A shortage in home lets is driving up rental prices i...

The UK has a chronic undersupply of housing. This is not news; it’s just a statement of a fact which has been known for many years now. What is news, however, is that the pool of rental properties is shrinking and as a result rental prices are rising.

Available lets hit new lows and asking rents hit new highs

Up until this quarter, the lowest number of available rental properties was recorded in quarter three 2015.

This quarter, however, the number of rental properties available was 13% lower than the previous record, although, as is often the case in the property market, there were wide variations in this, for example, in London the drop was a massive 24%.

It is therefore hardly a surprise that asking rents are also up. Nationally they were up by 3.2% year on year and by 1.3% quarter on quarter while in London they were up by 5.6% year on year and by 2.2% quarter on quarter.

Asking rents now stand at £828 per calendar month outside London and £2,104 per calendar month in London.

There is, of course, a difference between asking rents and rents achieved, but further data shows that average rents are also on a clear upward trend, especially in the economic powerhouses of Manchester and London.

Between August 2018 and August 2019 average rents in the North West (which is dominated by Manchester) increased 3.3% to £741 per month while average rents in London increased 3.5% to £1,698 per calendar month.

In other words, whatever way you look at the situation, life is getting more expensive for the average renter and even more expensive for renters in London (who were already paying the highest rents in the UK).

Record rents does not mean record profits for property investors

In spite of what the above figures might suggest, as a whole, property investment has not suddenly become more profitable (nor has it suddenly become less profitable), which it has become is an area which requires more up-front and ongoing investment, the cost of which is then passed on to tenants.

Basically, the government has vastly increased the level of regulation in the private rented sector, which, in general terms, may have been a benefit in the sense that it has helped to drive out rogue landlords, but it also had the effect of driving out good landlords who managed their properties very effectively, but didn’t fancy dealing with increased administration or facing the costs of being fined for non-compliance due to administrative errors rather than wrongdoing.

Many small-scale private landlords have already exited the market and research suggests that more will follow, or will at least reduce the size of their portfolio.

This is potentially good news for renters who can afford to buy, but terrible news for those who can’t as it has effectively meant that the pool of available rental properties has shrunk further than the pool of tenants in need of them.

In the long term, this issue may be resolved by increasing the housing stock, including (and perhaps especially) build-to-rent developments, but this solution could take a very long time to implement.

Mark Burns is the managing director of property investment company Pure Investor.

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John McKay
05 November 2019 10:03 AM

Yes G. Perhaps we could see some evidence of this phenomenon of bad landlords exiting. I'd find that most interesting.

John Hughes
06 November 2019 09:10 AM

Rent Smart Wales, where I am, are pretty much just a register and licence debacle.
They are not proactive in seeking out rogue landlords and are really not that much use, except inconveniencing genuine landlords.

Andrew townshend
08 November 2019 12:37 PM

Many of mine come out of auctions and have suffered structural damage / movement in the past, as such a FTB would be very unlikely to get a mortgage on them.