18% jump in rents since Covid, and ‘more to come’ says think-tank
The cost of new tenancies has grown by 18% since January 2022 with the proportion of poorer families renting almost tripling from just 11% in the mid-1990s to nearly 30% in 2021-22.
Average rents could rise by 13% over the next three years as current market rates work their way through existing tenancies, according to Resolution Foundation research published today.
Through the roof: Recent trends in rental price growth, reveals that the cost of new tenancies has grown by 18% since January 2022 with the proportion of poorer families renting almost tripling from just 11% in the mid-1990s to nearly 30% in 2021-22.
INTEREST RATES
And the Foundation says that the theory that rising interest rates have pushed up the cost of servicing buy-to-let mortgages – forcing landlords to pass on these costs to their tenants – ignores the fact that landlords’ ability to pass on higher costs is ultimately constrained by the wider rental market.
It also dismisses scare stories about interest rate rises and tougher regulation sparking a mass exodus of landlords.
The main reason for the rents surge, it says, is a bounce-back from the pandemic and more recently fast rising wages.
The pandemic put a stop to evictions and repossessions while rent levels fell to their lowest level on record relative to earnings. By early 2022 rents were nearly 5% lower than they should have been.
PANDEMIC
The report says: “If we assume average rents paid will return to their pre-pandemic level compared to earnings in three years’ time, then rents (for all tenancies) would see over 13% price growth over that period (or 4.2% a year on average), much faster than the 7.5% growth in average earnings (or 2.4% a year on average) forecast by the OBR over those years.
“This means there are significant housing cost rises yet to come for many renters over the next few years and estimates of rental price inflation across all rental properties – rather than just new lets – will remain high for some time yet.”
Cara Pacitti, Senior Economist at the Resolution Foundation, adds: “With more families renting privately, and renting for longer too, these rent surges are a bigger problem for Britain, and require bolder solutions from policy makers.
“Short-term solutions include regular uprating of Local Housing Allowance to support poorer families, and the ultimate longer-term solution is to simply build more homes.”
RANGE OF FACTORS
Ben Beadle, Chief Executive of the National Residential Landlords Association, says: “Rising rents are a result of a range of factors. Whilst wage growth plays a role, a key driver is the imbalance between supply and demand.
“The impact of rising interest rates and tax increases should not be downplayed – 82% of buy-to-let loans are interest only and the number of buy-to-let mortgages in arrears more than doubled in the final quarter of 2023 compared to the year before. The Institute for Fiscal Studies has said that ‘the more harshly that landlords are taxed, the higher rents will be’.
“Ultimately, a healthy rental market is one in which there is a supply of rented housing to meet ever growing demand. Ministers need to act to support the sector by developing pro-growth tax measures to deliver this.”
