‘Overheated’ lettings market sees rent rises calm down
There are signs asking rents have risen too high in some markets - there has been a spike in rental listings with rent reductions of over 5%, says Zoopla.
The boom in rental prices is expected to slow next year with growth for new lets dropping to single digits (9.7%) and the pace of rental growth set to halve to 5% in 2024, Zoopla’s latest Rental Market Report reveals today.
London has recorded the greatest slowdown in rental growth over the last year, down from 17% a year ago to 9%. Rents in London have risen rapidly since mid 2021, having fallen by 10% over the pandemic (2020-2021).
Annual rental growth is lowest in the inner London boroughs of the City of London (6.3%), Westminster (7.3%) and Tower Hamlets (7.3%).
SCOTLAND
At the other end of the spectrum, rental growth in Scotland continues to gain momentum and currently stands at 12.9%, up from 11.4% a year ago.
Demand has been strong in Scotland but rent controls are another factor behind the strong growth in rents for new lets.
Landlords and agents are likely to be pushing rents higher to allow for the fact that rental increases will be capped at 3% a year throughout a tenancy and with the affordability headroom to do this. At a city level, rental growth in Edinburgh is +15.2% and +13.2% in Glasgow.
Northern regional cities such as Manchester, Bolton, Derby and Newcastle are also seeing double-digit rental growth from strong demand and greater headroom for rents to increase relative to earnings.
STATIC SUPPLY
Richard Donnell, Executive Director at Zoopla, says: “The rental market has been stuck in a period of static supply and strong demand which has pushed rents higher.
“Demand has been driven by the strength of the labour market, the re-opening of the economy after the pandemic lockdowns, record immigration and higher mortgage rates.
“The supply-demand imbalance in rented housing is not going to disappear in 2024, however, the market is set to become more balanced than it has been over the last three years.”
And he adds: “The slowdown in rental growth over 2024 will be down to a weaker labour market, slower earnings growth and growing affordability pressures limiting the pace at which rents can rise.”
Reaction
Richard Davies, Chestertons Chief Operating Officer, says: “We believe that rents are likely to rise further over the next two years as employment remains high and competition for rental properties is sustained.
“However, we will see more supply coming to the market as rising yields have started to encourage more landlords back into the market and some financially stretched homeowners are choosing to put their properties on the rental market in reaction to the jump in mortgage repayments.”
Nathan Emerson CEO Propertymark, says: “The lettings market has been extremely challenging over the last few years, we have had a long running situation where demand is massively outstripping supply across the entire UK.
“Our own Housing Insight Report shows that in some circumstances there are more than thirty applicants for each property advertised and this has created a very spikey market for people to contend with pricewise.
“The problem has deeply sat with an ongoing shortage of homes available, but we must look a little deeper than simply stating there is a current shortage of quality properties to rent and ask why is this the case?
“We have had the situation across many decades with simply not enough new homes being built to keep pace with actual demand. However, there are many other long-term complexities that need addressing too, such as sensible support for landlords within the private rented sector who are operating at extreme limits and struggling to stay realistically within the marketplace.”
