The UK rental market has been experiencing a surge in demand and a shortage of supply in recent years, resulting in rising rents and fierce competition among tenants. According to Zoopla, average rents for new-lets have increased by 11.1% in the last 12 months, while earnings had increased by only 6.7%. Rents have risen by 20% in three years, adding an extra £2,220 a year to the average rent.
One of the main drivers of rental demand is the strength of the jobs market, which has been boosted by high economic immigration and new visa rules that attracted a large inflow of students and workers in 2021 and 20221. The Office for National Statistics (ONS) reported that there were over 1 million vacancies in the UK in November 20221. This has increased the demand for rented homes, especially in regions and cities with strong employment opportunities.
Another factor that has contributed to the demand for rental accommodation is the difficulty of accessing homeownership for many people, especially young adults, and low-income households. The high house prices, the lack of affordable housing, and the stricter mortgage lending criteria have made it harder for many potential buyers to save for a deposit and secure a mortgage. As a result, more people have opted to rent rather than buy, either by choice or by necessity.
However, the supply of rental properties has not kept up with the growing demand, creating a mismatch between the number of available homes and the number of prospective tenants. The ONS reported that the private rented housing stock in England had grown by only 1% since 2016, while the number of households in the private rented sector had increased by 8%. One of the reasons for the limited growth in rental supply is the reduced investment by landlords, who have faced higher costs and lower returns due to tax changes, regulatory reforms, and higher mortgage rates.
The imbalance between demand and supply has put upward pressure on rents, making it more expensive and challenging for renters to find a suitable and affordable home. Zoopla predicts that rental inflation for new-lets will slow to 4-5% by the end of 2023, but this will depend on the availability of rental supply and the level of rental demand, both of which are uncertain in the current economic and social context1. The rental market is likely to remain competitive and dynamic in the foreseeable future, requiring both landlords and tenants to adapt to the changing conditions.