Rent rises to outpace wage growth despite cooling prices

Despite a recent cooling down in rent price growth, renters are likely to see their housing costs rise faster than their earnings in the coming years, a new report reveals.

The think tank Resolution Foundation says average rents could rise by 13% over the next three years, as today’s high market rates work their way through existing tenancies.

That means rents will outpace the projected 7.5% growth in average earnings.

It has found that the rapid increase in rent prices for new tenancies – nearly 18% since early 2022 – was down to a post-pandemic bounce and rising wages.

Families have faced surging rents in recent years

The Foundation’s senior economist, Cara Pacitti, said: “Millions of families agreeing new tenancies across Britain have faced surging rents in recent years, as we have emerged from the pandemic.

“Those rises for new tenancies are starting to slow, but how much renters actually pay will continue to outgrow how much they earn for some years to come as those not yet exposed to higher prices are hit.”

She added: “With more families renting privately, and renting for longer too, these rent surges are a bigger problem for Britain, and require bolder solutions from policymakers.

“Short-term solutions include regular uprating of Local Housing Allowance to support poorer families, and the ultimate longer-term solution is to simply build more homes.”

Landlords aren’t leaving the PRS

The Foundation also claims to debunk some common misconceptions about the recent rent surge, and it says that rising interest rates aren’t behind the rise – and landlords aren’t leaving the PRS.

It says that popular arguments are wide of the mark and landlords’ ability to put up rents is dictated by the wider market.

If they could increase rents, they would have done so before 2022.

The Foundation also dismisses ‘scare stories’ about rate rises and more regulation leading to an exodus of landlords.

The think tank says there has been a ‘very modest shrinking’ of the rented sector since mid-2019 – of just 1%.

‘Renters have nowhere to hide’

Ben Twomey, the chief executive of Generation Rent, said: “Renters have nowhere to hide from the housing crisis.

“It doesn’t matter what you’re earning: if your landlord thinks someone else would pay a higher rent, then they can demand more from you, and threaten you with eviction if you push back.”

He adds: “Rising rents mean we have less to put aside for the future, and less to spend on actually living.

“As well as building more homes and giving enough support through the benefit system, the government needs to stop landlords raising rent beyond what we as tenants can actually afford.”

‘Rising rents are a result of a range of factors’

Ben Beadle, the chief executive of the National Residential Landlords Association, said: “Rising rents are a result of a range of factors. Whilst wage growth plays a role, a key driver is the imbalance between supply and demand.

“As the report highlights, an increasing number of people at all stages of their life now rely on the private rented sector.

“However, with demand far outstripping available supply, there are an average of 15 prospective tenants chasing every rented property, double the pre-pandemic level.”

He added: “The impact of rising interest rates and tax increases should not be downplayed. 82% of buy to let loans are interest only and the number of buy to let mortgages in arrears more than doubled in the final quarter of 2023 compared to the year before.

“Ultimately, a healthy rental market is one in which there is a supply of rented housing to meet ever growing demand.

“Ministers need to act to support the sector by developing pro-growth tax measures to deliver this.”

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