Recent figures from Zoopla highlight a significant issue in the rental market. Although the demand for rental properties has slightly decreased over the past year, there are still 15 people vying for each available rental home. This is more than double the pre-pandemic average, where typically six people competed for a single rental property.
Despite an almost 20% increase in the supply of rental properties over the last year, the current availability remains a third lower compared to pre-pandemic years. This shortage is largely due to a decrease in new investments in rental properties, contributing to the ongoing imbalance between supply and demand.
The intensified competition for rental homes underscores the challenges faced by prospective tenants in finding suitable housing. As fewer new rental properties are being introduced to the market, the pressure on existing rental units has significantly increased, making it difficult for tenants to secure housing.
This scarcity of rental properties is further compounded by a slowdown in the addition of new rental units, exacerbating the competition and making it challenging for many to find affordable and available rental options. The data suggests that, while there has been some improvement in supply, the rental market remains strained, with many potential renters facing stiff competition for fewer available homes.
Rents have decreased over the last quarter in several regional cities due to changes in local supply and demand as well as affordability issues.
In Nottingham, rents have dropped by 1.4%, while Brighton saw a decrease of 1.1%. York experienced a fall of 0.4%, with Glasgow rents also down by 0.4%. Cambridge saw a 0.3% decline, and London rents fell by 0.3%. Though these reductions are small, they signal a shift in the rental market dynamics after a period of rapid rent growth.
In London, there is a noticeable difference between inner and outer areas. Rental growth has slowed more significantly in central locations. For example, rents in Westminster and Tower Hamlets have increased by less than 2.5% over the last year and have posted slight quarter-on-quarter declines.
Annual rents have increased by more than 10% in outer London areas like Barking & Dagenham, Redbridge, and Havering, where average rents are 20% below the London average. Currently, the average rent in London stands at £2,122, well above the UK average of £1,226.
Although the gap between rent growth and average earnings has narrowed, there’s significant variation in how much of average earnings are spent on rent. In London, rent takes up 41% of gross earnings, compared to just 21% in Scotland. This disparity explains why rents are climbing fastest in the North East and Scotland, where rental costs make up a smaller portion of gross earnings. Conversely, in London, the high cost of renting is starting to slow down rental growth.
The lack of supply in the rental market also contributes to this affordability issue.
The number of homes in Britain’s private rented sector has stayed around 5.4 million since 2016. There hasn’t been a significant departure of landlords, but low levels of new investment have prevented any growth in supply to meet rising demand.
Changes to tax laws in 2016 and increasing interest rates have affected buy-to-let landlords, yet Zoopla data indicates a steady flow of previously rented homes being sold. This figure has averaged approximately 31,000 per quarter for the last four years.
Richard Donnell, executive director at Zoopla, noted, “The rise in rental costs has slowed to its lowest point in 30 months. Although rents are still growing faster than average earnings, the difference is now much smaller than it was a year ago. Demand for rentals remains high compared to available supply, maintaining upward pressure on rents, although rental growth has levelled off in some regions.”
“The number of private rented homes has been static since 2016 which has compounded the rise in rents over the last 3 years. Growing the supply of rented homes, both private and affordable, should be among the top housing priorities for the next Government. A healthy private rented sector is vital for economic growth and a more balanced housing market. More supply is the fastest route to easing the pressure on renters and improving the overall quality of rented homes”
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