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Things have been pretty hectic in the housing rental market in recent times and 2024 is showing little sign of offering much respite. On the plus side for landlords, rapidly rising demand for new tenancies and rising rental prices means that yields should be up. On the other hand, many tenants are finding the cost of living crisis increasingly hard to bear, and prospective renters may struggle to meet the cost of their new home.
So what do the latest statistics tell us? Fortunately for us, online estate agents Zoopla have recently issued their UK Rental Market Report (March 2024)…
UK Rental Market Report: Rental Prices
The report found that annual rent inflation for new lets over the UK as a whole was 7.8% over previous twelve months. Although this remains above the general inflation rate for the economy as a whole, it still represents a significant reduction. The rate is the lowest for two years and well down from last year’s 11%.
The overall rate does hide significant regional differences in price rises across the nation though. London saw a spectacular fall in rental price inflation, down from 15.3% last year (the nation’s highest) to 5.1% in January 2024 (the lowest).
The London market does tend to be more volatile, but it seems likely that the ability of prospective tenants to afford the rapid recent price rises may be having a dampening effect on current rental prices in the city. Demand levels also more closely match supply in London than in most other regions of the nation, where there is a consistent shortfall of available properties to let.
The rest of the country generally shows a steadier decline in price rises, with a few edging upwards. The East of England is one of these, with annual rental price inflation up slightly from 8.6% to 9.3% over the year. New rental prices are now rising fastest in Scotland, where they are up 11.6%.
Over the nation as a whole, most regions show a change in rental price inflation of no more than 2% either way, so it seems that it is really the London market which is largely responsible for the 3.2% drop in overall inflation.
In any case, the problem for tenants is that with the single exception of London (which has seen rapid rises in rental prices in recent years) every region is showing rents rising faster than earnings, which increased by only 5.6% on average over the year.
This current situation follows on from the swift rise in rental prices over the last few years. The pandemic has been a major factor in the fact that overall, rent levels have increased by almost 30% since January 2020. This has been particularly harshly felt in the East of England, where 70% of private rented homes now cost over £1,000 per month, whereas in 2020 it was only 24%.
UK Rental Market Report: Rental Demand
Zoopla’s March 2024 Report also shows a significant reduction in rental demand, which is down 20%. They attribute this to a cooling in the labour market and the fading of any remaining pandemic influences on the market. They also note a 20% rise in homes available for rent which is also likely to having a cooling effect, although the current supply remains below pre-pandemic levels.
Nevertheless, overall demand remains high: landlords are still receiving an average of fifteen enquiries for every home for rent – well down from over forty enquiries per property in the pandemic affected market of 2021, but still around double that of pre-COVID levels.
Buy-To-Let Market
The buy-to-let market continues to grow, despite the doom-laden predictions of many following the recent government regulatory and taxation changes. On the supply side, market growth has been supported by the emergence of a burgeoning city centre rental market in many of the UK’s large conurbations. The fall in demand for retail and office space has encouraged local councils to approve new-build developments and conversions of business space to domestic use in town and city centres.
Major house builders like Persimmon and Barratt are also increasingly willing to sell their new-build properties directly to corporate landlords so that new houses can move directly into the buy-to-let market.
On the demand side, things are more complex. Rental prices have been rising much faster than earnings for some years now, with rental levels now at a historically high level of around 30% of average earnings. On the other hand, rising house prices and increasing mortgage interest rates have made it increasingly hard for first-time buyers to become homeowners. They are also competing with buy-to-let landlords who have more readily available funds. Potential first-time buyers are therefore remaining in the rental market, increasing demand beyond what it might have been.
All this means that for the foreseeable future, despite increasing affordability problems in the market, rental demand is likely to exceed supply.
Conclusion
The short-term future really does look like a situation of ‘more of the same’. Zoopla would like to see an increase in the supply of housing, but it really is difficult to see where this could come from.
As 2024 continues, the general inflation rate and average earnings are expected to settle below 5%. There will be a General Election in the UK this year, but none of the major parties are promising any major investment in public house building projects.
Any significant increase in private housing investment also seems unlikely, given the ongoing sentiment in the market toward rationalisation and reduction in private landlord portfolios. This is being driven by general scepticism toward the recent government regulatory changes, and the continuing higher mortgage interest rates.
Overall therefore, it looks as if the gap between supply and demand will continue to drive rental prices upwards. Meanwhile, affordability problems derived from low earnings increases; continuing high mortgage interest rates and the ongoing cost of living crisis will apply a brake to any potential rapid rental price inflation. The result is that rental prices are expected to continue to rise for the foreseeable future, although at a gradually reducing rate.
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