Annual UK rents slowed to 11.1%, or an average of £1,078 per month, in the first quarter of the year, data from Zoopla shows, but adds that private sector cost for tenants will “continue to run well ahead of earnings growth” this year.
Rent prices have eased from a high of 12.3% in the middle of last year, as economic growth weakens, says the online property firm’s latest quarterly UK Rental Market report.
The UK is expected to avoid a recession this year with the economy falling by 0.2% in 2023, according to the Office of Budget Responsibility.
However, the property firm says private sector rents have “been running hot for two years”, boosted by a strong labour market, high immigration and tight supply.
It says, in 2021, there were 5.5 million privately rented homes in the UK, only slightly more than the 5.4 million properties there were in 2016.
Average earnings over the last 12 months have risen by almost half that of rents, at 6.7%, the survey points out.
It adds: “Rents have risen by 20% in three years — an extra £2,220 a year — which is an ongoing concern for renters, especially those on lower incomes and/or in receipt of housing benefit.”
The report says rental inflation “took off” as the economy reopened in the spring of 2021, as the pandemic eased.
It says demand is driven by the strength of the jobs market which has over 1 million vacancies, according to the latest ONS data.
Also, immigration hit 504,000 people in the year to June 2022, driven by skilled workers, Ukrainians fleeing the war with Russia and British overseas citizens leaving Hong Kong.
The study says the availability of rental homes for rent is worst in London “where there is huge competition from a range of renters including students, those working in the capital and short-term visitors”.
In London, rental inflation is 15.2% amounting to an average monthly rent of £1,978, followed by Manchester at 14.4% with a £978 average rent and Edinburgh at 12.7% with a £1,333 average rent.
However, the survey does not expect rental demand “to be quite as strong as last year given weaker economic growth”, and forecasts rents will slow to between 4% and 5% by the end of the year.
But it adds this rate is above the five-year average for rental growth.
The survey says: “In terms of affordability, average rents expressed as a percentage of earnings are now at or close to ten-year highs in all regions, except London.”
“Much depends on trends in employment, especially across UK cities where rented homes and jobs are concentrated.”
Paragon Bank managing director of mortgages Richard Rowntree says: “Tenant demand shows no sign of abating and remains at 51% above the five-year average.
“With Zoopla’s analysis showing only a 1% increase in private rental housing supply over the past seven years, the chronic supply/demand imbalance we see today will only worsen unless the stock of rented homes increases.
“This is clearly something the current government, or the next, will need to consider as it develops housing strategy; landlords are an important element of the housing mix and should be incentivised to maintain or grow their property portfolios through a fair and proportionate regulatory and fiscal regime.”
