Short supply of stock and tougher conditions for landlords will keep UK rental growth strong in the short term, reveals new data from Savills.
A 9.5% rental growth has been forecast for 2023 — which is lower than the 11.2% seen in 2022, but higher than any other year on record, according to Zoopla’s rental index.
The strong rental growth going into 2024 has been attributed to a continued imbalance between supply and demand, but an “affordability ceiling” will limit growth between 2025-2028.
Savills has noted that the PRS has been difficult for many this year, with rents growing by nearly 6% in the first eight months of the year, taking total growth since the pandemic to 26%.
Despite strong income growth, rising rents are stretching the finances of those in the PRS.
Savills now estimates that the average PRS household is spending 35.3% of their income on rent, up from 33% in 2021/22.
Emily Williams, director for the Savills residential research team, commented: “Homes to rent continue to be in significant short supply.
The end of a series of national lockdowns sparked increased rental demand in mid-2021 that has consistently outstripped supply ever since.
“At the same time, the rising cost of debt has impacted the profitability of many mortgaged landlords.
“This, together with a changed tax and policy environment, is forcing an increasing number to sell their properties.
“As a result, competition for stock is tough, and tenants are having to bid upwards to secure a tenancy, supported — but only in part — by a strong growth in incomes, fuelling rents upwards in the short-to-medium term.
“It’s very difficult to see where an increase in rental supply will come from in the next couple of years.
“Higher borrowing costs will also keep would-be-buyers in the rental sector for longer, underpinning demand, and while some landlords will be able to transact in cash to avoid the higher cost of debt, this is unlikely to move the dial on supply.
“Any significant increase in stock in the sector will be delayed until 2026 and beyond, when interest rates have fallen more substantially.”
