy notes that changes to visa regulations are expected to reduce migration for both work and study, which could alleviate pressure on rental markets in certain areas. However, despite these factors, Zoopla indicates that rental demand is still likely to exceed average levels for the remainder of 2024.

In terms of pricing, the firm anticipates that rents will continue their upward trend. This is despite a softening labour market, which is expected to have only a limited effect on curbing demand for rental properties. 

For the rest of 2024, Zoopla predicts that rental prices will rise between 3% and 4%, further squeezing affordability for many tenants. This suggests that renters could continue to face challenges as they search for homes in an already competitive market, with no immediate relief in sight from rising rents and the ongoing shortage of available properties. 

Looking ahead, Zoopla’s outlook points to a sustained shortage in rental stock, which could continue to place upward pressure on rents as we move into 2025. The need for additional housing supply remains critical to easing the strain on the rental sector.

Zoopla predicts that the unaffordability of homeownership will continue to drive demand for renting, particularly in southern England, where many workers are unable to buy homes. The limited supply of affordable housing is a key issue, and the private rental sector is expected to keep meeting the needs of lower-income households, which will add to the overall demand for rentals.

Richard Donnell, executive director at Zoopla, highlights the prolonged slowdown in rental inflation, which is largely caused by the shortage of homes for rent and steady demand due to unaffordable homeownership. While rental inflation has eased in some high-cost cities, it remains strong in more affordable areas where the cost of renting is still increasing quickly.

Donnell warns that any new policies or tax changes that reduce the supply of rental homes will likely lead to higher rents, disproportionately affecting low-income renters. He stresses that policy efforts should focus on increasing the supply of rental properties as the most effective way to slow rental inflation and offer more choices to renters.

As things stand, the growing unaffordability of renting seems to be the main factor slowing down rent increases, but without a significant rise in housing stock, rental pressure is expected to remain.

Zoopla’s latest market snapshot highlights that rental growth for new lets is currently at 5.4%, which is half the rate seen a year ago, but still outpacing average earnings growth of 5.1%. In July 2024, average rents reached £1,245 per month, an increase of £63 compared to the same period last year.

A key challenge for renters remains the limited supply of homes, driven by reduced investment from private landlords. Although the number of rental properties has risen by nearly a fifth compared to last year, the total number is still 24% below pre-pandemic levels.

Despite the slight decline in demand—due to factors like fading pandemic effects, lower mortgage rates, and stricter visa rules—the competition for rental properties remains high. On average, 21 people vie for each rental listing, which is more than twice the level seen before the pandemic. This imbalance continues to fuel rental inflation, even as growth slows.

Zoopla reports that a lack of new investment in private rental properties has led to a shortage of homes available for rent, which has driven rent prices up by 30% over the past three years.

Their data also shows that since 2016, there has been a steady increase in landlords selling properties. In July, 12.5% of homes listed for sale on Zoopla were previously rented. Rising mortgage rates, combined with changes in tax and regulations since 2016, have contributed to more landlords exiting the market.

The Government’s rental reforms in the Renters Rights Bill have already influenced many landlords’ decisions to either stay in or leave the market. Additionally, speculation around potential tax changes in the upcoming autumn budget may prompt even more landlords to sell, further reducing rental stock and increasing rents.

Given the current timeframes for property sales, it’s unlikely that new sales will be completed before the budget announcement. However, if there are delays in implementing tax changes affecting landlords, more sales could occur in the near future, further impacting the supply of rental homes.

The slowing pace of UK rental growth is largely due to a significant drop in London, where growth is now at 2.5%, and a general slowdown in other major cities at 5.8%. However, rents continue to rise at above-average levels in smaller towns and cities, where housing remains more affordable and offers better value. Areas adjacent to larger cities, known for their affordability, are seeing some of the highest increases, with six postal areas showing annual rental growth of 10% or more.

In Scotland, Kilmarnock (13%) and Kirkcaldy (12%) have recorded the largest increases, despite being 25-35% cheaper than the average rent in Glasgow. Rent controls in Scotland have also contributed to these price hikes, putting upward pressure on rents.

In England, areas like Wolverhampton (12%), Oldham (11%), Darlington (10%), and Walsall (10%) have seen rapid rent increases. These locations are either close to larger cities or offer good transport links, making them appealing alternatives for renters looking for more affordable housing options.

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