As the cost of living increases, residential tenants are being pushed to contribute more of their income to keep the roof over their heads as UK rental prices hit a 13-year high at almost £1,000.
New research has revealed that rents had increased by 8.3% by the end of 2021 and renters are paying an average of £969 pcm…which according to Zoopla is £62 more than at the start of the pandemic.
Households are feeling pressure from current economic volatility with the average rent accounting for 37% of total household income for a single earner, up 3% from 34% during most of last year.
Relatively, this figure is actually more in line with the longer-term average of 36% as growth in rental prices tally that of wage increases. Rental increases over the last 5 years were affected by the decline in rental amounts in many places during the pandemic and totalled 12%.
High Demand, Low Supply
January saw a huge surge in enquiries per rental listing, up 76% from New Year markets between 2018 and 2021. Despite this demand, the supply of rental homes is down 39% than is typical for this time of year.
The diminishing supply of stock can be put partly down to a continued decrease in Buy-to-Let investment after the government imposed more restrictions on landlords over the last few years, which has put many investors off expanding their portfolios.
Concerns are that as rents continue to rise, more renters will choose to stay put in their current property, further limiting supply. This may underpin more modest rental growth, especially in central areas. As the spike in demand for rental properties decreases, held back by increased cost of living, pressure will be reduced on the available supply and may ultimately drive more competition in local markets.
Post-lockdown trend reversal
As life, post-pandemic starts to return back to a new normal, Zoopla has noted trends emerging as changes in supply and demand push renters back towards cities.
Pandemic requirements for wider commuter zones as people wanted more space as they worked from home are now changing as a reversal takes place as people move back to work in city offices.
Demand is now from office workers, students and international residents and investors who are looking for living in city centres, seen most prominently in inner London with rental growth of 11% compared to the same time last year. However, as rental prices dropped dramatically during the pandemic, this recent growth only represents £18 per month increase compared with March last 2020.
Zoopla’s Head of Research, Grainne Gilmore said that despite some sharp rises in rental prices in certain areas, most rents are still close to the 10-year average in terms of affordability.
“As demand continues to outpace supply, there will be further upward pressure on rents, but affordability considerations will act as a brake on large rises.
“The flooding of rental demand back into city centres thanks to office workers, students and international demand returning to cities means the post-pandemic ‘recalibration’ of the rental market is well underway.”