While stories of escalating rental costs and fierce tenant competition have become commonplace, the official data presents a conflicting narrative. As the housing landscape continues to evolve, a closer examination of these factors reveals a complex interplay of supply, demand, and regulatory changes.
In the midst of anecdotal reports of soaring rents and bidding wars, the Office for National Statistics (ONS) paints a different picture. Private rental costs have officially increased by 5.1 per cent in the last year, compared to a 6.9 per cent rise in average earnings and 7.9 per cent inflation. However, this disparity is not the full story.
The 5.1 per cent increase reflects average rent across all private renters and pertains to the existing rental property stock.
A closer look at the cost of new rentals reveals a more pronounced trend: according to estate agent Rightmove, average asking rents have surged by 9.3 per cent in the past year and by 33 per cent since the pandemic began, particularly pronounced in London.
Rental market constraints
This rental crunch is especially evident for those moving into new rental accommodations, particularly in larger and more popular cities. Comparable challenges are also unfolding in countries like the US, Canada, New Zealand, and Ireland, where surging demand collides with constrained supply.
In the UK, the rental landscape has been further shaped by mounting costs and regulations that have deterred prospective landlords. The introduction of the Renters (Reform) Bill, ending no-fault evictions and curbing above-market rent hikes, demonstrates the government’s efforts to create a more balanced rental environment.
However, the single most impactful factor influencing landlords’ costs has been the rise in interest rates. The average interest rate on two-year fixed rate buy-to-let mortgages has surged from 1.8 per cent pre-pandemic to 6.2 per cent recently, impacting financing costs and weakening house price growth.
Despite these challenges, the exodus of landlords from the market has been less pronounced than anticipated. The rapid expansion of the buy-to-let property stock, observed since 2000, has plateaued.
The latest statistics indicate that 19.4 per cent of UK households rent privately, a minor dip from a peak of 20 per cent.
This decrease in rental supply has coincided with robust demand, driven by rapid earnings growth and high levels of migration. The surge in net migration, reaching a record 606,000 in 2022, has added to the demand for rental housing, particularly among non-UK nationals.
Analysis suggests that net migration may have contributed to rental inflation by up to eight per cent.
As a result, the prevailing landscape reflects a diminishing rental property stock grappling with intensified demand. The outcome is a predictable rise in rents and, for some, a decrease in living space. Yet, these figures don’t capture the full extent of the situation. Renters face a precarious position compared to homeowners, as they allocate a significant portion of their income towards rent.
The Resolution Foundation underscores that six in 10 working-age adults who rent are struggling to meet housing costs, further exacerbated for those relying on housing benefits.
While the factors causing a rental cost increase – such as elevated interest rates and migration – may eventually diminish, the underlying challenge of increasing demand and limited supply remains. The housing market’s evolution calls for strategic planning and innovative solutions to ensure a more balanced and accessible rental landscape for all.
