Published: 25/03/2022 By Lucy GoodgameRental Prices Soar as Demand Outweighs Supply
Rents have increased at their greatest annual rate for more than five years, as demand heavily outweighs demand, the latest data from the Office for National Statistics shows. Private rental prices paid by tenants in the UK increased by 2.0% in the 12 months to January 2022, representing the largest annual growth rate since February 2017.
The Association of Residential Letting Agents report that the availability of rental stock in London has fallen by 71% in 12 months. The average number of new prospective tenants registered per member branch was 67, the highest on record for the month of December 2021. Essentially, there are now not enough private rental properties on the market, which has pushed rental prices up.
Why are Landlords Selling Up?
Two full years have passed since the first lockdown began in March 2020, but the aftershocks of the pandemic continue to be felt throughout the country, not least for the 2.6m landlords who let out residential properties in the UK.
With increased regulation and taxation for landlords in recent years, many have felt the acute lack of government support during the pandemic is the final straw. While the government quite righty legislated to offer safety nets to tenants who faced job losses, furlough, and reduced incomes, landlords were not offered the same safeguards.
The pandemic has had a serious impact on the economy and tenants’ finances, causing an obvious knock-on effect for landlords. Tenants’ financial insecurity, the eviction ban, and this perceived lack of government support have all resulted in a prolonged period of uncertainty for landlords, with many suffering long term financial loss because of the pandemic.
Studies show that around 51% of landlords lost money due to the economic effects of the pandemic. It should come as no surprise then that a large proportion of landlords are either thinking about selling up or have done so already. Floyd Barnes, co-founder of Living London, reports that since 2020, many landlords across the UK have opted to sell their Buy-to-let properties as a direct result of Covid-19.
Accordingly, rental supply is now at its lowest levels in almost a decade, meaning demand far outstrips supply.
With the ending of all restrictions, this increased demand for rental properties continues to rise and, combined with the now diminished stock, is pushing up rental prices. Whereas the loss of a long-standing tenant used to be something to mourn, many landlords now embrace this as the perfect opportunity to hike the rent and feel secure in the knowledge that no property or room will sit vacant for long.
Help from the Spring Budget?
Whilst Rishi Sunak’s Spring Budget didn’t offer any direct solution to the problem, his strategies to help reduce the increasing cost of living will hopefully have a knock-on effect on the rental market going forward.
The measures announced by the chancellor aim to address pressures on households and give some relief from rising costs. However, with demand in the market continuing to outstrip supply, the ongoing shortage of stock will likely sustain rental and sales price growth in the coming year, despite myriad external economic pressures.
With higher energy and household bills, many may choose to stay put in their existing rental home, as the demand for rental property has led average rents for new lets to rise around 8% on the year. At the same time, the rising cost of mortgages could mean that more renters put off their first step onto the housing ladder, staying in the rental sector for longer. All of this will increase demand for rental properties, while the supply of homes for rent is constrained, underlining the importance of policies to support the provision of rental homes at every level of affordability.
Landlords such as Posh Pads in Southampton are taking the initiative and offering the option to include bills with rent as an option for student tenants, allowing the much-needed security of a fixed contract for energy. With energy prices doubling for many around the country this April, this is an appealing and smart option for tenants concerned about affordability.