The UK rental market is facing a severe crisis, with an average of 21 potential tenants competing for every available property, while the number of homes available to rent continues to shrink.
According to Zoopla, a leading property search platform, the availability of homes for rent is now 24% lower than it was before the pandemic, due to landlords being reluctant to enter or expand in the market.
Rents across the UK have risen by 30% over the past three years, and while the pace of rent inflation has slowed to 5.4% a year, this still outpaces the 5.1% growth in average incomes over the past year. As of July, the national average rent was at a record high of £1,245 a month, £63 more than a year ago.
Richard Donnell, CEO of Zoopla, warned that any further regulatory or tax changes in the upcoming budget could exacerbate the current supply crunch. “Any new policy or tax changes that reduce supply will simply push rents higher, hitting low-income renters hardest,” he warned. Donnell urged policymakers to focus on increasing the supply of rental housing as the key to slowing rent inflation and expanding tenant choice. “In the current environment, higher rental costs are the only way to slow rent increases,” he added.
Despite the slight increase in supply compared to the lows seen during the pandemic, the market remains highly competitive, with demand far outstripping availability. The average number of potential tenants per rental property has doubled since pre-pandemic.
Since 2016, there has been a steady stream of landlords leaving the market, a trend exacerbated by a lack of new landlords willing to enter the sector. This exit has been affected by various regulatory and tax changes, which have made rental properties less attractive to investors.
In response to rising rents in major cities, many tenants are looking for more affordable options in smaller towns and suburban areas. Over the past year, cities such as Kilmarnock, Wolverhampton and Oldham have seen double-digit rent increases as tenants look beyond traditional urban centres. By contrast, rent increases in major cities have slowed, rising by 5.8% year-on-year, while London rents have grown by just 2.5% over the same period. “Rent inflation is slowing in some major cities where rents are high but is still rising rapidly in more affordable areas,” Donnell noted.
The rising cost of owning a home, particularly in the south of England, is pushing more people into the rental market, exacerbating the imbalance between supply and demand. Zoopla expects this imbalance to persist until at least 2025, with no significant improvement in rental supply expected in the near term.
The current crisis highlights the urgent need for government intervention to address the underlying issues in the rental market, including stimulating the creation of new rental properties and reversing the decline in landlord participation. In the absence of such measures, the pressure on renters is likely to continue, with rising costs and limited housing options becoming the norm for many renters across the UK.