Minister confirms intention to cap private rents at 3%
Emergency measures to protect tenants will be extended, Tenants Rights’ Minister Patrick Harvie has confirmed, with private rents capped and enforcement of evictions prevented in most cases.
Subject to the approval of Parliament, changes to the Cost of Living (Tenant Protection) Act will mean that from 1 April 2023:
If landlords choose to increase private rents they will be capped at 3%
The safeguard for private landlords will be amended, allowing them to apply for increases of up to 6% to help cover certain increases in costs in defined and limited circumstances
Enforcement of evictions will continue to be prevented for all tenants except in a number of specified circumstances
Increased damages for unlawful evictions of up to 36 months’ worth of rent will continue to be applicable
The rent cap for student accommodation will be suspended, recognising its limited impact on annual rents set on the basis of an academic year
These temporary measures are intended to be extended to 30 September, provided they remain necessary, with the option to extend for another six-month period if required.
As announced in December 2022, the social sector rent freeze is being replaced with agreements from landlords to keep any rent increase for 2023-24 well below inflation.
Mr Harvie said: “Our emergency legislation has helped protect tenants facing the cost of living crisis. With many households still struggling with bills, it is clear that these protections are still needed to give tenants greater confidence about their housing costs and the security of a stable home.
“While the primary purpose of the legislation is to support tenants, I recognise that costs have been rising for landlords too. That’s why we intend to allow those in the private sector to increase rents by up to 3%, with a continued safeguard allowing them to apply for larger increases to cover specified rising costs they might be seeing as landlords.
“By allowing increases in rent – capped well below inflation and limited to once per 12 months – we can continue protecting tenants from the minority of landlords who would impose unaffordable rent hikes.
“We will continue to carefully monitor the impacts of this legislation, working with tenants and landlords to protect them from this costs crisis.”
COUNCIL RENTS: Under the agreement on social rents for 2023-24, COSLA has committed to keeping local authority rent increases to an average of no more than £5 a week.
HOUSING ASSOCIATIONS: Members of the Scottish Federation of Housing Associations have reported planned increases averaging 6.1%.
Average annual UK rental growth* has reached a 13 year high, with rents increasing to £969 (+8.3%) in Q4 2021, up £62 per month since the start of the pandemic
The average rent now accounts for 37% of gross income for a single earner – up from a pandemic dip of 34% during most of 2021 but broadly in line with the 10-year average of 36%
Overall, average rents are up nearly 12% over the last five years
Demand for rental properties in January was 76% higher compared to the New Year market between 2018 and 2021
The stock of rental properties currently available across the UK is 39% lower than the five year average around this time of year
Inner city London has seen a rental growth of 11% compared to the same time last year -but the decline in rents during the pandemic means this has translated into an increase of just £18 per month in rent compared to March 2020
Average UK rents are tracking at almost £1000pcm – £62 more than at the start of the pandemic – against a backdrop of increased living costs squeezing households, reports Zoopla, the UK’s leading property portal, in its quarterly Rental Market Report.
UK rents squeeze disposable household income as cost of living rises
The UK’s average rental growth has reached a 13 year high, up 8.3% in Q4 2021, meaning households who agree new lets are now having to pay an additional average annual cost of £744, compared to the start of the pandemic (March 2020).
This increase means that a single earner can now expect to spend 37% of their gross income on rent, which is up from 34% during most of 2021. However, this now brings the figure broadly back in line with the longer term average of 36% as rental growth rises in line with wage growth.
Even with the current sharp rise, the overall increase in UK rents over the last five years totals 12% thanks to the decline in rents seen in some areas during the pandemic.
Rental market shrinks as demand creates fast-paced rental landscape
The New Year has seen heightened demand for rental properties, up +76% compared to the New Year markets between 2018 and 2021. Yet the supply of rental properties recorded in January 2022 in the UK is 39% below levels typically observed at the start of the year. This is creating competition in the market, with the imbalance of supply and demand ultimately spurring rental growth.
As a result, properties are being snapped up. In London, this means renters are having to move quickly to secure the perfect property with the time to let now averaging a fortnight, down from three weeks in late 2020.
This shrinking stock of homes for rent can be attributed to a continued decrease in buy-to-let investment over the last five years.. As rents rise, more renters will be choosing to stay in their properties, limiting stock turnover. With supply squeezed, it’s likely that continued demand will underpin more modest rental growth in the coming months, especially in city centres.
However, as the spike in demand falls back – hampered by the increases in household costs – it will reduce pressure on supply, ultimately driving more local competition to attract renters in local markets.
City centre rents continue upward growth trajectory
Pandemic trends saw strong growth in rental demand in wider commuter zones as renters embraced the ‘search for space’, but demand has now recovered across the central districts of all major cities including Birmingham, Edinburgh, Leeds and Manchester in a reversal of recent behaviour. This is largely driven by pent up demand from office workers, students, and international residents and investors who are looking for city centre living.
This is a normalisation of rental behaviour as demand once again rises in more central zones – seen most prominently in inner London with rental growth of 11% compared to the same time last year. But given the steep fall in London rents during the pandemic, this translates to an increase of just £18 per month in rent compared to March 2020.
Gráinne Gilmore, Head of Research, Zoopla, comments: “Rents have risen sharply in recent months, amid a backdrop of rising living costs. But it is important to point out that in terms of rental affordability, in most markets rents are still close to the 10-year average. As demand continues to outpace supply, there will be further upward pressure on rents, but affordability considerations will act as a brake on large rises.
“In addition, the January peak in rental demand will start to ease in the coming months, putting less severe pressure on supply, which will lead to more local market competition, and more modest rental increases.
“The flooding of rental demand back into city centres thanks to office workers, students and international demand returning to cities means the post-pandemic ‘recalibration’ of the rental market is well underway.”
James Evans, CEO at Douglas & Gordon, comments: “Since the beginning of the year, we have seen a clear trend of people coming back to London and the office. This has contributed to around a 40% increase in new lettings applicants compared to the same month last year.
“As there is also still a very restricted supply of properties, we’re seeing landlords achieve record prices, a high quality of tenant and almost no void periods. With competition for properties at the level it is, there are 35-40 new applicants for every rental property in London and around four offers received per agreed let, so tenants are having to put themselves in the best position possible to get the properties they want.
“Following a strong sales market in 2021, and more confidence in future price increases in London, we are seeing more buy to let investors entering the market. With some of the recent legislation changes, the need for a quality agent is even greater.”
