The supply-demand imbalance in the private rented sector continues to widen, and a number of factors are contributing to soaring rental demand.
Price growth in the UK rental market has far outpaced the sales market in recent years, and this situation looks set to continue, with landlords continuing to find their rental properties flying off the market with record numbers of tenants competing for each one in many parts of the country.
However, renting also remains a lifestyle choice for many, particularly young professionals living in cities, who may prefer the flexibility of renting a flat share with friends until they are ready to commit to homeownership later in life. This is one of the factors driving up rental demand in certain parts of the country.
According to recent figures from the NRLA, rental demand in the UK has tripled since before the pandemic; almost three quarters of landlords (71%) in Q3 this year said they had seen a rise in tenant demand, compared with 22% saying the same in Q3 2019.
The West Midlands leads the way when it comes to tenant demand, with 76% of landlords based there saying there had been increased appetite for their properties in the third quarter of this year. This is followed by 75% in Wales, and 74% in the south east of England.
What’s behind the surging rental demand?
As mentioned above, surveys have found that renting for many, and particularly young professionals, is a choice offering increased flexibility and less responsibility than homeownership. The majority of people still get onto the housing ladder with a partner, and this is more likely to happen when people are in their 30s.
While house prices have stagnated in many parts of the UK in recent months, they remain high, and that combined with the increased cost of borrowing also deters many tenants who may have considered buying a property. This is keeping people renting for longer, so landlords are more in need than ever.
A reduction in properties to rent – in some areas more than others – is another huge driver behind this increase in rental demand. According to the NRLA, while 5% of landlords said they purchased new property in Q3 2023, 12% said they sold properties in the same period.
Almost a third (28%) of landlords are also considering reducing their portfolios over the next 12 months, despite soaring rental demand. Yet only 8% are planning to increase the number of properties they rent out in the coming year.
Tax changes are needed
While landlords who are active in the market are finding no issue with filling their rental properties, thanks to the current heightened rental demand, the upward pressure on pricing is a problem for tenants.
Ben Beadle, chief executive at the NRLA, believes the government should step in with tax measures to help incentivise more landlords to join and remain in the rental sector, alleviating supply issues and creating a fairer environment for tenants.
“Would-be renters face a desperate situation as ever-growing numbers seek to access a dwindling number of available homes,” he said.
“The government needs to accept the folly of a tax system that makes investment in holiday lets more sustainable than long-term homes to rent.
“We need pro-growth tax measures. This should include ending the stamp duty levy on the purchase of homes to rent out, as well as reversing mortgage interest relief changes which have hit the sector hard.”
A good time to invest?
Most property experts are forecasting that 2024 will see similar patterns to 2023 in terms of capital appreciation of properties, and rising rents. After this point, most expect the housing market to return to growth, as interest rates are largely predicted to come down, while political stability should resume after the general election.
That being said, there remains a number of pockets of the UK which are defying averages and continuing to see house price growth. For property investors, focusing on areas with regeneration on the cards can also be a good indicator of the strength of rental demand in the future.
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