UK rents could surge by 13% over the next three years, a new report warns.
Renters will also find that what they spend on rent will grow faster than their income in the coming years, according to research released Monday by the Resolution Foundation.
Although the UK’s recent exceptional rise in new rental rent levels – up by almost a fifth in the past two years – is coming to an end, the grim forecast remains as current high market rates continue to impact existing tenancies.
The report, “Over the Roof: Recent Rental Price Growth Trends,” found that the surge in private rents in the UK was mainly due to the rebound from the epidemic and the recent rapid rise in wages. The foundation noted that rents tend to follow wages over the long term, and that average private rents as a share of average incomes have remained essentially unchanged since 2000.
However, the research found that the disruption to the rental market caused by the pandemic, during which evictions and repossessions were halted, meant that rent levels fell to their lowest levels on record relative to incomes, with rents falling by nearly 10% by early 2022. 5% is below what the long-term trend suggests. The recent surge in rental prices is therefore partly a post-pandemic ‘correction’, returning the UK’s rent-to-earnings ratio to its long-term trend.
Nominal revenue growth has hit record highs in recent years, with average revenue up 13% since the start of 2022, exacerbating the post-pandemic catch-up, the report added.
However, the foundation predicts that with catch-up now and wage growth slowing, the surge in rents from new tenants should end. In fact, it found that market rents for new leases have begun to cool, with annual growth falling from 10.4% in June 2023 to 7.5% in March 2024.
However, the foundation warned that while growth in rent levels for new tenants was cooling, an explosion in growth across the private rented sector could be years away. New tenants will pay new, higher rents, while existing tenants will face significant rent increases in the future if their leases end or are forced to accept price increases within their leases.
Assuming average rent paid compared to earnings three years from now will return to pre-pandemic levels, the report found that rental prices (for all tenants) would have grown by more than 13% over this period (or 4.2% per year). Average revenue growth of 7.5% (or 2.4% per year on average) was much faster than the OBR’s forecast of 7.5% average revenue growth for these years (or 2.4% on average per year).
The foundation warns that this means housing costs for many renters will also rise significantly over the coming years, and that rental price inflation for all rental properties, not just new lets, is estimated to remain high for some time. .
Responding to the warning, Generation Rent chief executive Ben Twomey said: “Renters have nowhere to hide in the housing crisis. It doesn’t matter how much you earn: if your landlord thinks someone else will pay more If the rent is high, then they can demand more from you and threaten to evict you if you resist.
“Rising rents mean we have less money set aside for the future and less to spend on real life. As well as building more homes and providing adequate support through the welfare system, the government needs to stop landlords from raising rents beyond The level of what we can actually afford as tenants.”
The report found that the cost of new leases has increased by 18% since January 2022. This has had a significant impact on households’ living standards, with the number of households privately renting almost doubling in a generation – from 11% at the end of the last century in the 1990s to almost 20% today.
Private renting is no longer just for 20-somethings. The proportion of poor households headed by 30-49-year-olds renting has almost tripled, from 11% in the mid-1990s to nearly 30% in 2021-22.
Ben Beadle, chief executive of the National Home Owners Association, called on ministers to take action to introduce pro-growth tax measures so that the supply of rental housing meets demand, saying: “As the report highlights, the More people are now dependent on the private rented sector at all stages of their lives. However, with demand far outstripping supply, there are an average of 15 potential tenants pursuing each rental property, which is double pre-pandemic levels.”
The foundation also debunks popular notions about the causes of recent rent spikes. The theory that rising interest rates are driving up the servicing costs of buy-to-let mortgages (forcing landlords to pass these costs on to tenants) ignores the fact that landlords’ ability to pass on higher costs is ultimately constrained by the wider rental market. The foundation said that if it were so easy for landlords to unilaterally choose to raise rents, they would likely do so before 2022.
There are also horror stories of rising interest rates and tighter regulation leading to a mass exodus of landlords from the private rented sector (PRS), reducing the supply of available homes. However, the foundation’s analysis of Bank of England research shows that the contraction in PRS since mid-2019 has been very small, equivalent to just 1% of the sector.
Carla Pacitti, senior economist at the Resolution Foundation, said: “Millions of households across the UK that have agreed to new tenancies have faced soaring rents in recent years as we emerge from the impact of the pandemic. Rise in new tenancies has started to slow, But in the coming years, tenants will continue to pay more in real terms than they earn as those who haven’t yet faced higher prices are hit.
“With more households renting privately and for longer periods of time, soaring rents are a bigger problem for the UK and require bolder solutions from policymakers. Short-term solutions include regular Raise local housing subsidies to support poorer households and the ultimate long-term solution is to build more homes.”
A UK Government spokesman said: “Our Renters (Reform) Bill will give people more security at home and enable them to challenge bad practice. Through our Long Term Housing Plan we will invest $115 in affordable housing schemes billion, and continues to build £1 million in this Parliament.
“We’re providing £108 billion in help for people facing rising living costs to help them pay their bills – an average of £3,800 per household, and we’ve increased local housing benefit rates so private renters on housing benefit or universal credit have an average Each household can pay almost £800. It’s a better year.”
