UK Rental Market Report - Q1 2023
Rental rates are predicted to continue their upward trajectory in 2023, albeit at a slower pace, as demand moderates and affordability concerns put more pressure on renters.
In 2022, the rental market experienced a remarkable surge in demand, driving rents up by 11%. This trend has persisted for two years, with residential rents consistently outpacing earnings growth.
The residential rental market has been running hot for 2 years, with something of a perpetual boom in residential rents which continue to run well ahead of earnings growth.
Over the past 12 months, average rents for new lets increased by 11.1%, while earnings saw a rise of 6.7%. Although rental inflation has slightly slowed from its peak of 12.3% in mid-2022, there are no immediate signs of a significant deceleration. Over the span of three years, rents have soared by 20%, adding an extra £2,220 per year to the burden of renters, particularly impacting those with lower incomes or reliant on housing benefits.
This report delves deeper into the factors driving the rental demand boom and investigates the lack of response in the supply of rental properties. Two key questions addressed are:
When can we expect rental growth to taper off?
Is there a risk of landlords overshooting, leading to potential corrections in the future?
Summary
Rental inflation has slowed to 11.1% from its peak of 12.3% in mid-2022.
Robust labor market conditions and record immigration were primary drivers of demand in 2022.
Private rented housing supply has only grown by 1% since 2016.
Higher mortgage rates have weakened the economic viability for landlords to invest in rental properties, thus impacting new rental supply.
To offset rising costs, some landlords are exploring opportunities in different sectors of the private rental market.
While demand is expected to remain above average in 2023, overall rental supply growth is anticipated to remain limited.
Rental inflation for new lets is projected to slow to 4-5% by the end of the year, with inner London and other city centers experiencing a potentially rapid slowdown.
