Chronic shortage of rental homes pushes rents up 12%

Fast-rising rent across the country is seeing a trend for tenants to move into smaller properties to reduce their bills – as rents rocket by 12%.

That’s according to the latest report from Zoopla which highlights there has been a jump in demand for one and 2-bed flats as renters feel the cost-of-living squeeze.

They say fewer renters are looking for 2- and 3-bed houses.

The survey also reveals that the average rent has increased by £115 per month since last year, reaching £1,051 per month – and accounting for 34.4% of the average income of a single earner.

Rent price growth has accelerated over the last 12 months – from less than 2% in July 2021 to 12.3% today – although there are signs that rental growth is starting to peak.

In a reversal of a trend seen during the pandemic, rental growth in urban areas (10.5%) is now outpacing that in rural markets (8.5%) as strong employment growth drives demand in cities.

No real prospect of significantly improved rental supply

Zoopla also warns that there is no real prospect of significantly improved rental supply in the near term as private landlords continue to sell off homes due to tax and regulatory changes and renters decide to stay in their current homes.

This means there is a ‘severe supply and demand imbalance‘ with the stock of homes available to rent standing at just half of the five-year average – while the average letting agent currently has just eight homes available to rent.

The property portal highlights that 3 in 4 renters will decide to stay in their current property – although they will experience lower levels of rental growth of 4% or less – this will squeeze supply in the market as a result.

When it comes to energy prices, the amount of gas to heat and run a purpose-built flat for a year is 40% lower than a terraced house and 25% lower for a converted flat.

City centre flats are becoming increasingly appealing

New-build city centre flats are also becoming increasingly appealing to renters seeking out smaller homes with lower running costs.

The report highlights that rental growth is ranging from 7.6% in the North East to a staggering 18% in London.

Despite rents in London rebounding from a low base, the pace of rental growth in London is not sustainable at current levels with average rents in London currently 7.8% higher than pre-pandemic.

The strongest performing urban markets are London (17.8%). Manchester (15.5%), Glasgow (14.4%) and Bristol (12.9%) – where rental growth is standing above the UK average of 12.3%. Rents are also rising faster at the top end of the market with asking rents for 2-bed flats rising more quickly at the upper end (top 25%) of the market in comparison to the lower end of the market where demand is more price sensitive.

‘Rents have surged ahead over the last year’

Richard Donnell, the executive director at Zoopla, said: “Rents have surged ahead over the last year but there are signs that the pace of growth is peaking and set to slow into 2023.

“Renters are responding and looking for smaller, better value for money homes to rent with an eye on energy costs as much as rental levels.”

He added: “What the rental market needs to combat these challenges is more new homes for rent.

“Greater regulation has seen less new investment and a small but growing number of landlords selling up, meaning the rental market has stopped growing since 2016.

“There is a risk that more regulation to improve standards or potential new measures to dampen rental growth, as proposed in Scotland, may compound the supply problem which is pushing rents up in the first place.

“Policymakers need to tread a careful path between protecting consumers and ensuring a decent supply of homes for rent.”

Hannah Gretton, the lettings director at LSL’s Your Move and Reeds Rains brands, said: “We are experiencing high levels of demand for rental properties with homes being snapped up within hours of hitting the market.

“With over 270 lettings branches nationwide, it’s a picture that is reflected up and down the country with particular demand in urban areas.”

She added: “On average, we are seeing double figures of enquiries per property with a one-bedroom property in Manchester last week receiving over 100 requests to view, highlighting just how busy our branches are and the challenges renters face when it comes to finding an appropriate property.”

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