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Rising mortgage costs, tax and legal changes continue to put pressure on landlords, forcing many to sell and negatively impacting rental supply levels across the country.
The latest data from Zoopla shows that there are an average of 21 people competing for every rental property, more than double the pre-pandemic average, meaning supply remains a major issue for renters, pushing up rents in the process.
The number of homes to rent is 24% below the pre-pandemic average due to a slump in new investment by private landlords, and there are fears that tax changes in next month’s Autumn Budget could lead to further landlord sales.
According to Zoopla’s latest rental market report, rent increases for new rental properties are currently at 5.4%, half of what they were a year ago, but still higher than the increase in average incomes (5.1%). The average rent will be £1,245 per month in July 2024, £63 per month higher than a year ago.
Low levels of new investment by private landlords mean a lack of supply remains a major challenge for renters: while the number of homes available to rent has increased by almost a fifth since last year’s low, the number of homes available to rent remains 24% lower than the pre-pandemic average.
Risk of budget tax changes exacerbating supply problems
A lack of new investment in private rented housing has led to a shortage of rental housing, fuelling the large increases in rents (+30%) over the past three years. Increasing the supply of rental housing is essential to mitigate the scale of rent increases amid sustained demand.
Data from Zoopla shows that there has been a steady flow of landlords selling their homes since 2016. More than one in ten homes listed for sale on Zoopla (12.5% in July) were previously rented properties. Tax and regulatory changes dating back to 2016, as well as rising mortgage rates, have further encouraged landlords to sell over the past two years.
The Government’s proposed rental reforms, contained in the Tenants’ Bill of Rights, have already prompted many landlords to decide whether to exit the market or stay in. However, speculation about potential tax changes affecting landlords in the Autumn Budget could lead to increased sales of rental properties, further reducing supply for renters and pushing up rents.
With lead times for property sales to be completed of 20 weeks or more, it is too late to start now in the hope of completing before the Budget announcement, although delayed tax changes affecting landlords may result in more landlord sales in the short term.
Rents will rise the most in affordable areas adjacent to major cities
The slowdown in UK rent growth is driven by a much slower decline in growth in London (2.5%) and slower growth in other major UK cities (5.8%). Rents are rising at above average rates in many other parts of the UK, including smaller cities and towns where rents are cheaper and value for money. The fastest rent growth is in the more affordable areas adjacent to these larger cities, with six postal zones seeing annual rent increases of more than 10%.
Table 1: Areas in the UK experiencing rent inflation of over 10%
country | post code | Annual growth rate | Average monthly rent | Nearest city | Annual growth rate | Average monthly rent |
Scotland | Kilmarnock (KA) | 13% | £608 | Glasgow | 5.3% | £965 |
Kirkcaldy (Kentucky) | 12% | £708 | Edinburgh | 7.3% | £1,323 | |
England | Wolverhampton (WV) | 12% | £871 | Birmingham | 5.7% | £958 |
Oldham (OL) | 11% | £851 | Manchester | 6.3% | £1,088 | |
Darlington (DL) | 10% | £597 | Middlesbrough | 7.8% | £635 | |
Walsall (WS) | 10% | £873 | Birmingham | 5.7% | £958 |
Source: Zoopla Rent Index, July 2024
In Scotland, Kilmarnock (13%) and Kirkaldy (12%) have seen the highest rent increases, well below average rents in Glasgow (25-35%). Rent control in Scotland is also contributing to exacerbating rent increases.
Across England, rents continue to rise sharply in Wolverhampton (12%), Oldham (11%), Darlington (10%) and Walsall (10%) – all areas close to larger cities with higher rents or with good transport links and further away cities.
Supply-demand imbalance to continue until 2025
Demand for rental housing is slowing as temporary factors from the pandemic begin to fade and lower mortgage rates encourage some renters to buy their first home. Changes to visa rules are likely to reduce migration for study and work. Despite the softening labor market, rental demand is expected to remain at above-average levels for the remainder of 2024, with rents expected to increase by 3-4% by the end of 2024.
The economic challenges of homeownership will continue to drive demand for rentals, particularly in the south of England, where a significant number of working people cannot afford to buy a home. With the supply of affordable housing showing little growth, the private rented sector will continue to meet the needs of those on lower incomes, further boosting overall demand.
Zoopla executive director Richard Donnell said: “The slowdown in rent inflation is driven by a shortage of rental housing and continued strong demand due to the challenges of homeownership. While rent inflation has slowed in some major cities where rents are high, it is still rising rapidly in more affordable areas.”
“New policies and tax changes that lead to less supply will only drive up rents, hitting low-income renters hardest. It is essential that policymakers focus on increasing rental housing inventory as the primary means of curbing rent inflation and increasing choice for renters. As things stand, the only way rent increases will slow is if renting becomes increasingly unaffordable.”
Reflecting on the latest Zoopla lettings report, Nathan Emerson, CEO of Propertymark, commented: “The rental market has been struggling with a lack of supply relative to ever-growing demand for a worryingly long time. The problems in the residential sector continue to get worse with each passing year, and in the real world it is becoming increasingly difficult for renters to secure a property that suits their needs.
“Tax changes and additional debt imposed on many landlords, along with rising living costs and mortgage repayments, are putting extreme pressure on operating costs. Against the backdrop of the introduction of the Tenants’ Bill of Rights, this will create further uncertainty for current and prospective investors and may exacerbate already worryingly low supply levels.”
“The new legislation will be introduced with a balanced and fair approach for all stakeholders, which is key to encouraging long-term investment in delivering quality housing to areas that desperately need it.”
Tom Bill, head of UK residential research at Knight Frank, added: “While it’s a welcome idea to give tenants more security in their rented properties, the new laws could have unintended consequences if they are not introduced in a thoughtful way. If enough landlords decide the new rules are too tough and sell up, it could reduce the supply of rental properties, leading to higher rents and bad news for tenants.”
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