The disparity between supply and demand in the rental sector

A recent report has elucidated that, notwithstanding a deceleration in the rapid escalation of rental prices witnessed over the preceding three years, the year 2024 is set to conclude with rental costs surpassing their initial levels[1]. This trend is principally attributed to the inadequate expansion in the UK’s rental housing supply to meet the burgeoning demand.

Despite this, there has been a marginal improvement, with the average letting agent now managing 12 properties, marking a fifth more than the previous year. According to the report, this indicates a positive, albeit slow, shift in stock availability. Nonetheless, the inventory of available rental properties remains below the averages seen prior to the Covid-19 pandemic.

FINANCIAL IMPLICATIONS FOR RENTERS

The financial burden on renters has intensified, with over half of the privately rented properties now commanding monthly rents in excess of £1,000, elevating the national average to £1,223. This signifies a 7.8% increase compared to the preceding year, continuing the upward trajectory of rental costs.

However, this growth rate represents a deceleration from the 11% annual increase noted a year earlier, influenced by a cooling labour market, the diminishing impact of the pandemic and marginally improved mortgage rates for first-time purchasers.

REGIONAL VARIATIONS IN RENTAL TRENDS

London’s rental market has experienced the most pronounced decline in prices over the last year, significantly influencing the overall UK rental averages. Excluding the capital from the equation reveals a steady state in rental prices across the UK, with certain regions such as the North East, South West, South East and East witnessing price increments over the past year.

Conversely, London’s annual rental growth fell from 15.3% to 5.1%, marking the lowest in the country and indicating a sharp deceleration, potentially as a consequence of the cost of living crisis.

SUPPLY AND DEMAND DISPARITIES

The report highlights that the disparity between supply and demand has notably narrowed in London, with demand decreasing by 30% compared to the previous year, while the supply saw a corresponding increase. In the North West, however, rental price growth only marginally reduced, from 10.6% to 9.8%.

“The financial burden on renters has intensified, with over half of the privately rented properties now commanding monthly rents in excess of £1,000, elevating the national average to £1,223.”

Despite an improvement in the number of rental homes available, the market still faces a 28% deficit in homes for rent per agent compared to the pre-pandemic average, underscoring the persistent shortage of rental housing.

THE AFFORDABILITY CRISIS

When juxtaposed with average earnings, rental markets’ affordability has deteriorated as rents have surged. Between 2016 and 2021, rents rose by a mere 4%, attributed to subdued demand post-Brexit, an increase in supply prior to 2016 and more accessible homeownership due to low mortgage rates.

However, a resurgence in demand alongside rising mortgage rates, coupled with stagnant supply levels, has left many potential first-time buyers in the rental market, exacerbating the pressure on the already limited housing stock and fuelling further rent increases.

TOWARDS A SOLUTION

The report unequivocally suggests that enhancing rental affordability necessitates expanding the rental supply. While new constructions will contribute to alleviating the shortage, a significant impact would require increased investment by private landlords.

This prospect appears bleak as higher mortgage rates and escalating regulations may deter new investments and lead to a rationalisation of existing landlord portfolios, potentially neutralising any gains in rental supply, the report concludes.

Don’t forget, our professional friendly advisors are on hand to support you and can help you explore all of your options.

Source: