New rent control measures

The rental sector seems trapped in a perpetual cycle of low supply and high demand, resulting in consistent double-digit rent growth for 18 consecutive months. Scotland, currently the most active rental market, has seen an increase of almost 13% in rents over the past year, according to Zoopla’s latest quarterly Rental Market Report. This is due to landlords adjusting to new rent control measures.

UNAFFORDABILITY AND ADAPTATION: THE RENTERS’ DILEMMA

Rents are escalating faster than earnings, thus exacerbating the affordability issue for those seeking to move. The report predictions indicate a 9% rise in rents during 2023, with the rate of growth largely influenced by the affordability of rent and how renters adjust to these increases rather than significant changes in supply or demand. The trend of renters sharing accommodation could sustain this growth into 2024 as the scarcity of rental homes shows no sign of abating.

RENTAL AFFORDABILITY AT A DECADE-HIGH

The report reveals that rental affordability – measured by the percentage of gross earnings needed to cover average rent – is currently at its highest level in ten years, at 28.4%. This figure is higher than the average of 27.2% over the past decade and is primarily attributed to the continuous rise in rents for new lets surpassing UK wage growth.

RENTERS’ STRATEGIES AMID UNAFFORDABILITY AND SCARCITY

As rents become increasingly unaffordable and supply remains scarce, renters have been renting smaller homes, relocating to cheaper areas or sharing properties with other renters to cut costs. According to data from the Resolution Foundation, private renters have witnessed a 16% decrease in per-person floor space over the past two decades.

RISING COSTS AND DECREASING SUPPLY

Despite the annual UK rental growth rate currently standing at 10.5% compared to 12.1% a year ago, renters are still likely to pay an additional £1,320 annually – or £110 per month. Over the past three years, rents for new lets have increased by an average of £2,772 annually, exacerbating cost of living pressures for renters. Meanwhile, rental supply is 30% below the average for this time of the year, even though demand for rental homes is still 51% above the five-year average.

SCOTLAND: THE NEW EPICENTRE OF RENTAL GROWTH

Scotland has surpassed London as the region with the fastest rental growth at 12.7%. This is largely due to the implementation of rent controls in September 2022, which have limited rent increases for existing tenancies to 3% per year. With properties becoming vacant, landlords can reset the rent to the full market rate. This means landlords strive to maximise rent for new tenancies to cover increased costs and account for future rent increases being capped over the tenancy’s lifespan, thus fuelling rental growth in Scotland compared to other UK regions.

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