Tag: rents

Accelerating rents push renters towards smaller properties and lower running costs

  • There’s been a jump in demand for one and 2-bed flats as renters feel the cost-of-living squeeze, and fewer renters looking for 2- and 3-bed houses
  • The average rent has increased by £115 per month since last year, reaching £1,051 per calendar month – and accounting for 34.4% of the average income of a single earner
  • Rental growth has accelerated over the last 12 months – from less than 2% in July 2021 to 12.3% today – although there are signs that rental growth is starting to peak at current levels
  • In a reversal of a trend seen during the pandemic, rental growth in urban markets (10.5%) is now outpacing that in rural markets (8.5%) as strong employment growth drives demand in cities
  • There is no real prospect of significantly improved rental supply in the near term as private landlords continue to sell off homes due to tax and regulatory changes and renters decide to stay in their current homes

Renters are being pushed towards smaller properties and lower running costs in the face of higher rents and rising living costs including rising energy prices, according to to Zoopla, the UK’s leading property destination, in its quarterly Rental Market Report. 

Chronic shortage of supply pushes rents higher 

The average rent has increased by £115 per month since last year, reaching £1,051 per calendar month – and accounting for 34.4% of the average income of a single earner. This surge in rents is heavily impacted by a severe supply and demand imbalance with the stock of homes available to rent standing at just half of the five-year average – while the average letting agent currently has just eight homes available to rent.*

This chronic supply shortage is also impacted by an increase in renters staying put in their properties to avoid rent hikes and landlords continuing to sell properties in the face of tax and regulatory changes. Currently, approximately 3 in 4 renters will decide to stay in their current property and although they will experience lower levels of rental growth of 4% or less – this will squeeze supply in the market as a result. 

There’s been an acceleration in demand for one and 2-bed flats as renters feel the cost-of-living squeeze, and fewer renters looking for two and 3-bed houses. Outside of London, the average asking rent is £105 lower per month for a 2-bed flat compared to a 3-bed house. 

Renters making decisions about what type of property to rent will also consider running costs and rising energy prices are likely to be playing a role in the shift in demand to smaller homes. 

When it comes to energy prices, the amount of gas to heat and run a purpose-built flat for a year is 40% lower than a terraced house and 25% lower for a converted flat.** New-build city centre flats are also becoming increasingly appealing to renters seeking out smaller homes with lower running costs.

Annual rental growth nears its peak

Rental growth has accelerated over the last 12 months from an annual rate of less than 2% in July 2021 to 12.3% today, while rental growth is out-pacing earnings growth in all regions and countries of the UK.  Rental growth is ranging from 7.6% in the North East to a staggering 18% in London – however, there are signs that rental growth is close to peaking.

Despite rents in London rebounding from a low base,  the pace of rental growth in London is not sustainable at current levels with average rents in London currently 7.8% higher than pre-pandemic.

In a reversal of a trend seen during the pandemic, rental growth in urban markets (10.5%) is now outpacing that in rural markets (8.5%) as strong employment growth drives demand in cities. 

The strongest performing urban markets are London (17.8%). Manchester (15.5%), Glasgow (14.4%) and Bristol (12.9%) – where rental growth is standing above the UK average of 12.3%. Rents are also rising faster at the top end of the market with asking rents for 2-bed flats rising more quickly at the upper end (top 25%) of the market in comparison to the lower end of the market where demand is more price sensitive.

What’s the outlook for the rental market?

There is no real prospect of significantly improved rental supply in the near term as private landlords continue to sell off homes due to tax and regulatory changes. Renters renewing their tenancies will also amplify the fierce supply squeeze and keep upward pressure on rents into 2023.

There is headroom for some renters to pay more, especially outside London and the South East, however overall, we expect the headline rental growth to slowly taper over Q4 and into 2023. 

Richard Donnell, Executive Director at Zoopla comments: “Rents have surged ahead over the last year but there are signs that the pace of growth is peaking and set to slow into 2023. Renters are responding and looking for smaller, better value for money homes to rent with an eye on energy costs as much as rental levels. 

“What the rental market needs to combat these challenges is more new homes for rent. Greater regulation has seen less new investment and a small but growing number of landlords selling up, meaning the rental market has stopped growing since 2016.

“There is a risk that more regulation to improve standards or potential new measures to dampen rental growth, as proposed in Scotland, may compound the supply problem which is pushing rents up in the first place. Policymakers need to tread a careful path between protecting consumers and ensuring a decent supply of homes for rent.”

Hannah Gretton, Lettings Director at LSL’s Your Move and Reeds Rains brands comments: “We are experiencing high levels of demand for rental properties with homes being snapped up within hours of hitting the market.

“With over 270 lettings branches nationwide, it’s a picture that is reflected up and down the country with particular demand in urban areas.

“On average, we are seeing double figures of enquiries per property with a one-bedroom property in Manchester last week receiving over 100 requests to view, highlighting just how busy our branches are and the challenges renters face when it comes to finding an appropriate property.”

UK rental growth hits 13 year high as demand increases in Scotland’s major cities

  • Acute rental demand over Q3 2021 has pushed UK rental growth to its highest level since 2008
  • Annual rent growth has increased by 7.2% in Glasgow and 3.6% in Edinburgh
  • Demand continues to outstrip supply, which is running at 43% below the five-year average – exerting an upward pressure on rents
  • Average UK rents are now tracking at +4.6% on the year [and 6% excluding London], after climbing 3% over the last quarter – with rental demand doubling in central Leeds, Manchester and Edinburgh and London in Q3 v. Q1
  • Rental growth is close to, or at, a 10-year high across most UK regions – except for in London and Scotland
  • After 15 months of consecutive falls, London’s rents have swung back into positive territory, rising by 4.7% between June and September, as offices reopened and city life resumed
  • The structural undersupply of rental properties across the country and the strength of the employment market will support rental growth into 2022
  • UK rental growth [excluding London] is set to ease slightly to 4.5% by the end of 2022

UK rental market growth has reached a 13 year high as renters rush back to city centres, reports Zoopla, the UK’s leading property portal, in its quarterly Rental Market Report.

Record price growth defines new era for the UK rental market

Acute tenant demand over the third quarter of 2021 has propelled UK rental growth to its highest level for over a decade [13 years]. 

The market is being shaped by an ongoing supply and demand imbalance, with demand continuing to outstrip supply, which is running at 43% below the five year average and exerting an upward pressure on rents. 

The imbalance has been compounded by both long-term structural issues such as landlord divestment following the 3% stamp duty levy introduced in 2016, and more the immediate post-lockdown demand, which collectively have eroded available supply.

Average UK rents are now tracking at 4.6% year on year, after climbing 3% over the last quarter. Excluding London, where the market has lagged, average UK rental growth has reached a 14-year high of +6%.

Rental growth is also explained in part by tenant demand moving up the price bands [see figure 1]. This reflects the ongoing search for space, which has not only characterised the sales market, but the rental market, too.

Figure 1

Affordability remains steady – despite pan-regional rises

UK monthly rents now account for 37% of an average income for a single tenant occupant; however, even with strong rental growth, the measure of affordability remains in line with the five year average [see figure 2]*.

The regions registering the highest levels of rental growth are among those that are the most affordable when compared to the UK average, and as such, there has been more headroom for rents to increase. 

Rental growth is close to, or at, a 10-year high across most UK regions – except for in London and Scotland. Rents are up most in the South West (9%) year on year, followed by Wales (7.7%) and the East Midlands (6.9%).

In many of the UK’s largest cities, annual rental growth is running well ahead of the five-year average rate of growth. Bristol leads with 8.4% growth in the year to September, followed by Nottingham at 8.3%, and Glasgow at 7.2%.

Rental demand in the central zones of Manchester, Edinburgh  and Leeds has at least doubled over Q3 compared to Q1, and in Birmingham demand has increased by 60% – buoyed by the return of office workers and students, and the lure of city life.

Figure 2

London rents rebound into positive growth – but remain lower than pre-pandemic levels

After 15 months of consecutive falls, London’s rents swung back into positive territory, up +4.7%, in Q3. This amounts to annual growth of +1.6% compared to falls of almost 10% at the start of the year.

As with other major UK cities, market activity rose significantly in Q3, with tenancies agreed in London running 50% above the five-year average, underlining the bounceback in the market as offices reopened and city life resumed.

Despite this upward trajectory, given the falls over the last 18 months, average London rents are still 5% lower than they were at the start of the pandemic.

Rents forecast to rise by a further 4.5% by the end of 2022

Looking ahead to the new year, the structural undersupply of rental properties across the country is expected to support rental growth into 2022. 

In addition, the supply shortage coupled with the strength of the employment market which, despite the pandemic, is set to remain robust, will in turn support demand and sustain rental growth.

While the level of rental demand might ease in the near term in line with seasonal trends, demand levels will  remain higher than usual, especially in city centres, where there is an element of pent-up demand being released.

On the supply side, rental stock will remain tight, amid lower levels of investment into the sector by landlords, and this will underpin rental pricing. There is more leeway for stronger rental growth in areas of the country where rents are relatively more affordable, suggesting that rents could rise above earnings outside of the south of England, supporting rental growth across the UK excluding London at 6% in 2021 and 4% in 2022. 

Meanwhile, London rental growth is expected to pick up to 3.5%, with rents ultimately exceeding pre-pandemic levels.

Gráinne Gilmore, Head of Research, Zoopla, comments: “The swing back of demand into city centres, including London, has underpinned another rise in rents in Q3, especially as the supply of rental property remains tight. 

“Households looking for the flexibility of rental accomodation, especially students and city workers, are back in the market after consecutive lockdowns affected demand levels in major cities. 

“Meanwhile, just as in the sales market, there is still a cohort of renters looking for properties offering more space, or a more rural or coastal location.” 

*The methodology Zoopla has used to calculate affordability has changed from the last quarter; Zoopla is now using ASHE data, and previously used the Labour Force Survey.